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Informist, Friday, May 23, 2025

MUMBAI – Government bond prices may fall and overnight indexed swap rates could rise on Monday after the Reserve Bank of India's surplus transfer to the central government was at INR 2.69 trillion, which was lower than INR 3 trillion expected by traders, dealers said. While the surplus transfer was at a record high, dealers expect that the lower-than-estimated figure could lead to a fall in gilts, which in turn could lead swap rates to rise as well. Raising the band for the Contingent Risk Buffer may also pull down gilt prices. Money markets are shut Saturday.

The next significant cue on domestic interest rates would be the release of GDP growth data for Jan-Mar and 2024-25 (Apr-Mar) on May 30, dealers said.

The movement in US Treasury yields and crude oil prices may also lend direction to both markets, dealers said. Any sharp movement in the Indian rupee against the dollar will provide some cues to traders during the day.

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

GOVERNMENT BONDS

Gilts are not traded Saturday. On Monday, bond prices are likely to open lower due to the surplus transfer being less than most traders' expectations, dealers said. Some traders had even estimated a surplus of INR 4.00 trillion.

The movement in US Treasury yields over the weekend may lend cues at market open, though the impact of the offshore cue may be limited due to the domestic trigger.  

Traders will now focus on India's GDP growth estimates for Jan-Mar and for FY25, due on May 30, though traders are unlikely to position aggressively for the data, they said. Traders expect a print of 6.0-6.5% in Jan-Mar, against an Informist poll estimate of 6.8%. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.24-6.32% on Monday, while the 6.33%, 2035 bond is seen at 6.20-6.25%. On Friday, the 6.79%, 2034 gilt ended at INR 103.76, or 6.25% yield. The 6.33%, 2035 bond ended at INR 100.87, or 6.21% yield. 

OIS RATES

Swaps are not traded on Saturday. On Monday, rates are likely to track the movement in the US Treasury yields over the weekend. If the 10-year US yield rises above 4.62%, it could push the five-year swap rate up above 5.74%, 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% Monday. The five-year contract is also seen in the 5.50-5.84% range. On Friday, the one-year swap rate ended at 5.53% and the five-year swap rate closed at 5.63%.

CALL

On Monday, the one-day call money rate may open below the RBI's repo rate of 6.00% on lack of significant outflows. During the day, the call rate is seen in a range of 5.60-6.00%, dealers said. On Friday, the 3-day call ended at 5.50%.

RBI AUCTION

--RBI to hold overnight VRR auction for INR 250 bln 1000-1030 IST Monday 

LIQUIDITY

--Total net inflows of INR 423.61 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 36.47 billion as coupon on state bonds on Saturday

--INR 31.29 billion as coupon on 8.15%, 2026 gilt on Saturday

--INR 553.67 billion as redemption on 7.72%, 2025 gilt on Sunday

--INR 6.43 billion as coupon on state bonds on Sunday

--INR 21.37 billion as coupon on 7.72%, 2025 gilt on Sunday

--INR 17.73 billion as coupon on 7.09%, 2074 gilt on Sunday

--INR 26.64 billion as coupon on state bonds on Monday

* Outflows

--INR 270.00 billion as payment for gilts on Monday

--INR 43.71 billion on reversal of 3-day VRR tender on Monday

End

Reported by Cassandra Carvalho 

Edited by Akul Nishant Akhoury

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