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Informist, Saturday, Apr. 19, 2025

MUMBAI – Government bond prices and overnight indexed swap rates are likely to take cues from the movement of US Treasury yields when the Indian markets open on Monday, dealers said. Financial markets were shut on Friday for Good Friday and gilts and swaps are not traded Saturday.

In the US, weekly jobless claims for the week ended Saturday fell by 9,000 to 215,000, against consensus estimates of 225,000. Traders may also take cues from comments of US Federal Reserve officials for insights on the US Federal Open Market Committee's rate trajectory, dealers said. 

Traders may also take cues from the speech of RBI Governor Sanjay Malhotra at the Fixed Income Money Market and Derivatives Association of India's annual conference in Bali, dealers said. At the conference held over the long weekend, RBI Governor Malhotra said the central bank aims to develop a risk-free term-money market structure, and wants to create a deeper foreign exchange market that operates 24 hours a day for five days a 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'.

The swap rates and gilt yields are likely to be sensitive to global cues due to uncertainty 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. 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 Monday, the one-day call rate may open higher than the repo rate due to increased demand from banks on account of goods and services tax outflow. During the day, the call rate is seen at 5.80-6.20% and the triparty repo rate at 5.75-6.00%.  

GOVERNMENT BONDS

On Monday, government bond prices may take cues from the movement of US Treasury yields over the weekend. Later in the day, gilt prices may take cues from the result of the INR 280-billion switch auction. The government will switch seven gilts with five bonds in the auction. Demand at the auction is expected to be firm, with some traders estimating an accepted quantum of around INR 200 billion. 

Post market hours Thursday, the RBI announced that four states will raise INR 108.70 billion through bond sale Tuesday. This may be a positive for bond prices since the indicative calendar for Apr-Jun showed that 13 states were scheduled to borrow INR 177.00 billion at the auction, dealers said.
 
The RBI also detailed its choice of bonds to buy at its scheduled open market purchase of gilts via auction under open market operations Tuesday. The RBI has offered to buy the 6.10%, 2031; 7.26%, 2032; 7.50%, 2034; 8.30%, 2040; and 9.23%, 2043 gilts at the auction. Some of the gilts have not been offered at OMO auctions before, which is what traders had hoped for. As seen in recent OMO auctions, the new gilts on offer had a larger share of bids and stronger cut-off prices, dealers said. 

Traders expect the 10-year benchmark gilt to trade in a range of 6.35-6.45% until US yields soften significantly. Traders also await India's provisional GDP growth estimates for Jan-Mar and 2024-25 (Apr-Mar), which are due end of May. Some traders see bond yields rising slightly, as traders book profits and investors look to purchase gilts at higher yields, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.34-6.40% on Monday. On Thursday, the 10-year gilt ended at INR 102.94, or 6.37%.

OIS RATES

On Monday, swaps may take cues from the movement of US Treasury yields at open, dealers said. Any sharp rise in US yields is expected to lead to paying in Indian swap rates, especially in long-term contracts, dealers said.

Increase in expectations of rate cuts by the RBI could lead to a fall in swap rates, they said. Meanwhile, short-term swaps will closely track the overnight Mumbai Interbank Offered Rate, which is expected to remain near or below the repo rate, and further liquidity boosting measures by the RBI. With increasing expectations of a rate-cutting cycle of at least 100 basis points this year, some traders expect the swap 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 5.65-5.80%, and the five-year at 5.63-5.82%. On Thursday, the one-year swap rate ended at 5.73% and the five-year swap rate closed at 5.68%.

CALL

On Monday, the one-day call rate may open higher than the RBI's repo rate due to increased demand from banks on account of Goods and Services Tax outflow. During the day, the call rate is seen at 5.80-6.20% and the triparty repo rate at 5.75-6.00%. On Saturday, the two-day call rate ended at 5.40%.

RBI AUCTION 

--RBI to hold overnight VRR auction for INR 1.00 trillion 1000-1030 IST on Monday

--Govt to switch 7 gilts worth INR 280 billion with 5 bonds via auction on Monday

LIQUIDITY

--Total net inflows of INR 107.30 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 4.26 billion as coupon on state bonds on Sunday

--INR 3.04 billion as coupon on state bonds on Monday

--INR 400.00 billion from RBI as payment for gilt buys at OMO auction Monday

* Outflows

--INR 300.00 billion as payment for gilts on Monday

--INR 65.14 billion on reversal of 4-day VRR tender on Monday

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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