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Informist, Thursday, May 29, 2025

MUMBAI – Government bond prices and overnight indexed swap rates Friday are likely to take direction from the overnight movement in US Treasury yields after the release of US weekly jobless claims, GDP growth, and comments from US Federal Reserve officials, dealers said.

Jobless claims for the week ended Saturday rose to 240,000, against a Dow Jones consensus estimate of 230,000. The Bureau of Economic Analysis revised its Jan-Mar GDP estimate to show 0.2% on-year contraction, compared with the previously reported on-year fall of 0.3%. This marks a shift from the 2.4% on-year rise in Oct-Dec, and is slightly better than consensus estimates of a 0.4% fall.

Traders now await the release of India's GDP data for Jan-Mar and FY25 at 1600 IST Friday. 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% the previous quarter. Traders expect 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.

Friday, the three-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 5.60-5.85%, dealers said. The RBI decided not to hold the 14-day main variable rate repo operation for the upcoming fortnight for the second time in a row. However, the omission of the main variable rate repo operation is unlikely to have any impact on borrowing rates during the day.

GOVERNMENT BONDS

Friday, bond prices are likely to take cues at the opening from the overnight movement of US yields after the release of the US weekly jobless claims and GDP growth and comments from Fed officials. Later in the day, traders will take cues from the result of the weekly gilts auction of INR 360.00 billion, but movement of bond prices may be limited by caution ahead of the release of India's GDP growth estimates.

Traders may continue to position for a rate cut and further liquidity infusions from the RBI to be announced at the Monetary Policy Committee's meeting in June. The preference for short-term gilts is likely to continue, dealers said.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.20-6.30% Friday. The yield on the 6.33%, 2035 bond is seen at 6.14-6.24%. On Thursday, the 6.79%, 2034 gilt ended at INR 103.76, or 6.25% yield. The 6.33%, 2035 bond ended at INR 101.10, or 6.18% yield. 

OIS RATES

Friday, rates are likely to track the overnight movement in US yields after the release of US economic data and comments from Fed officials. 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 the range of 5.48-5.70% Friday. The five-year contract is seen at 5.53-5.78%. Thursday, the one-year swap rate ended at 5.57% and the five-year swap rate closed at 5.64%.

CALL

Friday, the three-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. The RBI decided not to hold the 14-day main variable rate repo operation for the upcoming fortnight for the second straight time. However, this is unlikely to have an impact on borrowing rates during the day. Thursday, the one-day call ended at 5.80%.

RBI AUCTION

--RBI to hold 3-day variable rate repo auction for INR 250.00 bln 1000-1030 IST 

LIQUIDITY

--Total net inflows of INR 213.13 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 201.00 billion as redemption of 91-day T-bills

--INR 12.13 billion as coupon on state bonds

* Outflows

--INR 257.31 billion on reversal of 43-day variable rate repo tender

--INR 33.35 billion on reversal of overnight variable rate repo tender

End

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

Reported by Cassandra Carvalho

Edited by Rajeev Pai

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