Inflation fails to make impact; markets await tomorrow's INR 120 bn auction
n The fixed income market witnessed choppy trading session as the yield of all bonds traded in a tight range on eve of the INR 120 bn auction. The 10-year benchmark, which opened in the red, continues to struggle for volumes, and traded in range of 3bps before closing at 7.04% for the day.
n The 6.07% 2014, which has gained popularity among traders, attracted INR 22 bn before closing at 6.80%. Highlight for the day, 7.49% 2017, surged 29bps; 7.35% 2024, which got underwriting commission of a respectable INR 4.91 paisa for tomorrow's (INR 20 bn) auction, surprisingly failed to attract a single trade for the day.
n The annualised headline inflation number for week ended August 1 contracted 1.74%. We anticipate this to be the trough, as inflation posted a peak of 12.91% a year ago. With the index number continuing to rise W-o-W and steep jump in food and commodity prices in August, we anticipate WPI to in positive territory by first week of October.
n The apex bank will be issuing INR 120 bn worth sovereign debt on August 14; this being the maiden auction of the month (August 7 auction cancelled), we expect it to be well bid. Underwriting commission charged by primary dealers fell distinctly with the maximum being INR 6.57 paisa for 6.35% 2020, indicating that the auction is expected to sail without a glitch.
n The short term primary segment continues to gain traction; CD and CP cumulatively attracted volumes of INR 14.5 bn. For the day, cumulative INR 5 bn worth funds were mopped up by United Bank of India and Karur Vysya Bank in the 3-month segment. While the former raised INR 3 bn at 4.05%, the latter had to chip in additional 45bps at 4.50% for INR 2 bn.
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