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Informist, Tuesday, Jun. 3, 2025

MUMBAI – Government bond prices and overnight indexed swap rates are likely to open steady ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee meeting that will be announced on Friday, dealers said. The three-day meeting starts Wednesday. The committee is widely expected to cut the policy repo rate by 25 basis points to 5.75%. Traders will keenly follow RBI Governor Sanjay Malhotra's commentary on growth, inflation, the rate-cut trajectory, and liquidity at the outcome.

At the opening of the market, gilts and swaps may take cues 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 RBI's policy review on Friday.

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 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 5.20-5.85% and the triparty repo rate in a range of 5.35-5.80%.

GOVERNMENT BONDS

Bond prices are likely to open steady Wednesday due to caution as the RBI rate-setting panel's three-day meeting starts, dealers said. Traders may track the result of the Treasury bill auction of INR 190 billion due to the preference for short-term securities. 

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% Wednesday. On Tuesday, the 6.33%, 2035 bond ended at INR 100.93, or 6.20% yield. The 6.79%, 2034 gilt ended at INR 103.74, or 6.25% yield.

OIS RATES

On Wednesday, swaps may open steady as the MPC's three-day meeting begins, dealers said. A repo rate cut of 25 bps is priced into swap rates currently. If the panel cuts the repo rate by a larger-than-expected amount, swap rates may slide on policy day. If the MPC holds pat on the repo rate, the entire OIS curve could shift upwards by 10 bps or more, dealers said.

The overnight movement of US yields may lend direction after the release of economic data in the US and comments from US Fed officials. If the yield on the 10-year benchmark US Treasury note rises to the key 4.50% level, the five-year swap rate could move closer to 5.70%.

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 at 5.59-5.72%. On Tuesday, the one-year swap closed at 5.55% and the five-year swap closed at 5.64%.

CALL

On Wednesday, 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 5.20-5.85% and the triparty repo rate in a range of 5.35-5.80%. On Tuesday, the one-day call rate closed at 5.80%.

RBI AUCTION

--RBI to hold overnight VRR auction for INR 250.00 billion 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 260.04 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 18.35 billion as coupon on state bonds 

--INR 3.37 billion as coupon on 6.13%, 2028 gilt

* Outflows

--INR 281.77 billion as payment for state bonds

--INR 50.19 billion as reversal of overnight variable rate repo auction

End

Reported by Cassandra Carvalho

Edited by Ashish Shirke

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