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Informist, Monday, Apr. 28, 2025

MUMBAI – Government bond prices are seen opening higher Tuesday after the Reserve Bank of India after market hours said that it will conduct open market auctions to buy gillts worth INR 1.25 trillion in May. The RBI also announced that it will auction INR 300 billion worth of a new 10-year gilt on Friday. This could lead traders to place short bets on the 10-year benchmark gilt, and the bond could underperform in the secondary market compared to other benchmark gilts on Tuesday.

Overnight indexed swap rates and gilts prices could also take cues from any geopolitical developments between India and Pakistan, dealers said. The movement in US Treasury yields may also lend direction to gilt prices and swap rates.

On Tuesday, the one-day call rate may open below the repo rate due to sufficient liquidity and inflows from government's month-end spending, dealers said. During the day, the call rate is seen at 5.50-5.90% and the tri-party repo rate at 5.50-5.80%.

GOVERNMENT BONDS

On Tuesday, gilt prices are seen opening higher as the central bank post market hours said that it will buy gilts through four OMO auctions in May. This was higher than most traders' expectations, which could lead gilt prices to rise Tuesday. Traders will also wait for results of INR 200 billion of OMO auction along with INR 247 billion state bond auction to take cues later in the day.

At the OMO auction, the RBI has offered to buy the 7.04%, 2029, the 6.10%, 2031, the 7.26%, 2032, the 6.19%, 2034, and the 8.33%, 2036 gilts. Some dealers expect the 6.10%, 2031 bond, which has the highest outstanding among the five bonds, to be tendered the most by banks at a deeper discount to prevailing market prices than others. Some said that the 6.19%, 2034 bond, which the RBI offered to buy for the first time at the current OMO auction cycle will be tendered the most from banks' held-to-maturity books. Some dealers also said that banks mostly had the 7.04%, 2029 bond in their trading portfolios, which could lead to the bond being offered at a lesser discount to market prices than the other papers. 

Traders will also watch out for any further developments on India-Pakistan tensions, dealers said. Gilts could take cues from US yields if they move sharply. India's provisional GDP growth estimates for Jan-Mar and 2024-25 (Apr-Mar) due at the end of May, could provide more clarity on rate cuts during the year, which would be the next major triggers for gilts. Despite geopolitical uncertainty, gilt yields are expected to hold a strong resistance at 6.45%, and fall in prices could be limited as investors will look to buy gilts as the hope of further rate cuts by the RBI's rate-setting panel persists. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.42% on Tuesday. On Monday, the 10-year benchmark gilt ended at INR 102.76, or at 6.40% yield.

OIS RATES

On Tuesday, swap rates are likely to take cues from geopolitical developments between India and Pakistan, dealers said. Traders will unwind their received fixed-rate bets if there are further instances of firing on the border or major military activity between the two countries, dealers said. However, if a diplomatic solution is found, traders may receive the two-year and five-year swap rates aggressively, pulling them down by up to 5 bps each.

The movement in US Treasury yields may also lend direction to swap rates. The impact of the offshore trigger may be muted as traders are convinced domestic interest rates are going to fall further, particularly after the release last week of the minutes of the Monetary Policy Committee's April meeting, dealers said.

With no major data releases scheduled, traders will track movement of the overnight Mumbai Interbank Offer Rate for direction on short-term swap rates. Swaps maturing in three years and above may be sensitive to developments in the US-China trade war and broader US tariff policy.

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 Monday, the one-year swap closed at 5.72% and the five-year swap closed at 5.69%.

CALL

On Tuesday, the one-day call rate may open below the repo rate due to sufficient liquidity and inflows from government's month-end spending, dealers said. During the day, the call rate is seen at 5.50-5.90% and the tri-party repo rate at 5.50-5.80%. On Monday, one-day call ended at 5.87%.

RBI AUCTION

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

--RBI to hold overnight variable rate repo auction for INR 750 billion from 1000-1030 IST 

--11 states to raise INR 247 billion via bond sale at 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 100.22 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 4.62 billion as coupon on state bonds 

--INR 95.60 billion on redemption of state bonds

* Outflows

--INR 49.98 billion on reversal of one-day VRR tender

End

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

Reported by Srijita Bose

Edited by Akul Nishant Akhoury

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