Banks rush to make most of high call rates

MUMBAI: Banks were trying to make the most of the rise in short term money market rates on Wednesday. Just as interest rates in the inter-bank call market and the market for collateralised operations crossed the 6% mark, banks rushed to park funds in these markets, leaving the central bank with bare minimal cash flows to absorb at the reverse repo window.

While the call money market saw volumes of around Rs 12,301 crore, the market for collateralised borrowing and lending obligations (CBLO) had volumes rising to Rs 27,580 crore. The Reserve Bank of India did not receive any bids in the first session of liquidity adjustment, but in the afternoon session, banks parked only Rs 10 crore with the central bank.

Call money rates opened the day at 4-4.5% levels, but ended much higher at 6.75-7% levels. Similarly, rates in the CBLO market opened at 5% levels, but rose to 7.20% levels later in the day. The central bank offers banks a rate of 6%, when they park funds through reverse repo operations.

For the past few weeks, call rates and rates in the CBLO market had been trading at below 1% levels. This situation had caused banks to look for other avenues to park their cash, and most of them tried to park funds at the RBI’s reverse repo window. Again, this route also had limitations as the central bank would absorb only flows worth Rs 3,000 crore on a given day.

The rising interest rates and shrinking liquidity took a toll on the prices of government bonds. The yield on the benchmark paper, the 7.49% bond maturing in 2017, ended the day at 8.23%, up from the previous close of 8.2%.

The central bank conducted an auction of treasury bills worth Rs 6,000 crore, in a bid to suck out the excess cash flows from the system. The RBI issued 91-day t-bills worth Rs 3,500 crore and set a cut-off yield of 7.39%, higher than the previous cut-off of 7.14%. The central bank set a cut-off yield of 7.66% on the 182-day t-bills, issued worth Rs 2,500 crore. At a previous occasion, the RBI had set a cut-off yield of 7.81%.

The rupee, on Wednesday, ended at 40.97/98 levels, weaker than the previous close of 40.90/91 levels per dollar. Treasury managers attributed the weaker rupee to falling appetite of global investors for risky assets. Oil companies were also seen purchasing the dollar. However, exporters who sold dollars when the rupee breached the 41-mark, helped curb the local currency from falling further.

Meanwhile, a volatile rupee has caused the yields on forward contracts to rise substantially. The yield on the one-month contract rose to 3.9% from the previous close of 1.96%, while the six-month premia closed at 3.34% (2.97%). Similarly, the yield on the one-year contract ended at 3.03%, as against Tuesday’s close of 2.81%.

Stocks can't muster turnaround

End roller-coaster day in the red after Dow rises then falls over 100 points; oil jumps over $1, Treasurys rally.
Stocks made a late-day attempt at positive territory Friday, but in the end finished a roller-coaster day slightly lower as thin trading and rising oil prices overshadowed earlier economic news.

The 30-share Dow industrials (down 13.66 to 13,408.62, Charts) lost about 0.1 percent, while the broader S&P 500 (Charts) and the tech-heavy Nasdaq (Charts) slipped about 0.2 percent. At one point the Dow was up over 100 points, then down by that much.


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"I don't see anything fundamental here, we probably just lost a lot of market participants," said Art Hogan, chief market analyst at Jefferies and Co.

Hogan said trading volume on the New York Stock Exchange and the Nasdaq slowed considerably in the afternoon.

Todd Clark, director of stock trading at Nollenberger Capital Partners in San Francisco, said rising oil prices and continued inflation fears may be eroding the morning gains, but he also noted the upcoming holiday week and thin trading.

Oil rose over $1, bonds rallied and the dollar fell against the euro and yen.

Friday marked the last trading day for the first half of the year.

So far this year, the Dow is up 7.6 percent, the Nasdaq is up 7.2 percent, and the S&P is up 5.7 percent.

For the quarter, the Dow is up 8.5 percent, the Nasdaq is up 7.5 percent, and the S&P has risen 5.8 percent.

For June, the Dow is down 1.6 percent, the Nasdaq is even, and the S&P fell 1.8 percent.

For the week, the Dow added about 0.4 percent and the Nasdaq rose roughly 0.5 percent. The S&P 500 inched higher.

Next week the big number will be the monthly jobs report, set for release Friday.

Other than that, there's little in the way of earnings or other economic reports slated, and markets will close early on July 3 and remain closed July 4 for the Independence Day holiday.

As Clark put it, next week traders will be watching "burgers and dogs on the grill."