Dollar selling lifts Re from day's low

MONEY MARKET ROUND-UP

The temporary shortage in liquidity led to cautious trading by the banks. While the day's trading session was lacklustre, the sentiment turned bearish still after the RBI announced the results of the dated security auction under the government borrowing programme.

Due to lukewarm response, the government 8.20 per cent 2022 bond, auctioned for a notified amount of Rs 5000 crore, could not receive full subscription from the market players.

In fulfilling their prior commitment to buy the security in case the market does not show a good response, the primary dealers bought around Rs 975 crore (otherwise known as devolvement).

As against a market expectation of 8.18 per cent, the paper was sold at a higher cut-off yield of 8.26 per cent.

On the other hand, 8.33 per cent 2036 bond was fully subscribed and received an overwhelming response from the insurance companies. The cut-off yield for the paper worked out to 8.39 pr cent as against the market expectation of 8.42 per cent.

Due to concerns on liquidity, the yield on the ten-year benchmark shot up to 7.95 per cent as against 7.91 per cent on Wednesday.

Money: Tightening liquidity
With the hike in CRR rates by 50 basis points with effect from November 10 and lack of foreign exchange inflows into the market, the liquidity tightened in the system.

The existing liquidity overhang has been consistently drained out of the system through auctions of bills and bonds and MSS.

The RBI could absorb only Rs 2000 crore through four bids in the reverse repo segment. The call rates went up to a high of 7.75 per cent, but settled down to close at 6.50 per cent.

On the other hand, the interest rate in the collateralised lending and borrowing (CBLO) segment fell as low as 2 per cent. Dealers explained that the liquidity was surplus in CBLO segment since mutual funds are flush with funds.

OIS: Listless trading
There was not much trade in the overnight interest rate swap (OIS) market since the sentiment in the underlying government securities market was bearish.

Since the market is of the view that the liquidity situation may turn comfortable in a few weeks, the yield in the shorter segment came down. The six month OIS traded at 7.30 per cent as against 7.35 per cent on Wednesday.

The overnight interest rate swap market is derivative product based on the underlying of interest rates on the government securities.

Similarly, the volumes in corporate bond market came down to as low as Rs 4000 crore as against around Rs 9000 crore on Wednesday.

The lack of liquidity led to dull trading and the interest rates did not witness much movement. The interest rates on 10-year bond of State Bank of India ruled at a high of 9.55 per cent as against 9.45 per cent on the previous day.

There were very few trades in commercial papers and certificate of deposits since the outlook on the short term liquidity was bearish and banks traded cautiously.

Forex: Limited inflows
There was sell-off in the equity market and the index closed lower. The foreign exchange market did not witness much inflows either.

The spot rupee opened weaker at 39.38/39 as against a closing of 39.31/32 to a dollar. During the day, exporters sold dollars at every upside in the dollar rupee exchange rate. The rupee thus went up to a high of 39.32/3.

Dealers explained that the rupee could have gained, but for consistent intervention by the Reserve Bank of India. The spot rupee closed at 39.32/33 to a dollar.  Selling of dollars in the foreign exchange market led to easing of the rupee premia paid for booking dollars on a future date.  International market: Euro and GBP trade strong
Euro and GBP ruled at $1.4666 ($1.47) and $2.1072 ($ 2.10). Yen was trading at $113.06 ($112.95).