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Informist, Tuesday, Apr. 29, 2025

By Srijita Bose

MUMBAI – Government bond prices and overnight indexed swap rates on Wednesday are expected to track geopolitical developments related to India-Pakistan conflict. A significant movement in US Treasury yields may also lend direction to gilts and swap rates. 

On Tuesday, the two-day call rate is expected to open near the repo rate in early trade, driven by demand for funds. The call rate is likely to move at 5.50-6.00%, while the tri-party repo rate is seen at 5.50-6.10% on Wednesday.

GOVERNMENT BONDS

On Wednesday, gilt prices are seen taking cues from further developments on India and Pakistan tensions, dealers said. Traders may place short bets on the 10-year benchmark gilt as the government will issue a new 10-year gilt at auction on Friday, and the bond could underperform in the secondary market compared with other benchmark gilts on Wednesday.

Gilts could take cues from US yields if they move sharply, dealers said. 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 remain below 6.40% as investors will look to buy gilts on hope of further rate cuts by the Reserve Bank of India's rate-setting panel. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.40% on Wednesday. On Tuesday, the 10-year gilt closed at INR 103.14 or 6.34% yield.

OIS RATES

On Wednesday, 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 is a major military activity between the two countries, dealers said.

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 of minutes of the Monetary Policy Committee's April meeting last week, dealers said.

Traders will track the movement of the overnight Mumbai Interbank Offered Rate for direction on short-term swap rates, with the expectation it would fall to 5.75% from 5.93% on Tuesday. Swaps maturing in three years and above may be sensitive to developments in the US-China trade war and the broader US tariff policy.

The one-year swap rate is seen in a range of 5.55-5.75% on Wednesday. The five-year contract is seen at 5.63-5.82%. On Tuesday, the one-year swap closed at 5.67% and the five-year swap closed at 5.65%.

CALL

On Wednesday, the two-day call rate may open near the repo rate on some demand in early trade, dealers said. During the day, the call rate is seen at 5.50-6.00% and the tri-party repo rate at 5.50-6.10%. On Tuesday, one-day call ended at 5.65%.

RBI AUCTION

--RBI will hold a two-day variable rate repo auction for INR 500 billion at 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 213.69 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 2.06 billion as coupon on state bonds

--INR 19.06 billion as coupon on 7.33%, 2026 gilt

--INR 12.19 billion as coupon on 2034 floaring rate bond

* Outflows

--INR 247.00 billion as payment on state bonds

--INR 59.01 billion on reversal of overnight VRR tender

End

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

Edited by Akul Nishant Akhoury

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