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Informist, Monday, May 19, 2025

MUMBAI – On Tuesday, government bonds and overnight indexed swaps may take cues from the overnight movement in US Treasury yields after the release of US economic data and comments from US Federal Reserve officials, dealers said. Overnight movement in crude prices may also lend direction to both markets, dealers said. Any sharp movement in the Indian rupee against the dollar will also likely provide some cues to traders.

Traders are now waiting for the Reserve Bank of India to declare how much of its surplus it will transfer to the central government. The announcement is expected to be made after a meeting of the central bank's board, likely Friday.

Traders estimate that the RBI will transfer a surplus of around INR 3 trillion to the government. This will add durable liquidity to the banking system. If the transfer is in line with or above this estimate, it could pull swap rates and gilt yields down, dealers said.

Traders are also waiting for the outcome of the central bank's meeting with bank executives Wednesday. The meeting will discuss changes to the central bank's liquidity management framework, treasury officials told Informist. India's GDP growth estimates for Jan-Mar and for the financial year 2024-25 (Apr-Mar), due May 30, could be the next big trigger for gilts and swaps.

On Tuesday, the one-day call money rate may open below the RBI's repo rate of 6.00% on ample liquidity. During the day, the call rate is seen in a range of 5.60-6.00%, dealers said.

GOVERNMENT BONDS

Tuesday, gilt prices may take cues from the movement in the US Treasury yields, dealers said. At the weekly state bond auction, 11 states will raise INR 148.00 billion through bonds Tuesday. 

In the secondary market, demand for gilts maturing in up to 5 years is seen to be robust as traders prefer the shorter end of the yield curve on expectations of further rate cuts. Preference for bonds maturing between seven and 15 years is also seen to be strong as banks look to replenish their stock of paper with 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 6.26-6.32% Tuesday. Monday, the 10-year benchmark gilt ended at INR 103.49 or 6.29% yield.

OIS RATES

Tuesday, rates are likely to track the movement in US Treasury yields, dealers said. The next significant cue on domestic interest rates would be the release of GDP growth data for Jan-Mar and FY25 on May 30, they said.

Traders will also 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% Tuesday. The five-year contract is seen in the 5.50-5.84% range. Monday, the one-year swap rate ended at 5.63% and the five-year swap rate closed at 5.71%.

CALL

On Tuesday, the one-day call money rate may open below the RBI's repo rate of 6.00% on ample liquidity. During the day, the call rate is seen in a range of 5.60-6.00%, dealers said. On Monday, the one-day call ended at 5.40%.

RBI AUCTION 

--Eleven states to raise INR 148 billion via bond sale

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

LIQUIDITY

--Total net inflows of INR 200.50 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 3.47 billion as coupon on state bonds

--INR 5.00 billion on redemption of state bonds

--INR 192.03 billion as payment from RBI gilt buy at OMO auction Monday

* Outflows

--INR 51.70 billion on reversal of overnight VRR tender

End

Reported by Cassandra Carvalho

Edited by Rajeev Pai

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