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Informist, Thursday, May 15, 2025

MUMBAI – On Friday, government bonds and overnight indexed swaps will likely look at US Treasury yields for direction after a slew of economic data in the US. Producer price index in the US fell 0.5% in April, against The Wall Street Journal's consensus estimate of a 0.3% increase. Retail sales grew 0.1% last month, in line with estimates. Jobless claims in the US for the week ended Saturday were 229,000, slightly higher than expected.

Gilt prices will also take cues from the results of the weekly gilt auction of INR 250 billion at 1030-1130 IST, dealers said. The government will sell INR 110 billion of the 6.79%, 2031 bond and INR 140 billion of the 7.09%, 2074 bond.

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. Traders also await news on the RBI's transfer of surplus to the central government, likely this month. Traders estimate the transfer to be INR 2.5 trillion to INR 3.5 trillion, which will boost the durable liquidity in the banking system.

Traders will also likely continue to position for another 25 basis point repo rate cut in June. Hopes of a repo rate cut strengthened after the headline CPI inflation for April fell to a 69-month low of 3.16%.

On Friday, the three-day call rate may open below the RBI's repo rate due to comfortable liquidity in the banking system. During the day, the call rate is seen at 5.50-5.90% and the tri-party repo rate at 5.50-5.75%.

GOVERNMENT BONDS

Government bond prices may take cues from the overnight movement in US Treasury yields after a slew of economic data in the US. Later in the day, gilt prices may take cues from the results of the gilt auction of INR 250 billion, dealers said.

The government will sell INR 110 billion of the 6.79%, 2031 bond and INR 140 billion of the 7.09%, 2074 bond. Both papers are largely preferred by investors and the auction is expected to sail through, especially due to its relatively small supply.

Demand for bonds maturing between five and 15 years is seen as robust as banks look to replenish stocks of bonds of similar maturities sold to the RBI in its open market operations auctions. Traders also await the RBI's payment of its surplus transfer to the central government. 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 6.25-6.30% on Friday. On Thursday, the 10-year benchmark gilt ended at INR 103.61 or 6.27% yield.

OIS RATES

Swaps will likely track the overnight movement in US Treasury yields after a slew of economic data on Thursday, dealers said. The US is set to release producer price index data and retail sales data for April, along with weekly jobless claims and industrial production data. 

Traders also await the RBI's surplus transfer to the central government, which is likely to be announced after a meeting of the central bank's board on May 23. Traders estimate the dividend to be around INR 3 trillion, which will add durable liquidity to the banking system. If the transfer is in line with or above the estimate, it could pull swap rates down, dealers said.

Traders will also track the movement in 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% Friday. The five-year contract is also seen in the 5.50-5.75% range. On Thursday, the one-year swap rate ended at 5.63% and the five-year swap rate closed at 5.68%.

CALL

The three-day call rate may open below the RBI's repo rate due to comfortable liquidity. During the day, the call rate is seen at 5.50-5.90% and the tri-party repo rate at 5.50-5.75%. On Thursday, the one-day call ended at 5.50%.

RBI AUCTION 

--Government to auction two gilts worth INR 250 billion 1030-1130 IST

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

LIQUIDITY

--Total net inflows of INR 6.47 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 6.47 billion as coupon on state bonds

* Outflows

--INR 1.49 billion on reversal of 14-day VRR tender

--INR 51.98 billion on reversal of overnight VRR tender

End

Reported by Vidhushi RajPurohit

Edited by Akul Nishant Akhoury

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