India Money Market Outlook
Gilts, swaps to track US yields post PPI data
This story was originally published at 20:30 IST on 14 January 2025
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MUMBAI – On Wednesday, government bond prices and overnight indexed swap rates may take cues from the movement of US Treasury yields overnight, dealers said. The US producer price index data, released at 1900 IST Tuesday, will lend cues to the movement of US yields. Any geopolitical cues or movement in crude oil prices will also impact gilt prices and swaps.
The movement of the rupee against the dollar will also be keenly eyed by traders to lend cue to bond prices and swap rates, dealers said. Intervention of the Reserve Bank of India in the foreign exchange market to support the rupee and its impact on banking system liquidity will also provide direction to the market.
On Wednesday, 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 Wednesday, bond prices may take cues from the movement in US yields after the release of the producer price data for December after market hours. The US CPI data, due post market hours Wednesday, is seen as a more important trigger, dealers said. Any geopolitical cues or a further rise in crude oil prices will also impact gilt prices.
Prices of gilts will also be sensitive to the movement of the Indian rupee against the dollar, dealers said. The domestic currency fell to a record low against the dollar for the fifth straight session on Tuesday. 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, while some traders still expect the central bank to conduct open-market purchases of gilts, dealers said.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.79-6.86% during the day. On Tuesday, the bond settled at INR 99.76, or 6.82% yield.
OIS RATES
On Wednesday, swap rates may take cues from the movement of US Treasury yields overnight, with traders looking ahead to Trump's inauguration on Monday. With recent data showing resilience in the US economy, hopes of rate cuts in the US have been pushed back to the latter half of 2025, which is also seen delaying rate cuts in India.
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 may keep the overnight MIBOR rates above the repo rate of 6.50%, dealers said.
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 Tuesday, the one-year swap rate ended at 6.55% and the five-year swap rate closed at 6.29%.
CALL
On Wednesday, 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 Tuesday, the one-day call rate ended at 6.50%.
RBI AUCTION
--RBI to auction 91-day T-bills worth INR 120 billion
--RBI to auction 182-day T-bills worth INR 80 billion
--RBI to auction 364-day T-bills worth INR 80 billion
--RBI to hold a 5-day variable rate repo auction for INR 750 billion at 1000-1030 IST
LIQUIDITY
--Total net inflows of INR 168.43 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 10.76 billion as coupon on state bonds
* Outflows
--INR 179.19 billion as payment for state bonds auction
End
Reported by Vidhushi RajPurohit
Edited by Tanima Banerjee
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