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Informist, Saturday, May 17, 2025

MUMBAI – Government bond prices and overnight indexed swap rates may take cues from the movement in the US Treasury yields over the weekend. Later in the day, gilt prices are seen taking cues from the result of the INR-280-billion switch and the INR-250-billion open market operation auctions.

Traders also await the Reserve Bank of India's surplus transfer to the central government, which is likely to be announced 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 down gilt yields and swap rates, dealers said. The next significant cue on domestic interest rates would be the release of GDP data for Jan-Mar and FY25 on May 30, they said.

On Monday, the one-day call money rate may open near the RBI's repo rate of 6.00% due to demand for funds from banks early in the day to meet their reserve requirements. During the day, the call rate is seen in a range of 5.60-6.00%, dealers said.

GOVERNMENT BONDS

On Monday, gilt prices may take cues from the movement in US Treasury yields over the weekend. Later, gilt prices may take cues from the result of the switch and the OMO auctions. In the switch auction, the government will switch eight short-term gilts with eight longer-term bonds.
 
At the OMO auction, the RBI has offered to buy the 7.10%, 2029, the 7.95%, 2032, the 7.18%, 2033, the 7.73%, 2034, and the 7.54%, 2036 gilts. As seen in recent OMO auctions, traders will likely tender these bonds closer to the prevailing market levels, dealers said. 

In the secondary market, demand for bonds maturing between five and 15 years is seen robust as banks look to replenish stocks of bonds of similar maturities sold to the RBI in its open market operations auctions.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.24-6.30% on Monday. On Friday, the 10-year gilt closed at INR 103.65, or 6.27% yield.

OIS RATES

On Monday, swaps will likely track the movement in US Treasury yields, dealers said. Traders also await the RBI's surplus transfer to the central government, 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 the 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 closed at 5.62% and the five-year swap closed at 5.66%.

CALL

On Monday, the one-day call money rate may open near the RBI's repo rate of 6.00% due to demand for funds from banks early in the day to meet their reserve requirements. During the day, the call rate is seen in a range of 5.60-6.00%, dealers said. On Saturday, the two-day call rate closed at 5.50%.

RBI AUCTION

--RBI to buy five gilts worth INR 250 billion via OMO auction 0930-1030 IST Monday

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

--Government to switch eight gilts worth INR 280 billion via auction 1030-1130 IST Monday 

LIQUIDITY

--Total net outflows of INR 210.08 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 5.55 billion as coupon on state bonds on Sunday

--INR 25.60 billion as coupon on the 6.92%, 2039 gilt on Sunday

--INR 8.77 billion as coupon on state bonds on Monday

* Outflows

--INR 250.00 billion as payment for gilts on Monday

--INR 52.93 billion as reversal of 3-day VRR tender

End

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

Reported by Gowri Lakshmi

Edited by Akul Nishant Akhoury

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