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Informist, Thursday, Aug 22, 2024

MUMBAI – Government bond prices may open steady on Friday ahead of the 230-bln-rupee weekly gilt auction. Minutes of the Reserve Bank of India's Monetary Policy Committee meeting on Aug 6-8 were on expected lines, dealers said.

Overnight indexed swap rates are likely to be little changed ahead of US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Economic Symposium at 1900 IST. Any sharp movement in US Treasury yields and crude oil prices may also lend cues to gilts and swaps at open.

On Friday, the three-day call money rate may open near the Reserve Bank of India's repo rate of 6.50% due to strong demand for funds from banks amid a fall in liquidity surplus.

GOVERNMENT BONDS

On Friday, gilt prices may open steady ahead of the 230-bln-rupee weekly gilt auction, dealers said. At the auction, the government will sell 120 bln rupees of the 7.04%, 2029 bond and 110 bln rupees of the 7.34%, 2064 gilt at 1030-1130 IST on Friday. The auction is likely to sail through, dealers said.

Minutes of the MPC's Aug 6-8 meeting were on expected lines and were a repeat of the policy tone's focus on bringing inflation down to the central bank's 4% target, dealers said. RBI members of the panel, including Deputy Governor Michael Patra, said that growth remained robust. External members, including Ashima Goyal and Jayanth Varma, said India was not meeting its potential growth due to overtight monetary policy. The market's reactions to the external members' comments would be limited as all three members are at the end of their terms, dealers said.

Foreign fund inflows are likely to continue due to 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 6.82-6.90% during the day. Today, the 10-year bond ended at 101.72 rupees, or 6.85% yield.

OIS RATES

On Friday, swap rates may open steady as minutes of the MPC's Aug 6-8 meeting were in line with the market's expectations, dealers said. The six-member committee broadly stuck to its comments made in earlier minutes, with RBI members – who will attend the next policy meet in October – continuing to focus on curbing inflation to the central bank's 4% target.

The terms of all three external members of the committee will end before the next monetary policy review.

Separately, traders look forward to US Fed Chair Powell's speech at the Jackson Hole Economic Symposium, scheduled at 1900 IST on Friday.

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%. Today, the one-year swap rate closed at 6.50% and the five-year at 6.07%.

CALL

On Friday, the three-day call money rate may open near the RBI's repo rate of 6.50% due to strong demand for funds from banks amid a fall in liquidity surplus. During the day, the call rate is seen at 6.20-6.80%, dealers said.

LIQUIDITY

--Total net inflows of 153.09 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

--123.00 bln rupees as redemption of 91-day T-bills

--30.09 bln rupees as coupon on state bonds

--149.54 bln rupees as redemption of 14-day reverse repo

--216.85 bln rupees as redemption of 4-day reverse repo 

--8.75 bln rupees as redemption of 3-day reverse repo

* Outflows

--Nil

End

Reported by Cassandra Carvalho and Srijita Bose

Edited by Avishek Dutta

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