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Informist, Monday, Mar. 17, 2025

MUMBAI – Government bond prices are seen opening lower on Tuesday after the Reserve Bank of India increased the state bond auction size to INR 521.20 billion from INR 401.20 billion notified earlier and above the indicated amount of INR 417.94 billion, dealers said.

Bonds and swaps may also take cues from US Treasury yields after a slew of US economic data and ahead of the US Federal Open Market Committee meeting outcome. The two-day FOMC meeting starts Tuesday and the panel is expected to hold rates steady this month. However, traders will closely watch for commentary from the committee, particularly from US Federal Reserve Chair Jerome Powell.

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. Ease in liquidity conditions could intensify April rate cut bets, with further bets on rate cuts in June or August also in traders' minds.

On Tuesday, the one-day call rate may open above the repo rate as banks will borrow funds to meet their reserve requirements. During the day, the call rate is seen in the range of 5.80-6.50% and the triparty repo rate is seen in the range of 5.75-6.40%.

GOVERNMENT BONDS

On Tuesday, gilt prices are likely to open lower after the RBI post market hours Monday revised the notified amount of the state bond auction Tuesday. Bond prices may also take cues from the movement in the US Treasury yields.

Traders may also take cues from the result of the RBI's INR 500-billion open market purchase of gilts Tuesday. Some gilt traders were on the sidelines Monday ahead of the auction. The RBI has offered to buy the 7.10%, 2029; 7.26%, 2032; 7.26%, 2033; 7.73%, 2034; 7.40%, 2035 and 7.41%, 2036 bonds at the auction. Cut-off prices are expected to be set at a discount of 20-30 paise to the bonds' current market valuations, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.72% during the day. On Monday, the bond settled at INR 100.70, or 6.69% yield.

OIS RATES

On Tuesday, swap rates may take cues from the overnight movement in US yields after the release of US retail sales data, dealers said. While swap rates have not been closely tracking the movement of US Treasury yields, traders may take cues from the offshore cue ahead of the US FOMC's meeting this week.

Short-term swaps will closely track the movement in the overnight Mumbai Interbank Offer Rate and the impact of the RBI's open market operation auction on Tuesday in easing domestic liquidity conditions, dealers said.

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 Monday, the one-year swap rate ended at 6.11% and the five-year swap rate closed at 5.95%.

CALL

On Tuesday, the one-day call rate may open above the repo rate as banks will borrow funds to meet their reserve requirements. During the day, the call rate is seen in the range of 5.80-6.50% and the triparty repo rate is seen in the range of 5.75-6.40%. On Monday, the one-day call rate ended at 6.00%.

RBI AUCTION

--Thirteen states to raise INR 521.20 billion via bond sale 1030-1130 IST

--RBI to buy 6 gilts worth INR 500 billion via OMO auction at 0930-1030 IST

--RBI to hold overnight variable rate repo auction for INR 1.50 trillion 1000-1030 IST 

LIQUIDITY

--Total net inflows of INR 1.09 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 1.09 billion as coupon on state bonds

* Outflows

--INR 1.00 trillion as reversal of overnight variable rate repo tender

End

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

Reported by Cassandra Carvalho

Edited by Saji George Titus

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