Rupee remains steady as dollar falls: The rupee was steady through the week and ended around 42.30 against the greenback. The week saw the dollar losing against most currencies.

In a surprise move, the US Fed cut interest rate by 25 basis points. The Fed had last cut the rate on September 29. The market was expecting a second cut, albeit only in November. Following this, most Asians currencies and capital markets have rallied.

91-day T-bill cut-off hikedfurther: With call rates high, the market demand for treasury bills was weaker. Consequently, the 91-day treausry T-bill cut-off was pegged at a higher yield of 10.07 per cent. The 14-day T-bill did not see much demand at the 8.89 per cent cut-off, and 97 per cent of the issue devolved on RBI and primary dealers.

Following this, the RBI has also marginally increased the yields offered on the treasury bills contained in its open market operations (OMO) list. The current OMO curve is 9.41 per cent for 56 days, 10.15 per cent (175 days), 10.36 per cent (258 days) and 10.48 per cent (314 days).

364-days T-bill cut-off unlikely to change: The OMO price near the one-year end remains unchanged. Further, the secondary market yields for one-year paper is close to the last 364 days cut-off (10.75 per cent). This leads us to believe that the 364-day bill cut-off would be maintained.

Rs 3,000 crore 11.40% 2000 paper: With this, the gross borrowing has been completed to the tune of Rs 67,021crore, and the remaining portion of the budgeted borrowing can be completed in two dated security auctions in addition to the calendar of 364-day treasury bills. The RBI has placed the 11.40 per cent 2000 security on its OMO window at 11.36 per cent yield. Currently, this security is trading at 11.44 per cent yield.

Low activity expected this week: With three banking holidays in the week, trading activity is expected to be subdued. Market would also be wary of taking positions ahead of the mid-year credit policy. The week is likely to witness a net inflow of Rs 1,500 crore assuming that the remaining tranche (about Rs 1,000 crore) of the Resurgent India Bonds (RIB) is distributed to collecting banks. However, a sharp rally in securities prices is unlikely. We continue to recommend a conservative strategy of overweighing the short end.

Corporate paper: Though the secondary market treasury bill yields have moved up with call rates, the yields on corporate paper have remained relativelyunchanged resulting in a reduction of spreads. Traditionally, corporate paper yields are sticky and yields react to change in T-bill yields after a lag. However, with call rates expected to ease in this week, any significant tightening in yields of commercial papers (CPs) is unlikely to take place.