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Informist, Thursday, Aug. 21, 2025

 

MUMBAI – Government bond yields are seen opening steady ahead of the INR 360.00-billion gilts auction at 1030-1130 IST on Friday. Some traders may place short bets ahead of the auction, dealers said. Later in the day, the result of the auction will provide cues to traders, they said. On the policy front, while goods and services tax reforms are seen moderating 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, they said. 

 

Traders will also keep an eye out for news from the Jackson Hole Economic Symposium, where US Federal Reserve Chair Jerome Powell is scheduled to speak Friday, post Indian market hours, at 1930 IST. Bonds may also track the movement of crude oil prices, as well as the movement of the rupee against the dollar.

 

Swap rates will track the overnight movement in US Treasury yields after the release of weekly jobless claims in the US for the week ended Saturday, dealers said. Powell's comments will be tracked for any indication of a rate cut by the US FOMC in September, which is widely expected by dealers. Meanwhile, the three-day call money rate may open above the RBI's repo rate of 5.50% on demand for funds due to GST outflows and it being a reporting Friday. 

 

GOVERNMENT BONDS

Traders will closely track technical levels on gilts. If sentiment worsens and the 2035 bond yield tops 6.55%, the 6.58-6.60% level could be the next psychologically crucial level to watch out for on the 10-year benchmark. Traders now see CPI inflation falling below the RBI's forecast for 2025-26 (Apr-Mar) by 30-50 basis points. The group of ministers on GST rate rationalisation has accepted the Centre's proposal to shift to a two-slab GST structure.

 

On Thursday, the 10-year benchmark 6.33%, 2035 bond ended at INR 98.58 or 6.5278% yield. On Friday, the yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.48-6.60%.

 

OIS RATES

Swap rates will track the overnight movement in US Treasury yields, dealers said. Swap rates will only indirectly track Powell's comments through the movement of US yields. Next week, volumes may be muted due to lack of major trading cues until India's GDP growth data for Apr-Jun is released on Aug. 29. Several traders may also be on leave due to Ganesh Chaturthi celebrations in Mumbai.

 

The outlook on GDP growth is mixed, with some expecting a print higher than RBI's forecast of 6.5%, due to a strong monsoon and a favourable base. In an interview with CNBC-TV18 on Thursday, MPC member Saugata Bhattacharya said that a low GDP deflator may drive up real GDP growth in the June quarter. Other traders expect a lower print due to weak credit offtake and corporate earnings.

 

While India's GST tax reforms are seen reducing inflation, the RBI's MPC is only likely to cut rates if growth takes a hit, dealers said. The GST reforms are seen improving GDP growth while CPI inflation may be below the RBI's forecast of 3.1% for FY26 by 20-50 basis points, they said.

 

On Thursday, the one-year swap rate ended at 5.52% and the five-year swap rate ended at 5.73%. The one-year swap rate is seen in the range of 5.48-5.60% Friday. The five-year contract is seen at 5.68-5.80%.

 

CALL

RBI will hold a seven day variable rate reverse repo auction for INR 1.25 trillion at 0930-1000 IST Friday. During the day, the call rate is seen in the range of 4.80-5.70%, dealers said. India's one-day call ended at 5.05% on Thursday.

 

RBI AUCTION

 

* RBI to conduct variable rate reverse repo auction worth INR 1.25 trillion

 

LIQUIDITY

--Total net inflow of INR 114.06 billion scheduled on Friday. 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 9.97 billion as coupon on state bonds 

-- INR 53.72 billion as coupon on 7.26 32bond

-- INR 50.37 billion as coupon on 6.76%, 2061 bond

-- INR 1.83 trillion as redemption on 8-day reverse repo

 

* Outflows

-- INR 310.25 billion as payment on 1-day repo

 

End

 

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

 

Reported by Gowri Lakshmi

Edited by Avishek Dutta

 

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