India Money Market Outlook
Gilts may take cues from state bond sale, OMO buy
This story was originally published at 20:11 IST on 24 March 2025
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MUMBAI – On Tuesday, gilts and overnight indexed swap rates may take cues from the movement in US Treasury yields. Bond prices may take cues from the results of the state bond sale and the Reserve Bank of India's open market gilt purchase through auction. Tuesday's state bond sale will be the largest ever bond auction, with a notified quantum of INR 566.21 billion.
Traders may also continue to bet on the possibility of further domestic rate cuts and a stance change to 'accommodative' by the RBI's Monetary Policy Committee in April. Traders may also assess developments related to the 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.
On Tuesday, the one-day call rate may open above the repo rate as banks will borrow funds to meet their reserve requirements in early trading hours. During the day, the call rate is seen in the range of 5.80-6.50% and the triparty repo rate in the range of 5.75-6.40%.
GOVERNMENT BONDS
On Tuesday, gilt prices may take cues from the results of the state bond auction, and the RBI's OMO auction for INR 500 billion of six gilts. Traders also await the central government's borrowing plan for Apr-Sept and states' borrowing plan for Apr-Jun, due at the end of March.
The central bank has offered to buy the 7.04%, 2029; 7.17%, 2030; 7.26%, 2032; 7.26%, 2033; 7.50%, 2034, and the 7.18%, 2037 bond. Bidding at the OMO auction is expected to be 10-15 paise lower than secondary market valuations, as participants are seen asking for better prices after selling bonds at a 20-30 paise discount at previous OMO auctions in Jan-Mar.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.60-6.66% during the day. On Monday, the bond settled at INR 101.12, or 6.63% yield.
OIS RATES
On Tuesday, swap rates may take cues from the movement in US Treasury yields. Swaps may also react to movement in government bonds during the day, dealers said. Short-term swaps will closely track the movement in the overnight Mumbai Interbank Offered Rate, with the RBI's proactive liquidity measures seen keeping the rate below the Marginal Standing Facility rate of 6.50% through the rest of the seasonal tightness in March, dealers said.
The one-year swap rate is seen at 6.00-6.13% and the five-year rate at 5.83-6.00%. On Monday, the one-year swap rate ended at 6.10% and the five-year swap rate closed at 5.90%.
CALL
On Tuesday, the one-day call rate may open above the repo rate as banks are likely to borrow funds to meet their reserve requirements in early trading hours. During the day, the call rate is seen in the range of 5.80-6.50% and the triparty repo rate in the range of 5.75-6.40%. On Monday, the one-day call rate ended at 5.80%.
RBI AUCTION
--RBI to hold overnight VRR auction for INR 1.25 trillion 1000-1030 IST
--18 states to raise INR 566.21 billion via bond sale 1030-1130 IST
--RBI to hold INR 500-billion OMO buy auction 0930-1030 IST
LIQUIDITY
--Total net inflows of INR 64.10 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 8.11 billion as coupon on state bonds
--INR 46.50 billion as redemption of state bonds
--INR 4.98 billion as coupon on 5.97%, 2025 (Convertible) gilt
--INR 4.51 billion as coupon on 6.01%, 2028 (Curve Align) gilt
* Outflows
--INR 662.15 billion 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 Avishek Dutta
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