India Money Market Outlook
Gilts seen up as FY26 H1 borrow in line with view
This story was originally published at 21:43 IST on 27 March 2025
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MUMBAI – Government bond prices may rise slightly on Friday after the size of the government's borrowing calendar in Apr-Sept for upcoming financial year came in line with expectations. After market hours Thursday, the government said it will borrow INR 8.00 trillion through gilts in Apr-Sept, including INR 100 billion through 30-year sovereign green bonds. The biggest share of the borrowing, at 26.2%, will be through the 10-year gilt, as is usual.
Meanwhile, overnight indexed swap rates may take cues from the overnight movement in US Treasury yields after the release of US jobless data on Thursday. Unemployment claims for the week ended Saturday fell slightly by 1,000 to 224,000.
Any news on the US government's proposed tariffs and their potential impact on global trade may also impact gilts and swap rates. US President Donald Trump Wednesday said there would be "not too many" exceptions to his imposition of reciprocal tariffs on imports from US trade partners. 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 provide cues.
On Friday, the five-day call rate may open above the repo rate as banks will borrow funds to meet their reserve requirements in early trading hours.
GOVERNMENT BONDS
On Friday, gilt prices may rise slightly after the size of the government's borrowing in Apr-Sept came in line with expectations. However, traders may adjust their portfolios on the basis of the share of bonds on offer. Moreover, traders may book profits after buying gilts aggressively earlier this week.
Traders are likely to retain their bets on a repo rate cut and stance change by the Reserve Bank of India's Monetary Policy Committee in April due to a lack of significant interest rate cues until the next review on Apr. 7-9, dealers said. Some dealers are also looking forward to states' borrowing plan for Apr-Jun, also likely to be released this week.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.55-6.65% during the day. On Thursday, the 10-year gilt ended at INR 101.31, or 6.60%.
OIS RATES
On Friday, swap rates may take cues from the overnight movement in US Treasury yields. Swaps may also react to the movement in government bond yields 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 near the policy repo rate of 6.25%, dealers said. The overnight MIBOR on Thursday fell below the repo rate for the first time in over five months.
The one-year swap rate is seen at 6.00-6.13% and the five-year rate at 5.85-6.00%. On Thursday, the one-year swap rate ended at 6.08% and the five-year swap rate closed at 5.94%.
CALL
On Friday, the five-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 5.80-6.40% and the triparty repo rate in the range of 5.75-6.30%. On Thursday, the one-day call rate ended at 6.35%.
RBI AUCTION
--RBI to hold five-day variable rate repo auction for INR 500 billion at 1000-1030 IST
LIQUIDITY
--Total net inflows of INR 226.68 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 205.00 billion on redemption on 91-day Treasury bills
--INR 21.68 billion as coupon on state bonds
* Outflows
--INR 213.92 billion as reversal of overnight VRR tender
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Srijita Bose
Edited by Deepshikha Bhardwaj
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