Liquidity improves on spending

MONEY MARKET ROUND-UP

Liquidity: Call rates fall
The liquidity situation improved in the market following government expenditure, according to dealers.

The Reserve Bank of India (RBI) infused only Rs 135 crore, while call rates fell to a low of 6 per cent during the day. Call rate is the interest rate charged by banks to lend and borrow among each other for daily fund requirement.

According to dealers, this easing of liquidity calmed the frayed nerves since the market is expecting cash outflows due to advance tax payments and government securities auction.

The rates in the collateralised lending and borrowing (CLBO) market also came down, but remained higher as mutual funds are apprehending redemption pressure from banks and remained cautious in lending.

G-sec: Tarders return
Following improved liquidity, the market witnessed active trading interest, especially in the longer end of the maturity.

Since the outlook on liquidity is still uncertain, the prices in the short term remained flat. The prices of the papers in the 10-20 years segment went up by 10-15 paise and the yield on the benchmark ten-year paper closed at 7.87 per cent , a tad lower than 7.88 per cent on Tuesday.

The apex bank auctioned the 91- and 364-day treasury bills for notified amount of Rs 2,000 crore each. While the cut-off yield of the 91-day t-bill remained at the last week's level of 7.52 per cent , the 364-day t-bill fetched a cut-off yield of 7.71 per cent as against 7.74 per cent last week.

The trading may become active if the liquidity improves during the week, but will be lacklustre during the end of the week apprehending outflows from the market.

OIS and corporate bonds: Volumes rise
With improved liquidity, the activity hastened in the overnight interest rate swaps (OIS) market, especially in the one-year segment. Banks struck deals wherein they paid in floating and received expecting liquidity situation to ease in the one-year period, which in turn will move interest rates downwards.

Volumes in the one-year category alone went up to around Rs 4,500 crore. Both the shorter and longer ends of the segment remained flat.

In the short-term segment, yields moved up for corporate bonds and this led some of the borrowers such as Oriental Bank of Commerce to postpone its certificates of deposit (CDs) of 1-year, for which it was offering around 9 per cent.

On the other hand, the one-year CDs are being traded in the secondary market at 9.05-9.10 per cent. The three-month segment has become further sticky with yields hovering around 8.50 per cent. There were not may issues in the long-term segment.

Forex: Importers $ demand surges
The dollar shortage in the forex market was apparent since the market witnessed great demand from importers to book dollars.

Both oil and non-oil companies rushed to book dollars as and when the exporters were selling. The rush for dollars was also shared by foreign banks stocking up for their daily operations.

"Since the overseas market is facing a dollar crunch, most of the foreign banks are preferring to remain dollar surplus instead of depending on their parents for funds," said a dealer.

The spot rupee opened at 39.41/42 but close lower at 39.50. Since the demand for cash and spot dollars are going up, banks are not keen on booking dollars for longer term of one year but prefer to stock up for six months.

On the other hand, the six-month premium closed higher at 1.46 per cent as against 1.34 per cent.

Global markets: Pound slips vs dollar
The pound lost to the dollar following data on slowdown and hovered at $2.04 ($2.0630). The Yen and the euro ruled at $110 ($110) and $1.4712 ($1.4733).