India Money Market Outlook
Gilts, swaps to take cues Fri from US econ data
This story was originally published at 22:21 IST on 17 October 2024
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MUMBAI – Prices of government bonds and overnight indexed swap rates on Friday may take cues from US economic data released post-market hours Thursday. Movements in US Treasury yields, crude oil prices and developments in West Asia will also be keenly tracked for cues, dealers said.
US retail sales for September grew 0.4% on month, against 0.3% estimated by Dow Jones. Initial jobless claims in the US for the week ended Saturday were at 241,000, lower than the expected 259,000. Both the data points indicated that the US economy remained resilient, weakening the case for steep rate cuts. After the data, the probability of a status quo on rates doubled to nearly 15%, with the majority still expecting a 25-basis-point rate cut by the US FOMC in November.
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 their reserve requirements.
GOVERNMENT BONDS
On Friday, bonds are seen opening lower after economic data from the US led to a rise in US yields. Prices may not fall sharply before the weekly gilt auction at 1030-1130 IST, they said.
The US data may sour demand from foreign investors at the weekly gilt auction, dealers said. The government will sell INR 100 billion of the 7.02%, 2031 bond, INR 130 billion of the 7.23%, 2039 bond, and INR 100 billion of the 7.09%, 2054 gilt. Overall demand at the auction is seen firm, with mutual funds and private banks keen to pick up the seven-year paper, dealers said.
Fully-accessible route gilts may not see large bond sales by foreign investors due to their ongoing inclusion on the J.P. Morgan 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 geopolitical developments in West Asia and movement in crude oil prices, dealers said. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.76-6.83% on Friday. On Wednesday, the gilt closed at INR 102.20, or 6.78% yield.
OIS RATES
On Friday, OIS rates are seen taking cues from the movement of US yields after the release of high-frequency data on retail sales and unemployment, dealers said. Offshore cues will be in focus amid a lack of domestic triggers.
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 Thursday, the one-year swap rate ended at 6.48% and the five-year swap rate closed at 6.15%.
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 their 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 rate ended at 5.75%.
RBI AUCTION
--Govt to auction three gilts worth INR 330 bln
LIQUIDITY
--Total net inflows of INR 369.43 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 215.40 billion on 91-day Treasury bills
--INR 87.23 billion on 182-day Treasury bills
--INR 56.30 billion as coupon on 7.10%, 2029 gilt
--INR 10.50 billion as coupon on state bonds
--INR 442.75 billion as redemption on 14-day variable rate reverse repo
--INR 240.70 billion as redemption on four-day variable rate reverse repo
--INR 403.85 billion as redemption on overnight variable rate reverse repo
* Outflows
--Nil
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Cassandra Carvalho
Edited by Tanima Banerjee
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