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Informist, Monday, Sep 16, 2024

MUMBAI – Government bond prices and overnight indexed swap rates may open steady Tuesday on caution ahead of the US Federal Open Market Committee's interest rate decision on Wednesday, dealers said.

Expectations of a rate cut of 50 basis points have risen to 55% from only 30% last week, even as Fed fund futures have priced in a 25-bps rate cut, the CME FedWatch tool shows. Any sharp movement in US Treasury yields and crude oil prices may also lend cues when the markets open.

On Tuesday, the two-day call money rate may open near the Reserve Bank of India's repo rate due to demand for funds from banks early in the day to meet their reserve requirements. During the day, the call rate is seen in a range of 6.00-6.60%, dealers said.

BONDS

On Tuesday, government bond prices may open steady on caution ahead of the US FOMC outcome on Wednesday, dealers said. Prices may continue their upward momentum ahead of the FOMC decision. Domestic money markets shut Wednesday for Id-e-Milad.

Eight states will raise 135 bln rupees through bonds on Tuesday, less than half the amount for the week in the indicative calendar for Jul-Sep. Demand is seen firm at the auction, especially as investors stock up on bonds following the cancellation of two Treasury bill auctions this month.

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 6.75-6.85%. Today, the bond closed at 102.35 rupees, or 6.76% yield.

OIS RATES

Swap rates are seen opening steady on Tuesday, with all eyes on the Federal Open Market Committee's rate decision Wednesday, dealers said. Fed funds futures show a greater likelihood of a 50-bps rate cut instead of 25 bps, according to the CME FedWatch tool.

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 6.37% and the five-year at 5.95%.

CALL

On Tuesday, the two-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 6.00%.

RBI AUCTION

--Eight states to raise 135.00 bln rupees via bond sale

--RBI to conduct a three-day variable rate repo auction worth 1 trln rupees

LIQUIDITY

--Total net outflows of 174.19 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

--38.63 bln rupees on coupon on 6.68%, 2031 gilt

--7.18 bln rupees on coupon on state bonds

* Outflows

--220 bln rupees as payment for gilts

End

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

Reported by Srijita Bose and Cassandra Carvalho

Edited by Ashish Shirke

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