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Informist, Monday, Aug 5, 2024

MUMBAI – Government bond prices and overnight indexed swap rates are expected to open steady on Tuesday as the three-day Monetary Policy Committee meeting gets underway. The Reserve Bank of India's rate-setting panel is expected to maintain status quo on rates and stance, according to an Informist poll.

The policy repo rate is 6.50%, and the stance is withdrawal of accommodation. Both gilts and OIS traders are betting on a stance change to neutral at the policy outcome on Thursday. Any further movement in US Treasury yields and crude oil prices may lend cues at the opening for gilts and swaps.

On Tuesday, 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 Tuesday, bond prices are likely to open steady on caution as traders may remain on the sidelines ahead of the outcome of the three-day meeting of the Monetary Policy Committee on Thursday, dealers said.

Traders are expecting the committee to change its stance to neutral from withdrawal of accommodation. However, if the domestic rate-setting panel does not change stance, it may trigger some selling in the market and the yield on the 10-year benchmark may inch to 6.90%.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.90% during the day. Today, the bond closed at 101.66 rupees, or 6.86% yield. The yield closed at its lowest since Mar 31, 2022.

OIS RATES

On Tuesday, swap rates may open steady ahead of the outcome of the three-day Monetary Policy Committee meeting ending Thursday. Increasingly, traders are betting on a stance change at the upcoming meeting to "neutral" from "withdrawal of accommodation". The repo rate is expected to be maintained at 6.50%.

Possible measures by overseas regulators to the stock market crashes since Friday are also awaited in the next few days, dealers said. US services PMI for July, which was revised down to 55.0 in July from a provisional 56.0, may add to recessionary fears in the world's largest economy.

The swap rate in the one-year segment is seen at 6.45-6.63% and in the five-year segment at 6.05-6.30%. Today, the one-year swap rate settled at 6.52% and the five-year swap ended at 6.09%, both hitting 14-month lows.

CALL

On Tuesday, 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 6.20-6.75%, dealers said. Today, the one-day call rate ended at 5.75%.

RBI AUCTION

--11 states to raise 237 bln rupees via bond sale

LIQUIDITY

--Total net inflows of 70.89 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

--54.45 bln rupees as coupon on 6.10%, 2031 bond

--16.44 bln rupees as coupon on state bonds

* Outflows

--Nil

End

Reported by Aaryan Khanna

Edited by Aditya Sakorkar

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