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Informist, Monday, May 26, 2025

MUMBAI – Government bond prices and overnight indexed swap rates are likely to take cues from the movement of US Treasury yields in early Asian trade Tuesday, dealers said. US markets are shut Monday for Memorial Day.

The next significant cue on domestic interest rates would be the release of GDP growth data for Jan-Mar and the financial year 2024-25 (Apr-Mar) Friday, dealers said. According to an Informist poll of 19 economists, India's GDP growth is seen rising to a four-quarter high of 6.8% in Jan-Mar from 6.2% in the previous quarter.

Traders are expecting a print of around 6.5% or lower for the March quarter, which would lend weight to the view that the terminal repo rate could fall to as low as 5.25%. However, if GDP growth in Jan-Mar is above 6.50%, traders said repo rate cuts of more than 50 bps would be unlikely.

The movement in 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.

Tuesday, the one-day call money rate may open below the Reserve Bank of India's repo rate of 6.00% on comfortable liquidity. During the day, the call rate is seen in a range of 5.60-5.90%, dealers said.

GOVERNMENT BONDS

Tuesday, bond prices are likely to track the movement of US yields in early Asian trade, dealers said. Traders may continue to position for a rate cut at the RBI's Monetary Policy Committee's meeting in June, and preference for short-term gilts is expected to persist. Traders also await India's GDP growth estimates for Jan-Mar and FY25 due Friday.

Gilts may also take cues from the result of the weekly state bond auction. Ten states will raise INR 158.00 billion through bonds Tuesday. The spread between 10-year state bonds and the 10-year gilt is expected to be between 35 and 40 bps at the auction, dealers said. Traders are likely to pick up short-term state bonds with demand for these securities robust in the secondary market.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.20-6.28% on Tuesday, while the 6.33%, 2035 bond is seen at 6.18-6.22%. Monday, the 6.79%, 2034 gilt ended at INR 103.75, or 6.25% yield. The 6.33%, 2035 bond ended at INR 100.92, or 6.20% yield. 

OIS RATES

Tuesday, rates are likely to track the movement of US yields in early Asian trade after a long weekend. A slew of US data later this week and the US Federal Open Market Committee's minutes Wednesday may lead to reduced activity in the Indian OIS market by offshore investors this week, dealers said.

Traders also await the release of India's GDP data for Jan-Mar and FY25 Friday. 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 5.48-5.70% Tuesday. The five-year contract is also seen in the 5.53-5.78% range. Monday, the one-year swap rate ended at 5.53% and the five-year swap rate closed at 5.63%.

CALL

Tuesday, the one-day call money rate may open below the RBI's repo rate of 6.00% on comfortable liquidity. During the day, the call rate is seen in a range of 5.60-5.90%, dealers said. Monday, the one-day call ended at 5.85%.

RBI AUCTION

--RBI to hold overnight VRR auction for INR 250.00 bln 1000-1030 IST

--Ten states to raise INR 158.00 billion via bond sale

LIQUIDITY

--Total net inflows of INR 120.80 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 5.96 billion as coupon on state bonds

--INR 13.34 billion as coupon on 7.02%, 2027 gilt

--INR 101.50 billion as redemption of state bonds

* Outflows

--INR 40.73 billion on reversal of overnight VRR tender

End

Reported by Cassandra Carvalho 

Edited by Rajeev Pai

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