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Informist, Friday, Jun. 13, 2025

MUMBAI – Government bond prices and overnight indexed swap rates are likely to take cues from geopolitical developments in West Asia on Monday, dealers said. The gilt, swaps, and money markets are shut on Saturday. 

After the shock from the surge in crude oil prices and a depreciating rupee against the dollar Friday, gilt and swap traders are wary of any escalation in the Israel-Iran conflict. Iran has threatened retaliation and traders speculate that the situation could worsen if Iran attacks US bases in West Asia. While bonds and swaps have priced in the rise in crude oil prices, they may be indirectly hit by the movement in the foreign exchange market, along with geopolitical uncertainty, dealers said. 

Gilts and swaps may also take cues when the market opens from the movement of US Treasury yields over the weekend, dealers said. Traders now await the outcome of the US Federal Open Market Committee meeting next week. Traders expect status quo on rates but will keenly track the commentary from US Federal Reserve officials.

On Monday, 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 Monday, bond prices are likely to take cues from developments on the geopolitical front.

"When crude was sharply lower, the government didn't cut pump prices and retained the same," a trader at a primary dealership said. "So now, when it's higher, I don't think the government will change it. The rise (in crude oil prices) may have an impact on inflation, but for now, that doesn't seem too major. Crude has also fallen (from its highs) during the day and our market has recovered alongside."

Market sentiment continues to be "sour", and bond prices are likely to be volatile for the next few trading sessions, dealers said. Traders are yet to find a trading range. Bond prices will take cues from the result of the INR 250-billion switch auction Monday, when the government will switch six short-term gilts with eight longer-term bonds.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.25-6.35%. The yield on the most-traded 6.79%, 2034 bond is seen at 6.30-6.42% Monday. On Friday, the 6.33%, 2035 bond ended at INR 100.21, or 6.30% yield. The 6.79%, 2034 gilt ended at INR 102.99, or 6.36% yield. 

OIS RATES

On Monday, swap rates will track developments in West Asia, dealers said. Swaps may also track the movement of US yields, they said. Longer-tenure swaps may also track the movement in gilt yields, dealers said.

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

Traders will also track the overnight Mumbai Interbank Offer Rate for direction on short-term swap rates. The one-year swap rate is seen in a range of 5.52-5.58% and the five-year contract is seen at 5.70-5.80% Monday. On Friday, the one-year swap ended at 5.55%, and the five-year swap ended at 5.76%.

CALL

On Monday, 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 Friday, the 3-day call ended at 5.00%.

RBI AUCTION

--Govt to switch six gilts worth INR 250 billion with eight other bonds via auction Monday 

LIQUIDITY

--Total net inflows of INR 836.07 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 14.74 billion as coupon on state bonds on Saturday

--INR 797.18 billion as redemption of 5.22%, 2025 gilt on Sunday

--INR 6.14 billion as coupon on state bonds on Sunday

--INR 20.81 billion as coupon on 5.22%, 2025 on Sunday

--INR 54.69 billion as coupon on 6.67%, 2035 on Sunday

--INR 32.63 billion as coupon on 7.72%, 2049 on Sunday

--INR 51.85 billion as coupon on 6.99%, 2051 on Sunday

--INR 35.99 billion as coupon on 6.80%, 2060 on Sunday

--INR 1.67 billion as coupon on state bonds on Monday

--INR 10.00 billion as redemption of state bonds on Monday

--INR 52.22 billion as coupon on 6.64%, 2035 gilt on Monday

--INR 3.49 billion as coupon on 6.98%, 2054 green bond on Monday

--INR 54.66 billion as coupon on 6.95%, 2061 gilt on Monday

* Outflows

--INR 300.00 billion as payment for gilts on Monday

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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