LIQUIDITY WATCH

Liquidity Indicators	Open	High	Low	Close
CBLO (%)	7.75	8.05	6.26	6.55
CALL (%)	7.85	8.00	7.50	7.80
(Rs in Cr)	Week ended 22nd Feb’13	Week ended 15th Feb’13
Avg RBI Repo at 7.75%	1,27,200.00	1,20,061.00
Avg RBI Reverse Repo at 6.75%	126.00	12.00

Overview: The cash conditions in the system remained tight during the fortnight as the amount borrowed by banks at the Repo auction rose to an average of Rs.1,23,234 cr.  The liquidity is expected to remain tight in the upcoming fortnight .The overnight rates are expected to trade around the Repo-Reverse Repo interest rate corridor.

MONEY MARKET

(%)

T-Bill Cut-off	Current	Previous
91 – Days	8.0187	7.9770
182- Days	7.9436	7.9436
364 – Days	7.8965	7.8848
Certificate of Deposits Yield	22nd Feb’13	15th Feb’13
3-Month	9.38	9.28
1-year	9.30	9.35
Commercial Paper Yield	22nd Feb’13	15th Feb’13
3-Month	9.75	9.60
1-year	9.81	9.71

Overview: 

T-bill yields  slightly hardened during the fortnight with the average 91-day and 364-day T-bill trading around at 8.02% and 7.90% respectively.  The yields on 1-year Certificate of Deposits and Commercial Paper inched up from the end of the previous fortnight. The spread between 10-year paper yield and 364-day T-bill yield have remained unchanged from the end of last fortnight.  T-bill and CD yields are likely to harden by 5-10bps in the upcoming fortnight.

DEBT MARKET

GOVERNMENT SECURITIES

Security Open High Low Close CG 2018 (5-Year) 7.94 7.95 7.88 7.88 CG 2022 (10- Year) 7.84 7.89 7.78 7.80 CG 2042  (30-Year) 8.05 8.06 8.01 8.01

Overview:

• The G-sec yields dropped during the fortnight as release of lower than expectation WPI inflation data turned the bond market bullish.  Besides the cancellation of the last auction for FY2012-13 borrowing programme further boosted sentiments.  The 10 year opened at a yield  of 7.84% flat from the end of last fortnight.

• The benchmark paper touched its fortnightly high after the release of CPI inflation numbers for the month of January 2013 at 10.79% higher than previous month.  The rise in CPI inflation data completely off setted the drop in IIP data for the month of December 2012.

• However the announcement of OMO by RBI pushed the benchmark paper yield to 7.83%. The State government raised Rs. The second week of the fortnight saw the yields across the board falling further as the government cancelled the last auction of Rs.12000 cr. The benchmark paper touched its fortnightly low of 7.78%. 

• However yields started inching up towards the end of the fortnight as the markets started eyeing the union budget event scheduled at the end of the month.  The benchmark paper closed at a yield of 7.80% at the end  of the fortnight. 

Outlook: The G-sec yields would be eyeing the Union Budget event scheduled on the 28th February in the upcoming fortnight.  The market participants are expecting a gross government borrowing programme of Rs.6,00,000 cr.  The market would take cues from the US treasuries and Crude oil prices.  The benchmark paper is expected to trade in the range of 7.70-7.95%.

Fortnightly Auction Table: 

Auctions	Cut-off price (Rs.)	Cut-off yield ( %)	Auctioned Amt (Rs. Cr)	Devolvement on PD (Rs. Cr)
G-Sec Sale Auctions
8.12% CG 2020	101.50	7.8562	3,000.00	-
8.20% CG 2025	102.29	7.9080	6,000.00	-
8.30% CG 2042	103.12	8.0219	3,000.00	-
Total			12,000.0	-

CORPORATE BOND

	Open	High	Low	Close
5 – Year AAA	8.69	8.81	8.64	8.79
10 – Year AAA	8.72	8.85	8.72	8.85
OVERNIGHT INDEX SWAP
1 – Year	7.64	7.65	7.60	7.62
5 – Year	7.25	7.28	7.24	7.24

Overview:

The corporate bond yields softened during the fortnight. The spreads of corporate bond yield over the g-sec yields increased towards the end of the fortnight with the more than proportionate fall in 10-year benchmark paper yield.  The corporate bond yields are likely to inch up tracking the movement in g-sec yields in the upcoming fortnight and the 10-year AAA paper is expected to trade in the range of 8.70-8.75%.

SPREAD MATRIX

	22nd Feb 2013	15th Feb 2013	22nd Nov 2013	31st March 2012	22nd Feb 2012
G-sec Bond spreads
5 yr over 1 yr	6	10	25	33	-2
10yr over 1 yr	-3	2	28	39	-3
10 yr over 5 yr	-9	-8	2	6	-1
30 yr over 10yr	22	19	22	13	33
Corporate Bond spreads
10yr AAA over 10yr G-sec	105	97	49	47	102
5yr AAA over 5yr G-sec	91	73	68	59	106

INFLATION

 

WPI-Inflation	Category	Y.O.Y (%)	Previous Month figures (%)	Same period last year (%)
Period
Month of January 2013	All Commodities	6.62	7.18	6.55
Revised Inflation Figures		Actual Y.O.Y (%)	Provisional Figure (%)	Same period last year (%)
Month of November 2012	All Commodities	7.24	7.24	9.46
CPI-Inflation	Period	Y.O.Y (%)	Previous Month figures	Same period last year (%)
CPI-Combined	Jan-2013	10.79	10.56	-
CPI- Rural	Jan-2013	10.88	10.74	-
CPI- Urban	Jan-2013	10.73	10.42	-

Overview: The Inflation for the month for January 2013 came in at 6.62% lower than the previous month figure (7.18%) on account of drop in Fuel group index (7.06%) index and Manufactured products index (4.81%). However the Food inflation index continued to rise to 11.88% from 11.16% in the previous month. The provisional inflation number for month of November 2012 remained unchanged at 7.24%. 

GLOBLE DEBT MARKET

 

TREASURY BOND YIELDS (%)	INTERNATIONAL POLICY RATES (%)
22nd Feb’13 15th Feb’13 US 10-Year 1.96 2.00 US 30-Year 3.15 3.18 UK 10-Year 2.11 2.19 UK 30-Year 3.37 3.43	22nd Feb’13 15th Feb’13 US Fed Funds Rate 0-0.25 0-0.25 Euro Central Bank 0.75 0.75 Bank of England 0.50 0.50 Bank of Japan 0.00-0.10 0.00-0.10

Fortnightly Global Break-Throughs: 

• S&P reaffirmed Japan's credit rating at AA-, the fourth highest level, with a  negative outlook.

• FDI into China dropped 7.3% from a year earlier to $9.27 billion in January, the eight straight monthly decline.

• Japan posted a merchandise trade deficit of 641.53 biilion yen in December 2012.

• Wholesale prices in the U.S. rose 0.2% in January after a 0.3% drop in December, the first increase in four months, reflecting higher costs for food and pharmaceuticals.