India Money Market Outlook
Gilts, swaps to track US ylds before FOMC outcome
This story was originally published at 21:34 IST on 12 September 2025
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MUMBAI – On Monday, government bond prices may open higher after the state bond auction announced for Tuesday was smaller than indicated. Gilts and overnight indexed swap rates will also track the movement of US Treasury yields over the weekend, ahead of the US Federal Open Market Committee rate decision on Wednesday, dealers said. Money markets are shut Saturday.
The US rate-setting panel is universally expected to cut its policy rate by 25 basis points, with the CME FedWatch tool showing a 7.5% chance of a 50 bps rate cut priced in Fed funds futures.
Traders may also take cues from geopolitical developments, especially on the US tariffs on Indian goods. Bloomberg reported that the US would urge the Group of Seven Nations to impose secondary sanctions on India and China for purchasing Russian oil.
Traders will closely track technical levels for cues. Bond and swaps may also track the movement of crude oil prices and the rupee against the dollar.
On Monday, the one-day call money rate is likely to open near the Reserve Bank of India's repo rate of 5.50% ahead of advance tax outflows. During the day, the call rate is seen in the range of 4.75-5.50%, dealers said.
GOVERNMENT BONDS
On Monday, bond prices may rise after the state bond auction announced for Tuesday was smaller than indicated. States will raise INR 184 billion through bonds at auction on Tuesday, against INR 236.29 billion in the Jul-Sept indicative calendar.
By the end of September, some dealers expect the 10-year benchmark gilt yield to fall below 6.40% if the FOMC cuts rates and bets of a cut by the RBI's rate-setting panel in October build up. In the near term, an upside in the yield on the 10-year benchmark gilt could be capped at 6.55%, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.38-6.55%. The bond Friday closed at INR 98.88, or a yield of 6.4867%.
OIS RATES
On Monday, swaps may take cues from the movement of US Treasury yields, ahead of the US Federal Open Market Committee rate decision on Wednesday. A further fall in swap rates is unlikely, given the expected rate cut in the US, but traders remain uncertain about further rate cuts in India. Some traders may also pay swap rates for bond swap trades. At the same time, offshore traders are likely to continue receiving fixed rates and put downward pressure on swap rates, dealers said.
The one-year swap rate is seen in the range of 5.40-5.55% Monday. The five-year contract is seen at 5.60-5.78%. The one-year OIS ended at 5.48% Friday and the five-year OIS ended at 5.70%.
CALL
The call market is shut on Saturday. On Monday, the one-day call money rate is likely to open near the RBI's repo rate of 5.50% ahead of advance tax outflows. During the day, the call rate is seen in the range of 4.75-5.50%, dealers said. On Friday, the three-day call money rate ended at 4.95%.
RBI AUCTION
--Govt to switch seven gilts worth INR 300 billion with 5 other bonds via auction Monday
LIQUIDITY
--Total net outflows of INR 182.32 billion. The calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and VRRR operations.
* Inflows
--INR 8.46 billion as coupon on state bonds on Saturday
--INR 19.87 billion as coupon on state bonds on Sunday
--INR 19.44 billion as coupon on state bonds on Monday
--INR 14.54 billion as coupon on 7.62%, 2039 gilt on Monday
--INR 35.37 billion as coupon on 7.19%, 2060 gilt on Monday
--INR 1.50 trillion as reversal of three-day variable rate reverse repo tender on Monday
* Outflows
--INR 280.00 billion as payment for gilts on Monday
End
Reported by Cassandra Carvalho
Edited by Deepshikha Bhardwaj
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