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Informist, Thursday, Jan. 9, 2025

MUMBAI – On Friday, government bond prices will take cues from the INR 220-billion weekly gilt auction, dealers said. Traders will also start taking positions ahead of India's CPI inflation data for December on Monday.

Any major geopolitical developments and further rise in crude oil prices could also lend cues to gilt prices and overnight indexed swap rates at the opening.

Traders will also track the number of human metapneumovirus cases in the country, with eight cases confirmed by the central government Thursday. Any shutdown or slowing of economic activity, similar to lockdowns seen during the COVID-19 pandemic, would see a rise in gilt prices as the Reserve Bank of India could cut rates sooner to aid economic growth.

On Friday, the three-day call rate may open above the repo rate of 6.50% on demand for funds from banks. During the day, the call rate is seen in a range of 6.00-6.90%, dealers said.

GOVERNMENT BONDS

On Friday, bond prices may open steady on caution before the INR 220-billion weekly gilt auction, dealers said. The government will sell INR 70 billion of the 6.64%, 2027 bond and INR 150 billion of the 7.34%, 2064 bond. Demand for both bonds is expected to be firm.

During the day, bonds will also be sensitive to the movement of the Indian rupee against the dollar, dealers said. On Thursday, the domestic currency fell to a record low of 85.9250 against the dollar intraday. The RBI's intervention in the foreign exchange market with dollar sales to support the rupee has put further strain on liquidity in the banking system, which makes a stronger case for open-market purchase of gilts by the central bank, dealers said.

The delay in these operations has disappointed some traders. With several banks meeting RBI officials after market hours Thursday to speak on liquidity and the foreign exchange market, more traders are hopeful the central bank will durably infuse liquidity soon.

Some traders also expect the RBI to announce another gilt buyback by the government after market hours. Data on the RBI's open market operations will also be keenly watched.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.72-6.85% during the day. On Thursday, the bond settled at INR 100.17, or 6.76% yield.

OIS RATES

On Friday, swap rates may take cues from the overnight movement of US Treasury yields. Traders may receive fixed rates in short-term contracts after the RBI announced it would conduct a 14-day variable rate repo operation for a notified amount of INR 2.25 trillion, which is expected to ease overnight rates.

Traders may also receive fixed rates due to optimism on India's CPI inflation falling in December, with the data due on Monday. Repo rate cut bets for February remained intact, and traders looked to the figure for more certainty on those positions, dealers said. The swap rate in the one-year segment is seen at 6.42-6.55% and in the five-year segment at 6.10-6.26%. On Thursday, the one-year swap rate ended at 6.50% and the five-year swap rate closed at 6.20%.

CALL 

On Friday, the three-day call rate may open above the repo rate of 6.50% on demand for funds from banks. During the day, the call rate is seen in a range of 6.00-6.90%, dealers said. On Thursday, the one-day call rate ended at 6.25%.

RBI AUCTION

--Govt to auction two gilts worth INR 220 billion

--RBI to hold 14-day VRR auction for INR 2.25 trillion 1030-1100 IST

LIQUIDITY

--Total net inflows of INR 6.67 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 6.67 billion as coupon on state bonds

* Outflows

--INR 1.28 trillion on reversal of 14-day repo tender 

--INR 500.07 billion on reversal of 3-day repo tender

--INR 500.04 billion on reversal of 1-day repo tender

End

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

Reported by Cassandra Carvalho

Edited by Ashish Shirke

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