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Informist, Thursday, Jun. 5, 2025

MUMBAI – Government bond prices and overnight indexed swap rates are likely to open steady due to caution ahead of the Reserve Bank of India's Monetary Policy Committee decision Friday, dealers said. Bonds and swaps have priced in a 25-basis-point rate cut at the outcome. Traders will keenly follow RBI Governor Sanjay Malhotra's commentary on growth, inflation, the rate-cut trajectory, and liquidity.

Gilts and swaps may also take cues from the movement of US Treasury yields overnight, though the impact of the offshore trigger may be limited ahead of the key domestic event. Caution ahead of the release of the US non-farm payrolls data may limit some activity in gilts towards the end of the session, dealers said. The data will be released after Indian market hours on Friday.

Traders expect that the RBI will widen the Liquidity Adjustment Facility corridor by reducing the Standing Deposit Facility rate by an additional 25 bps. They also expect the central bank to revise down its inflation forecasts, though some traders expect a 50 bps cut in the repo rate.

On Friday, the three-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 5.10-5.85% and the triparty repo rate in a range of 5.05-5.80%.

GOVERNMENT BONDS

Bond prices are likely to open steady Friday on caution ahead of the Monetary Policy Committee's rate decision, dealers said. The result of the INR-320-billion gilt auction will hinge on the MPC outcome, especially since the bonds offered are longer-term papers, dealers said. The government will sell INR 160 billion each of the 6.92%, 2039 bond and the 6.90%, 2065 bond at 1230-1330 IST.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.10-6.30% and that on the most-traded 6.79%, 2034 bond is seen at 6.15-6.35% Friday. On Thursday, the 6.33%, 2035 bond ended at INR 100.98, or 6.20% yield. The 6.79%, 2034 gilt ended at INR 103.79, or 6.25% yield.

OIS RATES

On Friday, swaps may open steady ahead of the outcome of the MPC meeting, dealers said. A repo rate cut of 25 bps is priced into swap rates currently. If the committee cuts the repo rate by a larger-than-expected quantum, swap rates may slide Friday. 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 Treasury yields may lend direction after the release of economic data in the US and comments from US Federal Reserve 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% Friday. The five-year contract is seen at 5.51-5.75%. On Thursday, the one-year swap closed at 5.53% and the five-year swap closed at 5.60%.

CALL

On Friday, the three-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 5.10-5.85% and the triparty repo rate in a range of 5.05-5.80%. On Thursday, the one-day call rate closed at 5.55%.

RBI AUCTION

--RBI to hold 3-day VRR auction for INR 250 billion 1200-1230 IST

--Govt to auction two gilts worth INR 320 billion 1230-1330 IST

LIQUIDITY

--Total net inflows of INR 246.28 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 238.56 billion as payment from government gilt buyback auction Thursday

--INR 7.72 billion as coupon on state bonds

* Outflows

--INR 41.38 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 Tanima Banerjee

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