India Money Market Outlook
Gilts seen steady before weekly auction Fri
This story was originally published at 22:05 IST on 10 October 2024
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MUMBAI – On Friday, government bonds were seen opening steady ahead of the INR 290-billion gilt auction, dealers said. The government will sell INR 140 billion of the 7.04%, 2029 bond and INR 150 billion of the 7.34%, 2064 gilt at 1030-1130 IST on Friday.
Overnight indexed swap rates are seen sensitive to global cues on Friday. Developments in West Asia are also closely watched, especially their impact on crude oil prices, dealers said.
Traders may also take cues from the overnight movement in US Treasury yields after mixed data from the US on Thursday. Initial unemployment claims for the week ended Saturday rose to 258,000, against 230,000 claims estimated by Dow Jones. On the other hand, data showed US headline CPI rose 0.2% on month in September, while core CPI – which excludes food and energy costs – rose 0.3% on month.
Both figures matched the rise seen in August, but were each marginally higher than estimated by Dow Jones. On an annual basis, headline CPI fell to 2.4% in September from 2.5% in August, and was the lowest reading since February 2021.
On Friday, the three-day call money rate may open near the Reserve Bank of India's repo rate of 6.50% because of demand for funds from banks to meet reserve requirements.
GOVERNMENT BONDS
On Friday, bonds are seen opening steady ahead of the INR 290-billion gilt auction at 1030-1130 IST, dealers said. Gilts may also take cues from the movement of US Treasury yields after mixed cues from data released post market hours on Thursday.
Traders will also await India's CPI data due to be released on Monday as the next domestic cue for bond prices. RBI Governor Shaktikanta Das on Wednesday highlighted that the near-term risks to inflation remain higher, and the possibility of a higher print in September due to adverse base effect. Traders will keep a keen watch on the print, and bond prices may rise if the reading is below 5%. Dealers said that the October CPI print will also be important in lending cues for a potential December rate cut by the Monetary Policy Committee.
The gilt market may see foreign fund inflows because of the inclusion of Indian bonds in J.P. Morgan's emerging market bond index after the weightage was increased to 4% in September. Any uptick in gilt 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 6.75-6.80% on Friday. On Thursday, the 10-year 7.10%, 2034 gilt closed at INR 102.23 or 6.78% yield.
OIS RATES
OIS rates may take cues from the movement in US Treasury yields after the release of mixed inflation and labour market data after market hours, dealers said.
The swap rate in the one-year segment is seen at 6.35-6.50% on Friday and in the five-year segment at 6.10-6.25%. On Thursday, the one-year swap rates ended at 6.42% and the five-year swap rates closed at 6.16%.
CALL
On Friday, the three-day call money rate may open near the RBI's repo rate of 6.50% because of demand for funds from banks to meet reserve requirements.
During the day, the call rate is seen in a range of 6.00-6.60%, dealers said. On Thursday, the one-day call closed at 5.75%.
RBI AUCTION
--Govt to auction two gilts worth INR 290 bln
LIQUIDITY
--Total net inflows of INR 104.00 billion. Calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repos.
* Inflows
--INR 96.64 billion on 182-day Treasury bills
--INR 7.36 billion as coupon on state government bonds
--INR 368.25 billion as redemption on 4-day variable rate reverse repo
--INR 93.98 billion as redemption on 3-day variable rate reverse repo
* Outflows
--Nil
End
Reported by Srijita Bose
Edited by Avishek Dutta
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