OMO sales continue

OMO sales have picked up yet again. The market has bought about Rs 954 crore on this window during last week till Friday.

Re continues to be firm

The rupee was steady throughout the previous week, completely unaffected by the Brazil crisis. With banks required to report peak intra-day positions in addition to end-of-the-day positions, and rebooking of cancelled forwardcontracts prohibited, the scope for any speculative position taking is extremely limited. The rupee is likely to stay around current levels this week too.

Participation picks up in T-bills auctions

With call rates easing, interest in treasury bill auctions picked up. 91-day treasury bill cut-off at 9.48 per cent was marginally lower than the previous 9.53 per cent (95 per cent of which had devolved on the RBI). 14-day treasury bill also was fully subscribed at 9.42 per cent.

364-day treasury bill auction this week is likely to attract significant participation. The cut-off is expected to be in the 10.45-10.50 per cent range.

Long-dated securities privately placed

Rs 1,500 crore each of 12.40 per cent 2013 security and 12.60 per cent 2018 security were re-issued and privately placed with the RBI. With these, the total amount privately placed this year has amounted to Rs 25,000 crore in addition to Rs 8,197 crore devolvement of dated securities and 364-day treasury bills. Though the RBIhas sold over Rs 19,500 crore (excluding 91-day treasury bills) on the OMO counter this year, the monetised amount continues to be high. We can expect aggressive OMO sales to continue till the end of the fiscal.

Bond trading volumes have picked up

Trading volumes in bonds have picked up, averaging Rs 714 crore per day between January 1 and January 22. This is significantly higher than the daily average of Rs 438 crore during April-December 1998. A significant part of the volume has been on account of securities sold at the OMO counter.

Prices recovered last week after call rates stabilised below 9 per cent. The most-traded securities continue to be at the short end. Trading in the medium- and long-end securities is concentrated at the OMO window, through direct purchases as well as routed transactions.

The sentiment continues to be upbeat, and bond prices are expected to hold steady even if call rates tighten. The potential upside in case of repo rate cut or banks' cash reserve ratio (CRR) cutis likely to be maximum in the short-end securities. We continue to concentrate our recommended portfolio in these.

Corporate Paper

CP rates have not yet reflected fully the stability in the call money market and three-month rates persist at 10.70-10.75 per cent levels. There is room for yields to decline by 10-15 basis points if call rates stabilise below 9 per cent.

There has been significant secondary market activity in short-dated (three-eight months) financial institutions' papers. 12.5 per cent IDBI paper maturing on August 7 is trading at 11.7 per cent money market yield. Beyond eight months FI paper yields are more aligned to one-year primary rates (12.75 per cent) and hence there is a slight kink at this stage.

(For the week ending January 30, 1999)