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Informist, Friday, Oct. 18, 2024

MUMBAI – On Saturday, the two-day call money rate may open below the Reserve Bank of India's repo rate of 6.50% because of low demand for funds from banks amid a liquidity surplus. As is usually the case on Saturdays, volume in the market is expected to be low.

During the day, the call rate is seen in a range of 6.00-6.60%, dealers said. On Friday, the three-day call rate ended at 6.50%.

Government bonds and overnight indexed swap rates are not traded Saturday. On Monday, gilts and swaps will take cues from global markets such as the movement of US yields and crude oil prices. The geopolitical developments in West Asia will also be keenly tracked. 

GOVERNMENT BONDS

On Monday, bond prices will take cues from global markets such as the movement of US yields and crude oil prices.

Spreads between state bonds and gilts are likely to compress next week after the RBI said five states will raise only INR 81 billion through bonds on Tuesday. The RBI's indicative calendar for Oct-Dec showed a borrowing amount of INR 296 billion at next week's auction.

The lower borrowing by states, though largely expected, could also help prices of long-term gilts, dealers said. The lower borrowing by states is probably on account of the Centre devolving INR 1.78 trillion to states as their share in taxes for October, double the normal monthly devolvement.

The RBI will conduct the gilt switch auction at 1030-1130 IST Monday. The government will switch eight short-term gilts with six bonds of longer maturities. Banks may participate in the switch, and short-term bond prices may see a rise before the auction, dealers said.

Fully-accessible route gilts may see passive inflows from foreign investors due to their ongoing inclusion in J.P. Morgan's Emerging Market Bond Index since June, while active foreign portfolio investors may likely exit holdings in gilts due to a continued rise in US yields. 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 6.78-6.86% on Monday. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.74-6.81% on Thursday. On Friday, the benchmark gilt closed at INR 101.93, or 6.82% yield.

OIS RATES

On Monday, OIS rates are seen taking cues from the movement of US Treasury yields and crude oil prices. 

The evolution of domestic rate cut expectations after RBI Governor Shaktikanta Das' comments on Friday may also lead to a further movement in OIS rates, dealers said. "A rate cut at this stage will be very premature and can be very, very risky," Das said at the Bloomberg India Credit Forum Friday.

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 Friday, the one-year swap rate ended at 6.53% and the five-year swap rate closed at 6.23%. 

RBI AUCTION

--Nil

LIQUIDITY

--Total net inflows of INR 1.21 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 1.21 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 Srijita Bose

Edited by Tanima Banerjee

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