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Informist, Wednesday, May 28, 2025

NEW DELHI – Government bond prices and overnight indexed swap rates on Thursday are likely to take direction from the overnight movement in US Treasury yields, dealers said. Foreign portfolio investors, who have been trimming gilt holdings since March, will closely watch the US Federal Open Market Committee's minutes, due at 2330 IST, to decide on the future course of action.

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) on 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 6.5%, repo rate cuts of more than 50 bps would be unlikely and gilt prices and OIS rates will likely, traders said.

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 Thursday, 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, call rate is seen in the range of 5.60-5.85%, dealers said.

GOVERNMENT BONDS

On Thursday, bond prices will likely take cues from the overnight movement of US yields at open, after the release of the US FOMC's minutes for its May meeting at 2330 IST. Traders also await India's GDP growth estimates for Jan-Mar and FY25, due Friday.

Traders will continue to position for a rate cut and announcement on further liquidity infusions by the RBI at the Monetary Policy Committee's meeting next week. Preference for short-term gilts, particularly from state-owned banks, is likely to continue, dealers said.

Traders may place short bets on heavily traded gilts ahead of the INR 360 billion weekly gilt auction on Friday, particularly in the second half of Thursday, dealers said. The government will sell INR 300 billion of the 6.33%, 2035 gilt and INR 60 billion of the 6.64%, 2027 gilt at 1030-1130 IST Friday. Demand at the auction is expected to be robust for both bonds, with the 2035 gilt expected to become the 10-year benchmark gilt next week. The 2027 bond is likely to be mopped up by banks and mutual funds, due to their preference for short-term bonds amid surplus liquidity and expectation of further rate cuts.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.20-6.27% on Thursday. The yield on the 6.33%, 2035 bond is seen at 6.14-6.20%. On Wednesday, the 6.79%, 2034 gilt ended at INR 103.86, or 6.24% yield. The 6.33%, 2035 bond ended at INR 101.14, or 6.17% yield. 

OIS RATES

On Thursday, swap rates are likely to track the overnight movement in US Treasury yields. A slew of US data later this week and the US FOMC's minutes on Wednesday may lead to reduced activity in the Indian OIS market by offshore traders this week, dealers said. India's GDP data is keenly awaited on 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% Thursday. The five-year contract is seen in the 5.53-5.78% range. On Wednesday, the one-year swap rate ended at 5.56% and the five-year swap rate closed at 5.63%.

CALL

On Thursday, the one-day call money rate may open below the RBI's repo rate of 6.00% on comfortable liquidity. During the day, call rate is seen in a range of 5.60-5.85%, dealers said. On Wednesday, the one-day call ended at 5.80%.

RBI AUCTION

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

LIQUIDITY

--Total net outflows of INR 120.37 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 8.75 billion as coupon on state bonds

--INR 70.00 billion as redemption of 182-day T-bills

--INR 40.11 billion as redemption of 364-day T-bills 

* Outflows

--INR 118.00 billion as payment for 91-day T-bill

--INR 70.00 billion as payment for 182-day T-bill

--INR 51.23 billion as payment for 364-day T-bill

--INR 38.43 billion on reversal of overnight VRR tender

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Aaryan Khanna

Edited by Saji George Titus

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