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Informist, Monday, Aug. 18, 2025

 

MUMBAI – Government bond prices and overnight indexed swap rates may take cues from the overnight movement in US Treasury yields at open on Tuesday. Gilt traders will also wait for the results of INR 176 billion worth state bond auction to take cues later in the day, dealers said. 

 

On the policy front, while the tax reforms proposed by Prime Minister Narendra Modi in the form of reduction in Goods and Service Tax rates are seen reducing inflation, the Monetary Policy Committee is only likely to cut rates if growth takes a hit, dealers said. The GST reforms are seen improving GDP growth, dealers said. Traders now see CPI inflation falling below the RBI's forecast for 2025-26 (Apr-Mar) by 30-50 basis points. 

 

Traders will also track the minutes of the MPC's meeting held earlier in the month, as some traders had expected at least one of the external members of the panel to vote for a rate cut, as opposed to the unanimous vote for status quo. The minutes will be released Wednesday. Traders will watch out for US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Symposium later in the week for any indication of a rate cut by the US Federal Open Market Committee in September. On the geopolitical front, traders will also track the outcome of the meeting between US President Donald Trump and Ukraine President Volodymyr Zelenskyy, dealers said. Both bonds and swaps may also track the movement of crude oil prices, as well as the movement of the rupee against the dollar.

 

On Tuesday, the one-day call money rate may open below the RBI's repo rate of 5.50% as surplus liquidity is expected to remain above INR 3 trillion. 

 

GOVERNMENT BONDS

On Tuesday, bond yields may take cues from US yields. Traders will wait for the cut-offs at the state bond auction scheduled during the day to take cues later in the day, dealers said. States plan to raise INR 176 billion. The indicative calendar for state borrowing for Jul-Sept showed 17 states would borrow INR 261.50 billion on Tuesday.

 

Demand at the state bond auction will be crucial due to concerns over the government's fiscal management in view of the proposed GST reforms, dealers said. Traders will closely track technical levels on gilts. If sentiment worsens, the 6.52-6.53% level could be the next psychologically crucial level to watch out for on the 10-year benchmark yield. Traders are also preparing for auction Friday where the government is set to sell INR 300 billion of the 10-year benchmark 6.33%, 2035 gilt and INR 60 billion of three-year 5.91%, 2028 gilt.

 

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.40-6.55%. On Monday, the 2035 bond ended at INR 98.80 or 6.50% yield. 

 

OIS RATES

On Tuesday, swap rates may take cues from the movement in US Treasury yields. Traders await any update on the proposed tax reforms, especially if states approve of the move. 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 5.48-5.56% Tuesday. The five-year contract is seen at 5.68-5.78%. On Monday, the one-year swap rate ended at 5.54% and the five-year swap ended at 4.95%. 

 

CALL

On Tuesday, the one-day call money rate may open below the RBI's repo rate of 5.50% as surplus liquidity is expected to remain above INR 3 trillion. During the day, the call rate is seen in a range of 4.70-4.60%, dealers said.

 

RBI AUCTION

--Nine states to raise INR 176.00 billion via bond sale at 1030-1130 IST 

 

LIQUIDITY

--There are no inflows or outflows scheduled for Tuesday. 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

--Nil

 

* Outflows

--Nil

End

 

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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