India Money Market Outlook
Gilts may take cues from INR-270-bln auction
This story was originally published at 20:58 IST on 19 June 2025
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MUMBAI – Government bond prices and overnight indexed swap may await take cues from the result of the INR-270-billion gilt auction Friday. Gilts and swaps will keenly track any development on the conflict in West Asia, dealers said. Traders remain wary of any escalation in the Israel-Iran conflict, with fears that crude oil prices could rise to $90-$100 per barrel if the situation worsens or the conflict widens, they said.
Traders may trim risk ahead of the weekend, though some traders expect a ceasefire agreement or deal to be settled between Iran and Israel soon. Additionally, some traders expect that the Organization of the Petroleum Exporting Countries and its allies could announce an increase in oil production, which could compensate for the lack of supply from Iran due to the conflict.
Traders await the release of the minutes of the Reserve Bank of India's Monetary Policy Committee meeting in June. The RBI's rate-setting panel in June slashed the repo rate by 50 basis points while changing the stance to 'neutral' from 'accommodative'.
Friday, the three-day call rate is likely to open below the RBI's repo rate. During the day, the call rate is seen in a range of 4.80-5.45% and the tri-party repo rate in a range of 4.70-5.35%.
GOVERNMENT BONDS
On Friday, bond prices are likely to open lower before the INR 270-billion weekly gilt auction, dealers said. Some traders may place short bets before the auction to make room for the auction stock, they said.
Gilts will keenly track geopolitical developments. Bond traders remain wary of any escalation in the Israel-Iran conflict, with rising prices of crude oil, dealers said. The ICE Brend Crude for August delivery was at $77.56 at 1700 IST Thursday. Moreover, if the rupee falls sharply against the dollar due to rise in crude oil prices, it may also indirectly hit bond prices, they said.
With uncertainty on the geopolitical front, traders may continue to prefer liquid bonds such as the 10-year and 15-year gilts, they said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.28-6.35%. The yield on the most traded 6.79%, 2034 bond is seen at 6.30-6.42% Friday.
On Thursday, the 6.33%, 2035 bond ended at INR 100.14, or 6.31% yield. The erstwhile 10-year benchmark 6.79%, 2034 bond ended at INR 102.83, or 6.38% yield.
OIS RATES
On Friday, swap rates will track developments in the Iran-Israel conflict, dealers said. Longer-tenure swaps may also track the movement in gilt yields after the result of the INR-270-billion gilt auction, dealers said.
Traders will keenly track technical levels as swaps are seen largely range bound due to a lack of domestic cues, they said. Swap rates will also track the movement of the rupee against the dollar.
Traders will also track liquidity in the banking system and the overnight Mumbai Interbank Offer Rate for direction on short-term swap rates. The one-year swap rate is seen in a range of 5.40-5.52% Friday. The five-year contract is seen at 5.60-5.80%. On Thursday, the one-year swap rate ended at 5.53%, and the five-year swap rate ended at 5.75%.
CALL
Friday, the three-day call rate is likely to open below the RBI's repo rate. During the day, the call rate is seen in a range of 4.80-5.45% and the tri-party repo rate in a range of 4.70-5.35%. On Thursday, the one-day call ended at 4.90%.
RBI AUCTION
--Government to auction two gilts worth INR 270 billion at 1030-1130 IST.
LIQUIDITY
--Total net inflows of INR 47.43 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 6.80 billion as coupon on state bonds
--INR 40.63 billion as coupon on 7.38%, 2027 gilt
* Outflows
--Nil
End
US$1 = INR 86.72
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Srijita Bose
Edited by Deepshikha Bhardwaj
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