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Informist, Thursday, Aug. 28, 2025

 

MUMBAI – Gilts may open steady ahead of the INR-320-billion gilt auction at 1030-1130 IST on Friday, dealers said. Prices of longer tenure gilts may fall due to the heavy supply of long-term gilts Friday. Traders will also await Apr-Jun GDP data, due at 1600 IST, for further cues on the domestic interest rate trajectory, dealers said. According to an Informist poll, GDP growth in Apr-Jun is expected at 6.7%.

 

Any sharp overnight movement in US Treasury yields may also provide cues for gilts at open. Overnight indexed swap rates will track the movement of US Treasury yields at open, after the release of economic data in the US and comments by US Federal Reserve officials. US Federal Reserve Governor Christopher Waller, one of the governors who had dissented against the Federal Open Market Committee consensus during the July policy meeting and is seen as a key contender to be the next Fed chairperson, is scheduled to speak at 0330 IST Friday. 

 

Traders also await the Personal Consumption Expenditures Price Index for July, due Friday, for more cues into the Fed's rate outlook. The core Personal Consumption Expenditures Price Index, the Fed's preferred gauge of inflation, is expected to inch up to 2.9% on year in July from 2.8% the previous month, according to economists polled by Dow Jones. Fed fund futures traders now show an 87% chance of a 25-basis-point rate cut by the US FOMC in September, up from 75% a week ago, according to the CME's FedWatch Tool. 

 

Post market hours on Friday, investors await the US Personal Income and Outlays for July, wherein core inflation is seen at its highest level since late 2023 at 2.9%. Traders also await developments on the imposition of tariffs by the US on India, which took effect Wednesday morning.

 

GOVERNMENT BONDS

Traders are likely to take cues from the auction results later in the day. The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 160 billion of the 6.90%, 2065 bond at the auction Friday. There are also concerns that state borrowing will increase in the current financial year if the proposed reforms to the goods and services tax are announced by Diwali, dealers said. This could lead to muted demand from long-term investors in the secondary market, dealers said. 

 

Most traders expect the GDP growth print for Apr-Jun to be around the RBI's forecast of 6.5%. If the growth is below 6.3%, gilt prices could rise, dealers said. Traders will closely track technical levels on gilts. If sentiment worsens again and the 2035 bond yield tops the 6.65-6.66% level, 6.68-6.70% could be the next psychologically crucial level to watch out for, dealers said.

 

Bonds may also track the movement of crude oil prices and the rupee against the dollar. The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.55, or a yield of 6.5328% on Thursday, against INR 98.08, or 6.5997% yield, Tuesday. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.50-6.65% on Friday.

 

OIS RATES

On the domestic front, swap rates will track the movement of gilt yields during the day. However, volumes may be muted due to caution ahead of India's GDP growth data for Apr-Jun, due to be released at 1600 IST Friday. Some traders expect the print to be lower than the RBI's forecast of 6.5%, while some expect it to be higher. 

 

While India's GST reforms are seen bringing inflation down, the RBI's rate-setting panel is only likely to cut rates if growth takes a hit, dealers said. The GST reforms are seen improving GDP growth and CPI inflation may be below the RBI's forecast of 3.1% for FY26 by 20-50 bps, they said.

 

The one-year swap rate ended at 5.49% on Thursday, down from 5.52% Tuesday. The five-year swap rate ended at 5.74%, against 5.78% Tuesday. The one-year swap rate is seen in the range of 5.40-5.60% Friday. The five-year contract is seen at 5.68-5.83%.

 

CALL

On Friday, the three-day call money rate may open above the RBI's repo rate of 5.50% on demand for funds. RBI will hold a six-day VRRR auction for INR 1.5 trillion at 0930-1000 IST Friday. The weighted average call rate ended at 5.46% Thursday, against 5.44% Tuesday. On Friday, the call rate is seen in the range of 4.70-5.60%, dealers said.

 

RBI AUCTION

 

--RBI to hold 6-day variable rate reverse repo of INR 1.5 trillion

 

LIQUIDITY

--Total net outflow of INR 770.45 billion. The calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and variable rate reverse repo operations.

 

* Inflows

--INR 137.51 billion on redemption of 182-day T-bills

--INR 9.56 billion as coupon state bonds

--INR 757.81 on redemption of 7-day reverse repo

--INR 495.15 billion on redemption of 1-day reverse repo

 

* Outflows

--INR 123.00 billion on payment of 91-day T-bills

--INR 78.00 billion on payment of 182-day T-bills

--INR 716.52 billion on payment of 364-day T-bills 

 

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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