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Informist, Wednesday, Sep 11, 2024

MUMBAI – On Thursday, government bond prices may open lower and overnight indexed swap rates are seen opening higher as traders are likely to unwind their bets from today following the US inflation data. US CPI inflation was marginally lower than expected, but not enough to give the market certainty on the quantum of rate cuts in the US in 2024, dealers said.

Data released after market hours showed US CPI inflation was 2.5% on year in August, slightly lower than expected. It rose 0.2% sequentially in August, in line with expectations. A poll by Reuters saw US CPI inflation for August at 2.6% on year against 2.9% in July. Traders betting on inflation moderating sharply were likely to be disappointed, dealers said. At 2030 IST, the CME FedWatch tool showed that Fed fund futures reflected an 81% probability, against 56% a week ago, of a 25 basis points interest rate cut by the US Federal Reserve next week. The expectation of a 50-bps rate cut has shrunk to 19%.

Traders will now turn to India CPI data, due post-market hours Thursday, for cues on a possible change in the Reserve Bank of India's monetary policy stance. India's CPI print for August is seen at 3.6%. This could be the second consecutive month it would have stayed below the RBI's target of 4%, according to a poll by Informist.

As anticipation for the Federal Open Market Committee rate cut cycle kicks in, any sharp movement in US Treasury yields may lend cues when the market opens, dealers said. Movement of crude oil prices may also affect gilt yields. US producer prices data, which will be released on Thursday, may lend further cues, but are not seen as a key determinant of rate cut views.

On Thursday, the one-day call money rate may open near the RBI's repo rate due to demand for funds from banks early in the day to meet their reserve requirements.

GOVERNMENT BONDS

On Thursday, gilt prices may open lower as traders are likely to unwind their bets from today as the US CPI inflation was marginally lower than expected but not enough to give the market certainty on the quantum of rate cuts in the US in 2024, dealers said.

Traders will now focus on India CPI for August, for cues on the possibility of a change in monetary policy stance in India. The data is due post-market hours.

Foreign fund inflows are likely to continue because of a widening interest rate differential between India and US bonds as well as the inclusion of Indian bonds in the JP Morgan Index, 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 guidelines on liquidity coverage ratio.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.80-6.88% during the day. Today, the bond closed at 101.89 rupees, or 6.83% yield.

OIS RATES

On Thursday, swap rates are seen opening higher as traders are likely to unwind their bets as the US CPI inflation was lower than expected but not enough to give the market certainty on the quantum of rate cuts in the US in 2024, 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 6.39% and the five-year at 5.97%.

CALL

On Thursday, the one-day call money rate may open near the RBI's repo rate due to demand for funds from banks early in the trade to meet their reserve requirements. 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 76.81 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

--85.00 bln rupees as redemption on 91-day T-bills

--158.00 bln rupees as redemption on 182-day T-bills

--84.61 bln rupees as redemption on 364-day T-bills

--59.60 bln rupees as coupon on 7.36%, 2052 gilt 

--6.93 bln rupees as coupon on state bonds 

* Outflows

--163.00 bln rupees as payment on 91-day T-bills

--77.00 bln rupees as payment on 182-day T-bills

--77.34 bln rupees as payment on 364-day T-bills

End

Reported by Srijita Bose

Edited by Ashish Shirke

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