India Money Market Outlook
Gilts seen steady on caution before auction Fri
This story was originally published at 20:26 IST on 2 January 2025
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MUMBAI – Government bond prices may open steady Friday ahead of the weekly gilt auction at 1030-1130 IST, dealers said. The government will sell INR 220 billion of the 6.79%, 2034 bond and INR 100 billion of the 7.09%, 2074 bond in the auction.
Overnight indexed swaps will likely take cues from the movement of US Treasury yields after data showed US initial unemployment claims for the week ended Saturday were lower at 211,000, against 222,000 projected by a Dow Jones poll, dealers said.
After the year-end holidays, dealers expect activity from foreign banks and private dealers to increase as they return to their trading desks. Geopolitical developments and movement in crude oil prices could also impact gilt prices and swap rates at the open.
On Friday, the three-day call rate may open near the repo rate of 6.50% on demand for funds from banks.
GOVERNMENT BONDS
On Friday, gilt prices may open steady ahead of the weekly gilt auction, dealers said. Bonds may also take cues from US Treasury yields at open, dealers said.
Gilts will also track movement of the Indian rupee against the dollar, after it hit a record closing low for the eighth straight session on Thursday. Any major geopolitical developments and movement in crude oil prices could also lend cues to gilts at the open.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.75-6.81% during the day. On Thursday, the bond settled at INR 99.99, or 6.79% yield.
OIS RATES
Swap rates may take cues from the movement of US yields taking in account US weekly jobless claims and December manufacturing purchasing managers' index. Activity of foreign banks and foreign portfolio investors may increase after the year-end holidays, as they return to their trading desks in the new year.
Tight liquidity conditions in the banking system may result in upward pressure on short-term swap rates. The swap rate in the one-year segment is seen at 6.49-6.55% and in the five-year segment at 6.20-6.26%. On Thursday, the one-year swap rate ended at 6.52% and the five-year swap rate closed at 6.23%.
CALL
On Friday, the three-day call rate may open near the repo rate of 6.50% on demand for funds. During the day, the call rate is seen in a range of 6.00-6.80%, dealers said. On Thursday, the one-day call rate ended at 6.45%.
RBI AUCTION
--Government to sell INR 320 billion of two gilts 1030-1130 IST
LIQUIDITY
--Total net inflows of INR 103.71 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 93.00 billion on redemption of 91-day T-bills
--INR 10.71 billion as coupon on state bonds
* Outflows
--INR 832.38 billion as reversal of 4-day variable rate repo auction
End
Reported by Vidhushi RajPurohit
Edited by Ashish Shirke
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