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Informist, Friday, Jan. 31, 2025

MUMBAI – On Saturday, the two-day call rate may open around the repo rate on demand for funds from banks. Government bonds and overnight indexed swap rates are not traded on Saturday. On Monday, both the markets may take cues from the Union Budget 2025-26 (Apr-Mar), due Saturday, dealers said. 

The two-day call on Saturday is seen moving in a range of 6.00-6.75%, dealers said. The Reserve Bank of India will conduct an overnight variable rate repo auction for a notified amount of INR 750.00 billion at 1000-1030 IST on Monday. On Thursday, the one-day call rate ended at 6.15%.

GOVERNMENT BONDS

Gilt prices will take direction from the gross and net market borrowing announced for FY26 in the Union Budget on Saturday, dealers said.

An Informist poll of 18 analysts pegged net market borrowing at INR 11.20 trillion, down 3.7% on year, while gross borrowing was seen at INR 14.50 trillion. While traders expect a similar net borrowing number, they see gross borrowing lower than the current year's INR 14.01 trillion target. Traders expect the government to reduce its payments for FY26 redemptions, currently scheduled at INR 3.96 trillion, by using funds collected from goods and services tax cess collections as it has over the past two years. The government is also expected to increase its target for switching gilts to over INR 2 trillion in FY26 from INR 1.5 trillion in the current fiscal.

Bonds may also take cues from changes in US Treasury yields and crude oil prices, as well as the movement of the rupee against the dollar intraday. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.55-6.80% during the day. On Friday, the bond settled at INR 100.62, or 6.70% yield.

OIS RATES

On Monday, swap rates may take cues from interest rates from the Union Budget. The impact of gilt yields post the Budget may lead traders to change their positioning in the swap market, dealers said.

Swap rates may also take cues from the movement of US yields after the release of US December personal consumption expenditure data, which met estimates of a 2.6% annual rise. The core component, the US Federal Reserve's preferred inflation gauge, rose to 2.8% in December, the same as in November. 

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

The movement in crude oil prices and any declarations by US President Trump may also be triggers. The swap rate in the one-year segment is seen at 6.23-6.41% and in the five-year segment at 6.00-6.15%. On Friday, the one-year swap rate ended at 6.33% and the five-year swap rate closed at 6.09%.

RBI AUCTION

--Govt to auction three gilts worth INR 300 bln on Friday

--RBI to conduct a three-day variable rate repo auction for INR 1 trillion at 1000-1030 IST.

LIQUIDITY

--Total net inflows are INR 13.92 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 13.92 billion as coupon on state bonds on Saturday

* Outflows

--Nil

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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