Tuesday, April 21, 2009

[Investors Please Listen] Bond Vector - RBI gifts market with a 25bps cut; benchmark yield travels 21bps south

RBI gifts market with a 25bps cut; benchmark yield travels 21bps south   

n               Sovereign yields were seen celebrating RBI's policy action well before it was known to all; the 10-year benchmark yield shed 7bps from its previous close to touch a pre-policy low of 6.32%. Yield on the next most liquid counter of the 5-year paper (7.56% GoI 2014) declined 7bps as well to 6.04%.

n               Policy announcement by RBI of a 25bps reduction in key policy rates (both repo and reverse repo now holding at 4.75% and 3.25%, respectively) induced an immediate 10bps fall in the 10-year paper that finally closed 21bps lower at 6.18%. For more details on market action and outlook, please refer to our latest release, 'Post Policy Pulse', dated April 21, 2009.  

n               Liquidity in the system that remained in excess of INR 1 tn in RBI's reverse repo vault further mitigated investor enthusiasm in the G-Sec market. It induced total NDS-OM volumes of INR 272.25 bn (near the all time high), while the yield curve drifted lower by 15-20bps across maturities.  

n               Short-term rates were the quickest to react to RBI's action; one-year CD rate softened 45bps to close at 5.25%. Primary issuance worth ~INR 20 bn in the one-year CD segment was reported by public banks, all of whom seemingly encashed the cheap credit in the market. Longer end of the non-SLR curve also traded bullish; the 5-year and 10-year corporate papers closed at nearly 15-20bps lower at 7.50% and 8.30%, respectively.

n               The 'AAA' rated National Thermal Power Corporation also capitalized on the policy action, issuing a sum of INR 5 bn for a 10-year period at 7.89%. A private bank investor cornered the entire issue amount.


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