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Informist, Monday, Dec. 2, 2024

MUMBAI – Government bond prices are likely to open steady on Tuesday ahead of the INR 258.37-billion state bond auction, dealers said. Traders will look forward to the Reserve Bank of India's actions at the Monetary Policy Committee meeting outcome on Friday after GDP growth disappointed in the September quarter.

India's GDP growth fell to a seven-quarter low of 5.4% in Jul-Sept, sharply lower than the consensus estimate of 6.5% and the Reserve Bank of India's projection of 7.0%. With the growth shocker, the RBI is expected to loosen monetary policy conditions to spur economic activity. While some traders expect a repo rate cut of 25 basis points to 6.25%, others said that the central bank would announce a liquidity injection into the banking system through either a cash reserve ratio cut or open market purchases of bonds.

Any development in the conflicts in West Asia and Russia-Ukraine may also impact gilt and swaps at the market opening. The movement of US yields and crude oil prices could also lend cues to both the markets.

On Tuesday, the one-day call money rate may open near the RBI's repo rate of 6.50% due to demand for funds from banks in early trade to meet reserve requirements.

GOVERNMENT BONDS

On Tuesday, bond prices are likely to open steady ahead of the state bond auction at 1030-1130 IST, dealers said. Traders expect bond prices to consolidate some of the gains following India's GDP growth slowing sharply in Jul-Sept.

Traders also await any news on the extension of RBI Governor Shaktikanta Das' tenure. His term ends on Dec. 10, and an announcement is expected this week. Das has been holding the position of governor for six years, and an extension is seen as good news on grounds of policy continuity. On the other hand, some dealers said that considering Das' stance on controlling inflation, the market may welcome a new governor who is seen more likely to cut rates.

The yield on the 6.79%, 2034 bond is seen at 6.68-6.75% on Tuesday. On Monday, the 10-year benchmark gilt settled at INR 100.57, or 6.71% yield.

OIS RATES

Swap rates may open lower on Tuesday as traders may continue to bet on hopes of a rate cut by the MPC this week after the lower-than-expected GDP data for the quarter ended September, dealers said. The fall may be limited after the one-year swap rate hit an over two-year low, as traders may avoid large bets when the three-day policy meeting begins Wednesday.

The swap rate in the one-year segment is seen at 6.27-6.37% and in the five-year segment at 5.96-6.06%. On Monday, the one-year swap rate ended at 6.32% and the five-year swap rate closed at 6.01%.

CALL

On Tuesday, the one-day call money rate may open near the RBI's repo rate of 6.50% due to demand for funds from banks in early trade 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 ended at 6.00%. 

RBI AUCTION

--13 states to raise INR 258.37 billion via bond sale on Tuesday

LIQUIDITY

--Total net inflows of INR 22.21 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 5.31 billion as coupon on state bonds

--INR 16.90 billion as coupon on 7.04%, 2029 gilt

* Outflows

--Nil

End

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

Reported by Vidhushi RajPurohit

Edited by Saji George Titus

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