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Informist, Wednesday, Jan. 29, 2025

MUMBAI – On Thursday, government bond prices may open slightly higher ahead of the Reserve Bank of India's INR-200-billion open market operation auction, dealers said. This is its first purchase of gilts via an auction since September 2021, the last phase of its Government Securities Acquisition Programme 2.0.

The RBI will buy five bonds, including the 10-year benchmark 6.79%, 2034 bond, erstwhile 10-year gilts the 7.18%, 2033 bond and the 7.10%, 2034 bond, the 7.59%, 2029 bond and the former 14-year benchmark 7.18%, 2037 bond. Some caution ahead of Saturday's Budget for 2025-26 (Apr-Mar) may keep prices from rising sharply, dealers said.

Gilts and overnight indexed swap rates may take cues from the movement in US Treasury yields after the Federal Open Market Committee meeting outcome at 0030 IST Thursday, dealers said. The movement in crude oil prices and declarations by US President Donald Trump may also be triggers. Both gilts and swaps will also be sensitive to the movement of the Indian rupee against the dollar. The Union Budget on Feb. 1 and the MPC's meeting after that are the next major domestic cues for traders.

On Thursday, the one-day call rate may open around the repo rate 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

Bonds may take cues from the movement of US yields after US FOMC policy outcome, dealers said. Traders are keenly waiting for Federal Reserve Chair Jerome Powell's comments on rate cuts and the impact of Trump's economic policies on the US rate trajectory, dealers said.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.64-6.72% during the day. On Wednesday, the bond settled at INR 100.72, or 6.69% yield.

OIS RATES

On Thursday, swaps may take cues from the movement in US yields after the FOMC meeting outcome at 0030 IST, dealers said. Though the FOMC is widely expected to announce a status quo on rates, traders are waiting for Powell's comments on rate cuts and the impact of Trump's economic policies on the US rate cut. 

The impact of RBI's liquidity injection measures over the next few days and weeks are also closely watched. Short-term swap rates may remain anchored as the overnight Mumbai Interbank Offer Rate – the floating leg of the OIS contract – is expected to be set near 6.50% for the next few days, with the banking system liquidity deficit also seen coming down, dealers said.

The swap rate in the one-year segment is seen at 6.28-6.41% and in the five-year segment at 6.00-6.15%. On Wednesday, the one-year swap rate ended at 6.36% and the five-year swap rate closed at 6.10%.

CALL 

On Thursday, the one-day call rate may open around the repo rate on demand for funds from banks. RBI will conduct an overnight variable rate repo auction for INR 1.50 trillion at 1000 IST-1030 IST Thursday.

During the day, the call rate is seen in a range of 6.00-6.90%, dealers said. On Wednesday, the one-day call rate ended at 6.50%.

RBI AUCTION

--RBI to buy 5 gilts worth INR 200 bln via OMO auction on Thursday 

--RBI to conduct an overnight variable rate repo auction for INR 1.5 trillion at 1000-1030 IST.

LIQUIDITY

--Total net outflows are INR 91.87 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 78.50 billion as redemption on 91-day Treasury bills

--INR 76.25 billion as redemption on 182-day T-bills

--INR 91.42 billion as redemption on 364-day T-bills

--INR 6.56 billion as coupon on state bonds

* Outflows

--INR 148.38 billion as payment on 91-day T-bills

--INR 90.00 billion as payment on 182-day T-bills

--INR 109.21 billion as payment on 364-day T-bills

--INR 1.67 trillion on redemption of overnight variable rate repo tender

End

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

Reported by Srijita Bose

Edited by Deepshikha Bhardwaj

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