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Informist, Wednesday, Jun. 4, 2025

MUMBAI – Government bond prices and overnight indexed swap rates are likely to open steady due to a lack of fresh triggers and caution ahead of the Reserve Bank of India's Monetary Policy Committee decision Friday, dealers said. Traders will keenly follow RBI Governor Sanjay Malhotra's commentary on growth, inflation, the rate-cut trajectory, and liquidity on Friday.

At opening, gilts and swaps may take cues from the overnight movement of US Treasury yields. However, both gilts and swaps are expected to trade in a thin band until the outcome of the RBI's policy review on Friday. Bond traders may also track the result of the INR-250-billion buyback auction Thursday.

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 also provide cues to traders during the day.

On Thursday, 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 Wednesday, the one-day call rate closed at 5.45%.

GOVERNMENT BONDS

Bond prices are likely to open steady Thursday due to a lack of fresh triggers, dealers said. Traders may track the result of the buyback auction. The government will conduct its first buyback in over four months. It has offered to buy INR 250 billion worth of gilts maturing in 2026-27 (Apr-Mar) at the auction.

Bonds are expected to be tendered at levels close to those indicated by Financial Benchmarks India Pvt. Ltd., dealers said. Participation is seen firm, with state-owned banks being the major holders of the bonds to be bought back, they said. Mutual funds are also expected to participate in the auction.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.18-6.25% and that on the most-traded 6.79%, 2034 bond is seen at 6.22-6.30% Thursday. On Wednesday, the 6.33%, 2035 bond ended at INR 100.90, or 6.21% yield. The 6.79%, 2034 gilt ended at INR 103.71, or 6.26% yield.

OIS RATES

On Thursday, swaps may open steady as traders await the MPC's policy decision, 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 quantum, 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 to swaps. 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% Thursday. The five-year contract is seen at 5.59-5.72%. On Wednesday, the one-year swap closed at 5.54% and the five-year swap closed at 5.64%.

CALL

On Thursday, 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 Wednesday, 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

--Government to buy back INR 250 billion worth of five gilts 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 149.81 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 216.00 billion as redemption of 91-day Treasury bills

--INR 75.00 billion as redemption of 182-day T-bills

--INR 40.82 billion as redemption of 364-day T-bills

--INR 15.54 billion as coupon on state bonds

--INR 42.03 billion as coupon on 8.97%, 2030 gilt

--INR 35.60 billion as coupon on 6.57%, 2033 gilt

* Outflows

--INR 135.00 billion as payment for 91-day T-bills

--INR 90.00 billion as payment for 182-day T-bills

--INR 50.17 billion as payment for 364-day T-bills

--INR 42.71 billion as reversal of overnight variable rate repo auction

End

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

Reported by Cassandra Carvalho

Edited by Saji George Titus

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