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Informist, Monday, May 5, 2025

MUMBAI – Government bonds may open steady on Tuesday ahead of the Reserve Bank of India's INR-500-billion open market gilt purchase auction and INR-230-billion state bond auction, dealers said. Overnight indexed swap rates and gilts will also take cues from geopolitical developments between India and Pakistan, dealers said. 

Gilts and swaps could also take cues from US yields if they move sharply. Swaps maturing in three years and above may be sensitive to developments in the US-China trade war and the broader US tariff policy.

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 steady at open, ahead of the RBI's OMO and state bond auctions. Later in the day, gilt prices may take cues from the results of both the auctions, dealers said. 

The RBI has offered to buy the 7.06%, 2028, the 6.10%, 2031, the 8.32%, 2032, the 7.18%, 2033, the 7.10%, 2034, the 7.40%, 2035, and the 7.23%, 2039 gilts at the auction. Traders expect the previous 10-year benchmark, the 7.10%, 2034 gilt to be tendered the most by banks and the cut-off price for the bond is expected to be closer to the secondary market levels. Banks are also likely to tender the rest of the bonds at the auction at prevailing market prices or at lesser discounts than seen previously, dealers said. With over INR 4.00 trillion of buys through open market operations already complete in 2025 and another INR 1.25 trillion scheduled in May, banks will not be aggressive in seeking to book profits, they said. 

Demand for shorter-tenure gilts maturing within five years could remain firm during the day as traders will look to cut down longer-duration papers to reduce their risks amid geopolitical tensions, dealers said. Demand for gilts maturing within seven to 15 years could also pick up as banks will look to buy them in place of bonds that the RBI bought through OMO auctions, they 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 be the next big trigger for gilts. Despite geopolitical uncertainty, gilt yields are expected to remain below 6.40% as investors will look to buy gilts on the hope of further rate cuts by the RBI's rate-setting panel. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.35% on Tuesday. On Monday, the 10-year gilt ended at INR 103.26 or 6.32% yield.

OIS RATES

On Tuesday, swaps rates are likely to open steady unless activity by offshore participants spurs a movement in rates, dealers said. Swap rates may 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 conflict between the two countries, dealers said.

Traders will track the movement of the overnight Mumbai Interbank Offer Rate for direction on short-term swap rates, with the expectation it will fall to near 5.75% from 5.94% on Monday. 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 Tuesday. The five-year contract is also seen in the 5.55-5.75% range. On Monday, the one-year swap closed at 5.64% and the five-year swap closed at 5.59%.

CALL

On Tuesday, the one-day call rate may open below the RBI's repo rate on comfortable liquidity. 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 Monday, one-day call ended at 5.75%.

RBI AUCTION 

--RBI to buy seven gilts worth INR 500 billion via OMO auction at 0930-1030 IST

--RBI to hold overnight variable rate repo auction for INR 250 billion 1000-1030 IST 

--Nine states to raise INR 230 billion via bond sale at 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 57.25 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 43.64 billion as coupon on 7.46%, 2073 gilt

--INR 3.60 billion as coupon on state bonds 

--INR 10.00 billion as redemption of state bonds 

* Outflows

--INR 56.46 billion on reversal of overnight VRR tender

End

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

Reported by Vidhushi RajPurohit

Edited by Akul Nishant Akhoury

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