India Money Market Outlook
Gilts, swaps seen steady before key US econ data
This story was originally published at 22:10 IST on 16 October 2024
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MUMBAI – Prices of government bonds and overnight indexed swap rates may open steady on Thursday ahead of the release of the US retail sales data for September and weekly unemployment claims, post market hours. Movements in US Treasury yields, crude oil prices and developments in West Asia will also be keenly tracked for cues, dealers said.
The US initial weekly unemployment insurance claims report will be released at 1800 IST on Thursday. Advance monthly sales data for retail and food services in the US will be released at the same time. Softer-than-expected economic data may lead to the expectation of a larger quantum of rate cuts in the US by the Federal Open Market Committee at its upcoming meetings. Currently, the CME FedWatch tool showed that Fed fund futures reflected a 92.80% probability of a 25 basis point rate cut in November.
On Thursday, the one-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 their reserve requirements.
GOVERNMENT BONDS
On Thursday, bonds are seen opening steady as traders may be cautious ahead of the release of US economic data, dealers said.
The INR 250-billion buyback auction at 1030-1130 IST may also lend cues. The government has offered to buy back five securities maturing in 2025-26 (Apr-Mar) at the auction. Dealers expect demand to be firm at the auction, with some replacement demand from successful bidders likely to aid the prices of short-term gilts.
Fully accessible route gilts may see foreign fund inflows due to their ongoing inclusion on J.P. Morgan's emerging market bond index since June. 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.
Gilts may also take cues from any further geopoliticial developments in West Asia, dealers said. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.74-6.81% on Thursday. On Wednesday, the gilt closed at INR 102.26, or 6.77% yield.
OIS RATES
OIS rates are seen opening steady Thursday due to a lack of significant domestic interest rate cues, dealers said. Activity from offshore traders may be limited ahead of US economic data, dealers said.
The swap rate in the one-year segment is seen at 6.40-6.55% and in the five-year segment at 6.05-6.25%. On Wednesday, the one-year swap rate ended at 6.47% and the five-year swap rate closed at 6.13%.
CALL
On Thursday, 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 their reserve requirements. During the day, the call rate is seen in a range of 6.00-6.60%, dealers said. On Wednesday, the one-day call rate ended at 6.40%.
RBI AUCTION
--Govt to buy back INR 250 bln worth of five FY26 gilts
LIQUIDITY
--Total net outflows of INR 296.50 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 119.59 billion on 364-day Treasury bills
--INR 18.63 billion as coupon on 6.99%, 2026 gilt
--INR 36.93 billion as coupon on 7.17%, 2030 gilt
--INR 10.44 billion as coupon on state bonds
--INR 260.60 billion as redemption on two-day variable rate reverse repo
--INR 381.33 billion as redemption on overnight variable rate reverse repo
* Outflows
--INR 310.00 billion as payment on 91-day T-bills
--INR 87.07 billion as payment on 182-day T-bills
--INR 85.00 billion as payment on 364-day T-bills
End
US$1 = INR 84.00
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Cassandra Carvalho
Edited by Vidhi Verma
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