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Even as the market remained flush with liquidity, banks were in no mood for subscribing to fresh corporate bonds or commercial papers ahead of the annual policy review.
According to market dealers, the 10-year, AA-rated bond issue of Tata Power to raise funds devolved on its lead arranger Standard Chartered Bank. The bank did not offer any comment when contacted.
The market is of the view that the issue was offering a coupon in the range of 10-10.10 per cent, while the market was quoting 10.25 per cent for the AA-rated paper.
Since the system is flush with funds, Allahabad Bank and State Bank of Bikaner and Jaipur raised six-month certificate of deposits (CDs) at 8.70-8.80 per cent, which is much lower than 9-9.25 per cent quoted earlier for the same maturity. In the overnight interest rate swap (OIS) market, the outlook was bullish on the back of comfortable liquidity in the short term.
Liquidity was surplus in the system and the Reserve Bank of India (RBI) absorbed around Rs 40,000 crore from the system under reverse repo. Reverse repo is the mechanism through which RBI absorbs surplus funds from the system in contrast to repo through which it infuses liquidity.
Even if the system is flush with funds, banks and mutual funds were wary of lending to the market. Call rates, at which banks lend and borrow funds from each other in the inter-bank market, closed at 6.25 per cent after falling to a low of 4.25 per cent during the day. In the collateralised borrowing and lending obligation market (CBLO), rates inched up to 7 per cent.
The sentiment in the gilts (G-sec) market was bullish following surplus liquidity. The market rallied with prices of government securities rising across maturities. The yield on the new ten-year benchmark paper 8.24 per cent 2018 closed at a low of 8.16 per cent.
On Monday, it was auctioned in the primary market at 8.24 per cent. The government securities market clocked a volume of Rs 5,200 crore as against Rs 2,000-3,000 crore on a daily basis last week.
The spot rupee opened at 39.95, but inched up to 39.93 before closing flat at 39.95-96 to a dollar.
According to dealers, the rupee market is dull, anticipating the outcome of the annual policy announcement next week. With surplus liquidity, the cost of rupee funds came down which was reflected in the rupee premia paid for future dollars.
The annualised premia for six-month and one-year forward dollars closed at 2.65 per cent and 2.13 per cent as against 3.06 per cent and 2.65 per cent respectively on Monday.
