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Informist, Wednesday, Aug 7, 2024

MUMBAI – Government bond prices and overnight indexed swap rates are expected to open steady on Thursday ahead of outcome of the Reserve Bank of India's Monetary Policy Committee's three-day meeting. RBI Governor Shaktikanta Das will detail the policy outcome at 1000 IST.

The 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 change in stance 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 Thursday, 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 Thursday, bond prices are likely to open steady before Das details the outcome of the Monetary Policy Committee meeting at 1000 IST. Analysts expect the panel to maintain status quo on both the repo rate, at 6.50%, and policy stance at "withdrawal of accommodation", according to an Informist poll.

Traders are expecting the committee to change its stance to "neutral" from "withdrawal of accommodation", which may spur the 10-year benchmark yield to fall to fresh multi-year lows of around 6.80%. However, if the domestic rate-setting panel does not change the stance, it may trigger some selling in the market and the yield on the 10-year benchmark may rise to 6.92%, dealers said.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.80-6.95% during the day. Today, the bond closed at 101.64 rupees, or 6.86% yield.

OIS RATES

On Thursday, swap rates may open steady before Das details the outcome of the Monetary Policy Committee meeting at 1000 IST. Analysts expect the panel to maintain status quo on both the repo rate, at 6.50%, and policy stance at "withdrawal of accommodation", according to an Informist poll.

Increasingly, traders are betting on a stance change at the upcoming meeting to "neutral" from "withdrawal of accommodation". If the stance does soften, the 1-year swap may fall to around 6.45%, with a rate cut in December fully priced in, and two 25-bps rate cuts projected in 2024-25 (Apr-Mar). If the MPC chooses to maintain status quo on rates and stance, the 1-year swap rate could rise to over 6.55%.

The swap rate in the one-year segment is seen at 6.43-6.63% and in the five-year segment at 6.00-6.25%. Today, the one-year swap rate settled at 6.49%, a near 23-month low, and the five-year swap ended at 6.11%.

CALL

On Thursday, 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 6.00-6.60%, dealers said. Today, the one-day call rate ended at 6.25%.

RBI AUCTION

--Nil

LIQUIDITY

--Total net inflows of 31.89 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

--16.88 bln rupees as coupon for state bonds

--130.00 bln rupees as redemption of 91-day Treasury bills

--105.00 bln rupees as redemption of 182-day Treasury bills

--87.48 bln rupees as redemption of 364-day Treasury bills

* Outflows

--170.00 bln rupees as payment for 91-day Treasury bills

--75.00 bln rupees as payment for 182-day Treasury bills

--62.47 bln rupees as payment for 364-day Treasury bills

End

Reported by Aaryan Khanna

Edited by Aditya Sakorkar

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