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Informist, Monday, Apr. 21, 2025

MUMBAI – Government bond prices may open steady on Tuesday ahead of the Reserve Bank of India's INR-200-billion open market gilt purchase auction and INR-108.70-billion state bond auction, dealers said. Overnight indexed swap rates may take cues from US Treasury yields, but the trigger may be muted as domestic conditions for rate cuts by the RBI's Monetary Policy Committee remain positive.

Gilt traders will also assess the amendments to the liquidity coverage ratio framework by the RBI, announced post market hours Monday, which will come into effect on Apr. 1, 2026. Prices of short-term bonds could fall because banks could sell these bonds as the revised guidelines say banks only need to maintain 2.5% run-off factor to internet and mobile banking-enabled retail deposits. The earlier draft guideline had proposed a 5% run-off factor in this regard, which faced opposition from the industry as their requirements for short-term bonds were expected to go up sharply.

On Tuesday, the one-day call rate may open below repo rate due to comfortable surplus liquidity and lack of significant outflows, dealers said. During the day, the call rate is seen at 5.60-6.00% and the triparty repo rate at 5.50-6.00%.

GOVERNMENT BONDS

On Tuesday, government bond prices are seen opening steady ahead of RBI's OMO auction and state bond auction. Later in the day, gilt prices may take cues from the results of both the auctions.

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. As seen in recent OMO auctions, the new gilts on offer had a larger share of bids and stronger cut-off prices, dealers said. Banks are expected to tender the bonds at lesser discounts than previous auctions as prevailing market conditions have improved, while selling mostly from their held-to-maturity books.

Any sharp movement in US Treasury yields could also lead to movement in gilt prices. However, even as uncertainty on trade and tariffs by the US President Donald Trump persist, gilt prices are expected to follow domestic triggers as conditions for rate cuts by the RBI's rate-setting panel remain positive, dealers said. India's provisional GDP growth estimates for Jan-Mar and 2024-25 (Apr-Mar) will be the next major triggers for gilts, data for which is due end of May.

Some traders see bond yields rising slightly because of profit booking and as investors look to purchase gilts at higher yields, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.38% on Tuesday. On Monday, the 10-year gilt ended at INR 103.33 or 6.32% yield.

OIS RATES

Tuesday, swap rates may take cues from the overnight movement in US Treasury yields. The impact of the offshore trigger may be muted as traders have a high conviction that domestic interest rates are going to fall, dealers said.

With no major data releases scheduled, traders will closely track the movement of the overnight MIBOR rate for direction on short-term swap rates. Swap rates maturing in three years and above may be sensitive to developments on the impact of the ongoing US-China trade war.

The one-year swap rate is seen in the range of 5.55-5.75%, and the five-year at 5.63-5.82%. On Monday, the one-year swap closed at 5.69% and the five-year swap closed at 5.63%.

CALL

On Tuesday, the one-day call rate may open below repo rate due to comfortable surplus liquidity and lack of significant outflows, dealers said. During the day, the call rate is seen at 5.60-6.00% and the triparty repo rate at 5.50-6.00%. On Monday, one-day call ended at 5.87%.

RBI AUCTION 

--RBI to buy five gilts worth INR 200 billion via OMO auction at 0930-1030 IST

--RBI to hold overnight variable rate repo auction for INR 1.25 trillion 1000-1030 IST 

--Four states to raise INR 108.70 billion via bond sale at 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 90.00 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 13.30 billion as coupon on state bonds 

--INR 76.70 billion as coupon on 7.34%, 2064 gilt

* Outflows

--INR 63.32 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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