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Informist, Monday, Oct. 14, 2024

NEW DELHI – Government bond prices may fall Tuesday after India's CPI inflation was higher than expected in September, dealers said. Overnight indexed swap rates may rise on fears of a delay in domestic interest rate cuts.

In data released after market hours Monday, India's CPI inflation rose to 5.5% in September, against 5.1% expected in an Informist Poll. CPI inflation for Jul-Sept averaged 4.2%, against the Reserve Bank of India's latest projection of 4.1%. After the data, Kotak Mahindra Bank pushed back its call on the first repo-rate cut to February, from December earlier.

The movement in US Treasury yields and crude oil prices may also lend cues to gilt prices and OIS rates, dealers said. Developments in the conflict in West Asia are also being closely watched.

On Tuesday, the one-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.

GOVERNMENT BONDS

On Tuesday, bonds are seen opening lower as India CPI inflation for September was higher than expectations, reducing chances of an interest rate cut by the RBI's Monetary Policy Committee in December, dealers said.

The yield on the 10-year gilt may rise by 2-3 basis points, but losses may be limited as state-owned banks pick up the paper at around 6.80% yield, a level seen as lucrative, dealers said. Some dealers also said they had already priced in September inflation being higher than the market consensus, and may cover their short bets as prices fall.

"I think we'll see a knee-jerk reaction in the morning (at market open) but prices will stabilise (recover) later. It is a temporary fall, people will start buying at high yield levels," a trader at a primary dealership said.

Gilts 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 6.77-6.83% on Tuesday. On Monday, the gilt closed at INR 102.19 or 6.78% yield.

OIS RATES

OIS rates may rise Tuesday after the higher-than-expected CPI inflation print for September may push rate-cut hopes back from December, which the market is currently pricing in, dealers said.

The swap rate in the one-year segment is seen at 6.40-6.55% and in the five-year segment at 6.12-6.30% Tuesday. On Monday, the one-year swap rate ended at 6.45% and the five-year swap rate closed at 6.18%. 

CALL

On Tuesday, the one-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 Monday, the one-day call closed at 5.75%.

RBI AUCTION

--Eight states to raise INR 130.50 billion via bonds

LIQUIDITY

--Total net inflows of INR 35.56 billion. Calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repo.

* Inflows
--INR 24.58 billion as coupon on 7.23%, 2039 bond

--INR 10.58 billion as coupon on state bonds

* Outflows

--Nil

End

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

Reported by Aaryan Khanna

Edited by Rajeev Pai

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