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Informist, Wednesday, Apr. 16, 2025

MUMBAI – Government bond prices are likely to open steady Thursday ahead of two key auctions in the first half of the day, dealers said. The Reserve Bank of India will buy bonds worth INR 400 billion through an open market operations auction at 0930-1030 IST and the government will sell gilts worth INR 300 billion at 1030-1130 IST.

Gilts and overnight indexed swap rates may also take cues from the overnight movement of US Treasury yields. The weekly gilt auction has been brought ahead from its usual Friday as financial markets are shut for Good Friday.

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 trade scenario after escalation in the US-China trade war over the past week.

With increasing expectations of the RBI's Monetary Policy Committee cutting the repo rate by 25 basis points each in June and August, short-term gilt yields and swap rates may continue to fall in April, dealers said. Bond yields and swap rates have been falling after the MPC cut the repo rate by 25 bps to 6.00% and changed its stance to 'accommodative' from 'neutral'.

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

On Thursday, the four-day call rate may open slightly higher than the repo rate due to increased demand from banks to meet funding requirements ahead of the weekend. During the day, the call rate is seen at 5.80-6.10% and the triparty repo rate at 5.75-6.00%.  

GOVERNMENT BONDS

On Thursday, gilt prices are likely to open steady ahead of the back-to-back open market operation auction and gilt auction, dealers said. Prices may take cues from the overnight movement of US Treasury yields at open. The results of both auctions will lend cues to bond prices later in the day.

Traders await the INR 400-billion OMO auction and INR 300-billion gilt auction Thursday. At the OMO auction, the central bank has offered to buy six gilts--the 7.37%, 2028; the 7.32%, 2030; the 6.54%, 2032; the 7.18%, 2033; the 7.54%, 2036, and the 7.23%, 2039 gilt. Dealers expect most banks to tender these six bonds below prevailing market prices as they would want to pare these bonds from their held-to-maturity books, dealers said. Some of the papers, such as the 7.32%, 2030 gilt and the 7.18%, 2033 gilt, are also present in banks' trading portfolios and could be tendered at lower discounts than others at the auction, they said.

The government will sell INR 110 billion of the 6.79%, 2031 bond; INR 50 billion of the 6.98%, 2054 green bond; and INR 140 billion of the 7.09%, 2074 bond at the gilt auction Thursday. Demand for all three gilts is seen firm, even for the green bond--for which investors usually demand higher yields--due to demand from long-term investors, dealers said.

Traders expect the 10-year benchmark to trade in a range of 6.35%-6.45% until US yields soften significantly. Some traders see bond yields rising slightly, as traders book profits and investors look to purchase gilts at higher yields, dealers said.

Indian financial markets are shut Friday for Good Friday. Traders may take positions for the INR 280-billion switch auction on Thursday itself. Traders may also trim the stock of gilts near the end of trade to reduce exposure to any risk over the extended weekend.

Several traders are likely to be on leave Thursday to attend the Fixed Income Money Market and Derivatives Association of India's annual conference over the long weekend in Bali, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.35-6.45% on Thursday. On Wednesday, the 10-year gilt ended at INR 102.82, or 6.39% yield.

OIS RATES

Thursday, swaps may take cues from the movement in US Treasury yields at open as is usually the case, dealers said. An increase in expectations of further rate cuts could lead to a fall in swap rates, they said.

The one-year swap rate is seen in the range of 5.65-5.80% and the five-year at 5.63-5.82%. On Wednesday, the one-year swap rate ended at 5.74% and the five-year swap rate closed at 5.68%.

CALL

On Thursday, the four-day call rate may open slightly higher than the repo rate due to increased demand from banks to meet funding requirements ahead of the weekend. During the day, the call rate is seen at 5.80-6.10% and the triparty repo rate at 5.75-6.00%. On Wednesday, the one-day call rate ended at 5.75%.

RBI AUCTION 

--RBI to hold four-day VRR auction for INR 250 billion 1000-1030 IST

--RBI to hold 43-day VRR auction for INR 1.50 trillion 1200-1230 IST 

--RBI to buy INR 400 billion of 6 gilts via OMO auction 0930-1030 IST

--Govt to auction three gilts worth INR 300 billion 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 192.20 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 254.01 billion as redemption of 91-day T-bills

--INR 87.07 billion as redemption of 182-day T-bills

--INR 10.44 billion as coupon on state bonds

--INR 17.23 billion as coupon on 6.99%, 2026 gilt

--INR 36.93 billion as coupon on 7.17%, 2030 gilt

* Outflows

--INR 109.00 billion as payment for 91-day T-bills

--INR 50.00 billion as payment for 182-day T-bills

--INR 54.48 billion as payment for 364-day T-bills

--INR 103.46 billion on reversal of overnight VRR tender

End

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

Reported by Cassandra Carvalho

Edited by Ashish Shirke

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