DEBT MARKETS POST CANCELLATION OF Rs.12000 CR AUCTION BY RBI
RBI cancelled auction of Rs.12000 crs which was slated for last Friday. RBI had the option of letting the entire auction devolve on PDs instead of canceling the auction. This was exactly the cue which market was waiting for. Market was looking to RBI for some drastic action and give direction to the ever growing pessimistic debt markets. Intra day the 10 year benchmark had jumped upto 7.20% before settling at 6.59% on the same day post auction cancellation.
As is evident from above, it is more of demand/supply issue rather than fundamental issues guiding the debt market. Fundamentally, 10 year post such huge drop in inflation numbers ( 2.43% for week ended February 28’2009)and rate cuts announced by RBI should have been between 5 to 5.50%. However, it was hovering between 6.50 to 7.25% due to supply concerns only. Once supply was temporarily withdrawn from the markets, markets rallied substantially. Today’s OMO cut offs will further give direction to the markets. Also, year end pressures for banks will also see some late buying enquiries post March 20 when last auction is slated for the current Fiscal Year borrowing. Now RBI has to take care of Rs.22000 crs of auction instead of Rs.10000 crs which would have been left post last auction. Industry is expecting further positive action by RBI in terms of placing this amount privately with RBI; thereby further easing the supply pressure. If RBI resorts to this action, debt markets will end on a positive note for the current Fiscal Year ending March 31’2009 & giving enough reasons for banks to cheer.
Today 10 year benchmark yield has further eased to 6.35%.
Comments
Thanks. Your blog is very useful. Could you post a set of links that you use to track the Indian debt markets?
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