Re rebounds, ends high

MONEY MARKET ROUND-UP

Liquidity: Shining bright
The liquidity improved in the system since the market is almost through with the advance tax outflows.

The amount of funds infused by the RBI into the market has come down from highs of Rs 36,000 crore under repo to Rs 24,000 crore on Tuesday. Repo is the mechanism through which the central bank infuses liquidity into the system by sale of government papers.

Call rates at which banks lend and borrow funds from the market for their daily funds requirement, ruled at 6.05 per cent.

However, since the mutual funds were anticipating redemption in their schemes where banks had parked their funds, their lending into the money market was cautious. This kept the interest rates in the collateralised lending and borrowing market (CBLO) at a high of 8 per cent. CBLO is the market where non banking players lend and borrow funds.

The liquidity is expected o ease further on Wednesday, said a dealer.

G-sec: Prices rise
The improvement in liquidity acted a trigger for the G-sec market. Prices of government securities moved up by 20-40 basis points across maturities.

Dealers said the buying trend is likely to continue till the end of the financial year. It could be mentioned that a fall in prices of the government papers leads to a rise in yields and thus creates losses in the investment portfolio. "This is what the banks want to avoid at this point of time," said a banker.

The yield on the ten-year benchmark paper 7.99 per cent 2017 closed at 7.59 per cent as against a high of 7.63 per cent on Tuesday.

Similarly, the benchmark paper in the longer end of the maturity 8.33 per cent 2036 closed at a lower yield of 8.08 per cent as against 8.12 per cent. The market expects the cut-off yield on the treasury bills to moderate by 3-4 basis points at the auction to be held on Wednesday.

OIS: Yields give in
The overnight interest rate swap market turned bullish with the improvement in liquidity. There was a sharp fall in the three month yields from 7.40 per cent to 7.25 per cent. Similarly, the six month segment also witnessed a fall in yields from 7.15 per cent to 7.05 per cent.

In the OIS market, banks strike deals to receive fixed rate and pay floating rate of interest on the interest rate liabilities.

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

Rupee: Blazing trail
The spot rupee opened at 40.65/67 and appreciated all the way to close at a high of 40.50/51 to a dollar. There was slowdown in the dollar demand from importers who preferred to wait after hedging their near term requirements.

Annualised premia for six month and one year forward dollars closed a tad higher at 1.76 per cent and 1.27 per cent as against 1.57 per cent and 1.16 per cent respectively.