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Informist, Monday, Dec. 9, 2024

MUMBAI – Government bonds may open higher and overnight indexed swap rates lower on Tuesday, in reaction to Revenue Secretary Sanjay Malhotra being appointed as the new Reserve Bank of India governor, dealers said. Any movement in US Treasury yields may also lend cues to both the markets at opening.

Market players expect Malhotra to be more amenable to supporting the government's growth agenda by lowering interest rates. Traders are placing bets on a rate cut by the Monetary Policy Committee at its meeting in February.

Gilts and swaps traders will also track the movement of US yields before the US CPI inflation data Wednesday, dealers said. Traders will also look out for global developments and the movement of crude oil prices.

On Tuesday, the one-day call money rate may open above the RBI's repo rate of 6.50% due to demand for funds from banks.

GOVERNMENT BONDS

On Tuesday, gilts may open higher after the government announced the appointment of Revenue Secretary Sanjay Malhotra as the next RBI governor. Gilts may also take cues from the movement of US yields before the US CPI inflation data due Wednesday, dealers said.

Traders are placing fresh bets on a rate cut in February by the MPC after the appointment of a new governor. "This is definitely market moving news, we will see a sharp rally in gilts as the new governor is expected to be from the government's side (in favour of the government) and may opt for a rate cut in February," a dealer at a private bank said. 

Any developments in West Asia and the Russia-Ukraine war may impact gilt prices at open. The yield on the 6.79%, 2034 bond is seen at 6.66-75% Tuesday. On Monday, the 10-year benchmark bond settled at INR 100.50, or 6.72% yield.

OIS RATES

On Tuesday, swap rates may open lower following the announcement of the next RBI governor. Given that Malhotra is currently serving in the finance ministry, market players expect him to be more amenable to supporting the government's growth agenda by lowering interest rates.

"The market is still assessing the news, but the appointment of the revenue secretary will usually mean that he will pay more heed to the government's calls for a cut in borrowing rates, so rate cut possibilities will now increase," a dealer at a private bank said.

The swap rate in the one-year segment is seen at 6.30-6.42% and in the five-year segment at 5.95-6.10%. On Monday, the one-year swap rate ended at 6.40% and the five-year swap rate closed at 6.02%.

CALL

On Tuesday, the one-day call money rate may open above the RBI's repo rate of 6.50% due to demand for funds from banks. During the day, the call rate is seen in a range of 6.00-6.75%, dealers said. On Monday, the one-day call rate ended at 5.75%.

RBI AUCTION

--Six states to raise INR 114 billion via bond sale on Tuesday

LIQUIDITY

--Total net inflows of INR 79.29 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 7.00 billion as coupon on state bonds

--INR 72.30 billion redemption of state bonds

* Outflows

--INR 406.30 billion on payment of 1-day variable rate repo

End

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

Reported by Srijita Bose

Edited by Ashish Shirke

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