[Investors Please Listen] Devolvement of new 7-year paper; 10-year benchmark surges to 7.11%

Devolvement of new 7-year paper; 10-year benchmark surges to 7.11%

n               The fixed income market started on the front foot as the most liquidity paper of the week 6.07% 2014 opened with a gap down of 5bps at 6.75%. With participants awaiting auction results, bonds traded in a tight range in early trading hours. With release of worse than expected cut-off, the bond market went for sell-off, 10-year benchmark surged to an intra-day high of 7.11%, to close the day and the week at 7.105%.

n               The apex bank auctioned INR 120 bn worth sovereign debt, of which, INR 9.15 bn got devolved on primary dealers. The grim situation got amplified as the newly issued 7-year paper also got devolved. While cut-off for the 7-year was marginally below the traded levels of the 10-year benchmark at 7.02%, cut-off for the 6.35% 2020 was significantly above its secondary market levels at 7.45%.

n               Liquidity on the final day of the week, a reporting Friday, continue the legacy as cumulative surplus funds (overnight money market and LAF) registered 2-month high of INR 2.52 tn. INR 1.15 tn of the overnight money market (excluding LAF) were lent at 1.59% (lowest since July 3).

n               The CD primary segment concluded one of the most heavily loaded (high issuance) week with a bang as cumulative INR 19 bn worth tenders were issued in various maturities. While four banks issues CD in clip size of INR 2.5 bn and higher, Central Bank was the biggest issuer, mopping INR 8.5 bn from the market by issuing January and April 2010 maturing paper at 4.50% and 5.54% respectively.

n               Activity in corporate bonds was concentrated only in specific liquid papers. While the IOC paper was active in the short segment, with yield of 10-year quasi-sovereign debt trailing sovereign debt and probable issuance by one of the PSUs lined up in the next week, traders were also active in the 10-year segment.

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