FIXED INCOME SECURITIES & FINANCIAL INNOVATIONS

Daily Market Analytics of Gsec Spreads for the Week ending 14th January 2012

Presented By Jayalakshmi (10SBCM0025) Vittal K V (10SBCM0305)

If that spread widens to 4% (increasing the junk bond yield to 9%).• The "yield spread of X over Y" is simply the percentage return on investment (ROI) from financial instrument X minus the percentage return on investment from financial instrument Y (per annum). . • For example. if a risk-free 10-year Treasury note is currently yielding 5% while junk bonds with the same duration are averaging 7%. • When spreads widen between bonds with different quality ratings it implies that the market is factoring more risk of default on lower grade bonds. the spread between Treasuries and junk bonds is 2%. A narrowing of spreads (between bonds of different risk ratings) implies that the market is factoring in less risk (due to an expanding economy). the market is forecasting a greater risk of default which implies a slowing economy.

.

The bond market shrugged off higher supply and took down benchmark yields by 30-35 basis points (bps). • Also. government bond yields fell sharply week on week (w-o-w) due to expectations of rate cuts by the Reserve Bank of India (RBI).Jan 9 • Indian bond yields fell sharply to 2-month low as hopes of RBI rate cuts were raised after Prime Minister Manmohan Singh said the Indian economy is expected to grow by 7% this financial year despite the adverse impact of global economic slowdown.79% 2021 bond.15% 2024 bond fell 36 bps to close the last week at 8. fell 36 bps w-o-w to close last week at 8. . the 8.000crore through open market operations (OMOs). The market is factoring in RBI absorbing most of the excess supply of Rs40. The yields on these two bonds have come off by 70 bps and 80 bps. Yield on the well-traded 9. • Yield on the ten-year benchmark.22%.35%. respectively from highs seen in the last couple of months.

.

with borrowings by banks at the central bank's daily repo auction standing way above the RBI's comfort level of about 600 billion rupees. through which it injects cash into the banking system. with traders expecting a bond buy back announcement from the central bank later in the day. while the one-year rate rose 6 basis points to 7. from 923.23%.1 trillion rupees on Monday.80 percent. • The RBI is scheduled to auction 140 billion rupees ($2. rose to 1.71billion) of bonds on Friday.15 percent. up 3 basis points from precious days close and 5 basis points above its intraday low. The 10 year benchmark bond yield settled at 8. The benchmark five-year swap rate was up 9 basis points at 7. . tracking the move in government bonds. indicating the shortfall in funds.Jan 10 • Federal bond yields edged up on Tuesday due to mild profit taking after aggressive buying in recent sessions. Borrowings by banks from the RBI's repo counter. • Also the betting on a buyback announcement later in the day.7 billion rupees on Friday.

.

60 investment resulted in rupee appreciation from 54.24 to 51. cash again tightened in the banking system. • Inflow of $ 1.75 • Surge in equity flow made the rupee appreciate against the dollar • Also the opinion of high differential yields between Europe and India in the traders leas to it • Traders further said that leading for further tightening of cash without a reduction in CRR will make the yields go down • Banks want 6% CRR to release 30.Jan 11 • Within a hick up in the foreign inflows into the Indian debt markets.000 Cr rupees into banking system .

.

Industrial production recovered in November raising to 5. infra output brought expectation s on higher yields of debt markets but all the fluctuations are in narrow band • Reduction of lock period from 3years to 1year for investment in corporate long term infra bonds • Investment of 1.Jan 12 • Indian federal bonds were steady on Thursday despite stronger than expected factory output data. as expectations of rate cuts persisted. adding that it was relevant only in terms of impact of inflationary expectations . • RBI s announcement of debt by bank is likely to check any raise in needs through open market of 120billion rupees • Raise in auto sales.9% from a year earlier.6billion dollar in debt as compared to just 274 million dollars in equity • Raising of debt cap on FII seem to under pin debt as a preferred asset for institutional investors • RBI deputy Governor Subeer Gokarn on Thursday said that there was no direct link between food inflation and monetary policy.

.

lower than about 40 billion rupees traded on a normal day. One another factor that might have influenced may be the cost to lock interest rates for the last year which dropped 0. as most traders stayed on the sidelines ahead of a $2.03% point to 7. That’s 62 basis points below the Reserve Bank of India’s 8.50 billion rupees ($612. investors are adding holdings to the Govt bonds. • Indian federal bond yields moved in a tight range on thin volume on Friday. Total volume on the RBI's electronic trading platform was 31.Jan 13 • With an expectation that the policy makers will cut the borrowing costs due to the slowed down inflation to the least in the last 2 years. .5 percent repurchase rate.88% on the day of 15thjan( the next working day). slated later in the day. This is backed by the factors like real interest rates and investment opportunities in other assets and created an affinity towards Govt bonds.7 billion bond auction and buyback.8 million).

.

THANK YOU .

Sign up to vote on this title
UsefulNot useful