>RBI buying relaxes market fears (EDELWEISS)

■ Sovereign bonds trailed an impressive trajectory today, the yield curve till the 10- year maturity drifting lower by 18-20bps. The decline yields seemed much like a relief rally to participants who had been reluctant to initiate fresh positions on the NDS-OM; total volumes on closed at a month’s high of INR 160.85 bn.

■ The 10-year benchmark bond yield declined by a massive 31bps to touch the day’s low of 6.99% before closing at 7.13%. The 5-7 year segment yields declined 20- 22bps, trading for 47% of the total volumes. The secondary market buying by RBI (also evident by tomorrow’s INR 60 bn OMO auction) has induced investor optimism to awaken trading interest in government bonds.

■ The INR 60 bn T-bill auction concluded with firmer cut-offs for the 91-day and 364-day instruments; while the former was up 4bps, at 3.40%, the latter inched higher by 17bps to report a cut-off of 4.34%. The auction reported a bid-to-cover ratio of 3.47, inviting investor interest in the non-MTM money market papers.

■ The infrastructure output growth for July stood at a dismal 1.8% relative to the previous month’s 5.1%. Also, contraction was the steepest in petroleum refinery products (at 14.4%), which miserably dragged down the 6-core industries index (the index accounts for 26.68% of IIP).

■ Annual Inflation for week ended August 15 stood at -0.95% relative to market expectation of -1.41% and previous week’s release of -1.53%. Food Prices continued to harden (by 3.2% W-o-W) accompanied by a rise in prices of primary articles of 2.1% (W-o-W).

■ An amount of INR 15.65 bn was raised in the short term non-SLR market; IOC’s INR 6 bn 3-month CP issue that received bids for nearly three times the amount was issued at 4.60%, to Mutual Funds plush with funds in their liquid portfolios.

To see full report: BOND VECTOR