Making Sense

LAF surplus as on Mar 5 moved to 64K crore from 41K crore while system liquidity surplus (adj for CRR balances) was seen at 28K cr (+20K cr day on day).  The WACR traded lower at 6.33%. Net liquidity absorbed through O/N V. Reverse Repo and SDF was at 167K crore.  RBI conducted an O/N VRRR for 100K cr which was fully taken up by market participants and RBI also announced a 15 day Variable Rate Repo auction of 50K cr for 07 Mar / 22 Mar to inject liquidity in lieu of the 100K cr VRR maturing on 7th Mar.  Advance Tax payment by Mar 15 followed by GST payments by Mar 20 will see liquidity worsen over the month. I am estimating advance tax payments at inr 200K crore. C/T points have been gradually easing ahead of the $ 5bn  S/B swap due to mature on  11 Mar 2024  with weighted average rate seen at 0.15 ps (0.64%) and having traded as low as 0.05 ps (0.22%)

System liquidity steadily improved as Government Spending kicked in and liquidity deficit improved to Inr 40K crore on Mar 1 from 251K cr on 21 Feb. The WACR as on Mar 1 was at 6.47%.  Results for the VRRR (Variable Rate Reverse Repo Operation) auction for Inr 75K crores saw offers for Inr 18K crs at a cut off rate of 6.49%.  Advance Tax payment by Mar 15 followed by GST payments by Mar 20 will see liquidity worsen over the month. I am estimating advance tax payments at inr 200K crore. There is also a S/B swap auctioned on 08 Mar 2022 with a maturity date of 11 Mar 2024 of $ 5 bn which is set to mature and if RBI takes delivery of the same it would release 42K cr of INR liquidity into the system. Swap points for March are trading soft at 0.86% as market participants prefer to keep received positions in case of USD liquidity tightness. 

On INR, liquidity has been progressively easing to a deficit of 100K crore. RBI today announced a second VRRR of Inr 50K crore as overnight rates drop towards the lower end of the interest rate corridor. Weighted Average Overnight Call rates were seen at 6.35% yesterday. RBI will announce the monetary policy decision tomorrow. More to follow on the next posting on India Rate Outlook.  I posted the below chart post the NFP release and US yields were seen pulling back on a solid $54 bn 3Y Auction. The next auction is scheduled for Wednesday $42 bn in 10Y and $ 25 bn in 30Y. Risk sentiment stabilized and USD index pulled back from 104.60 highs. No other data of note today. On Friday, we have the U.S CPI revisions followed by CPI release next week.  The NY Community Bancorp continued to fall , down 60% since Jan 30 and the KBW Regional Bank Index down 12% since Jan 30.  Fed's Mester comments reiterated the post FOMC narrative. She stated that " If the economy evolves as expec...

Overnight, US2s10s saw 6 bps of flattening as US Consumer Confidence and JOLTS data surprised on the upside. The Consumer Confidence increased to levels not seen since end of 2021 and the JOLTS Job openings data showed openings at 9.026 mn with vacancy rate at 5.30%. All eyes today will be on the FOMC Rate Decision and Powell's press conference.  Yields High Low Close DoD ▲ US 2Y          4.39          4.30          4.34                 1.70 US10Y          4.10          4.03          4.03      ...

I was away the whole last week of December as I took a road trip with family to Nagpur and Panchmarhi (MP). I was amazed by the Mumbai - Nagpur Expressway ME - 2 / Samruddhi Mahamarg - a 600km stretch of road and it felt like driving on AutoBahn. You easily accelerate to 120 - 130 kmph on straight roads.  From Nagpur, we drove off to Panchmarhi. We took the morning safari and stopped at a huge tract of land laden with grass covered in Dewdrops. We moved our hand over the dew laden leaves and then as we clapped our hands the whole mist fell on our faces. It was wonderfully refreshing and I thought I got an extra glow. It was a fantastic trip and recommend Panchmarhi as a must travel destination. GoI announced the sale of 3 dated securities for a notified amount of Inr 34K crs with an option to retain an additional Inr 2K cr using uniform price method for 7.32% GS 2030, 7.18% GS 2037 and multiple price method for 7.25% GS 2063 securities. 97.38% of the ₹2000 banknotes in ci...

"We may never know where we're going, but we'd better have a good idea where we are" Existing home sales fell to a 13-year low in October with sales dropping a surprising 4.1% mom. Minutes from the Fed’s most recent Nov 1 meeting did not offer any new information and echoed the comments from the Policy meeting and Press Conference. Read the prior decision takeaways here. Minutes Recap 1. Financial Market Conditions tightened - Higher Yields / Lower Equity Prices / Stronger USD  FOMC Meeting US10Y USD INDEX S&P 01-Nov-23           4.93% 106.72 4186 22-Nov-23           4.42% 103.73 4536 Change           -51 bps -2.80% 8.36% Since the last policy, financial conditions have loosened. Does it mean that in the days ahead, Fed starts to sound more hawkish but looking at the data over the last week, there is less reason to do so? 2. Labor - Better alignment of labor...

Too much to catch up on after the long hiatus.. A lot of travel and a lot of celebration as I attended a Close Relatives wedding and celebrated my 40th Birthday. My personal life over the last week mirrored the Risk on moves in Financial Markets. Loved every bit of it and felt overwhelmed by all the family love. Coming back to markets now.... "It's only when the tide goes out that you find out who's been swimming naked" ~ Warren Buffett U.S Economic data for Oct pointed to a soft landing narrative. U.S CPI came in at 0.0%, prior 0.4%; Core CPI 0.2%, Prior 0.3%; PPI -0.5% , prior revised lower to 0.4%; Core  PPI 0.0%, prior was revised to 0.2%. Retail Sales came in at -0.1% , prior was revised higher to 0.9% from 0.7%; ex-auto came in 0.1% , prior was revised to 0.8% from 0.6%. Initial Jobless Claims came in at 231K and Weekly Continuing Claims came in at 1.865 mln.   Recap of moves in UST over the last week below:  USTs High Low      Close WoW...

The discipline that is most important is not accounting or economics, but psychology. USD 24 bn of US 30Y bond auction saw weak demand with Bid-to-Cover Ratio of 2.24 which reflects poor demand in comparison to the 2.39 ratio seen over the prior 12 auctions. Along side a poor auction, comments from Fed Chair Powell accelerated the sell off in the bonds. The Key takeaway from the speech was that FOMC is not yet confident that the stance of monetary policy is sufficiently restrictive as strong growth could undermine progress on inflation and restoring balance to the labor market.  US2s +8 bps, 5.02% , High 5.04% - Low 4.92% (Swing High 5.26%) US10s +13.50 bps, 4.63%%, High 4.65% - Low 4.47% (Swing High 5.02%) US30s +15.00 bps, 4.768%, High 4.83% - Low 4.61% (Swing High 5.18%) US2s10s -39 bps (+ 6 bps) DXY 105.90 (+0.35%)  On the India macro front, On Nov 9, liquidity deficit widened to INR 46K crore and Overnight WACR was anchored around the upper corridor band at 6.79% The OIS ...