India Money Market Outlook
Gilts, swaps to take cues from US yields Tuesday
This story was originally published at 21:08 IST on 13 January 2025
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MUMBAI – Government bond prices and overnight indexed swap rates on Tuesday may take cues from the movement of US Treasury yields overnight, with traders looking ahead to US President-elect Donald Trump's inauguration on Jan. 20. Any geopolitical cues or movement in crude oil prices will also impact gilt prices and swaps on Tuesday, dealers said.
US economic data, including CPI and retail sales for December, are due later this week. With recent data showing resilience in the US economy, hopes of rate cuts in both the US and India have been pushed back to the latter half of 2025. India's CPI inflation for December, which was on expected lines, also did not make a case for immediate rate cuts with the rupee under pressure, dealers said. The Indian unit fell 0.7% against the dollar Monday to a record closing low of 86.5750 a dollar.
On Tuesday, 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
On Tuesday, bond prices may take cues from the movement in US yields before US President-elect Donald Trump assumes office on Jan. 20, dealers said. Gilts will also be sensitive to the movement of the Indian rupee against the dollar.
The domestic currency fell to a record low against the dollar on Monday. The Reserve Bank of India's intervention in the foreign exchange market with dollar sales to support the rupee has added to the strain on liquidity in the banking system. Some traders still expect the RBI to conduct open-market purchases of gilts, dealers said.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.80-6.88% during the day. On Monday, the bond settled at INR 99.57, or 6.85% yield, its highest close since Nov. 22.
OIS RATES
On Tuesday, swap rates may take cues from the movement of US Treasury yields overnight, with traders looking ahead to Donald Trump's inauguration on Jan. 20.
The swap rate in the one-year segment is seen at 6.50-6.70% and in the five-year segment at 6.25-6.45%. On Monday, the one-year swap rate ended at 6.62% and the five-year swap rate closed at 6.36%, both ending at multi-month highs.
CALL
On Tuesday, 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 Monday, the 1-day call rate ended at 5.90%.
RBI AUCTION
--10 states to raise INR 179.19 billion via bond sale
LIQUIDITY
--Total net inflows of INR 188.80 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 47.45 billion as coupon on 7.26%, 2029 gilt
--INR 130.50 billion on redemption of state bonds
--INR 10.85 billion as coupon on state bonds
* Outflows
--INR 500.05 billion on redemption of 4-day variable rate repo tender
End
US$1 = INR 86.5750
Reported by Srijita Bose
Edited by Saji George Titus
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