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Informist, Wednesday, Apr. 9, 2025

MUMBAI – Government bond prices and overnight indexed swap rates will take cues from the movement of US Treasury yields Friday. Financial markets are shut on Thursday for Mahavir Jayanti.

Traders await clarity on the geopolitical scenario after US President Donald Trump's reciprocal tariffs on over 60 countries and territories came into effect Wednesday. Financial markets around the world have been roiled by the escalation in the trade war over the past week. Reserve Bank of India Governor Sanjay Malhotra in his monetary policy statement Wednesday also said the Monetary Policy Committee was watchful of global uncertainties.

With increasing expectation of the MPC cutting the repo rate by 25 bps each in both June and August, short-term gilt yields and swap rates may continue their fall in April, dealers said. Bond yields and swap rates fell Wednesday after the RBI's MPC cut the repo rate by 25 bps to 6.00% and changed its stance to 'accomodative' from 'neutral'.

Traders will also keep an eye on the next steps the US and China take in their ongoing trade war, with China retaliating to the US' latest tariff hike with one of its own, increasing import duties on American goods to 84%. In response, US Treasury yields rose to 4.45% at 1830 IST. India's swap rates and gilt yields are likely to be more sensitive to global cues amid the uncertainties on inflation and growth worldwide, dealers said. 

Crude oil prices could also be a trigger for gilts and swaps after falling sharply the past week, dealers said. A sharp movement in the rupee against the dollar may also provide cues. 

On Friday, the four-day call rate will likely open near the repo rate as banks will borrow funds to meet their reserve requirements early in trade.

GOVERNMENT BONDS

On Friday, gilt prices may take cues from the movement of US yields, dealers said. Traders may trim gilts ahead of the INR 320-billion gilt auction on Friday. The government will sell INR 160 billion of the 6.92%, 2039 bond and INR 160 billion of a new 2065 bond at 1030-1130 IST Friday.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.39-6.55% on Friday. On Wednesday, the 10-year gilt ended at INR 102.43, or 6.44% yield.

OIS RATES

On Friday, swaps may take cues from the movement in US Treasury yields at open, dealers said. With traders already expecting repo rate cuts of another 50 bps or so by the end of 2025, a further fall in swaps could be restrained, they said.

Short-term swaps on Friday will closely track movement in the overnight Mumbai Interbank Offer Rate and any further liquidity measures by the RBI. Traders also expect the yield curve to become upward sloping as global uncertainties may keep long-term swaps volatile, they said. 

The one-year swap rate is seen in the range of 5.65-5.85% and the five-year in 5.68-6.00%. On Wednesday, the one-year swap rate ended at 5.82% and the five-year swap rate closed at 5.75%.

CALL

On Friday, the four-day call rate will likely open near the repo rate as banks will borrow funds to meet their reserve requirements early in the trade. Financial markets are shut on Monday for Ambedkar Jayanti. During the day, the money market rates will likely remain in the range of 5.60-6.10%. On Wednesday, the two-day call rate ended at 5.60%.

RBI AUCTION 

--RBI to hold 2-day VRR auction for INR 250 billion at 1200-1230 IST 

--RBI to auction 91-day T-bills worth INR 90 billion

--RBI to auction 182-day T-bills worth INR 50 billion

--RBI to auction 364-day T-bills worth INR 50 billion

LIQUIDITY

--Total net inflows of INR 137.56 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 182.00 billion as redemption of 91-day T-bills on Thursday

--INR 60.00 billion as redemption of 182-day T-bills on Thursday

--INR 19.26 billion as coupon on state bonds on Thursday

--INR 39.18 billion as coupon on 7.06%, 2028 gilt Thursday

--INR 37.24 billion as coupon on 7.06%, 2046 gilt Thursday

--INR 80.04 billion as redemption of 364-day T-bills on Friday

--INR 7.36 billion as coupon on state bonds on Friday

* Outflows

--INR 110.00 billion as payment on 91-day T-bills on Friday

--INR 50.00 billion as payment on 182-day T-bills on Friday

--INR 127.53 billion as payment on 364-day T-bills on Friday

--INR 192.95 billion on reversal of 2-day VRR tender on Friday

End

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

Reported by Cassandra Carvalho

Edited by Tanima Banerjee

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