India Money Market Outlook
Gilts, swaps to track Israel-Iran conflict
This story was originally published at 20:16 IST on 23 June 2025
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MUMBAI – On Tuesday, government bonds and overnight indexed swaps will track Iran's next move in its conflict with Israel after the US bombed its nuclear facilities, dealers said. There is speculation that Iran could close the Strait of Hormuz or attack US military bases in West Asia or commercial ships in the Strait. Mehr News Agency on Monday reported that Iran had attacked a US military base in Syria.
Traders will also closely track the movement of crude oil prices and the rupee against the dollar. They will also take cues from US Treasury yields when the market opens Tuesday, dealers said.
On Tuesday, the one-day call rate is likely to open below the Reserve Bank of India's repo rate on comfortable liquidity conditions. During the day, the call rate is seen in a range of 4.80-5.35% and the tri-party repo rate in a range of 4.70-5.25%.
GOVERNMENT BONDS
On Tuesday, bonds are likely to take cues from any developments in the Israel-Iran conflict, dealers said. Bond traders remain wary of any escalation in the conflict, with fears that crude oil prices could rise to $90-$100 per barrel if the situation worsens, dealers said. 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.
Traders will also take cues from US Treasury yields at open. Traders may also watch out for the results of INR 272-billion state bond auction, dealers 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% Tuesday and that on the most-traded 6.79%, 2034 bond is seen at 6.35-6.45%. On Monday, the 6.33%, 2035 bond ended at INR 100.17 or 6.31%. The 6.79%, 2034 bond ended at INR 102.85 or 6.38%.
OIS RATES
On Tuesday, swap rates will track developments in the Israel-Iran conflict, dealers said. Traders will keenly watch if Iran shuts the Strait of Hormuz in retaliation against the US attack. Traders speculate that Iran could attack US military bases in West Asia or commercial ships in the Strait. Swap traders will also closely track the movement of crude oil prices and the rupee against the dollar.
Swaps may also track the movement of US Treasury and gilt yields. Traders will keenly track technical levels as swaps are seen largely range-bound due to lack of domestic cues, they said. 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 5.45-5.58% Tuesday. The five-year contract is seen at 5.68-5.84%. On Monday, the one-year swap rate closed at 5.53% and the five-year swap rate ended at 5.76%.
CALL
On Tuesday, the one-day call rate is likely to open below the RBI's repo rate on comfortable liquidity conditions. During the day, the call rate is seen in a range of 4.80-5.35% and the tri-party repo rate in a range of 4.70-5.25%. On Monday, the one-day call ended at 5.25%.
RBI AUCTION
--Nine states to raise INR 272 billion via bond sale at 1030-1130 IST
LIQUIDITY
--Total net inflows of INR 121.44 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 23.99 billion as coupon on state bonds
--INR 97.45 billion on redemption of state bonds
* Outflows
--Nil
End
US$1 = INR 86.75
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Srijita Bose
Edited by Ashish Shirke
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