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Informist, Monday, Jun. 2, 2025

MUMBAI – Tuesday, prices of government bonds and overnight indexed swap rates may take cues at the opening of the market from the overnight movement of US Treasury yields after the release of US economic data and comments from US Federal Reserve officials. However, both gilts and swaps are expected to trade in a thin band until the outcome of the Reserve Bank of India's Monetary Policy Committee meeting due Friday. 

The rate-setting panel is widely expected to cut the policy repo rate by 25 basis points to 5.75%. Traders await RBI Governor Sanjay Malhotra's commentary on growth, inflation, the rate-cut trajectory, and liquidity at the outcome.

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.

The one-day call rate is likely to 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 5.40-5.85% and the triparty repo rate in a range of 5.35-5.80%.

GOVERNMENT BONDS

Tuesday, bond prices are likely to open steady owing to a lack of significant domestic cues scheduled overnight and caution ahead of the RBI's three-day policy meeting that begins Wednesday, dealers said. Gilts may also take cues from the movement of US yields overnight, though the impact of the offshore trigger may be limited ahead of the domestic monetary policy meeting.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.18-6.25%. The most-traded 6.79%, 2034 bond is seen at 6.22-6.30% Tuesday. Monday, the 6.33%, 2035 bond ended at INR 100.84, or 6.21% yield. The 6.79%, 2034 gilt ended at INR 103.65, or 6.27% yield.

OIS RATES

Swaps may take cues at the opening from the overnight movement of US yields. If the yield on the 10-year benchmark US Treasury note rises to the key 4.50% level, the five-year OIS rate could rise to 5.72%, after which traders are likely to receive fixed rates, dealers said. However, swap rates are expected to trade in a thin band until the outcome of the RBI's policy meeting.

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 seen at 5.59-5.72%. Monday, the one-year swap closed at 5.56% and the five-year swap closed at 5.66%.

CALL

The one-day call rate is likely to 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 5.40-5.85% and the triparty repo rate in a range of 5.35-5.80%. Monday, the one-day call rate closed at 5.45%.

RBI AUCTION

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

--Twelve states to raise INR 294.00 billion through bond sale

LIQUIDITY

--Total net inflows of INR 54.28 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 15.80 billion as coupon on state bonds 

--INR 7.50 billion on redemption of state bonds 

--INR 30.98 billion as coupon on 7.04%, 2029 gilt

* Outflows

--INR 51.50 billion as reversal of overnight variable rate repo auction

End

Reported by Cassandra Carvalho

Edited by Rajeev Pai

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