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Informist, Wednesday, Jun. 11, 2025

MUMBAI – Government bond prices and overnight indexed swap rates may on Thursday take cues from the movement in US Treasury yields overnight after the release of US CPI inflation data, dealers said. US CPI inflation rose 2.4% on year in May, in line with estimates of a Dow Jones poll.

After taking direction from US yields, traders are likely to avoid large bets before the result of the government's buyback of INR 260 billion worth of 2026-27 (Apr-Mar) gilts and India's May CPI data later in the day. Headline consumer inflation is seen at a six-year low of 3.0% in May from 3.16% in April, according to an Informist poll of 12 economists.

On Thursday, the one-day call rate is likely to open near the RBI's repo rate of 5.50%. During the day, the call rate is seen in a range of 5.00-5.60% and the triparty repo rate in a range of 4.95-5.45%.

GOVERNMENT BONDS

On Thursday, bond prices are likely to take cues from the movement of US yields at open after the US CPI inflation data, dealers said. The buyback auction result, and more importantly, India's CPI data will be key cues intraday.

The government will buy back five securities maturing in FY27. The gilts up for buyback are the 5.63%, 2026 bond; the 8.33%, 2026 bond; the 6.97%, 2026 bond; the 5.74%, 2026 bond; and the 8.15%, 2026 bond. Traders expect a large quantum of the notified amount of INR 250 billion to be accepted at the auction, dealers said.

Meanwhile, CPI data is being closely watched after the RBI's monetary policy review last week suggested the Monetary Policy Committee would be data dependent on its next rate actions, after changing the policy stance to neutral. Some traders expect a slightly lower print, but do not see the rate-setting panel cutting the policy rate at its next meeting in August.

Traders continue to be jittery about holding bonds after the stance changed to neutral and expectations the RBI wants to maintain overnight market rates at the repo rate of 5.50%, rather than the lower end of the Liquidity Adjustment Facility corridor, 25 basis points below the repo rate. Traders also fear the central bank is considering variable rate reverse repo operations after Reuters reported the RBI is considering the tool to anchor the overnight rate close to the repo rate, dealers said. This would be in stark contrast to the 100 bps of rate cuts and easy liquidity the central bank has provided in the past few months.

Hopes of further rate cuts have faded after the June MPC. However, traders said that once the negative momentum in the market is fulfilled, yields may be capped as state-owned and private banks buy gilts with the cost of funding down significantly after the rate cut, dealers said. The market is likely to be more tied to the movement in US yields, as well as CPI and GDP prints, going ahead, they said.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.26-6.35% and that on the most-traded 6.79%, 2034 bond is seen at 6.33-6.41% Thursday. On Wednesday, the 6.33%, 2035 bond ended at INR 100.16, or 6.31% yield. The 6.79%, 2034 gilt ended at INR 102.90, or 6.37% yield. 

OIS RATES

On Thursday, swap rates may track the movement of US yields overnight, dealers said. Longer-tenure swap rates may also track the movement of government bond yields.

With domestic rate cuts seen nearly done after the RBI's rate-setting panel delivered a 50 bps cut in the repo rate Friday, traders are now more keenly tracking US yields and data, dealers said. Traders also await the US Federal Open Market Committee statement next week for its outlook on rates, they said.

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 5.52-5.58% Wednesday. The five-year contract is seen at 5.72-5.80%. On Wednesday, the one-year swap ended at 5.56%, and the five-year swap ended at 5.76%.

CALL

On Thursday, the one-day call rate is likely to open near the RBI's repo rate of 5.50%. During the day, the call rate is seen in a range of 5.00-5.60% and the triparty repo rate in a range of 4.95-5.45%. On Wednesday, the one-day call ended at 5.00%.

RBI AUCTION

--Government to buy back five gilts worth INR 260 billion at 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 90.29 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 8.90 billion as coupon on state bonds

--INR 40.52 billion as coupon on 8.83%, 2041 gilt

--INR 87.00 billion as coupon on 7.25%, 2063 gilt

--INR 157.00 billion as redemption of 91-day Treasury bills

--INR 72.00 billion as redemption of 182-day Treasury bills

--INR 42.70 billion as redemption of 364-day Treasury bills

* Outflows

--INR 165.00 billion as payment for 91-day Treasury bills

--INR 102.00 billion as payment for 182-day Treasury bills

--INR 50.83 billion as payment for 91-day Treasury bills

End

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

Reported by Srijita Bose and Aaryan Khanna

Edited by Deepshikha Bhardwaj

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