India Money Market Outlook
Gilts, swaps to track US yield movement Wed
This story was originally published at 20:17 IST on 27 May 2025
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MUMBAI – Government bond prices and overnight indexed swap rates are likely to take cues from the movement in US Treasury yields at market open Wednesday, dealers said.
The next significant cue on domestic interest rates would be the release of India's 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.
On Wednesday, 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 the range of 5.60-5.85%, dealers said.
GOVERNMENT BONDS
On Wednesday, bond prices are likely to take cues from the overnight movement of US yields at open, after the release of US economic data. Traders also await India's GDP growth estimates for Jan-Mar and for FY25, due on Friday.
Traders may continue to position for a rate cut at the MPC's meeting in June and preference for short-term gilts is expected to continue. Traders may track the result of the Treasury bill auction of INR 190 billion due to preference for short-term securities.
The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.20-6.28% on Wednesday, while the 6.33%, 2035 bond is seen at 6.18-6.22%. On Tuesday, the 6.79%, 2034 gilt ended at INR 103.75, or 6.25% yield. The 6.33%, 2035 bond ended at INR 100.93, or 6.20% yield.
OIS RATES
On Wednesday, rates are likely to track the overnight movement of US Treasury yields. A slew of US data later this week and the US FOMC minutes Wednesday may lead to reduced activity in the Indian OIS market by offshore traders 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% Wednesday. The five-year contract is seen in the 5.53-5.78% range. On Tuesday, the one-year swap rate ended at 5.54% and the five-year swap rate closed at 5.63%.
CALL
On Wednesday, 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 5.60-5.85%, dealers said. On Tuesday, the one-day call ended at 5.45%.
RBI AUCTION
--RBI to hold overnight VRR auction for INR 250.00 bln 1000-1030 IST
--RBI to auction 91-day T-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
LIQUIDITY
--Total net outflows of INR 108.59 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 27.16 billion as coupon on state bonds
--INR 20.75 billion as coupon on 6.62%, 2051 gilt
* Outflows
--INR 156.50 billion as payment for state bonds
--INR 35.42 billion on reversal of overnight VRR tender
End
Reported by Cassandra Carvalho
Edited by Akul Nishant Akhoury
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