Re weakens as bourses bleed

MONEY MARKET ROUND-UP

Forex: Re closes at 39.78
The spot rupee opened strong at 39.46/47 after closing on Wednesday at 39.54 /55 to a dollar.

During the day, the market tracked the equity market which fell due to massive selling by foreign institutional investors, especially in the futures segment of the banking stocks.

Dealers said that under the foreign investment norm, FIIs cannot pick up more than 20 per cent stake in bank stocks. Therefore most of them have built up huge stocks in the futures segment through the participatory notes which got unwound on Thursday.

This led to outflows from the market leading to a close of 39.78 in the spot rupee-dollar exchange rate. Heavy dollar selling by exporters at every dip of the rupee led to fall in the premium to be paid for booking dollars. The six-month and one-year forwards closed at 1.19 per cent and 0.88 per cent as against 1.31 per cent and 1.08 per cent, respectively.

Money: Call dips below 4%
Liquidity continued to remain in surplus and the RBI absorbed around Rs 40,000 crore from the system. Call rates fell below 4 per cent to 3.25 per cent even as the CBLO remained at 5 per cent . With the auctions over, the banks had no other avenues but to park the funds with the RBI.

G-sec: Liquidity aids bullishness
The market was bullish on the back of liquidity and no further auctions are slated in the remaining part of the week. Banks therefore took fresh positions in the government securities market.

Dealers added that cut-off yield on the MSS 5.87 per cent 2010 auction was 7.80 per cent, against the market expectations of 7.82 per cent. This triggered some buying demand.

The yield on the ten year benchmark security closed at 7.90 per cent as against 7.91 per cent on Wednesday. Prices of government securities across maturities moved up by 10-15 paise. The 182 day t-bill was traded at a yield of 7.33 per cent after being auctioned in the primary market at a cut off yield of 7.45 per cent on Wednesday.

Corporate bonds: Moderate trades
There was moderate trading in the overnight interest rate swap market since traders were paying floating and receiving fixed ones, anticipating low interest rates in future following ample liquidity.

The overnight interest rate swap market is a derivatives product based on the underlying of interest rates on the government securities. The interest rate in the benchmark one year segment came down to 7.07 per cent against 7.11 on Wednesday.

However the rates remained flat at around 7.29 per cent in the 5-year segment.

There were primary issues of certificate of deposits (CDs) in the corporate bond market, though the rates remained flat compared with the levels seen on Wednesday.

Allahabad Bank raised six month funds at the rate of 8.02 per cent, while IOB mobilised funds for similar maturity at 8.05 per cent. In the secondary market, the 11- month commercial paper was traded at 8.35 per cent, similar to Wednesday's levels.

International markets: Euro, GBP gain
Euro, GBP and yen gained substantially versus the dollar since the CPI data from the US is expected to be bearish. Euro and GBP figured at $1.43 ($1.4198) and $2.0489 ($ 2.0373) respectively.