India Money Market Outlook
Gilts seen up Mon after US yields slump
This story was originally published at 18:23 IST on 3 August 2024
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NEW DELHI – Government bond prices are expected to rise on Monday after the US economy added much fewer jobs than expected in July. This has led to calls for a steeper rate cut cycle by the US Federal Open Market Committee, and may also push India's rate-setting panel to begin cutting interest rates by December, dealers said.
The US added 114,000 jobs in July, against a consensus estimate of 175,000 jobs in a Reuters poll. The unemployment rate rose to 4.3% in July from 4.1% in June, the highest in three years. The yield on the 10-year US benchmark note plunged to lows last hit in December after the release of the data, with a 40-basis-point slide during the week to settle at 3.80% on Friday.
India's overnight index swap rates are set to retreat further, after hitting lows on Friday last seen in February. Any further movement in US Treasury yields and crude oil prices may lend cues at the opening for gilts and swaps.
On Monday, the one-day call money rate may open near the RBI's repo rate of 6.50% because of demand for funds from banks in early trade.
GOVERNMENT BONDS
On Monday, bond prices are likely to shoot up after US Treasury yields slumped, following non-farm payrolls that were much softer than expected, dealers said.
This is likely to turn into hopes of India's rate-setting panel also beginning to cut rates by December, currently expected against February, dealers said. Traders are likely to remain cautious heading into the Monetary Policy Committee's three-day meeting Tue-Thu.
The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.90% during the day. On Friday, the bond closed at 101.42 rupees, or 6.89% yield. The yield closed at its lowest since Mar 31, 2022.
OIS RATES
Swap rates may open lower on Monday after the US non-farm payrolls data increased hopes of an even greater rate cut in the US than the 50 bps already priced in for 2024.
The swap rate in the one-year segment is seen at 6.50-6.70% and in the five-year segment at 6.05-6.30%. Today, the one-year swap rate settled at 6.62% and the five-year swap ended at 6.15%, both at six-month lows.
CALL
On Monday, the one-day call money rate may open near the RBI's repo rate of 6.50% because of the demand for funds from banks in early trade. However, the rates may ease intraday owing to prevailing surplus liquidity in the banking system.
During the day, the call rate is seen in a range of 6.20-6.65%, dealers said. Today, the two-day call rate ended at 5.75%.
RBI AUCTION
--Nil
LIQUIDITY
--Total net outflows of 202.73 bln rupees. Calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repos.
* Inflows
--8.09 bln rupees as coupon on state bonds
--9.18 bln rupees as coupon on state bonds
* Outflows
--220.00 bln rupees as payment for gilts
End
Reported by Aaryan Khanna
Edited by Manisha Baxla
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