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Informist, Thursday, Jan. 30, 2025

MUMBAI – Government bond prices may open slightly higher after the Reserve Bank of India bought a larger than expected amount of the 10-year benchmark 6.79%, 2034 bond at its first open market operation auction to buy bonds since September 2021 on Thursday, dealers said. Overnight indexed swap rates may, however, be little changed ahead of the Union Budget for 2025-26 (Apr-Mar) on Saturday.

Both gilts and swaps may also take cues from the overnight movement in US Treasury yields and crude oil prices at the open, as well as the movement of the rupee against the dollar intraday. Any declarations or policies by US President Donald Trump may also be triggers. 

On Friday, the three-day call rate may open around the repo rate on demand for funds from banks.

GOVERNMENT BONDS

On Friday, bond prices may open slightly higher after the RBI bought a larger-than-expected amount of the 10-year benchmark 6.79%, 2034 bond at the OMO auction on Thursday, dealers said. However, traders may also remain cautious ahead of the weekly gilt auction worth INR 300 billion.

The government will sell INR 100 billion of the 6.79%, 2031 bond, INR 50 billion of the 6.79%, 2034 green bond and INR 150 billion of the 7.34%, 2064 bond. Caution ahead of Saturday's Budget may also keep trading volumes muted and limit volatility, dealers said.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.64-6.72% during the day. On Thursday, the bond settled at INR 100.76, or 6.68% yield.

OIS RATES

On Friday, swap rates may open little changed ahead of the Union Budget for FY26 on Saturday. While the announcements in the Budget may not directly impact OIS rates, the impact on gilt yields may lead traders to change their positioning in the swap market, dealers said. 

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 anchored as the overnight Mumbai Interbank Offer Rate – the floating leg of the OIS contract – is expected to be set nearer to 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 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 Thursday, the one-year swap rate ended at 6.33% and the five-year swap rate closed at 6.08%.

CALL 

On Friday, the three-day call rate may open around the repo rate on demand for funds from banks. RBI will conduct a three-day variable rate repo auction for a notified amount of INR 1.00 trillion at 1000-1030 IST on Friday. 

Inflows of INR 200.20 billion will be added into the banking system on account of the RBI's gilts purchases through the open market operation. On Thursday, the one-day call rate ended at 6.15%.

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 12.34 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 12.34 billion as coupon on state bonds

* Outflows

--INR 1.17 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 Avishek Dutta

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