India Money Market Outlook
Trump's swearing-in to lend cues to gilts, swaps
This story was originally published at 20:30 IST on 20 January 2025
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MUMBAI – On Tuesday, government bond prices and overnight indexed swap rates will take cues from the movement in US yields after the swearing-in of Donald Trump as the next US president. Any comments by Trump, especially on tariffs and taxes, or immediate implementation of his orders, will also give cues to gilts and swaps.
Any geopolitical cues or a further rise in crude oil prices after the US event will also impact both gilts and swaps. The movement in the rupee against the dollar will also lend cues on Tuesday. The domestic currency may fall against the dollar on Tuesday after Trump's swearing-in ceremony.
On Tuesday, the one-day call money rate may open above the Reserve Bank of India's repo rate of 6.50% due to demand for funds from banks early in the day to meet their reserve requirements. During the day, the call rate is seen in a range of 6.00-6.70%, dealers said.
GOVERNMENT BONDS
On Tuesday, bond prices will react to the movement in US yields after Trump's inauguration. Any announcement on tariffs and taxes by Trump on his first day will also give cues to gilts, dealers said. During the day, prices of gilts will also be sensitive to the movement of the Indian rupee against the dollar, dealers said.
On Monday after market hours, RBI said that the government will buy back five gilts--7.72%, 2025 gilt; 5.22%, 2025 gilt; 8.20%, 2025 gilt; 5.15%, 2025 gilt; and 7.59%, 2026 gilt--worth INR 200 billion on Thursday. Though traders had expected the RBI to bring in measures to infuse durable liquidity into the banking system, dealers said that with the same bonds up for auction, traders may have very limited stock to sell.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.73-6.88% during the day. On Monday, the bond settled at INR 100.19, or 6.76% yield.
OIS RATES
On Tuesday, swap rates will take cues from the movement in US yields after the inauguration of Donald Trump as the next US president. Any comments by Trump, or immediate implementation of his orders, may lend cues to swap rates.
The swap rate in the one-year segment is seen at 6.35-6.52% and in the five-year segment at 6.18-6.30%. On Monday, the one-year swap rate ended at 6.45% and the five-year swap rate closed at 6.23%.
CALL
On Tuesday, the one-day call money rate may open above the RBI's repo rate of 6.50% due to demand for funds from banks early in the day to meet their reserve requirements.
The RBI will conduct an overnight, variable rate repo auction for INR 1.50 trillion at 1000-1030 IST. During the day, the call rate is seen in a range of 6.00-6.70%, dealers said. On Monday, the 1-day call rate ended at 6.60%.
RBI AUCTION
--7 states to raise INR 175 billion via bond sale
--RBI to conduct an overnight variable rate repo auction for INR 1.50 trillion at 1000-1030 IST.
LIQUIDITY
--Total net inflows/outflows are nil. Calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repo operations.
* Inflows
--Nil
* Outflows
--INR 757.72 billion on redemption of overnight variable rate repo tender
End
Reported by Srijita Bose
Edited by Akul Nishant Akhoury
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