Liquidity boost to money markets, curtails increasing trend in secondary yields

Along with the announcement of the term reverse repo auction, the increasing trend of bond yields experienced in the secondary market fuelled by the weekly Treasury bill auction results which increased for the first time in six week came to a halt by the end of the week.

The monetary policy announcement due next week coupled with the Government’s annual budget due for next month as well saw market participants adopting a wait and see policy. The interesting factor was the thin volumes that were changing hands during the first half of the week as the spread on two way quotes widened as yields increased further.

However a bit of buying interest towards the latter part of the week saw quotes narrow down as traded volumes increased marginally as well. In line with this, the more liquid three year, five year and six year maturities reflected the sharpest increases of 70 basis points (bp) each to weekly highs of 12.95%, 13.20% and 13.55% respectively.

Meanwhile in money markets, the Central Bank switched to a daily reverse repo auction for the first time this week under its Open Market Operations (OMO) on Friday by injecting an amount of Rs. 5 billion on an overnight basis at a weighted average of 9.68% as liquidity returned to a net deficit of Rs. 7.7 billion.

However overnight call money and repo rates remained steady to average 10.53% and 9.66% for the week as any shortage or surplus of liquidity was injected or absorbed by Central Bank through its policy rates or OMO auctions or even a combination of both.

Rupee dips to above Rs. 129

The rupee dipped above Rs. 129 during the latter part of the week to hit a weekly low of Rs. 129.20 on Friday, mainly led by importer demand for contacts value cash (19 October 2012). Given below are some forward dollar rates that prevailed in the market: one month – 130.12, three months – 132.42 and six months – 135.65. (Source: Wealth Trust Securities)