India Money Market Outlook
Gilts, swaps to take cues from US yields Tuesday
This story was originally published at 20:53 IST on 3 March 2025
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MUMBAI – Both government bond prices and overnight indexed swap rates may take cues from the overnight movement of US Treasury yields on Tuesday, dealers said. Swaps will take cues from US yields before US President Donald Trump imposes tariffs on Canada and Mexico, they said.
The Trump administration is set to implement tariffs on Canada and Mexico on Tuesday, but the rate could be revised from the proposed 25%, US Commerce Secretary Howard Lutnick said Sunday. However, Lutnick confirmed that the 10% additional tariff on imports from China would be enforced. A possible global trade war following the tariffs could fuel a rise in inflation, which could cause central banks across the globe to refrain from cutting rates.
The settlement of the three-year dollar/rupee buy/sell swap on Tuesday may also lend direction to the three-year swap rate as well as short-term gilts with nearly INR 450 billion liquidity expected to be infused. The RBI conducted a $10-billion dollar/rupee buy/sell swap auction on Friday, out of which nearly 50% of the swap is for the rollover of previous contracts, dealers said.
Crude oil prices could also be a trigger for gilts and swaps if they move significantly, dealers said. A sharp movement of the rupee against the dollar could also give cues to them.
On Tuesday, the one-day call rate may open around the repo rate on demand for funds from banks. During the day, the call rate is seen in a range of 5.75% to 6.40%.
GOVERNMENT BONDS
On Tuesday, government bond prices will take cues from the result of the INR 505-billion state bond auction, the largest weekly debt sale so far in FY25. Gilt prices may also take cues from the overnight movement of US Treasury yields, though February employment data on Friday may be the biggest cue, dealers said.
Dealers also look to the RBI's liquidity infusion measures as March is seasonally a month of tight liquidity. Market participants will closely assess any statements by US President Donald Trump on tariffs and their potential impact on global trade. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.68-6.75% during the day.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.68-6.75% during the day. On Monday, the bond settled at INR 100.35, or 6.74% yield.
OIS RATES
On Tuesday, swap rates may take cues from the overnight movement in US Treasury yields ahead of the scheduled implementation of US President Donald Trump's tariffs, dealers said.
Swap rates may also track the movement of bond yields during the day. Short-term swaps will take cues from overnight borrowing rates, which have been well above the repo rate of 6.25% since the rate cut on Feb. 7. The settlement of the three-year dollar/rupee buy/sell swap on Tuesday may also lend direction to the three-year swap rate.
The one-year swap rate is seen at 6.18-6.30% and the five-year rate is seen at 5.95-6.06%. On Monday, the one-year swap rate ended at 6.26% and the five-year swap rate closed at 6.02%.
CALL
On Tuesday, the one-day call rate may open around the repo rate on demand for funds from banks. During the day, the call rate is seen in a range of 5.75% to 6.40%. On Monday, the one-day call rate ended at 5.75%.
RBI AUCTION
--14 states to raise INR 505 billion through bond sale
--RBI to hold overnight VRR auction for INR 250 billion 1000-1030 IST
LIQUIDITY
--There are no inflows or outflows. The calculation of flows does not take into account the redemption of the standing deposit facility and scheduled variable rate repo and reverse repo operations.
* Inflows
--Nil
* Outflows
--INR 165.57 billion as reversal of overnight variable rate repo tender
End
Reported by Srijita Bose
Edited by Saji George Titus
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