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Informist, Saturday, May 31, 2025

MUMBAI – On Monday, prices of government bonds will likely open higher as the Reserve Bank of India announced an INR-250-billion buyback auction for Thursday, dealers said. The announcement came post market hours on Friday and traders were not expecting the RBI to come up with a buyback auction as the government had made no provision for gilt buybacks for Apr-Mar (2025-26) in the Budget tabled in February. 

Gilts and overnight indexed swaps will also take cues from the overnight movement of the US Treasury yields and also assess the rate cut trajectory after India's GDP growth for the quarter ended March was higher than the market's expectation, dealers said. The RBI's Monetary Policy Committee is scheduled to commence its three-day policy review meeting on Wednesday, and it is widely expected to cut the repo rate by 25 basis points to 5.75%. Traders are keenly eyeing RBI Governor Sanjay Malhotra's commentary on liquidity to gauge the outlook for further rate cuts. 

On Monday, the one-day call money rate may open near the RBI's repo rate of 6.00% due to demand for funds from banks early in the day to meet their reserve requirements. During the day, the call rate is seen in a range of 5.60-6.00%, dealers said.

GOVERNMENT BONDS

Gilt prices are likely to open sharply higher after the RBI, post market hours Friday, announced a buyback auction of INR 250 billion. The announcement was unforeseen. 

Gilts may also take cues from the movement of US Treasury yields over the weekend. On the domestic front, caution may set in ahead of the RBI's Monetary Policy Committee's three-day meeting starting Wednesday. Bonds have priced in a 25-basis-point rate cut as outcome, but traders await RBI Governor Sanjay Malhotra's commentary on the rate outlook and any announcement to boost the surplus liquidity in the banking system. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.25-6.30% Monday. The yield on the 6.33%, 2035 bond is seen at 6.15-6.25%. On Friday, the 6.79%, 2034 gilt ended at INR 103.50, or 6.29% yield. The 6.33%, 2035 bond ended at INR 100.72, or 6.23% yield. 

OIS RATES

Traders are going to continue assessing India's rate cut trajectory after India's GDP growth in the March quarter was higher than the market expected, dealers said.

Lower-than-target inflation levels should continue to lead to further repo rate cuts, though the extent or pace of such cuts may be lower than the market was pricing in, dealers said. The consensus view remains that the repo rate could be cut by at least 50 bps later in 2025 from the current 6.00%. Traders may avoid large bets later in the week as the RBI's three-day MPC meet begins Wednesday.

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% Monday. The five-year contract is seen at 5.53-5.78%. On Friday, the one-year swap closed at 5.60% and the five-year swap closed at 5.68%.

CALL

On Monday, the one-day call money rate may open below the RBI's repo rate of 6.00% due to poor demand for funds as liquidity in the system is expected to rise on account of the government's month-end spending. During the day, the call rate is seen in a range of 5.50-5.90%, dealers said. On Saturday, the two-day call rate closed at 5.50%.

RBI AUCTION

--RBI to hold overnight variable rate repo auction for INR 250 billion 1000-1030 IST

LIQUIDITY

--Total net outflows of INR 216.31 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 12.88 billion as coupon on state bonds on Sunday

--INR 40.42 billion as coupon on 8.17%, 2044 gilt on Sunday

--INR 35.34 billion as coupon on 5.85%, 2030 gilt on Sunday

--INR 5.97 billion as coupon on state bonds on Monday

--INR 45.68 billion as coupon on 8.60%, 2028 gilt on Monday

--INR 3.40 billion as coupon on 6.79%, 2034 green bond on Monday

* Outflows

--INR 360.00 billion as payment for gilt auction on Monday

--INR 87.21 billion as reversal of variable rate repo auction on Monday

End

Reported by Vidhushi RajPurohit

Edited by Deepshikha Bhardwaj

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