India Money Market Outlook
Gilts seen steady before first FY26 gilt auction
This story was originally published at 21:33 IST on 3 April 2025
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MUMBAI – Government bond prices may open steady on Friday due to caution ahead of the INR 360-billion auction at 1030-1130 IST, dealers said. Overnight movement in US Treasury yields could also lend cues to gilts and overnight indexed swap rates.
US unemployment benefit claims for the week ended Saturday fell to 219,000 against expectation of 228,000 by a Dow Jones poll. For the week ended Mar. 22, jobless claims were revised down to 225,000, reported the US Department of Labor.
Crude oil prices could also be a trigger for gilts and swaps if they move significantly, dealers said. Any sharp movement in the rupee's exchange rate against the dollar may also provide cues.
On Friday, the three-day call rate may open near the repo rate due to demand for funds from banks early in the trade.
GOVERNMENT BONDS
On Friday, gilt prices may open steady on caution ahead of the weekly gilt auction, dealers said. The overnight movement in US Treasury yields may also lend cues at the open.
The result of the first weekly gilt auction of 2025-26 (Apr-Mar) could lend cues to the market later in the day, particularly with INR 300 billion of the 10-year benchmark 6.79%, 2034 gilt on offer. The auction is likely to sail through as 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 at its upcoming three-day review starting Monday, dealers said.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.44-6.55% during the day. On Thursday, the 10-year gilt ended at INR 102.05, or 6.50%.
OIS RATES
On Friday, swap rates may take cues from overnight movement in US Treasury yields, dealers said. The movement in government bond yields may also lend cues to swap rates.
Short-term swaps will closely track the movement in the overnight Mumbai Interbank Offered Rate, with the RBI's liquidity measures seen keeping the rate near the repo rate of 6.25%, dealers said. Any further improvement in liquidity conditions will also be closely tracked by traders, especially with the RBI's open market operation auction to buy INR 200 billion worth of gilts scheduled to add liquidity to the banking system Friday.
The one-year swap rate is seen at 5.95-6.06% and the five-year rate at 5.75-5.88%. On Thursday, the one-year swap rate ended at 5.98% and the five-year swap rate closed at 5.81%.
CALL
On Friday, the three-day call rate may open near the repo rate due to demand for funds from banks in early trade. During the day, the call rate is seen in the range of 5.80-6.30% and the triparty repo rate in the range of 5.75-6.20%. On Thursday, the one-day call rate ended at 6.05%.
RBI AUCTION
--RBI to conduct a three-day variable rate repo auction for INR 250 billion at 1000-1030 IST
--Govt to sell two gilts worth INR 360 billion at 1030-1130 IST
LIQUIDITY
--Total net outflows of INR 31.95 billion. The calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repo operations.
* Inflows
--INR 10.67 billion as coupon on the 2028 floating rate bond
--INR 75.38 billion on redemption of 182-day Treasury bills
* Outflows
--INR 500.10 billion on reversal of 56-day VRR tender
--INR 750.03 billion on reversal of 49-day VRR tender
--INR 118.00 billion as payment for state bonds
--INR 60.12 billion on 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 Ashish Shirke
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