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Informist, Tuesday, Dec. 17, 2024

MUMBAI – On Wednesday, prices of government bonds and overnight indexed swap rates may take their opening cues from overnight movement in US Treasury yields. Traders will remain cautious before the US Federal Open Market Committee makes its decision at 0030 IST Thursday.

While the FOMC is expected to cut rates by 25 basis points, traders await the outlook on US rates after the policy. In the Summary of Economic Projections, dealers fear that US Federal Reserve officials would signal only shallow or no rate cuts in 2025. Any major geopolitical developments and movement in crude oil prices could also lend cues to gilts and swaps at the open.

On Wednesday, the one-day call money rate may open near the Reserve Bank of India's marginal standing facility rate of 6.75% due to demand for funds from banks. During the day, the call rate is seen in a range of 6.00-6.85%, dealers said.

GOVERNMENT BONDS

On Wednesday, prices of government bonds may take opening cues on overnight movement in US yields. Traders will remain cautious before the FOMC makes its decision at 0030 IST Thursday.

Trade volume may be low, with prices seen confined to a narrow band for most of the day. The activity of foreign banks is expected to be muted as they close their accounts towards the end of the year, dealers said. Further pressure on the currency could also weigh on gilt prices, they said.

Any major geopolitical developments and movement in crude oil prices could also lend cues to gilts at the opening. The yield on the 6.79%, 2034 bond is seen at 6.72-6.80% Wednesday. On Tuesday, the 10-year benchmark settled at INR 100.21, or 6.76% yield.

OIS RATES

On Wednesday, swap rates will take cues from overnight movement in US yields before the FOMC's policy statement. A further rise in US yields could lead to traders paying fixed rates, though most traders will refrain from placing aggressive bets before the decision.  

Tight liquidity conditions in the banking system may result in upward pressure on swap rates. The swap rate in the one-year segment is seen at 6.43-6.52% and in the five-year segment at 6.10-6.18%. On Tuesday, the one-year swap rate ended at 6.47% and the five-year swap rate closed at 6.13%.

CALL

On Wednesday, the one-day call money rate may open near the RBI's marginal standing facility rate of 6.75% due to demand for funds from banks. During the day, the call rate is seen in a range of 6.00-6.85%, dealers said. On Tuesday, the one-day call ended at 5.75%.

RBI AUCTION

--RBI to auction 91-day, 182-day, and 364-day T-bills worth INR 190 billion on Wednesday

LIQUIDITY

--Total net outflows of INR 185.56 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 7.25 billion as coupon on state bonds

--INR 15.44 billion as coupon on 7.02%, 2031 gilt

* Outflows

--INR 208.25 billion as payment on state bonds

--INR 231.88 billion as payment on 1-day variable rate repo tender

End

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

Reported by Srijita Bose

Edited by Rajeev Pai

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