Liquidity easy, G-sec lacklustre

MONEY MARKET ROUND-UP

The government securities market remained lacklustre as there was no major trading interest either from banks or primary dealers.

"Since most of the papers have been bought at lower yields, there is no trading of such papers since yields have gone up and banks will incur losses while valuing the portfolio at market rates," explained a dealer.

As against usual volumes of Rs 6,000-7,000 crore the transactions in the market have fallen to a low of around Rs 1,200 crore.

While prices of government securities fell by 5-10 paise across maturities, the yield on the ten-year benchmark paper closed higher at 7.95 per cent as against 7.93 per cent on Tuesday.

Lacklustre trading and apprehension towards liquidity tightening in the short term led the cut-off yield on the 91- day t- bill to shoot up to a high of 7.10 per cent as against 6.81 per cent in the auction last week.

The yield curve in the government securities market has flattened since the yield on the one-year paper is at 7.52 per cent, 5-year at 7.82 per cent and ten-year at 7.95 per cent.

Money: Call rates around 6.10%
Liquidity remained surplus in the banking system and the RBI absorbed around Rs 29,000 crore from the system.

Call rates closed around 6.10 per cent and banks could borrow funds from the collateralised lending and borrowing market at 5.42/5.50 per cent.

The market expects liquidity to improve further towards the end of the week since most of the banks have covered the requirements towards the reporting Friday when fortnightly reporting of CRR balances with the RBI takes place.

Forex: Re ends up
The spot rupee opened weaker at 41.33/34 since banks rushed to buy dollars to meet demand from FII clients anticipating a fall in the equity market following the sliding global market indices since the yen appreciated.

However, during the day most of the banks sold dollars in the spot market to buy in the forward market and this pulled up the rupee to close at 41.1150/41.1250 to a dollar. On Tuesday, most of the banks had bought dollars in the spot market to sell in the forward market.

Corporate bonds: Mart hit as PFC, IRFC scrap issues
The corporate bond market remained lacklustre since long-term bond issues of Power Finance Corporation and Indian Railway Finance Corporation were dropped due to higher interest rates.

Nabard preferred to wait for a while even if it was planning to hit the market to raise funds through the two-year and five-year bond issues.  While there are no primary issues in the long-term bond market, the shorter end of the maturity witnessed a string of certificate of deposits from banks to raise funds.  Global markets: Yen appreciates
There was sharp appreciation in the yen and this led to global investors once again to borrow yen to repay loans contracted at lower interest rates.  This unwinding of trades in the yen led it to rule around 114.07 as against 115.25 on Tuesday. The euro and the pound ruled at $1.3630 ($1.3655) and $2.0120 ($ 2.104).