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Informist, Tuesday, Sep 17, 2024

MUMBAI – Government bond prices and overnight indexed swap rates on Thursday will take cues from the US Federal Open Market Committee's interest rate decision on Wednesday, dealers said. On Wednesday, money markets are shut for Id-e-Milad.

Expectations of a rate cut of 50 basis points on Wednesday have risen to 63% from 30% last week, the CME FedWatch tool showed. Any sharp movement in US Treasury yields and crude oil prices may also lend cues when the markets open.

On Thursday, the one-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.

BONDS

On Thursday, government bond prices will take cues from the outcome of the FOMC, due at 2330 IST on Wednesday.

A fall in yield of the 10-year benchmark gilt to the 6.75% level is expected if the Fed decides on a 50-bps cut, after which foreign and private banks may sell their bonds at a profit, dealers said. A 25-bps cut may result in a mixed reaction, and US Fed officials' guidance on the quantum and pace of rate cuts is seen as crucial. The 10-year gilt yield is not seen rising above 6.82% unless the FOMC foregoes a rate cut entirely, 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. Inflows may increase significantly because of a sharper rate cut by the Fed due to a wider interest rate differential.

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 6.74-6.82%. Today, the bond closed at 102.21 rupees, or 6.78% yield.

OIS RATES

Swap rates are seen taking cues from the US FOMC rate decision and the outlook of Fed officials on interest rate cuts when the market opens on Thursday, dealers said. 

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 6.39% 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 day 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 two-day call money rate ended at 6.75%.

RBI AUCTION

--Nil

LIQUIDITY

--Total net inflows of 321.09 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

--8.86 bln rupees as coupon on state bonds 

--10 bln rupees on redemption of state bonds

--51.99 bln rupees on redemption of 91-day Treasury bills 

--157.83 bln rupees on redemption of 182-day Treasury bills 

--117.69 bln rupees on redemption of 364-day Treasury bills 

--50.71 bln rupees as coupon on 7.88%, 2030 gilt 

--57.92 bln rupees as coupon on 7.40%, 2062 gilt 

--1.09 bln rupees as coupon on state bonds 

* Outflows

--135 bln rupees as payment for state bonds 

End

Reported by Srijita Bose

Edited by Manisha Baxla

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