India Money Market Outlook
Gilts may open up as RBI doubles size of OMO buy
This story was originally published at 17:58 IST on 15 February 2025
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MUMBAI – On Monday, government bond prices may open higher as the Reserve Bank of India doubled the size of its open market auction purchase to be held on Thursday.
Over the weekend, bond prices and overnight indexed swap rates are likely to take cues from the movement of US Treasury yields as well. Market participants will closely assess statements by US President Donald Trump on tariffs and their potential impact on global trade.
US markets will be shut on Monday on account of Presidents' Day.
On Monday, the Reserve Bank of India will conduct an overnight variable rate repo auction for a notified amount of INR 1.00 trillion at 1000-1030 IST, and a four-day VRR for a notified amount of INR 750 billion at 1100-1130 IST.
On Saturday, the two-day call rate ended at 5.80%, unchanged from Friday.
GOVERNMENT BONDS
Prices of bonds, especially of those maturing within 15 years, are likely to open higher on Monday, after the RBI doubled the size of its open market auction purchase to be held on Thursday.
However, the rise in prices may be temporary, and could be offset by RBI's lack of on-screen bond purchases in the week ended Feb. 7. This is the first time it has not bought gilts in the secondary market since the week ended Jan. 10; in the three weeks in between, it bought INR 388.15 billion through screen-based purchases.
Traders await any additional measures by the RBI to ease the liquidity deficit in the banking system. Crude oil prices could also be a trigger if they move significantly, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.67-6.75% during the day. On Friday, the bond settled at INR 100.57, or 6.71% yield.
OIS RATES
On Monday, overnight indexed swap rates may take cues from the movement of US Treasury yields. Market participants will closely assess any statements by US President Trump on tariffs and their potential impact on global trade, dealers said.
Traders await any additional measures by the RBI to ease the liquidity deficit in the banking system. The liquidity deficit is expected to widen further due to continued dollar sales by the RBI in the foreign exchange market to protect the rupee. Short-term swaps will take cues from the movement in the overnight MIBOR rate, which has been set well above the repo rate of 6.25% since the rate cut last week.
Crude oil prices could also be a trigger if they move significantly, dealers said. The one-year swap rate is seen at 6.24-6.36% and the five-year rate is seen at 6.02-6.18%. On Friday, the one-year swap rate ended at 6.30% and the five-year swap rate closed at 6.09%.
CALL
On Monday, 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 their reserve requirements. During the day, the call rate is seen in a range of 5.75-6.40%, dealers said.
RBI AUCTION
--RBI to hold 4-day variable rate repo auction for INR 750 bln 1100-1130 IST Mon
--RBI to hold overnight variable rate repo auction for INR 1.00 tln 1000-1030 IST Mon
LIQUIDITY
--Total net outflows are INR 382.57 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 7.43 billion as coupon on state bonds
* Outflows
--INR 390 billion as payment for gilts on Monday
--INR 1.50 trillion as reversal of 3-day variable rate repo tender on Monday
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Ashna Mariam George
Edited by Avishek Dutta
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