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Informist, Thursday, Sep 26, 2024

MUMBAI – Government bond prices may open lower on Friday, dealers said. In a release after market hours today, the government stuck to its borrowing aim for 2024-25 (Apr-Mar) and said it would borrow the remaining amount in Oct-Mar. Traders expected at least a 100 bln rupee cut in borrowing.

Any sharp movement in US Treasury yields and crude oil prices may also lend cues when the markets open.

On Friday, the three-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. During the day, the call rate is seen in a range of 6.00-6.60%, dealers said.

BONDS

On Friday, gilts may open lower after the borrowing calendar for dated securities for Oct-Mar was higher than the market had bet on.

Traders were anticipating the Oct-Mar calendar to show 6.3-6.5 trln rupees worth of gilt issuances, showing a minimum borrowing cut of 100 bln rupees. The government said it would borrow 6.61 trln rupees on a gross basis in Oct-Mar. This may cause a sharp fall in gilt prices at the open, dealers said.

Any fall in prices may be worsened by the upcoming weekly gilt auction at 1030-1130 IST on Friday, which will likely see aggressive short bets from traders. The RBI will auction 120 bln rupees of the 7.04%, 2029 gilt, 120 bln rupees of the 7.23%, 2039 gilt and 100 bln rupees of the 7.09%, 2054 gilt.

The impending quarter-end is also likely to drive aggressive bond sales, as banks aim to book profit, dealers said. Only trades up to Friday will be added to the treasury trading gains for Jul-Sep, with the settlement on Monday, the last day of the quarter.

However, short-term bonds may not see a significant fall as they have not risen as much over the past few days, dealers said. Moreover, the yield curve may steepen in the coming days after release today showed what kind of supply to expect. The government's planned Treasury bill issuance for Oct-Dec was 2.47 trln rupees, against traders' views of around 2.8 trln rupees. The government running off its cash balance adds to banking system liquidity, putting more cash in the hands of traders to buy bonds, dealers said.

Bonds maturing in 3-7 years make up nearly the same percentage of the calendar as in Apr-Mar, slightly less than a quarter. It is the 10-15 year bonds' relative supply that has slid the most between the first and second half of the fiscal year, down nearly 1.5 percentage points. Meanwhile, the concentration of gilt issuances in long-term bonds has only increased, with 38.6% of the Oct-Mar calendar comprised 30-50 year gilts, against 37.33% in Apr-Sep. This was in line with requests from life insurers and pension funds, dealers said.

The market's focus will also shift to the state bond calendar expected in post-market hours on Friday. 

The impact of offshore cues may be limited as traders react to the borrowing numbers. Any uptick in yields may also prompt purchases by domestic banks, which are gearing up to meet a regulatory requirement to maintain larger buffers of liquid assets, such as government securities, from the next financial year starting Apr 1. 

Foreign fund inflows are likely to continue because of the inclusion of Indian bonds in JP Morgan's emerging market bond index. The subsequent fall in US yields after the Fed's 50 bps cut may increase foreign inflows due to an appealing interest rate differential between the yields of US Treasury notes and Indian gilts.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.70-6.77% on Friday. Today, the benchmark paper closed at 102.66 rupees, or 6.72% yield.

OIS RATES

On Friday, OIS rates may take cues from the overnight movement in US Treasury yields and crude oil prices, dealers said. US economic data and Fed Chair Powell's speech after market hours did not have a sizeable impact on the 10-year US Treasury note at 2045 IST.

US initial jobless claims for the week ended Sep 21 released post market hours dropped 4,000 last week to 218,000 which is the lowest level since May. Economists polled by Dow Jones were expecting weekly initial jobless claims to come in at 223,000 for this week.

The third estimate of US GDP for Apr-Jun showed a strength in the US economy. Gross domestic income growth, which measures economic activity from the income side, was revised up to 3.4% in Apr-Jun from the initially estimated 1.3% pace. The headline figure was retained at 3.0% growth on year, as expected in a Dow Jones poll.

After the data, the chances of a 50-basis-point rate cuts have been reduced to 54.8% from 57.4% a day before, while the remaining expect 25 bps cut by the Federal Open Market Committee at its November meeting. 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 6.36% and the five-year at 5.99%.

CALL

On Friday, the three-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 6.30%.

RBI AUCTION

--RBI to auction 340 bln rupees worth of gilts in weekly auction

LIQUIDITY

--Total net inflows of 131.81 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

--88.76 bln rupees as redemption on 364-day Treasury bills

--43.05 bln rupees as coupon of state bonds

* Outflows

--Nil

End

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

Reported by Srijita Bose and Cassandra Carvalho

Edited by Akul Nishant Akhoury

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