[Investors Please Listen] Bond Vector - 10-year benchmark yield closes FY09 at 7%; Banks reeling under MTM hits

10-year benchmark yield closes FY09 at 7%; Banks reeling under MTM hits

n               Government bonds traded on dismal volumes (of INR 39.35 bn on the NDS-OM platform) on the last day of FY09; the 10-year benchmark bond traded in a very narrow range of 6.98-7.00% throughout the day as participants expressed reluctance while closing their books for year end.

n               The old benchmark paper 8.24% GoI 2018 has entirely lost its tradable share to the new 10-year paper (6.05% GoI 2019); yield on the former has shot up ~170bps from its December 31, 2008 level of 5.25%. Banks thereby would be expected to incur heavy MTM losses by the end of the most volatile last and final quarter of FY09.

n               Liquidity in the system was strained to the extent of repo borrowings of INR 96 bn (highest in the year, so far) and excess cash in reverse repo vault declining 46% (to INR 168.45 bn). The overnight call inched to 5% (at 4.98%) by the end of the day, reporting a high of 5.75%; total overnight volumes dropped by INR 248 bn.  

n               Non-SLR rates across maturities are beginning to show signs of secular easing as we head to FY10. The short-term rates on CDs (3-months) declined 75bps to 5.75%, while both 5-year and 10-year PFC papers yields softened 10bps each, to 8.60% and 9.15%, respectively.   

n               Amidst comfortable liquidity it was decided by GoI in consultation with RBI not to transfer the balance of INR 330 bn of MSS bonds scheduled for redemption in Q1FY10 to government's cash account, ruling out any conversion against normal market borrowings. Calendar release of T-bills has reported an increase in minimum notified amount of 91-day and 182-day T-bills by INR 10 bn and INR 5 bn respectively to address the growing reliance on short term debt.

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