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Informist, Friday, Jan. 3, 2025

MUMBAI – On Saturday, the two-day call money rate may open near the Reserve Bank of India's repo rate of 6.50% due to demand for funds from banks. As is usually the case on Saturdays, trade volume is expected to be low. During the day, the call rate is seen in a range of 6.00-6.80%, dealers said. On Friday, the three-day call rate ended at 6.24%.

Government bonds and overnight indexed swap rates are not traded on Saturday. Gilts may open higher on Monday after the government said it would buy back INR 250 billion worth of five bonds maturing in 2025-26 (Apr-Mar). Movement of the Indian rupee against the dollar will also be tracked for any trading cues. Meanwhile, Swaps will track US Treasury yields at open. Geopolitical cues over the two days, along with US data points, may lend to cues to US yields. 

GOVERNMENT BONDS

On Monday, bond prices may rise after the government said it would buy back INR 250 billion worth of five bonds maturing in 2025-26 (Apr-Mar). Short-term bonds may gain more than long-term securities, dealers said.

Traders do not expect a large impact of the RBI's open market operation buys on government bond prices on Monday, and said the amount was too small to infer its intent. In fact, dealers were disappointed the central bank only bought a small amount, as they had expected RBI to begin buying gilt buys in earnest--up to INR 30 billion a week--in December to shore up liquidity. Others were optimistic that with the RBI testing the waters on bond buys in the secondary market, it may also announce an open market operation auction to buy gilts soon.

During the day, gilt prices will also track the movement in the Indian rupee against the dollar, after it hit a record closing low for the ninth straight session Friday. Any major geopolitical developments and movement in crude oil prices could also lend cues to gilt prices at the open.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.72-6.80% during the day. On Friday, the 2034 bond settled at INR 100.07, or 6.78% yield.

OIS RATES

On Monday, swap rates may take cues from the movement of US yields over the weekend. Trading activity is likely to pick up next week as traders return from leave after the holiday season.

Major domestic and global cues, such as US jobs data, the release of minutes of the Federal Open Market Committee's December meeting and the first advance estimate of India's GDP for 2024-25 (Apr-Mar) are due next week. Crude oil prices, which have been steadily rising this week, will also be tracked, dealers said. 

The swap rate in the one-year segment is seen at 6.42-6.60% and in the five-year segment at 6.10-6.30%. On Friday, the one-year swap rate ended at 6.51% and the five-year swap rate closed at 6.22%.

RBI AUCTION

--Nil

LIQUIDITY

--Total net inflows of INR 26.32 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 20.00 billion on redemption of state bonds

--INR 6.32 billion as coupon on state bonds

* Outflows

--Nil

End

Reported by Vidhushi RajPurohit

Edited by Akul Nishant Akhoury

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