Extraborrowing,NewcalendarandShakespeare'sinsight

Before we cover the global news the important news has come from the domestic stable. Central Government has decided to borrow for the GST shortfall from the markets. This will be done under a special window and the amount so borrowed will be passed on to the States as a back to back loan in lieu of GST compensation cess releases. The amount borrowed will be 110 Cr INR. As per the government release this action will not have any impact on the fiscal deficit of GOI as the amounts will be reflected as the capital receipts of the state governments and as part of financing of its respective fiscal deficits.

Shakespeare in his famous play Romeo and Juliet had written that a rose by any other name would smell as sweet. Markets are expected to react in a similar way confirming that fiscal deficit by any other name would impact the yields negatively only. But the blow will be smoothed over as the borrowing calendar has now been extended till March, keeping the weekly supply in check. Also the market expects that OMO auctions will be a regular affair now.

The bond market yields have moved right especially in the 5 year segment with an upmove of 10 bps in the opening. The 10 year paper has moved up by 3 bps. We have the sale auction of 28k INR cr gov paper today as part of the weekly bond sale. INR trades at 73.38 in the opening today.

In the global news, yesterday the US jobless claims number was released. The number of initial claims increased to 898k for the week ending October 10 against the 845k for the previous week. This was against the forecast of 825k. The number, which is a seven week high, signals that fresh outbreaks of Corona virus in many states has started hurting the employment scene again. A state wide study also supports the claim as the jobless number increased in the states where there have been news of fresh outbreaks.

The discussion on the stimulus still continues as President Trump has put the entire onus of the deal not happening on the Democrats. On the campaign trail he exclaimed that he is confident of his victory and a big stimulus will come post that. The Dow Jones closed mostly unchanged last night. The dollar index on the other hand firmed up to 93.80 levels. US 10 year yield trades at 0.73.

In the news on the Brexit front, after the self-imposed deadline of UK for the conclusion of Brexit talks passed, German Chancellor Angela Merkel said that we want a deal but not at any price and they are ready for an abrupt split. The euro and pound trade at 1.17 and 1.29 respectively.