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Informist, Friday, Apr. 11, 2025

MUMBAI – Government bond prices are seen opening higher Tuesday after the Reserve Bank of India post market hours Friday announced an INR-400-billion open market purchase of gilts via auction, dealers said. Financial markets are shut on Saturday and Monday, the latter on account of Ambedkar Jayanti.

Gilts and overnight indexed swap rates may also take cues from the movement of US Treasury yields at the market open, dealers said. India's swap rates and gilt yields are likely to be sensitive to global cues amid the uncertainties on inflation and growth worldwide, dealers said.

Traders await clarity on the geopolitical scenario after the escalation in the US-China trade war Friday. Financial markets around the world have been roiled by the escalation in the trade war over the past week. RBI Governor Sanjay Malhotra in the monetary policy statement Wednesday 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 this week after the RBI's MPC cut the repo rate by 25 bps to 6.00% and changed its stance to 'accomodative' from 'neutral'. 

On Tuesday, traders also await CPI inflation for March, due at 1600 IST. An Informist poll of 11 economists estimated the print at 3.6%, while traders estimate a range of 3.4-3.7%. 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 Tuesday, the one-day call rate will likely open near the repo rate as banks will borrow funds to meet their reserve requirements early in the day.

GOVERNMENT BONDS

On Tuesday, gilt prices may open higher after the RBI post market hours announced an OMO purchase of INR 400 billion worth of gilts via auction Thursday. The RBI has offered to buy the 7.37%, 2028, 7.32%, 2030, 6.54%, 2032, 7.18%, 2033, 7.54%, 2036 and 7.23%, 2039 gilts Thursday. This is in addition to the four tranches of OMO buys totalling INR 800 billion the RBI had already announced for April.

Gilt traders were expecting the OMO auction announcement Friday which would provide details of the already-scheduled auction on Apr. 22. The surprise announcement will be a positive for bond prices, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.39-6.50% on Tuesday. On Friday, the 10-year gilt ended at INR 102.42, or 6.44% yield.

OIS RATES

On Tuesday, swaps may take cues from movements in US Treasury yields at open, dealers said. Traders are already expecting repo rate cuts of another 50 bps by the end of 2025, but expectations of further rate cuts could lead to a fall in swap rates, they said.

Short-term swaps on Tuesday will closely track movement in the overnight Mumbai Interbank Offered Rate and any further liquidity measures by the RBI. The announcement of an additional INR 400 billion open market operation auction to buy gilts, over and above the INR 800 billion already announced for April, after market hours Friday may lead to a further fall in overnight rates, dealers said.

Traders also expect the yield curve to become upward-sloping as global uncertainties may keep long-term swaps volatile. The one-year swap rate is seen in the range of 5.65-5.85% and the five-year in 5.63-5.82%. On Friday, the one-year swap rate ended at 5.78% and the five-year swap rate closed at 5.71%.

CALL

On Tuesday, the one-day call rate will likely open near the repo rate as banks will borrow funds to meet their reserve requirements early in the day. During the day, the money market rates will likely be in the range of 5.60-6.00%. On Friday, the four-day call rate ended at 5.62%.

RBI AUCTION 

--RBI to hold overnight VRR auction for INR 250 billion 1000-1030 IST Tuesday

--Three states to raise INR 30 billion via bond sale on Tuesday

LIQUIDITY

--Total net outflows of INR 109.63 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 38.38 billion as coupon on 5.63%, 2026 gilt on Saturday

--INR 8.79 billion as coupon on state bonds on Saturday

--INR 19.05 billion as coupon on state bonds on Sunday

--INR 5.07 billion as coupon on state bonds on Monday

--INR 14.98 billion as coupon on state bonds on Tuesday

--INR 81.80 billion as redemption of state bonds on Tuesday

--INR 42.30 billion as coupon on 7.23%, 2039 gilt Tuesday

* Outflows

--INR 320.00 billion as payment for gilts Tuesday

--INR 143.17 billion on reversal of 4-day VRR tender on Tuesday

End

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

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

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