Highlights:
• The bonds remained jittery throughout the week; however, it settled down at low levels as compared to last week closures.
• The Industrial Output Data as measured by Index of Industrial Production (IIP) rose a more-than expected 13.8 per cent in July 2010, or nearly twice the 7.2 per cent seen in last month.
• Retail Inflation and Food Inflation rose over 15 per cent and 11 per cent, causing a concern for RBI which may hike the rates again.
• The market liquidity remained comfortable with the net absorption of Rs. 27,640 crore under LAF window. However, it would remain in deficit mode going forward.
• The market speculation that the current benchmark paper will be replaced have been put on hold after a Senior Finance Ministry official stated that there is adequate headroom in the current 10-year paper and the bond is expected to last for the entire borrowing in FY11.
View & Recommendations:
• The unexpected factory output at 13.8 per cent plus the high inflation figures may prompt the central bank RBI to revise the policy rates upwards. However, the market has already factored into the 25-bps hike in policy rates.
• Bond yields may soften further in view of global economic environment especially from US i.e. better than expected US Employment data.
• The absence of debt sale in the coming week will keep the demand for debt papers high. The real tone will be set after the mid-quarter policy review this week. Any positive surprise will be greeted with a rally in bond prices. The market is likely to focus on domestic data and policy measures. The policy meet will also review the awaited headline inflation figure due on Sept 14, 2010.
Broader Perspectives:
Bond Front
It is concerned that policy makers are running out of ammunition to control inflation and high factory output is also reigning in strongly; the RBI may go for an upward hike in policy rates. However, the mixed sentiments emanating from global markets are preventing RBI from taking any extreme measures. US President Barack Obama commented that US economy was taking longer than expected time to recover from economic shivers. However, the better-than-expected growth in US employment increased the odds of a fifth interest-rate hike this year.
Bond prices moved up with the 10-year benchmark yield witnessing a drop of 7 bps. The benchmark bond 7.80% 2020 yield nosedived from 7.98 per cent to 7.91 per cent. The comment by the Senior Finance Ministry over the continuance of the current 10-year benchmark bond for the remaining fiscal year 2010-11 boosted the sentiments among traders and investors which lapped the bond to make the prices attractive. He added that the government's preference was to borrow through papers of longer maturity, in order to evenly spread out its outstanding. However, the 8.13% G-Sec 2020 eased only 1 bps to 8.04 per cent. The G-Sec volume was also strong as reported in NDS-OM platform; it showed a daily average of Rs. 12,353 crore over the week. The 1-10 year spread also reported a sharp drop from 168 bps to 149 bps.
Bond Supply
The government auctioned securities worth Rs. 11,000 crore last week. The bonds auctioned were the 7.17% 2015 for Rs. 4,000 crore, the 8.13% 2022 for Rs. 4,000 crore and the 8.26% 2027 for Rs. 3,000 crore respectively. The cut-offs were in line with the market expectations which came in at 7.69 per cent, 8.02 per cent and 8.35 per cent. Five State Governments namely Maharashtra, Punjab, Tamil Nadu, Uttar Pradesh and West Bengal conducted the auction of their State Development Loans for combined amount of Rs. 5,300 crore on Sept 07, 2010. Their cut-off yields were in the range of 8.29 per cent to 8.41 per cent.
Liquidity
The liquidity was comfortable throughout the week as measured by bids for Repo and Reverse Repo auctions in Liquidity Adjustment Facility (LAF). The net absorption amount was Rs. 27,640 crore for this week. This week, there won’t be any auction which will ease off the liquidity. However, the advance tax outflow to the tune of Rs. 50,000 will put the liquidity in deficit mode. The average Call and CBLO rates dropped to 4.65 per cent and 4.28 per cent from 4.77 per cent and 4.75 per cent respectively over the week.
Corporate Bonds
Corporate bonds’ yields fell over the week. The 10-year AAA bond ended at a yield of around 8.71 per cent compared to 8.75 per cent. However, the 1-year bond hardened by 15 bps to 7.95 per cent from 7.80 per cent a week earlier. In the primary market, EXIM Bank raised Rs. 100 crore with 5-year paper and another Rs. 100 crore with 10-year paper with an annualized yield of 8.45 per cent and 8.68 per cent.
Showing posts with label corporate bonds. Show all posts
Showing posts with label corporate bonds. Show all posts
September 13, 2010
May 31, 2010
Liquidity tightened on 3G outflows; RBI introduced ad-hoc liquidity measures
Highlights:
• Bonds take a break from a continuous 5 week rally; the benchmark bond 6.35% 2020 yield moved to 7.55%, up by 18 bps
• Domestic bond market mirrored US Govt. Bonds; US Treasury bonds’ yields rallied on account of poor consumer spending data
• Liquidity took a major hit; the 3G payments coupled with advance tax outflows put a strain on liquidity
• The RBI announced two liquidity easing measures – additional liquidity support up to 0.5% of banks’ NDTL and 2nd LAF (SLAF) on daily basis
• Call rates and inter-bank rates are likely to go up this week
View & Recommendation:
• With yields easing, fund managers have started increasing the average maturity of income funds, thereby, increasing their ranks in terms of returns.
• Investors looking for investments for a shorter period (6 months - 1 year) should invest in Ultra Short Term Funds (erstwhile called as Liquid Plus Funds) while those looking for a longer investment horizon (1.5 - 3 years) should invest in Income Funds.
• Some of the recommended Income Funds are Birla Sun Life Dynamic Bond Fund, ICICI Prudential Income Fund and Kotak Bond Regular Plan.
Broader Perspectives:
Bond Front
Indian bond markets took a break from a 5-week rally mirroring the movements in US Treasury yields and also incorporating the domestic factors such as liquidity crisis. However, the cancellation of weekly auctions looks distant as the government has other payment commitments such as Cash Management Bills worth Rs. 20,000 Cr, Bond maturities worth Rs. 50,000 Cr in July, cut in Treasury Bills auction size limited to Rs. 22,000 Cr along with government funding to Oil Marketing Companies (OMCs) to the tune of Rs. 14,000 Cr.
Earlier, last week, the bonds rallied after an announcement of probable cancellation of bond auctions this week due to liquidity squeeze arising out of 3G outflows and advance tax payments. The 3G outflows alone is sucking liquidity to an extent of Rs. 67,719 Cr.
The 10-year Benchmark Bond 6.35 per cent 2020 yield shot to 7.55 per cent, up by 18 bps over its last week close. The other heavily traded bond 8.20 per cent 2022 saw yields rise by 17bps to 7.80 per cent on weak-on-weak basis. The average trading volume for G-Secs as reported in NDS-OM platform was Rs. 19,985 Cr. Last week, there were 4 trading days only as the banks were closed on Thrusday (May 27, 2010).
Bond Supply
The government auctioned bonds worth Rs. 12,000 Cr. The notified auction amount was Rs. 4,000 Cr, Rs. 5,000 Cr and Rs. 3,000 Cr for 7.38% G-Sec 2015, 7.80% G-Sec 2020 and 8.32% G-Sec 2032 respectively. The bid to cover ratio was highest (2.5 times) in 10-year benchmark paper, the highest traded paper. The cut-off came in at 7.41 per cent, 7.60 per cent and 8.25 per cent respectively. The government will buyback Cash Management Bills worth Rs. 20,000 Cr this week.
Liquidity Desk
The liquidity was tight last week on account of 3G auction payments by Telecom Companies. Moreover, the advance tax outflows as expected on June 15 have also started putting strain on Liquidity. To ease the pressure, the RBI announced special measures to provide liquidity in the system. The RBI allowed banks additional support under the liquidity adjustment facility. The Central Bank will conduct two rounds of LAF operations. It also permitted banks to avail support of up to 0.5 per cent of their Net Demand and Time Liabilities (NDTL), the steps which will provide an additional liquidity support of Rs. 20,000 Cr. Both the measures would be applicable till July 02, 2010
Corporate Desk
Corporate bond yields hardened across the tenors. The AAA, 10-year paper hardened to 8.67% compared to 8.60% compared to last week. The 1-year bond traded at a yield of 6.65 per cent. This week, corporate bonds’ yields rose less than the government bond yields. The ten-year benchmark AAA spread shrank to 96bps, down by 14 bps. Corporate bond yields are likely to move higher on account of liquidity worries and interest rate spikes.
• Bonds take a break from a continuous 5 week rally; the benchmark bond 6.35% 2020 yield moved to 7.55%, up by 18 bps
• Domestic bond market mirrored US Govt. Bonds; US Treasury bonds’ yields rallied on account of poor consumer spending data
• Liquidity took a major hit; the 3G payments coupled with advance tax outflows put a strain on liquidity
• The RBI announced two liquidity easing measures – additional liquidity support up to 0.5% of banks’ NDTL and 2nd LAF (SLAF) on daily basis
• Call rates and inter-bank rates are likely to go up this week
View & Recommendation:
• With yields easing, fund managers have started increasing the average maturity of income funds, thereby, increasing their ranks in terms of returns.
• Investors looking for investments for a shorter period (6 months - 1 year) should invest in Ultra Short Term Funds (erstwhile called as Liquid Plus Funds) while those looking for a longer investment horizon (1.5 - 3 years) should invest in Income Funds.
• Some of the recommended Income Funds are Birla Sun Life Dynamic Bond Fund, ICICI Prudential Income Fund and Kotak Bond Regular Plan.
Broader Perspectives:
Bond Front
Indian bond markets took a break from a 5-week rally mirroring the movements in US Treasury yields and also incorporating the domestic factors such as liquidity crisis. However, the cancellation of weekly auctions looks distant as the government has other payment commitments such as Cash Management Bills worth Rs. 20,000 Cr, Bond maturities worth Rs. 50,000 Cr in July, cut in Treasury Bills auction size limited to Rs. 22,000 Cr along with government funding to Oil Marketing Companies (OMCs) to the tune of Rs. 14,000 Cr.
Earlier, last week, the bonds rallied after an announcement of probable cancellation of bond auctions this week due to liquidity squeeze arising out of 3G outflows and advance tax payments. The 3G outflows alone is sucking liquidity to an extent of Rs. 67,719 Cr.
The 10-year Benchmark Bond 6.35 per cent 2020 yield shot to 7.55 per cent, up by 18 bps over its last week close. The other heavily traded bond 8.20 per cent 2022 saw yields rise by 17bps to 7.80 per cent on weak-on-weak basis. The average trading volume for G-Secs as reported in NDS-OM platform was Rs. 19,985 Cr. Last week, there were 4 trading days only as the banks were closed on Thrusday (May 27, 2010).
Bond Supply
The government auctioned bonds worth Rs. 12,000 Cr. The notified auction amount was Rs. 4,000 Cr, Rs. 5,000 Cr and Rs. 3,000 Cr for 7.38% G-Sec 2015, 7.80% G-Sec 2020 and 8.32% G-Sec 2032 respectively. The bid to cover ratio was highest (2.5 times) in 10-year benchmark paper, the highest traded paper. The cut-off came in at 7.41 per cent, 7.60 per cent and 8.25 per cent respectively. The government will buyback Cash Management Bills worth Rs. 20,000 Cr this week.
Liquidity Desk
The liquidity was tight last week on account of 3G auction payments by Telecom Companies. Moreover, the advance tax outflows as expected on June 15 have also started putting strain on Liquidity. To ease the pressure, the RBI announced special measures to provide liquidity in the system. The RBI allowed banks additional support under the liquidity adjustment facility. The Central Bank will conduct two rounds of LAF operations. It also permitted banks to avail support of up to 0.5 per cent of their Net Demand and Time Liabilities (NDTL), the steps which will provide an additional liquidity support of Rs. 20,000 Cr. Both the measures would be applicable till July 02, 2010
Corporate Desk
Corporate bond yields hardened across the tenors. The AAA, 10-year paper hardened to 8.67% compared to 8.60% compared to last week. The 1-year bond traded at a yield of 6.65 per cent. This week, corporate bonds’ yields rose less than the government bond yields. The ten-year benchmark AAA spread shrank to 96bps, down by 14 bps. Corporate bond yields are likely to move higher on account of liquidity worries and interest rate spikes.
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