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Informist, Friday, Jan. 10, 2025

MUMBAI – Government bond prices and swap rates Monday may take cues from the movement of US Treasury yields after the release of the US employment report Friday, dealers said. Traders may also avoid placing large bets ahead of India's CPI inflation data for December on Monday. 

Non-farm payrolls, published in the US employment report, grew by 256,000, against a consensus estimate of 155,000. Any geopolitical cues over the weekend or a further rise in crude oil prices above $80 a barrel may also impact gilt prices and swap rates on Monday.

Dealers may avoid taking large bets ahead of India's CPI inflation data for December, due at 1600 IST Monday. An Informist poll of 15 economists estimated the data to print at a four-month low of 5.3% last month, against a 5.48% print in November. 

Traders may keep an eye on the number of human metapneumovirus cases in the country, with eight cases confirmed by the central government as of 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.

Money markets are shut Saturday. On Monday, the one-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

The gilt market is shut Saturday. On Monday, bond prices may take cues from the movement of US yields after the release of US non-farm payrolls data for December.    

During the day, prices of gilts will also be sensitive to the movement of the Indian rupee against the dollar, dealers said. On Friday, the domestic currency fell to a record low against the dollar. 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 yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.74-6.85% during the day. On Friday, the bond settled at INR 100.11, or 6.77% yield.

OIS RATES

Swap rates are not traded on Saturday. On Monday, swap rates may take cues from the movement of US Treasury yields after the release of the US employment report in December, which initially weakened hopes of US rate cuts.

The unemployment rate fell to 4.1% from 4.2% the previous month. The 10-year US yield rose to as high as 4.79% after the data, the highest since November 2023. This is likely to lead to a rise in the five-year OIS rate on Monday, and it will test the psychologically crucial 6.26% mark, dealers said. 

The swap rate in the one-year segment is seen at 6.45-6.60% and in the five-year segment at 6.10-6.30%. On Friday, the one-year swap rate ended at 6.52% and the five-year swap rate closed at 6.23%.

CALL 

Call market is shut on Saturday. On Monday, the one-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 Friday, the 3-day call rate ended at 6.70%.

RBI AUCTION

--Nil

LIQUIDITY

--Total net outflows of INR 88.14 billion. Calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repo operations.

* Inflows

--INR 10.29 billion as coupon on state bonds on Saturday

--INR 35.71 billion as coupon on 7.59%, 2026 gilt on Saturday

--INR 7.52 billion as coupon on state bonds on Sunday

--INR 46.47 billion as coupon on 6.10%, 2031 gilt on Sunday

--INR 15.00 billion as redemption of state bonds on Sunday

--INR 16.86 billion as coupon on state bonds on Monday

* Outflows

--INR 220.00 billion as payment for gilts on Monday

End

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

Reported by Cassandra Carvalho

Edited by Tanima Banerjee

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