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| Repo subscription is expected to fall to Rs 10,000-Rs 15,000 crore. This could cause some concern to market participants, and will act as a breather for the market.
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| Tightness in liquidity is a fall out of a series of auctions slated for the current week. The Rs 6,500 crore state loan auction kicks off on Monday and another Rs 5,000 crore central government auction is scheduled between October 16-22.
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| Should the Reserve Bank of India announce the auction this week, this will reduce the surplus liquidity in the system. At the same time, there are mixed views on the liquidity position.
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| Some participants point out that despite the Rs 11,000 crore open market operations on Friday, Rs 17,000 crore was mopped up in the three-day repo market, reflecting the easy liquidity position in the system.
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| With foreign exchange currency inflows on the rise, and the RBI expected to intervene and sterilise the system by buying dollars, this will further add to the liquidity in the market. The forex volatility will be something the bond market will closely look at.
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| In view of the surplus funds in the system, yields are not expected to see much downside till mid-week, post auctions.
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| The inflation numbers of 5.03 per cent has created some worry in the market as players question the logic of 10-year paper being quoted at around similar levels of 5.02 per cent.
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| At the same time, not much buying or selling is expected to take place as participants await announcements of the Credit Policy.
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| Market expects a repo rate cut, which will not see participants booking profits at this point in time.
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| The busy season credit policy has however, been postponed and this could see some profit booking in the case of those with over-extended positions.
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| Call rates to rise slightly mid way
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| Overnight call money rates will remain easy and will be supported in the range of 4.4-4.75 per cent. Post auction, mid week will see some pressure on call rates as some players have over-extended positions in the government securities market.
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| Call rates have in the past months been artificially pegged at the repo rate of 4.5 per cent, with no pressure on the liquidity scene.
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| Net outflows in excess Rs 4,600 crore
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| The money market will see minimum net outflows of Rs 4,640.2 crore this week largely on the back of state loan auctions.
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| Should the RBI announce the central government securities auction this week, net outflows will rise further by Rs 5,000 crore.
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| Total inflows during the week amounts to Rs 3,359.8 crore from interest coupon payments on central and state-level government borrowings and treasury bill redemption.
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| Outflows are largely on account of the slated state loan auction of Rs 6,500 crore on Monday, Rs 1,500 crore T-bill auction on Wednesday and a likely Rs 5,000 crore gilt auction some time during the week.
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| Stable T-bill yields
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| Yields on treasury bills currently ruling at 4.4-4.5 per cent are expected to stabilise at these levels unless announcement of a repo rate cut comes into being. Despite a series of auctions slated for this week , there will have no impact on liquidity. |
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