Benchmark yield closes 9 bps lower as auction uncertainty looms - Edelweiss

The Trades in the 10-year benchmark bond resumed 6bps lower from their previous close at 5.73%. However its movement for most of the day was governed by mild bearishness on account of: (1) higher cut-offs of the 10-year SDL auction; (2) added supplies of sovereign bonds in anticipation of INR 100 bn auction this week; and (3) some profit-booking by investors (yields easing from 6.10% levels).

After touching the day's high of 5.75%, the concluding hours of trade reported some easing as the trading day passed without the announcement of the week's G-Sec auction. The benchmark yield closed at 5.68% and total volumes on the NDS-OM platform stood at INR 133.20 bn.

Liquidity conditions remained unchanged from yesterday, as indicated by the ~4% average overnight rate and excess cash of INR 289.70 bn (nearly unchanged) under the reverse repo. Banks and mutual funds indicated comfortable liquidity in the absence of any borrowings under the repo and 14-day special facility.

IRFC, which featured amongst the widespread cancellation of non-SLR (bond) issuances as the sovereign yields soared to 6.20% levels on the unexpected infusion of bond supplies, has indicated to raise INR 7 bn in the 5, 10, 15 year maturities. Bids are being called for the same.

The INR 55.95 bn State development loan auction for three states concluded at much higher cut-offs (at 6.65-6.73%) from its previous level, raising a total of INR 57.95 bn. The usual spread of the SDL cut-offs from the benchmark yield of 40-50bps widened to ~100bps.

Outlook

The impending announcement of the INR 100 bn G-Sec auction is expected to impose an upside on the sovereign yields. The announcement of INR 30 bn MSS buyback is not expected to impact sentiments in a significant way since the amounted infused is sharply less than the notified amount. The 10-year benchmark yield is expected to retest 5.90%.

Source : Equity Bulls

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