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Informist, Friday, Sep 6, 2024

MUMBAI – Government bond prices and overnight indexed swap rates are likely to track the reaction of US Treasury yields to non-farm payrolls data for August, released after Indian market hours today, dealers said.

US non-farm payrolls rose 142,000 in August, against 161,000 expected in a Dow Jones poll. The unemployment rate edged lower to 4.2%, in line with expectations, and below July's 4.3% reading, which was the highest in nearly three years. Average hourly earnings rose 0.4% in August, higher than estimates.

Speaking after the data, US Federal Reserve Governor Christopher Waller said "the current batch of data no longer requires patience, it requires action," and "if the data suggests the need for larger cuts, then I will support that as well." Following this, US policymakers will enter a blackout period before the Sep 17-18 monetary policy review.

However, Fed funds futures showed only a 27% chance of a 50-basis-point interest rate cut this month, against 47% at 1700 IST, according to the CME FedWatch tool. The odds for a more moderate 25-bps rate cut increased to 73%.

Gilts and OIS rates are not traded on Saturday. The call money market is shut this Saturday on account of Ganesh Chathurthi. Any sharp movement in crude oil prices may also lend cues to gilts and swap rates at the opening on Monday.

On Monday, the one-day call money rate may open near the Reserve Bank of India's repo rate due to demand from funds from banks in early trade despite a liquidity surplus.

GOVERNMENT BONDS

On Monday, gilt prices will take cues from the reaction of US Treasury yields to the much-awaited US non-farm payroll data for August, released after Indian market hours, dealers said.

If expectations of a 50-bps rate cut do cement themselves, it may lead the yield on the benchmark 10-year 7.10%, 2034 to fall to fresh 29-month lows below 6.84%, dealers said. The fall may be limited due to a lack of domestic rate cut cues, 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.

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 101.70 rupees, or 6.85% yield.

OIS RATES

On Monday, swap rates may take cues from movement in US Treasury yields and crude oil prices. Volumes are expected to be higher-than-usual after the release of the US non-farm payrolls data, which may prompt large bets by traders, dealers said.

The swap rate in the one-year segment is seen at 6.43-6.53% and in the five-year segment at 6.00-6.12%. Today, the one-year swap rate closed at 6.47% and the five-year at 6.05%.

CALL

On Monday, the one-day call money rate may open near RBI's repo rate due to demand for funds from banks in early trade despite a liquidity surplus. Outflows on account of excise duty and tax deducted at source payments are due to begin Monday. 

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 6.25%.

RBI AUCTION

--Nil

LIQUIDITY

--Total net outflows of 183.22 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

--8.34 bln rupees as coupon on state bonds on Saturday

--3.28 bln rupees as redemption of state bonds on Sunday

--15.66 bln rupees as coupon on state bonds on Sunday

--46.56 bln rupees as coupon on the 7.40%, 2035 gilt on Monday

--22.94 bln rupees as coupon on state bonds on Monday 

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

* Outflows

--290.00 bln rupees as payment for gilts on Monday

End

Reported by Srijita Bose and Cassandra Carvalho

Edited by Aditya Sakorkar

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