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Informist, Monday, Jun. 9, 2025

MUMBAI – Government bond prices and overnight indexed swap rates on Tuesday are likely to take cues from the movement of US Treasury yields after the release of economic data in the country, dealers said. 

If US yields fall, bond prices could recover from the sharp fall Friday and Monday. However, a further rise in US Treasury yields could push swap rates higher and weigh on bond prices. 

However, bonds and swaps are expected to trade in a thin band as hopes of further rate cuts have faded after the Reserve Bank of India's Monetary Policy Committee's decision Friday. The rate-setting panel cut the repo rate by 50 basis points and changed its stance back to 'neutral' from 'accomodative' Friday. Traders see no significant cues that could pull down gilt yields and swap rates, unless GDP growth or CPI inflation is significantly lower, or if US yields cool down, they said.

On Tuesday, the one-day call rate is likely to open below the RBI's repo rate of 5.50% on comfortable liquidity. During the day, the call rate is seen in a range of 4.90-5.50% and the triparty repo rate in a range of 4.80-5.30%.

GOVERNMENT BONDS

On Tuesday, bond prices are likely to take cues from the movement of US yields after the release of US economic data, dealers said.

Traders may also take cues from the result of the INR-183.30-billion state bond auction Tuesday. Traders expect the spread between gilts and state bonds to widen after the MPC decision, they said.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.20-6.35% and that on the most-traded 6.79%, 2034 bond is seen at 6.25-6.32% Tuesday. On Monday, the 6.33%, 2035 bond ended at INR 100.33, or 6.28% yield. The 6.79%, 2034 gilt ended at INR 103.07, or 6.35% yield.

OIS RATES

On Tuesday, swap rates may track the overnight movement in US yields, dealers said. Volatility in the domestic OIS market is likely to persist as traders readjust their positions after the surprise 50-bps repo rate cut on Friday, which was larger than expected. 

A further rise in US yields may see the 5-year OIS rate rising above the key 5.73% level, dealers said. Longer-tenure swap rates may also track the movement of government bond yields, dealers said.

Traders will also track the movement of the overnight Mumbai Interbank Offered Rate for direction on short-term swap rates. Swaps maturing up to one year are likely to draw flows from offshore traders as the rates do not reflect any rate cut in the next 12 months, dealers said, which remains a minority expectation.

CALL

On Tuesday, the one-day call rate is likely to open below the RBI's repo rate of 5.50% on comfortable liquidity. During the day, the call rate is seen in a range of 4.90-5.50% and the triparty repo rate in a range of 4.80-5.30%. On Monday, the one-day call rate closed at 4.90%.

RBI AUCTION

--RBI to hold overnight VRR auction for INR 250 billion at 1000-1030 IST

--Eight states to raise INR 183.30 billion via bond sale

LIQUIDITY

--Total net inflows of INR 88.54 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 7.54 billion as coupon on state bonds

--INR 81.00 billion as redemption of state bonds

* Outflows

--INR 37.11 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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