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Informist, Friday, Aug 30, 2024

MUMBAI – Government bond prices may open higher on Monday after India's Apr-Jun GDP growth came in lower than expected, which may spur bets that the Monetary Policy Committee of the Reserve Bank of India will start cutting rates sooner than later, dealers said.

On Monday, overnight indexed swap rates may fall as India's economy grew only at 6.7% in Apr-Jun, lower than the median of estimates of 6.9% in a poll by Informist. While the lower than expected GDP would boost hopes of a rate cut at the next meeting of the RBI's Monetary Policy Committee in December, dealers will still have their fingers crossed as to what the US Federal Reserve will do at its next meeting in September.

The US Fed's preferred inflation gauge--the core personal consumption expenditures price index--for July rose 0.2% on month, or 2.6% from a year ago. This was in line with market expectations and did not significantly change expectations, either way, about a rate cut in the US. Any sharp movement in US Treasury yields and crude oil prices overnight will affect swap rate at the opening.

On Saturday, the two-day call money rate may open below the RBI's repo rate of 6.50% because of low demand for funds from banks amid the liquidity surplus.

GOVERNMENT BONDS

Gilts are not traded on Saturday. On Monday, gilt prices may open higher after India's GDP growth was lower than expected, which may spur rate cut bets by the Monetary Policy Committee starting December, dealers said.

RBI officials on the MPC, including Governor Shaktikanta Das, have so far shied away from terming growth anything other than strong. However, India's GDP grew 6.7% in Apr-Jun, lower than the median estimate of 6.9% in an Informist poll, and well short of the RBI's own 7.1% forecast.

The US Federal Reserve's preferred inflation gauge--the core personal consumption expenditures price index--for July rose 0.2% on month, in line with market expectations, and did not have a sizeable impact on the US rate view, 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.

As seen today, 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.

Any sharp movement in US Treasury yields and crude oil prices may also lend cues at the opening. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.89% during the day. Today, the bond closed at 101.63 rupees, or 6.86% yield.

OIS RATES

Overnight indexed swap rates are not traded on Saturday. On Monday, swap rates may fall after India's GDP growth was lower than expected, which may spur rate cut bets by the MPC starting in December, dealers said.

The US personal consumption expenditure data for July was in line with estimates and did not lend significant cues to the US rate trajectory. 

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 6.43-6.58% and in the five-year segment at 6.00-6.18%. Today, the one-year swap rate closed at 6.49% and the five-year at 6.08%.

CALL

On Saturday, the two-day call money rate may open below the RBI's repo rate of 6.50% because of low demand for funds from banks amid the liquidity surplus. As is usually the case on Saturdays, volume in the market is expected to be low. During the day, the call rate is seen in a range of 6.00-6.60%, dealers said. Today, the three-day call money rate ended at 6.50%.

RBI AUCTION

--Nil

LIQUIDITY

--Total net outflows of 281.08 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

--5.00 bln rupees as redemption of state bonds on Sunday

--10.00 bln rupees as redemption of state bonds on Monday

--3.92 bln rupees as coupon on state bonds on Monday

* Outflows

--300.00 bln rupees as payment for gilts on Monday

End

Reported by Cassandra Carvalho

Edited by Ashish Shirke

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