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Informist, Tuesday, Sep 3, 2024

MUMBAI – Government bond prices may open higher on Wednesday, while overnight indexed swap rates may fall, due to increasing expectations of a sharp rate cut in the US, dealers said.

The US S&P Manufacturing PMI came in at 47.9 in August, against a flash print of 48.0 and a final reading of 49.6 in July. The Institute of Supply Management's report on business manufacturing PMI printed at 47.2, against 47.9 expected in a Dow Jones poll. A reading above 50 denotes expansion in activity, while a print below 50 indicates contraction.

The next cue, and the most significant data before the US Federal Open Market Committee rate decision on Sep 18, is the non-farm payrolls data due on Friday, dealers said. Any sharp movement in US Treasury yields and crude oil prices overnight may affect gilt prices and swap rates at the opening.

On Wednesday, the one-day call money rate may open around the Reserve Bank of India's repo rate of 6.50% because of demand for funds from banks in early trading hours.

GOVERNMENT BONDS

On Wednesday, gilt prices may open higher after US PMI data released after market hours suggested the world's largest economy was weakening quicker than anticipated, dealers said. This led to hope that the US FOMC would cut rates aggressively.

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 6.83-6.89% during the day. Today, the bond closed at 101.58 rupees, or 6.87% yield.

OIS RATES

OIS rates are seen opening lower on Wednesday as PMI data released after market hours suggested the world's largest economy was weakening quicker than anticipated, dealers said. This raised hope that the US FOMC would cut rates aggressively. 

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 6.51% and the five-year at 6.13%.

CALL

On Wednesday, the one-day call money rate may open around the RBI's repo rate of 6.50% because of demand for funds from banks in early trading hours. During the day, the call rate is seen in a range of 6.00-6.60%, dealers said. Today, the one-day call money rate ended at 5.75%.

RBI AUCTION

--RBI to auction 80 bln rupees of 91-day T-bills

--RBI to auction 60 bln rupees of 182-day T-bills

--RBI to auction 60 bln rupees of 364-day T-bills

LIQUIDITY

--Total net outflows of 191.30 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

--14.23 bln rupees as coupon on state bonds

--184.10 bln rupees as reversal of overnight variable rate reverse repo

* Outflows

--205.53 as payment for state bonds

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Cassandra Carvalho

Edited by Avishek Dutta

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