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Informist, Saturday, Mar. 15, 2025

MUMBAI – Prices of government bonds and overnight indexed swap rates will likely take cues from the movement of US Treasury yields at open, dealers said. Dealers may take cues from offshore ahead of the US Federal Open Market Committee's meeting next week. The FOMC, which is scheduled to meet on Mar. 18-19, is expected to hold rates steady, according to the CME FedWatch tool. However, traders will watch closely for commentary from the committee, particularly US Federal Reserve Chair Jerome Powell.

Traders are also likely to assess the systemic liquidity conditions and start placing bets on a domestic repo rate cut in April. India's CPI inflation fell to a seven-month low of 3.61% in February, fuelling the hope that the Reserve Bank of India's Monetary Policy Committee can continue with its rate-easing trajectory after delivering a 25-basis-point cut in the repo rate in February.

Concerns over US policies on tariffs also remain and traders will gauge the potential impact of the same on global trade. US President Donald Trump has announced that Washington will impose reciprocal tariffs on India and other countries from Apr. 2, based on the duty levied by them on American goods. Meanwhile, the movement of the Indian rupee against the dollar and any significant change in crude oil prices will also be closely tracked for any trading cues to both gilt prices and swap rates.

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 5.85-6.40%, dealers said.

GOVERNMENT BONDS

On Monday, gilt prices are likely to take cues from the movement on US yields at opening. An ease in liquidity conditions could intensify April rate cut bets, with further bets on rate cuts in June or August also on traders' minds.

Traders may also assess developments related to US tariff policy and the rupee's movement against the dollar, dealers said. Crude oil prices could also be a trigger if they move significantly. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.72% during the day. On Thursday, the bond settled at INR 100.65, or 6.70% yield. 

OIS RATES

On Monday, swap rates may take cues from the movement in US Treasury yields at open after the release of US weekly jobless claims, dealers said. While swap rates have not been closely tracking the movement of US Treasury yields, traders may take cues from offshore ahead of the US Federal Open Market Committee's meeting next week.

Any statement by Trump on tariffs and their potential impact on global trade may also impact swap rates. Trump has said he will impose reciprocal tariffs on imports from countries such as India starting Apr. 2. Short-term swaps will closely track the movement in overnight Mumbai Interbank Offer Rates.

Crude oil prices could also be a trigger for swaps if they move significantly, dealers said. A sharp movement of the rupee against the dollar could also give cues to swaps. The one-year swap rate is seen at 6.08-6.20% and the five-year rate is seen at 5.90-6.03%. On Thursday, the one-year swap rate ended at 6.13% and the five-year swap rate closed at 5.97%.

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 5.85-6.40%, dealers said. On Saturday, the two-day call money rate ended at 5.80%.

RBI AUCTION

--RBI to hold overnight variable rate repo auction for INR 1 trillion 1000-1030 IST on Monday.

--RBI to hold four-day variable rate repo auction for INR 1 trillion 1100-1130 IST on Monday.

LIQUIDITY

--Total net inflows of INR 130.76 billion. 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

--INR 7.18 billion as coupon on state bonds on Sunday

--INR 39.98 billion as coupon on 6.19%, 2034 gilt on Sunday

--INR 36.36 billion as as coupon on 6.22%, 2035 gilt on Sunday

--INR 14.01 billion as coupon on state bonds on Monday

--INR 33.23 billion as redemption of state bonds on Monday

* Outflows
--INR 500.08 billion as reversal of 4-day variable rate repo auction on Monday

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Vidhushi RajPurohit

Edited by Deepshikha Bhardwaj

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