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Informist, Wednesday, Aug. 13, 2025

 

MUMBAI – Government bond prices are seen taking cues from the result of the INR-280-billion gilt auction result Thursday. Gilts and overnight indexed swaps may take cues from the overnight movement of US Treasury yields and from comments of US Federal Reserve officials, dealers said. Traders may also realign portfolios ahead of the long weekend. Financial markets will be shut Friday for Independence day.

 

Traders are assessing whether India's rate-setting panel will reduce the policy repo rate further, with some hopes being diminished after the Reserve Bank of India policy review last week. The RBI's Monetary Policy Committee's unanimous pause on rates and the RBI's forecasts for growth and inflation in the June quarter of 2026 suggest a high bar for rate cuts. On the liquidity front, traders have priced in overnight borrowing rates close to the repo rate. However, traders still see the possibility of the panel cutting rates in Oct-Dec if GDP growth surprises on the downside, particularly with the US imposing a cumulative 50% tariff on Indian goods, dealers said. Traders await developments on tariffs and India's response to the US levy, dealers said. Bond and swaps may also track the movement of crude oil prices and the movement of the rupee against the dollar.

 

On Thursday, the four-day call money rate may open near the RBI's repo rate of 5.50% on demand for funds, and with the RBI's eight-day VRRR auction. Financial markets are closed on Friday for Independence Day. RBI will hold an eight-day variable rate reverse repo auction for INR 2 trillion at 0930-1000 IST Thursday. Traders expect the auction to be almost fully subscribed, though some said subscription could be less ahead of goods and service tax outflows next week. During the day, the call rate is seen in a range of 4.70-5.50%, dealers said. 

 

GOVERNMENT BONDS

On Thursday, bond prices may take cues from the result of the weekly gilt auction on Thursday. Bonds may also take cues from the overnight movement of US Treasury yields. Traders will closely track technical levels on gilts, after the yield on the 10-year benchmark hit 6.51% Wednesday. Traders fear that due to lack of buying interest, the 10-year benchmark yield could rise to 6.60% in the near term. If the yield rises above 6.50%, the 6.52-6.53% level could be the next psychologically crucial level to watch for, they said. Some traders expect the fall in prices to have bottomed out because there is no expectation of a rate hike and some traders still expect more rate cuts, while others see yields rising to 6.53-6.56%.  Traders are also looking forward to next week's auction. The government is scheduled to sell INR 300 billion of a 10-year gilt and INR 60 billion of a three-year gilt next week.

 

Any increase in government expenditure to provide support to those impacted by tariffs may weigh on bond prices due to fear of an increase in government borrowing. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.45-6.55%. On Wednesday, the 2035 bond ended at INR 98.91, or 6.48% yield.

 

OIS RATES
Swap rates may take cues from the movement in US Treasury yields, dealers said. Near-term swap rates will track the movement of the overnight Mumbai Interbank Outright Rate.

 

The one-year swap rate is seen in the range of 5.45-5.56% Thursday. The five-year contract is seen at 5.62-5.76%. On Wednesday, the one-year swap ended at 5.50% and the five-year swap ended at 5.64%.

 

CALL

On Thursday, the four-day call money rate may open near the RBI's repo rate of 5.50% on demand for funds. Financial markets are closed on Friday for Independence Day. RBI will hold an eight-day variable rate reverse repo auction for INR 2 trillion at 0930-1000 IST Thursday. Traders expect the auction to be almost fully subscribed, though some said subscription could be less ahead of goods and service tax outflows next week. During the day, the call rate is seen in a range of 4.70-5.50%, dealers said. On Wednesday, the one-day call rate ended at 5.00%. 

 

RBI AUCTION

--Govt to auction two gilts worth INR 280 billion

--RBI to hold eight-day VRRR auction for INR 2.00 trillion 0930-1000 IST 

 

LIQUIDITY

--Total net outflows of INR 76.52 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 100.00 billion as redemption of 91-day Treasury bills

--INR 81.78 billion as redemption of 182-day T-bills

--INR 12.18 billion as coupon on state bonds

--INR 1.46 trillion as reversal of 6-day variable rate reverse repo tender

--INR 447.90 billion as reversal of 3-day variable rate reverse repo tender

 

* Outflows

--INR 150.00 billion as payment for 91-day T-bills

--INR 60.00 billion as payment for 182-day T-bills

--INR 60.47 billion as payment for 364-day T-bills

 

End

 

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

 

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