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Informist, Thursday, Sep 12, 2024

MUMBAI – Government bond prices may open steady on Friday ahead of the 220-bln-rupee weekly gilt auction at 1030-1130 IST. Overnight indexed swap rates are seen opening higher as traders are likely to unwind their bets taken today on India's CPI inflation being lower than expected, dealers said.

After market hours, government data showed India's CPI inflation rose to 3.65% in August from a revised 3.60% in July. An Informist poll had estimated the figure at 3.6%, and traders had pegged it at 3.2%. Food price inflation was 5.66% last month, against 5.42% in July. The print may lower expectations of the Monetary Policy Committee softening its policy stance in October, though rate cuts may still occur by December, dealers said.

In the US, weekly jobless claims were at 230,000 in the week ended Saturday, against 225,000 estimated by Dow Jones. The US producer prices index rose 0.2% on month in August, in line with expectations, though stripped of volatile factors such as food and fuel, the price rise was slightly higher than anticipated.

All eyes are on the Federal Open Market Committee's meeting next week, with expectations not changing materially after the US data. At 2100 IST, the CME FedWatch tool showed that Fed fund futures reflected an 85% probability of a 25-basis-point rate cut, with 15% pricing in a 50 bps cut. Movement of crude oil prices may also affect gilt prices and swap rates.

On Friday, the four-day call money rate may open near the Reserve Bank of India's repo rate due to demand for funds from banks in early trade to meet their reserve requirements.

BONDS

On Friday, gilt prices may open steady ahead of the 220-bln-rupee gilt auction. Views on the movement in gilt prices were mixed after a number of factors played out after market hours, dealers said. 

In a release after market hours, the RBI today cancelled two auctions of Treasury bills scheduled for Wednesday and Sep 25 in consultation with the government. This would reduce the gross supply of T-bills in Jul-Sep by 400 bln rupees. After the announcement, traders are likely to stock up on short-term bonds, which may outweigh the impact of the disappointing CPI print, dealers said.

The government will sell 110 bln rupees of the 7.02%, 2031 gilt and 110 bln rupees of the 7.46%, 2073 gilt on Friday. Demand at the auction is expected to be firm – banks are likely to buy the seven-year gilt to match their liabilities, while life insurers will pick up the 50-year bond, dealers said.

Foreign fund inflows are likely to continue because of 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 6.78-6.85% during the day. Today, the bond closed at 102.04 rupees, or 6.81% yield.

OIS RATES

On Friday, swap rates are seen opening higher as traders are likely to unwind their bets taken today on India's CPI inflation being lower than expected, dealers said. The CPI reading did not make a case for the MPC softening its policy stance in October, though rate cuts may still occur by December.

The swap rate in the one-year segment is seen at 6.35-6.53% and in the five-year segment at 5.90-6.10%. Today, the one-year swap rate closed at 6.38% and the five-year at 5.95%.

CALL

On Friday, the four-day call money rate may open near the RBI's repo rate due to demand for funds from banks in early 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

--RBI to auction 220 bln rupees worth of gilts in weekly auction

LIQUIDITY

--Total net inflows of 35.53 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

--35.53 bln rupees as coupon on state bonds

--250.00 bln rupees on redemption of 2-day variable rate reverse repo

--722.40 bln rupees on redemption of 1-day variable rate reverse repo

* Outflows

--Nil

End

Reported by Srijita Bose

Edited by Avishek Dutta

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