[Investors Please Listen] Bond Vector - Cash glut pushes market optimism; auction results encouraging

Cash glut pushes market optimism; auction results encouraging

n               Government bond yields continued their slide amidst the system's cash buoyancy and the apparent streak of optimism for the government's borrowings conduct. With the 10-year benchmark yield settling well below the 7% mark yesterday, investor zeal seems to have increased as NDS-OM volumes posted ~2-month high.

n               The 10-year bond (also auctioned today for INR 80 bn) yield softened by another 16bps to close at 6.70%, while yields on the lower maturing papers (being next most liquid) eased by 10-15bps. G-sec auction cut-off yields supported investor expectations; benchmark yield touched the day's low of 6.67% in response. 

n               Banks continued to park their cash in RBI's reverse repo window; the amount parked was well above INR 1 tn (at INR 1.3 tn). Total overnight volumes have dwindled with lending rates treading sub-1% levels; shift in flows observed in higher G-sec volumes. 

n               The INR 120 bn G-sec auction sailed through comfortably, the new found market optimism and cash abundance averting any devolvement. While the cut-off yield for 10-year paper (6.05% GoI 2019) was reported 8bps below expectations, at 6.75%, the relatively illiquid 7.50% GoI 2034 paper too was lapped up for INR 40 bn at 7.74%.   

n               Inflation for week ended April 4, 2009, stood at 0.26% (9bps below market expectations) while the Index of Industrial Production for February dipped by 1.2%; IIP for January was surprisingly revised up to 0.4% from -0.5% earlier.

n               Non-SLR rates continued to slide lower, short term rates (upto a year's tenure) dominated the decline with a month's certificate of deposit being dealt 75bps cheaper at 2.75% while that for a year closing 35bps lower at 5.65%.

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