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Informist, Friday, May 9, 2025

MUMBAI – Developments on the India-Pakistan front over the weekend will give direction to government bonds and overnight indexed swaps on Tuesday. Financial markets are shut on Saturday and Monday, the latter on account of Buddha Purnima. Any escalation in tension between the two nuclear-armed neighbours could lead to a fall in gilt prices and a rise in swap rates, dealers said. 

In the latest escalation in conflict, Pakistan armed forces Thursday night fired 300-400 drones at 36 locations along the western border from Leh in Ladakh to Sir Creek in Gujarat, targeting Indian military installations. In response to Pakistan's attack, Indian armed forces launched armed drones at four air defence sites in Pakistan and one of the drones destroyed an air defence radar, the Ministry of External Affairs said in a press briefing Friday. Some sources also said that late Friday, Pakistani drones were sighted in Jammu, Samba and Pathankot. 

Gilts and overnight indexed swap rates may also take cues from the movement of US Treasury yields at the market open, dealers said. A sharp movement in the rupee against the dollar may also provide cues. 

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 5.50-5.95% and the tri-party repo rate at 5.50-5.90%.

GOVERNMENT BONDS

On Tuesday, government bond prices may closely track any developments on the border, dealers said. Tensions escalated Thursday between the two nuclear-powered countries after Pakistan attempted drone attacks at multiple targets in India and resorted to heavy artillery shelling across the Line of Control in Jammu and Kashmir. Any further military action between the two countries may lead to a fall in prices and the 10-year gilt yield may rise to 6.45%, dealers said. 

Gilts may also take cues from the movement in US Treasury yields and crude oil prices over the weekend. Demand for bonds maturing between five and 15 years is seen robust as banks look to replenish stocks of bonds in similar maturities sold to the RBI at open market operation auctions. 

India's GDP growth estimates for Jan-Mar and the annual estimate for 2024-25 (Apr-Mar), due at the end of May, could be the next big trigger for gilts. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.36-6.42% on Tuesday. On Friday, the 10-year gilt ended at INR 102.89, or 6.38% yield.

OIS RATES

On Tuesday, swap rates will be driven by developments on the India-Pakistan front, dealers said. Traders are on the watch for any further escalation after the neighbours ramped up military activity on the border Thursday. Foreign Secretary Misri held a press briefing post market hours Friday. He said India responded responsibly and sufficiently to Pakistan's attack on Thursday night, suggesting that further cross-border escalation from India would not be forthcoming.

Traders will track the movement of the overnight Mumbai Interbank Offered Rate for direction on short-term swap rates. The one-year swap rate is seen in a range of 5.50-5.75% Monday. The five-year contract is also seen in the 5.50-5.75% range. On Friday, the one-year swap rate ended at 5.63% and the five-year swap rate closed at 5.66%.

CALL

On Tuesday, the one-day call rate may open below the RBI's repo rate due to comfortable liquidity. During the day, the call rate is seen at 5.50-5.95% and the tri-party repo rate at 5.50-5.90%. On Friday, the four-day call rate ended at 5.85%.

RBI AUCTION 

--RBI to hold overnight VRR auction for INR 250 billion 1000-1030 IST Tuesday

--Seven states to raise INR 115 billion via bond sale on Tuesday

LIQUIDITY

--Total net outflows of INR 17.86 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 43.34 billion as coupon on 8.24%, 2033 gilt on Saturday

--INR 22.50 billion as coupon on state bonds on Saturday

--INR 32.31 billion as coupon on 5.79%, 2030 gilt on Sunday

--INR 12.92 billion as coupon on state bonds on Sunday

--INR 11.28 billion as coupon on state bonds on Monday

--INR 1.81 billion as coupon on 7.25%, 2028 green bond on Tuesday

--INR 25.62 billion as coupon on 7.32%, 2030 gilt Tuesday

--INR 9.88 billion as coupon on state bonds on Tuesday

--INR 142.48 billion as redemption on state bonds on Tuesday

* Outflows

--INR 320.00 billion as payment for gilts Tuesday

--INR 74.17 billion on reversal of 4-day VRR tender on Tuesday

End

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

Reported by Vidhushi RajPurohit

Edited by Avishek Dutta

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