BORROWING CALENDAR FOR CURRENT FISCAL & OTHER FACTORS AFFECTING DEBT MARKET
Yield Curve post the announcement of Borrowing Calendar for the current Fiscal Year has become extremely steep. Consider the following:
1 day 3.50%
91 day T Bill 4.00%
1 year T Bill 4.70%
3 Year Bond 5.90%
5 year Bond 6.77%
10 Year G Sec 7.00%
Traditionally the spread between 1 to 10 year has been 100bps or lower. Currently due to heavy borrowing calendar we are at historical highs of 230-250 bps. Let us analyse the supply and maturity & OMO calendar for the current Fiscal Year & put things in perspective.
GOI borrowing calendar for H1 of 2009-2010 is as high as Rs.241000 crs. This is way higher than the actual borrowing of Rs.106000 crs for H1 2008-2009. In percentage terms the borrowing during first half of 2009-10 is 67% of total borrowing for 2008-2009 due to various fiscal measures announced by the Govt.
GOI borrowing is concentrated in first quarter of fiscal. It is Rs.48000 crs pm for first fiscal & Rs.32000 crs pm for next quarter. i.e. almost Rs.12000 crs per week of auctions in first quarter of the fiscal. 72-76% of the borrowing is concentrated in the below 15 year maturity.
Concentration of borrowing in shorter end of maturity viz. less than 15 years is due to bad sentiments prevailing in the debt market & to reduce relative cost of borrowing by the Government.
Simultaneously RBI has announced an OMO calendar for H1 of Rs.80000 crs. On top of that there is maturity of approx. Rs.42000 crs in April’09, Rs.6000 crs in May’09 & Rs.22000 crs in June’09. Besides that there is surplus liquidity in excess of Rs.100000 crs in the system. Current quarter is generally dull credit season & hence market will continue to have ample liquidity. Also inflation is at 0.27% ( March 14’2009) & likely to be in the negative territory by June end.
Spikes in 10 year benchmark ( which is oscillating between 6.95% to 7.05% levels) is due to constant weekly auctions of Rs.12000 crs.
With almost supply neutral situation ( with OMO, maturities & systemic liquidity with lower credit offtake in the current quarter), I believe that banks will come into buy G Secs sometimes by June’09. We should see one good rally between now to June due to factors mentioned above.
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