India Money Market Outlook
Gilts, swaps to track US yields movement Wed
This story was originally published at 21:25 IST on 20 May 2025
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MUMBAI – On Wednesday, government bonds and overnight indexed swaps may take cues from the overnight movement in US Treasury yields after 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 await 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.
Traders are also 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.
On Wednesday, 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
On Wednesday, gilt prices may take cues from the movement in the US Treasury yields, dealers said.
Strong demand is seen at the Treasury bill auction of INR 190 billion Wednesday. Mutual funds and large private sector banks are likely to bid aggressively, along with possible bids from foreign investors, due to their preference for short-term securities, dealers said.
In the secondary market, demand for gilts maturing in up to 5 years is likely to continue as traders prefer the shorter end of the yield curve on the expectation of further rate cuts, along with demand to replenish banks' 'held-to-maturity' books.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.24-6.30% on Wednesday. On Tuesday, the 10-year benchmark gilt ended at INR 103.67 or 6.27% yield.
OIS RATES
On Wednesday, rates are likely to track the movement in US Treasury yields, 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% Wednesday. The five-year contract is also seen in the 5.50-5.84% range. On Tuesday, the one-year swap rate ended at 5.60% and the five-year swap rate closed at 5.68%.
CALL
On Wednesday, 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 Tuesday, the one-day call ended at 5.45%.
RBI AUCTION
--RBI to auction 91-day Treasury 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 139.99 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 8.01 billion as coupon on state bonds
* Outflows
--INR 148.00 billion as payment for state bonds
--INR 46.17 billion on reversal of overnight VRR tender
End
Reported by Cassandra Carvalho
Edited by Akul Nishant Akhoury
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