Wednesday, May 13, 2009

[Investors Please Listen] Bond yields firmed up as investors remain sidelined prior to poll results

Bond yields firmed up as investors remain sidelined prior to poll results

n               Government bond market reflected investor reluctance for most of the day; yields on sovereign papers hardened towards the close as participants' harboured uncertainty just prior to the 13th Lok Sabha Elections results. The 10-year benchmark paper that opened 4bps gap-down closed for the day at 6.41% (up 6bps from yesterday).

n               Total volumes on the NDS-OM platform stood at INR 72.05 bn, the 10-year trades accounting for 56% of the total. With auction of a new 5-year bond by RBI, the existing 5-year paper (7.56% GoI 2014) found very few takers (its yield closing 9bps higher at 6.26%) as the market seemingly prepared to offload to brace itself for the new stock.

n               The Index of Industrial Production (IIP) for March released sharply below expectations, contracting by a massive 2.3% (Bloomberg estimate at -0.7%). Capital goods production pulled back the most, shrinking 8.2% in March relatively to February's growth of 11.7%; the contraction was owing to the base effect.

n               Reliance Petroleum's (RPL) three-month commercial paper (CP) was issued in the market today at 3.95%, raising a sum of INR 5 bn for the company; Edelwiess Securities was the sole arranger for the issue.

n               Liquidity in the system, though abundant, has been approaching the INR 1 tn level after previous week's average of INR 1.46 tn. Cash flows by way of bond redemptions and interest payments have softened since the previous month, bringing 33% lower (INR 594 bn) in May. Overnight volumes amounted to INR 899 bn lent at an average rate of 2.54% (up 17bps).


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