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Informist, Tuesday, Apr. 22, 2025

MUMBAI – Government bond prices are expected to open marginally lower Wednesday as banks may continue to sell liquid gilts maturing in up to 10 years after the revised liquidity coverage guidelines were released, dealers said. Gilt prices and overnight indexed swap rates may also take cues from the movement in US Treasury yields, though the impact may be limited as domestic rate cut views remain positive, they said.

Meanwhile, the one-day call rate may open below repo rate due to lack of significant outflows, dealers said. During the day, the call rate is seen at 5.70-6.10% and the tri-party repo rate at 5.50-6.00%.

GOVERNMENT BONDS

On Wednesday, government bond prices are seen a little lower as banks may continue to sell shorter-tenure liquid gilts after the revised LCR guidelines, dealers said. The fall in prices could be limited as investors will look to buy gilts as hopes of further rate cuts by the Reserve Bank of India's Monetary Policy Committee persist.

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

Some dealers see bond yields rising slightly, as traders take out 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 6.28-6.38% on Wednesday. On Tuesday, the 10-year gilt ended at INR 103.30 or 6.32% yield.

OIS RATES

On Wednesday, 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 Mumbai Interbank Offered Rate, the floating leg in an OIS contract, 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 a range of 5.55-5.75%. The five-year contract is seen within 5.63-5.82%. On Tuesday, the one-year swap closed at 5.70% and the five-year swap closed at 5.64%.

CALL

On Wednesday, the one-day call rate may open below repo rate due to lack of significant outflows, dealers said. During the day, the call rate is seen at 5.70-6.10% and the tri-party repo rate at 5.50-6.00%. On Tuesday, one-day call ended at 5.85%.

RBI AUCTION 

--RBI to hold overnight variable rate repo auction for INR 1.00 trillion 1000-1030 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 outflows of INR 61.85 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 19.21 billion as coupon on state bonds 

--INR 27.64 billion as coupon on 7.37%, 2028 gilt

* Outflows

--INR 108.70 billion as payment for state bonds

--INR 178.92 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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