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Informist, Tuesday, May 13, 2025

MUMBAI – Government bonds and overnight indexed swap rates on Wednesday will likely look at the overnight movement of US Treasury yields for direction, dealers said. The overnight movement in crude prices may also lend direction to both the markets, dealers said. Any sharp movement in the Indian rupee against the dollar will also likely provide some cues to traders, they said.

Traders will also closely track any developments on the India-Pakistan border, dealers said. India and Pakistan agreed to cease military action against each other on Saturday. On Monday, Prime Minister Narendra Modi said India had just paused attacks on terrorist camps and military sites in Pakistan. He also said that over the next few days, India would evaluate Pakistan's resolve to the "understanding" both sides had arrived at on Saturday.

On Wednesday, the one-day call rate may open below the Reserve Bank of India'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%.

GOVERNMENT BONDS

On Wednesday, investors will look to US Treasury yields and crude oil prices for direction, dealers said. Demand for bonds maturing between five and 15 years is seen robust as banks look to replenish the stock of bonds of similar maturities sold to the RBI in its open market operations auctions.

Traders will also closely track any developments on the border, dealers said. India and Pakistan agreed to end hostilities on Saturday. India's GDP growth estimates for Jan-Mar and 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 6.28-6.36% on Wednesday. On Tuesday, the 10-year benchmark gilt ended at INR 103.22 or 6.33% yield.

OIS RATES

On Wednesday, swap rates will likely track US yields, dealers said. Traders also await the RBI's payment of its annual dividend to the central government, due this month. Traders estimate the dividend to be INR 2 trillion to INR 3 trillion, which will support liquidity in the banking system. If in line with or above the estimates, the dividend transfer could pull swap rates down, dealers said.  

Traders will also track the movement of the overnight Mumbai Interbank Offer Rate for direction on short-term swap rates. The one-year swap rate is seen in a range of 5.50-5.75% Wednesday. The five-year contract is also seen in the 5.50-5.75% range. On Tuesday, the one-year swap ended at 5.64% and five-year swap closed at 5.65%.

CALL

On Wednesday, 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 Tuesday, one-day call ended at 5.45%.

RBI AUCTION 

--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

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

LIQUIDITY

--Total net outflows of INR 109.46 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 5.54 billion as coupon on state bonds

* Outflows

--INR 115.00 billion as payment for state bonds

--INR 54.01 billion on reversal of overnight VRR tender

End

Reported by Vidhushi RajPurohit

Edited by Ashish Shirke

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