Banks rely on repo for fund needs, call at 7.75%

MONEY MARKET ROUND-UP

Liquidity: In a tight corner
Primary issuances were subdued today as most investors avoided big purchases due to tight liquidity conditions and quarter-end, dealers said.

Large subscriptions for the Reserve Bank of India's repo tender kept investors away from such papers. RBI had to infuse Rs 47,100 crore into the banking system today. Rates stayed unchanged amid thin volumes.

Mutual funds stuck to need-based purchases and invested inflows into their liquid and fixed income schemes in three-month certificates of deposit and commercial papers.

Concerns that liquid schemes may face redemptions in the last two days of the year prevented fund houses from buying short-term debt.

"Some mutual funds are investing in primary issues as they may have some cash left over," said a fund manager with a mutual fund. However, investors took comfort in a softer call rate. Today, the overnight rate slipped to 7.50% from 8.20% seen since Monday.

Three-month commercial papers were quoted at 8.50-8.60% compared with 8.55-8.65% yesterday.

Call rates: Remained flat
The interbank overnight rate ended almost flat despite tight liquidity today as most banks borrowed from the Reserve Bank of India's repo tender to meet mandated reserve needs, dealers said.

The one-day call rate ended at 7.65-7.75%, compared with 7.80-7.90% yesterday.

"As most banks have excess securities, they have been able to easily borrow from collateralised borrowing and lending obligation (CBLO) or RBI's repo for their reserve needs, which has helped prevent a sharp rise in call rates," said S Sampath Kumar, dealer, State Bank of Travancore.

At 4 pm, the total traded volume in CBLOs was Rs 31,818 crore compared with Rs 11,520 crore in the call money market, an indication of banks' preferred source of borrowing. Banks need to maintain 25% of the net demand time liabilities (NDTL) in the form of gilts.

Many dealers believe that banks are keeping 28-29% of their NDTL in form of gilts.

Call rates are expected to stay firm on Friday as banks could increase borrowings to meet three-day reserve needs amid tight liquidity. Banks may borrow about Rs 35,000-40,000 crore from RBI's repo tender.

Inflows of about Rs 7,000 as redemption of t-bills issued earlier are unlikely to have any soothing effect as shortfall in cash supply is pegged around Rs 30,000-35,000 crore. CBLOs are expected in the 7.25-7.75% band.

Re: Premiums jump
Forward dollar/rupee premiums ended sharply up today as banks booked forward contracts for importers, while the persistent strain on liquidity prompted banks to buy forward dollars.

One-year forward dollar/rupee premium ended at 1.56%, up 15 basis points, compared with 1.41% yesterday. Banks were said to be purchasing dollars for importers in cash and forward markets when the spot rupee was in the 39.40-39.41 per dollar range, dealers said.

"Some unwound their long dollar positions as they expected that the rupee would ease in the cash market, but it did not," said a dealer with a European bank.

Corporate bonds: Yields slip
Yields fell five to six basis points on five-year tenures as some mutual funds stepped up purchases on hopes they would receive inflows in January, dealers said.

Five-year bonds were dealt around 9.16 per cent compared with 9.23 per cent yesterday.

Nabard's five-year bonds were dealt at 9.20 per cent as against 9.23 per cent.

"Mutual funds were buying in the five-year segment as they expect liquidity to ease in the first week of January and receive inflows into their liquid schemes," said a primary dealer.

"Volumes were lacklustre in early trades today but volumes went up as some MFs started buying in noon trade," said a dealer with an insurance company.

At 5 pm, bond volumes on the Bombay Stock Exchange stood at Rs 177 crore compared with Rs 125 crore yesterday.

The ease in the shorter-end also seeped into the 10-year segment and some 10-year bonds were dealt today at a lower yield, dealers said.

Power Finance Corp's 9.90 per cent, 2017 bonds were dealt at 9.25 per cent from 9.28 per cent levels.

G-sec: Sharp upturn
Government bond prices ended sharply up 19 paise today towards the fag end of trade as investors bought aggressively on hopes of liquidity easing out from next week.

The 10-year benchmark 7.99 per cent, 2017 paper ended at Rs 101.00 or 7.8384 per cent yield to maturity today compared with Rs 100.81 or 7.8669 per cent yesterday.

"Everybody knows liquidity has to ease from next week due to the various bond redemptions, the interest payment on the special deposit scheme and government spending. This comforted market participants and prompted them to buy," said a dealer with a state-run bank.

Around Rs 20,000 crore worth of bonds and treasury bills are scheduled to mature in the first week of January.

Spot market
The spot rupee ended steady today after swinging in a mere 4-paise band as interbank dollar demand-supply aligned amid thin volumes.

"It was pretty dull today. There were few corporate clients covering positions, and both demand and supply from banks matched each other," said a dealer with European bank.

The Indian unit ended at Rs 39.4100 per dollar compared with yesterday's close of 39.4150.