Liquidity continued to remain tight. The Reserve Bank of India had to infuse around Rs 15,000 crore (Rs 150 billion) into the system.
The market however expects the tightness to ease during the week, with the onset of government expenditure and successive cuts in the amount to be absorbed through treasury bill auction.
The call rates at which banks lend and borrow funds for daily fund management were high at 8 per cent, but mellowed down to close at 6.5 per cent.
However, the rates in the collateralised lending and borrowing market continued to remain higher above 7.50 per cent.
Dealers explained that mutual funds, which are one of the major lenders in the CBLO market, are facing redemption pressures and are thus cautious about their lending activities.
Government securities: Cautious undertone
Despite the reduction in the amount to be auctioned through treasury bills, the market was cautious.
The prices of government securities were flat, both in the shorter and longer end of the maturity. The yield on the ten year benchmark paper closed at 7.87 per cent.
Dealers added that if the liquidity continues to remain tight, it will reflect on the cut-off yield at which the treasury bills for the three month and one year maturity will be auctioned on Wednesday.
The one year t-bill traded at 7.67 per cent.
OIS: Rangebound moves
Owing to tight liquidity, the market expected the yields on the shorter end of the maturity to move up. Thus deals were struck wherein the banks paid in fixed and received floating rate of interest.
However there were very few deals and the interest rates remained rangebound. The yield on the one and five year OIS remained flat at 7.22 per cent and 7.26 per cent respectively. Overnight interest rate swap market is derivative product based on the underlying of the interest rate on the government securities.
There was brisk trading in corporate bonds even if the outlook on the underlying government securities market was bearish. However the trading did not alter the rates in the long term much, while the short term yields moved up.
There were not many primary issuances, either in the short term or long term maturity. While the yield on the benchmark ten year SBI bond remained at 9.57/9.58 per cent, yields for the three month and six month certificate of deposits and commercial papers moved up substantially.
While banks could raise three month and six month CDs at 7.50 per cent and 7.80 per cent a week back, these moved up to 8.30 per cent and 8.50 per cent respectively on Monday.
Rupee: Bearish trend
The spot rupee opened higher at 39.28 compared with a closing of 39.31 last week, following the buoyant equity market.
Inflows and heavy sale of dollars by the exporters during the day pushed the rupee up to an intraday high of 39.27/28.
Towards the end of trading session, the dollar demand by oil importing companies led the rupee to close at 39.3/34 to a dollar.
Tightness in the rupee liquidity market pushed up the premia for booking dollars on a future date. The annualised premia for six month and one year forward dollars closed at 1.53 per cent and 1.21 per cent as against 1.47 per cent and 1.18 per cent on Friday respectively.
Global markets: Pound, euro weaken
The pound sterling weakened since the market is expecting the minutes of bank of England policy meetings to hint at a rate cut. The GBP weakened from $2.0544 to $2.0529, euro lost from $1.4661 to $1.4635. Yen remained flat at $110.18.
