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Informist, Wednesday, Sep 4, 2024

MUMBAI – Government bond prices are likely to open higher on Thursday after US labour market data released today was weaker than expected. However, overnight indexed swap rates may fall due to increasing expectations of a sharp rate cut in the US, dealers said.

Data released after market hours showed US job openings fell to 7.7 mln in July, the lowest since January 2021. The CME FedWatch tool showed that market participants are now evenly divided between a 25- and 50-basis-point rate cut, against the 30% odds of the larger rate cut earlier this week. US weekly jobless claims on Thursday and non-farm payrolls data for August, due after Indian market hours Friday, are now awaited. Any sharp movement in US Treasury yields and crude oil prices may also lend cues at the opening.

On Thursday, 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.

GOVERNMENT BONDS

On Thursday, gilt prices may take cues from further US labour market data this week, dealers said. US job openings for July were scheduled at 1930 IST, followed by weekly jobless claims on Thursday and the crucial non-farm payrolls report on Friday.

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.

During the day, primary dealers are likely to make room for the 290-bln-rupee weekly gilt auction on Friday. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.89% during the day. The 10-year benchmark 7.10%, 2034 bond closed at 101.67 rupees, or 6.86% yield.

OIS RATES

OIS rates are seen opening lower as job openings in the US fell to an over three-year low in July, suggesting a weakening of the labour market and the economy in general, dealers said. This raised hopes of sharper rate cuts by the Federal Open Market Committee to be announced on Sep 18. 

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%. The one-year swap rate ended at 6.49%, while the five-year swap rate ended at 6.09% today. 

CALL

On Thursday, 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

-Nil

LIQUIDITY

--Total net inflows of 40.25 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

--105.00 bln rupees as redemption on 91-day T-bills

--163.00 bln rupees as redemption on 182-day T-bills

--76.51 bln rupees as redemption on 364-day T-bills

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

* Outflows

--165.01 bln as payment for 91-day T-bills

--66.00 bln as payment for 182-day T-bills

--73.25 bln as payment for 362-day T-bills

End

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

Reported by Srijita Bose

Edited by Tanima Banerjee

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