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Informist, Saturday, Aug 17, 2024

MUMBAI – Government bond prices are seen opening slightly higher on Monday tracking a fall in US Treasury yields on Friday as investors reassessed the state of the world's largest economy following a week of mixed data. 

US Treasury yields fell further as subdued homebuilder sentiment data on Friday supported bets of a potential rate cut by the US Federal Reserve in September. This came after a weaker-than-expected July jobs report earlier this month. Data from the US Commerce Department's Census Bureau showed single-family housing starts fell 14.1% on year to 851,000 units in July. This marked the fifth consecutive month of decline. The downturn in homebuilding is attributed to higher mortgage rates and escalating home prices, which have kept potential buyers on the sidelines. 

The yield on the 10-year US benchmark note fell 3 basis points on Friday to settle at 3.89%. 

Any further movement in US Treasury yields and crude oil prices may lend cues at the opening for gilts and India's overnight index swap rates on Monday. 

GOVERNMENT BONDS

On Monday, government bond prices are seen opening slightly higher tracking a fall in US Treasury yields on Friday as investors reassessed the state of the world's largest economy following a week of mixed data. 
 

The decline in US yields indicated lingering concerns about economic stability, especially after a weaker-than-expected July jobs report and subdued homebuilder sentiment data.

The appetite for domestic bonds is also likely to remain strong due to a steady stream of foreign fund inflows on account of India's inclusion in JP Morgan's emerging market index suite, a 10-month process that started on Jun 28.

Any uptick in yields may also prompt purchases by domestic banks which will have to maintain larger buffers of liquid assets such as government securities due to an impending tightening of the liquidity coverage ratio guidelines.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.84-6.88% during the day. On Friday, the 10-year benchmark ended at 6.87%.

OIS RATES

Overnight index swap rates may open lower on Monday tracking a fall in US Treasury yields on Friday as investors reassessed the state of the world's largest economy following a week of mixed data. 

Any sharp movement in US Treasury yields and crude oil prices may also lend cues at the opening. 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%. On Friday, the one-year swap rate ended at 6.53%, while the five-year swap rate ended at 6.11%.

CALL

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. 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

-- Govt to switch 6 gilts worth 350 bln rupees via auction

LIQUIDITY

--Total net inflows of 332.20 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

--932.37 bln rupees for reversal of 3-day reverse repo auction

--7.80 bln rupees as coupon on state bonds

* Outflows

--340 bln rupees for payment for gilts auction

End

Reported by Richard Fargose

Edited by Tanima Banerjee

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