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Informist, Monday, Jan. 27, 2025

MUMBAI – On Tuesday, prices of government bonds are seen higher after the Reserve Bank of India announced several measures to infuse durable liquidity into the financial system. Traders said this is likely a precursor to a repo rate cut in February's monetary policy review, and the 10-year gilt yield may fall to multi-year lows. Overnight indexed swap rates are also seen lower, with rates on shorter-tenures falling more, after the RBI announced durable liquidity infusion, dealers said.

After market hours, the RBI said it will buy government bonds worth INR 600 billion through open market operation auctions in three tranches. The first auction of INR 200 billion will be held on Thursday at 1030-1130 IST. The RBI will buy five bonds on Thursday, including the 10-year benchmark 6.79%, 2034 bond. It will also buy back erstwhile 10-year gilts: the 7.18%, 2033 gilt and the 7.10%, 2034 gilt. Finally, it will buy back the 7.59%, 2029 gilt and the former 14-year benchmark 7.18%, 2037 bond.

The central bank also announced a INR 500-billion, 56-day variable rate repo auction on Feb. 7, the day of its next MPC outcome. In addition, it will conduct a dollar/rupee buy/sell swap auction – the first since April 2019 – of $5 billion for a tenor of six months on Friday.

Bonds and swaps may also take cues from the movement of US yields and the policy pronouncements of US President Donald Trump, dealers said. Any geopolitical cues or a further rise in crude oil prices will also affect both the markets. Both gilts and swaps will also be sensitive to the movement of the Indian rupee against the dollar.

GOVERNMENT BONDS

Prices of bonds may also rise due to optimism on both interest rate cuts and lower bond supply in 2025-26 (Apr-Mar) from the current financial year, dealers said. Traders look ahead to the Union Budget on Feb. 1 and the RBI's Monetary Policy Committee meeting the week after are the next major domestic cues.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.60-6.70% during the day. On Monday, the bond settled at INR 100.76, or 6.68% yield.

OIS RATES

Swap rates may fall Tuesday after the RBI, post-market hours on Monday, announced measures to infuse durable liquidity into the financial system, dealers said.

The US Federal Open Market Committee outcome, at 0030 IST Thursday, may also lend cues to swaps. The Union Budget on Saturday and the MPC's meeting the following week are the next major domestic cues for traders. The swap rate in the one-year segment is seen at 6.28-6.38% and in the five-year segment at 6.00-6.13%. On Monday, the one-year swap rate ended at 6.34% and the five-year swap rate closed at 6.07%.

CALL 

On Tuesday, 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 2.00 trillion at 1000-1030 IST.

During the day, the call rate is seen in a range of 6.00-6.90%, dealers said. On Monday, the one-day call rate ended at 6.25%.

RBI AUCTION

--13 states to raise INR 320 billion via bond sale

--RBI to conduct an overnight variable rate repo auction for INR 2.00 trillion at 1000-1030 IST.

LIQUIDITY

--Total net inflows is INR 205.84 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 10.34 billion as coupon on state bonds

--INR 195.50 billion for redemption of state bonds

* Outflows

--INR 1.94 trillion on redemption of overnight variable rate repo tender

End

Reported by Srijita Bose

Edited by Ashish Shirke

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