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Informist, Tuesday, Sept. 2, 2025

MUMBAI – Gilts and swaps are likely to Wednesday track the movement of US Treasury yields after the release of US economic data, dealers said. Any announcement by the Reserve Bank of India that could provide support to gilt prices will also be keenly watched, dealers said. Traders also await the Goods and Services Tax Council meeting outcome on Thursday for a clearer idea of potential revenue lost by the exchequer from a proposed rationalisation in GST rates.

Traders may also take cues from geopolitical developments as US President Donald Trump is scheduled to make a statement at 2330 IST. Developments on a potential India-US bilateral trade deal will also be watched closely. Gilt and swaps may also take cues from the movement of the rupee against the dollar and crude oil prices Tuesday.  

On Wednesday, 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 4.75-5.50%, the dealers said.

GOVERNMENT BONDS

On Wednesday, gilts may take cues from the overnight movement in US Treasury yields. Though there are limited domestic cues scheduled, gilt prices are likely to be volatile as traders define a new range for the 10-year bond following a sharp rise in the benchmark yield in August, dealers said.

Traders are jittery about placing fresh short bets due to the sizeable short sales in the 10-year benchmark 6.33%, 2035 gilt, with the special repo segment of the NDS-OM showing trades over INR 200 billion. However, some traders are likely to trim their gilt holdings before the INR 250 billion weekly gilt auction on Thursday, dealers said. The auction has moved a day ahead as money markets are shut on Friday for Id-e-Milad.

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. Meanwhile, some banks are also approaching their internal limits on purchasing state bonds, they said. This is likely to increase state bonds' spreads over gilts, with gilt prices largely seen unaffected as state-owned banks are likely to step up purchases of the 10-year benchmark gilt around 6.62% yield. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.50-6.62%. The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.32, or a yield of 6.5658% Tuesday.

OIS RATES

On Wednesday, swaps will track the movement of gilt yields during the day. Swaps may also track the movement of US Treasury yields after the release of economic data in the US, dealers said. Offshore flows due to expectations of a rate cut by the US Federal Open Market Committee at its meeting in September may cap any paying by onshore traders, they said. The one-year swap rate is seen in the range of 5.48-5.60% Wednesday. The five-year contract is seen at 5.75-5.85%. The one-year OIS ended at 5.54% Tuesday, while the five-year OIS ended at 5.81%.

CALL

On Wednesday, 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 4.75-5.50%, the dealers said. The one-day call rate ended at 5.24% Tuesday.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 100 billion

--RBI to auction 182-day T-bills worth INR 60 billion

--RBI to auction 364-day T-bills worth INR 50 billion

LIQUIDITY

--Total net outflows of INR 264.09 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 26.73 billion as coupon on state bonds

* Outflows

--INR 290.83 billion as payment for state bonds

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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