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Informist, Monday, Feb. 10, 2025

MUMBAI – On Tuesday, government bond prices are seen opening higher after the Reserve Bank of India doubled the size of its open market purchase auction Thursday to INR 400 billion, in a release after market hours. Overnight indexed swap rates may open lower due to the added boost to liquidity in the banking system, dealers said.

Gilts and swaps may also take cues from the movement of US Treasury yields ahead of US CPI inflation data for January and US Federal Reserve Board Chair Jerome Powell's submission of the Monetary Policy Report to US Senate Banking Committee this week. Gilts and swaps may also take cues from the movement of the rupee against the dollar, as well as US President Donald Trump's comments on political and economic measures. Crude oil prices may also be a trigger, dealers said.

On Tuesday, the one-day call money rate may open above the RBI's repo rate of 6.25% due to demand for funds from banks early in the day to meet reserve requirements. During the day, the call rate is seen in a range of 5.75-6.40%, dealers said.

GOVERNMENT BONDS

On Tuesday, gilt prices may open higher after the RBI doubled the size of its OMO purchase auction Thursday to INR 400 billion. The central bank will buy the same five gilts notified earlier – the 7.17%, 2030 gilt, 7.18%, 2033 gilt, 7.10%, 2034 gilt, 7.54%, 2036 gilt and the 7.18%, 2037 gilt. 

Traders may pick up bonds as funding costs ease sustainably towards the new 6.25% repo rate, which will make spreads across the yield curve more attractive. The MPC cut the repo rate by 25 bps on Friday, but the lack of liquidity measures had led to bond prices falling.

Gilt prices may also take cues from the movement of US Treasury yields and the movement of the rupee against the dollar. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.75% during the day. On Monday, the bond settled at INR 100.53, or 6.71% yield.

OIS RATES

On Tuesday, shorter-tenure swap rates may fall after the RBI doubled the size of the Thursday's open market operation purchase auction to INR 400 billion, which will add more liquidity than expected to the banking system, dealers said. A fall in gilt yields could also impact swaps on Tuesday. OIS rates may also be sensitive to the rupee's movement against the dollar.

The swap rate in the one-year segment is seen at 6.30-6.40% and in the five-year segment at 6.08-6.20%. On Monday, the one-year swap rate ended at 6.36% and the five-year swap rate closed at 6.15%.

CALL

On Tuesday, the one-day call money rate may open above the RBI's repo rate of 6.25% due to demand for funds from banks early in the day to meet reserve requirements.

During the day, the call rate is seen in a range of 5.75-6.40%, dealers said. On Monday, the 1-day call rate ended at 6.10%.

RBI AUCTION

--RBI to hold overnight VRR auction for INR 2 trillion 1000-1030 IST

--9 states to raise INR 183.19 billion via bond sale

LIQUIDITY

--Total net inflows are INR 141.45 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 18.65 billion as coupon on state bonds

--INR 122.80 billion on redemption of state bonds

* Outflows

--INR 2.01 trillion as reversal of overnight variable rate repo tender

End

US$1 = INR 87.4750

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

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

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