Re on a leash; gilts turn active

MONEY MARKET ROUND-UP

Money: Fund glut continues

Liquidity continues to be in surplus in the system. The RBI absorbed around Rs 69.600 crore of excess liquidity under reverse repo at 6 per cent.

The RBI has been intervening consistently to stem the rupee appreciation. Even when the stock market index (Sensex) touched a high of 18000, the spot rupee remained rangebound around 39.45/46 since the RBI has been consistently purchasing dollars from the market.

Call rates closed at 6.05 per cent, while rates in the collateralised lending and borrowing market fell to 4 per cent. Volumes in the call money market was at Rs 8000 crore, while the CBLO clocked transactions worth Rs 35,000 crore wherein non-banking lenders such as mutual funds and insurance companies; lent against the collateral of government securities.

According to dealers, it is economical for a borrower also to fetch funds from the non-banking market such as CBLO, since rates can go below 6 per cent.

G-sec: Eyes on auction

After a gap, there was buying interest in government securities. However, the reasons were different for separate segment of yield curve. While trading in the shorter end of the yield curve was triggered by liquidity, the long term moved as banks were building up positions before the auction of dated securities on Friday.

While the RBI will auction treasury bills of Rs 3,500 crore on Wednesday, short-term papers maturing in 2010 will be sold on Thursday for Rs 8000 crore. The government, on the other hand, will be borrowing Rs 10,000 crore an auction of long-term papers.

Surplus liquidity driven trading led to the prices moving up by 10-15 paise in the short and medium term papers while in the long term it went up by 5-10 paise . The yield on the 10-year benchmark paper closed at 7.9250 per cent against 7.94 per cent on Monday.

OIS and corporate bonds: Short-term rates drop

There was brisk trading in the overnight interest rate swap market , once again driven by the trigger of excess liquidity. Expecting the yields in the market to come down, most banks were trading with positions wherein they paid in floating and received in fixed.

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

The interest rate in the benchmark maturity of one-year and five-year OIS came down to 6.95 per cent and 7.29 per cent against 7.04 per cent and 7.40 per cent respectively on Monday.

Driven by excess liquidity and benign call rates, the Mumbai interbank forward rate, based on the benchmark of rupee dollar forward rate, also came down . The five-year Mifor came down to 6.40 per cent against 7 per cent last week.

Rupee: Dips to 39.44

The spot rupee opened at 39.48/49 but fell to a low of 39.55 before closing for the day at 39.44/45 to a dollar. "Even if there were huge inflows into the market, primarily portfolio investments, the rupee remained rangebound owing to consistent purchase of dollars by the RBI from the market as part of intervention," said a dealer . The equity market closed 788 points up after touching a lifetime high of 18000.

There was not much selling seen from the companies today, added the dealer. The annualised premium on six-month and one-year forward dollars closed flat at 1.00 per cent and 1.01 per cent respectively.

Global market Greenback gains

As a lag effect to the robust non-farm payroll data released by the US Federal reserve, all three major currencies - euro, pound and yen lost to the dollar. While euro and pound ruled at $ 1.4035 ( $1.4092) and $ 2.0284 ( $2.0393) , yen was $ 117.20 ( $ 117.48)