Auction outflows tighten liquidity

MONEY MARKET ROUND-UP

Money: Liquidity tightens a little

Liquidity in the money market marginally came down with an outflow of Rs 14,500 crore through auction of treasury bills and dated securities. The objective of these auctions were to suck out excess liquidity.

Even then call rates, at which banks lend and borrow from each other for daily fund management, ruled at 5.25 per cent. Rates in the collateralised lending and borrowing market (CBLO) came down to even 4.40 per cent.

Non-banking firms such as mutual funds and insurance companies, who could not lend in the money market, extensively parked funds with CBLO resulting in fall in yields.

The RBI absorbed excess liquidity of around Rs 46,600 crore from the system.

G-sec: Aggressive cut-off yield dulls mart

The market remained dull during the day, however, the sentiment perked up after the aggressive cut-off yield announced in the auction of dated securities under MSS.

The RBI announced a cut-off yield of 7.78 per cent for the auction of 5.87 per cent 2010 government paper as against a market expectation of 7.80 per cent. The 11.30 per cent 2010 government stock was sold at a cut-off yield of 7.81 per cent.

Post auction, the prices of government papers moved up by 10-15 paise across maturities. The yield on the ten"�year benchmark paper closed at 7.89 per cent as against 7.90 per cent on Wednesday.

Given the response of the market to the auction of MSS papers, there is a view that government papers to be auctioned on Friday will also get well subscribed. The cut-off yield on the ten-year 7.99 per cent 2017 paper was expected at 7.89 per cent, said a dealer.

OIS: Foreign banks active

The overnight interest rate swap and corporate bond market saw increased activity. Foreign banks were primarily dealing in OIS since they are going on fund exposure through direct purchase and sale of government securities. This is primarily due to lack of outlook on the interest rate before the October policy.

Overnight interest rate swap market is derivative product based on the underlying interest rate on the government securities.

Backed by surplus liquidity, interest rates on the 1-year and 5-year deals were struck wherein banks received fixed and paid floating interest rates. In the benchmark maturity of 1-year and 5-year maturity, rates remained range bound at 6.98 per cent and 7.26 per cent, respectively.

Since the underlying government securities market did not witness much activity, the corporate bond market, both long and short term, remained dull.

There was not much trading in the secondary market even in the most liquid segment of certificate of deposits.

Rupee: Ranged run

The spot rupee remained rangebound within the 39.31/32 range by opening and closing around these levels. Huge forex inflows into the equity market was countered by the intervention of the central bank which continued purchasing dollars from the market. The equity market moved up and closed 155 points up.

The six-month and one-year forwards were available at an annualised premium of 1.7 per cent and 1.30 per cent, respectively.

Global market: Pound gains vs $

The pound gained against the dollar substantially and ruled at $2.0374 ($2.0426). The euro also gained and per dollar euro was at $1.4183 ($1.4160). The yen depreciated further to the dollar and is at $117.71 ($117.32).