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Informist, Monday, Sept. 1, 2025

 

MUMBAI – Gilts are seen opening lower Tuesday ahead of the heavy supply of state bonds at the auction, dealers said. Any announcement by the RBI that could provide support to gilt prices will also be keenly watched, dealers said. Gilts and swaps may also track the movement of US Treasury yields in early Asian trade, dealers said. US markets are closed Monday for Labour Day.

 

Traders may also take cues from geopolitical developments, after a US federal court ruled that most of Trump's global levies were imposed illegally. For now, however, the duties remain in place. Gilt and swaps may also take cues from the movement of the rupee against the dollar and crude oil prices Tuesday. 

 

GOVERNMENT BONDS

On Tuesday, gilt prices are likely to fall before the state bond auction at 1030-1130 IST, with poor demand expected for the fresh supply, dealers said. The RBI Friday said 12 states will raise INR 316.50 billion through bonds Tuesday, against INR 214.00 billion indicated for this week in the Jul-Sept borrowing calendar.

 

There are concerns that state borrowing will increase in the current financial year if the proposed reforms in the goods and services tax are announced by Diwali, dealers said. This could also lead to muted demand by long-term investors in the secondary market, dealers said. Meanwhile, some banks are also approaching their internal limits on purchasing state bonds, they said. State-owned banks are likely to step up purchases of the 10-year benchmark gilt around a 6.65% yield on Tuesday if the auction goes poorly and leads to a slump in gilt prices.

 

Any announcement by the RBI that could provide support to gilt prices will also be keenly watched, with the market waiting on tenterhooks for such an announcement over the past week. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.50-6.65%. The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.19, or a yield of 6.5850% Monday.

 

OIS RATES 

On Tuesday, swaps will track the movement of gilt yields during the day. Swaps may also track the movement of US Treasury yields in early Asian trade, dealers said. US markets are closed Monday for Labour Day holiday.

 

The one-year swap rate is seen in the range of 5.40-5.60% Tuesday. The five-year contract is seen at 5.68-5.85%. The one-year OIS ended at 5.55% Monday, while the five-year OIS ended at 5.81%.

 

CALL

On Tuesday, the one-day call money rate may remain near the RBI's repo rate of 5.50% due to expectations of a variable rate reverse repo auction. During the day, the one-day call rate is seen in the range of 4.65-5.50%, the dealers said. The one-day call rate ended at 5.40% Monday.

 

RBI AUCTION

--Twelve states to raise INR 316.50 billion via bond sale 

 

LIQUIDITY

--Total net inflows of INR 7.17 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 7.17 billion as coupon on state bonds

 

* Outflows

--Nil

 

End

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

 

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

 

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