Negative news takes a toll on G-sec
MONEY MARKET ROUND-UP
There was widespread selling of government papers by both private and public sector banks. While the crude prices reached a high of $136 a barrel, the market is expecting the wholesale price index to hover around 7.90-8 per cent. The inflation rate had inched up to 7.83 per cent last week.
Prices of government securities fell across maturities, pushing up the yields by 5-7 basis points. One basis point is one hundredth of a percentage point.
The yield on the benchmark ten year paper 8.24 per cent 2018 closed at 8 per cent after touching an intraday high of 8.05 per cent. It had closed at 7.98 per cent on Wednesday. Similarly, the yield on the long-term benchmark paper 8.33 per cent 2036 closed at a high of 8.43 per cent as against 8.37-8.39 per cent.
Market dealers expect the resale of 8.24 per cent 2018 government security under government borrowing programme on Friday to fetch a cut-off yield of 8.05-8.10 per cent. The RBI will auction two government stock 8.24 per cent 2018 and 8.28 per cent 2032 to raise Rs 10,000 crore.
Foreign banks have been buyers in short-term government securities and treasury bills on behalf of their custodian clients (foreign institutional investors).
Since most FIIs are wary of investing in the equity market on fears of a further correction, they would prefer to be remain invested in debt instruments until a recovery sets into the equity market.
Liquidity: Remains comfortable
The liquidity remained comfortable since the RBI absorbed around Rs 36,000 crore through reverse repo. Reverse repo is the mechanism through which the RBI absorbs surplus funds from the market while through repo, it injects liquidity into the market.
Most of the banks have already set aside funds to meet the enhanced CRR requirements. The cash reserve ratio stands at 8.25 per cent. CRR is a portion of deposits mobilised over a fortnight and maintained with the RBI as a statutory requirement.
Call rates at which the banks lend and borrow funds from each other remained moderate at 6.05 per cent and even fell to a low of 5 per cent during the day.
OIS: Rates inch up
The volumes in overnight interest rate swap market of the one year maturity were Rs 10,000 crore, but the interest rates inched up from 7.46 per cent to 7.50 per cent. Banks struck deals to receive in floating and pay in fixed rate in the OIS market for protecting their floating interest rate liabilities.
The reverse happened in the six month segment where the interest rates fell from 7.45 per cent to 7.40 per cent. Overnight interest rate swap market is a derivative product based on the underlying of the interest rate on the government securities.