India Money Market Outlook
Gilts, swaps to take cues from US yields
This story was originally published at 20:20 IST on 31 December 2024
Register to read our real-time news.Informist, Tuesday, Dec. 31, 2024
MUMBAI – Government bond prices and overnight indexed swap rates may take cues from US Treasury yields and movement in the Indian rupee against the dollar on Wednesday, dealers said. However, dealers expect activity from foreign banks and private dealers to increase as they return to the trading desk after the annual lull between Christmas and New Year.
Geopolitical developments and movement in crude oil prices could also impact gilt prices and swap rates at the open.
On Wednesday, the one-day call money rate may open near the repo rate of 6.50% due to the demand for funds.
GOVERNMENT BONDS
On Wednesday, gilt prices may take cues from the US Treasury yields at open, dealers said. Volume is expected to remain muted due to the absence of several traders on the New Year Day. However, some foreign banks and primary dealerships may increase their activity as they resume trading activity after the break near the New Year.
Gilt prices will also track the movement in the Indian rupee against the dollar, after it hit a series of record lows last week. Any major geopolitical developments and movement in crude oil prices could also lend cues to gilt prices at the open.
After market hours, the RBI released the indicative calendar for state bond issuances for Jan-Mar, which was slightly higher than what traders had expected. States are scheduled to borrow INR 4.73 trillion in Jan-Mar, up from INR 2.53 trillion they raised through bonds in Oct-Dec. In Jan-Mar 2024, states had raised INR 4.03 trillion through bonds.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.73-6.80% during the day. On Tuesday, the 2034 bond settled at INR 100.20, or 6.76% yield.
OIS RATES
On Wednesday, swap rates will take cues from the movement in US yields, dealers said. Activity from foreign banks and foreign portfolio investors may increase after the annual lull, as they return to trading desks in the New Year.
Tight liquidity conditions in the banking system may result in an upward pressure on short-term swap rates. The swap rate in the one-year segment is seen at 6.45-6.65% and in the five-year segment at 6.15-6.30%. On Tuesday, the one-year swap rate ended at 6.51% and the five-year swap rate closed at 6.20%.
CALL
On Wednesday, the one-day call money rate may open near the repo rate of 6.50% due to the demand for funds. During the day, the call rate is seen in a range of 6.00-6.80%, dealers said. On Tuesday, the one-day call rate ended at 6.00%.
RBI AUCTION
--RBI to auction 91-day, 182-day, and 364-day T-bills worth INR 280 billion on Wednesday
LIQUIDITY
--Total net outflows of INR 239.08 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 8.21 billion as coupon on state bonds
* Outflows
--INR 247.29 billion as payment for state bond auction
--INR 500.04 billion on reversal of overnight variable rate repo auction
End
Reported by Vidhushi Rajpurohit
Edited by Akul Nishant Akhoury
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