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Informist, Thursday, Apr. 17, 2025

MUMBAI – The two-day call rate on Saturday may open near the repo rate of 6.00% due to demand for funds from banks in early trade. As is usually the case on Saturday, call money market volumes may remain low. On Thursday, the four-day call rate ended at 5.75%.

On Monday, the one-day call rate may open higher than the repo rate due to increased demand from banks on account of goods and services tax outflow. During the day, the call rate is seen at 5.80-6.20% and the triparty repo rate at 5.75-6.00%.

Financial markets are shut Friday for Good Friday. Government bonds and overnight indexed swap rates are not traded on Saturday. 

GOVERNMENT BONDS

On Monday, government bond prices may take cues from the movement in US Treasury yields over the weekend. Weekly jobless claims in the US for the week ended Saturday fell by 9,000 to 215,000, against consensus estimates of 225,000. Traders will track the speech by US Federal Reserve Governor Michael Barr for cues on rate cuts by the Federal Open Market Committee, dealers said. 

Later in the day, gilt prices may take cues from the result of the INR-280-billion switch auction. The government will switch seven gilts with five bonds via the auction. Demand at the auction is expected to be firm, with some traders estimating an accepted quantum of around INR 200 billion. 

Post market hours Thursday, the Reserve Bank of India announced that four states will raise INR 108.70 billion via bond sale Tuesday. This may be a positive for bond prices since the indicative calendar for Apr-Jun showed that 13 states were scheduled to borrow INR 177.00 billion at the auction, dealers said. 
 
The RBI also detailed its choice of bonds to buy at its scheduled open market purchase of gilts via auction under open market operations Tuesday. The RBI has offered to buy the 6.10%, 2031; 7.26%, 2032; 7.50%, 2034; 8.30%, 2040; and 9.23%, 2043 gilts at the auction. Some of the gilts have not been offered at OMO auctions before, which is what traders had hoped for. As seen in recent OMO auctions, the new gilts on offer had a larger share of bids and stronger cut-off prices, dealers said. 

Traders may also take cues from comments of RBI officials at the Fixed Income Money Market and Derivatives Association of India's annual conference over the long weekend in Bali, dealers said. RBI Governor Sanjay Malhotra is scheduled to address the conference of market professionals on Friday.

Traders expect the 10-year benchmark gilt to trade in a range of 6.35-6.45% until US yields soften significantly. Traders also await India's provisional GDP growth estimates for Jan-Mar and 2024-25 (Apr-Mar), which are due end of May. Some traders see bond yields rising slightly, as traders book profits and investors look to purchase gilts at higher yields, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.34-6.40% on Monday. On Thursday, the 10-year gilt ended at INR 102.94, or 6.37%.

OIS RATES

On Monday, swaps may take cues from movement in US Treasury yields at open, dealers said. Weekly jobless claims in the US for the week ended Saturday fell by 9,000 to 215,000, against consensus estimates of 225,000. Traders will track the speech by US Federal Reserve Governor Michael Barr for cues on rate cuts by the Federal Open Market Committee in the US, dealers said. 

Any sharp rise in US yields is expected to lead to paying in Indian swap rates, especially in long-term contracts, dealers said. Traders will also keep an eye on updates on the ongoing US-China trade war. 

An increase in expectations of rate cuts by the RBI could lead to a fall in swap rates, they said. Meanwhile, short-term swaps will closely track the overnight Mumbai Interbank Offered Rate, which is expected to remain near or below the repo rate, and further liquidity boosting measures by the RBI. With increasing expectations of a rate-cutting cycle of at least 100 basis points this year, some traders expect the swap curve to become upward-sloping as global uncertainties may keep long-term swaps volatile.

The one-year swap rate is seen in the range of 5.65-5.80%, and the five-year at 5.63-5.82%. On Thursday, the one-year swap rate ended at 5.73% and the five-year swap rate closed at 5.68%.

RBI AUCTION 

--Nil

LIQUIDITY

--Total net inflows of INR 152.66 billion. The 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 80.75 billion as redemption of 364-day T-bills on Friday

--INR 14.40 billion as coupon on state bonds on Friday

--INR 56.30 billion as coupon on 7.10%, 2029 gilt on Friday

--INR 1.21 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 Cassandra Carvalho

Edited by Tanima Banerjee

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