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Informist, Monday, Sept. 15, 2025

MUMBAI – Government bond prices are seen down Tuesday after JPMorgan reduced India's weightage in its Emerging Market Global Bond Index. The weightage of Indian bonds in the index will fall to 9% from 10% at present, with the implementation phased over several months.

The news will likely prompt foreign portfolio investors and banks to sell Indian gilts. Bonds may also initially take cues from the overnight movement of US Treasury yields and later from the result of the state bond auction, dealers said.

Overnight indexed swap rates may open steady on caution ahead of the US Federal Open Market Committee's rate decision Wednesday, dealers said. Offshore flows are unlikely to be significant only a day ahead of the outcome. The US rate-setting panel is widely expected to cut its policy rate by at least 25 basis points with Fed funds futures showing less than 4% chance of a 50-bps rate cut, according to the CME FedWatch tool. This could also limit trade volume in gilts, dealers said.

On Tuesday, the one-day call money rate is likely to open near the Reserve Bank of India's repo rate of 5.50% ahead of the three-day INR 750-billion variable rate reverse repo auction.

GOVERNMENT BONDS

Tuesday, bond prices may initially take cues from the overnight movement of US yields, dealers said. Gilts may also take cues from the result of the state bond auction later in the day, they said. 

Fourteen states are set to raise INR 184 billion from auction of bonds Tuesday, much lower than INR 236.29 billion as enumerated in the indicative calendar for the week.

Traders will look forward to the US Federal Open Market Committee's rate decision on Wednesday. The CME FedWatch tool shows 96.4% chance of a 25 bps cut and 3.6% chance of a 50 bps rate cut.

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, upside in the yield of the 10-year benchmark gilt could be capped at 6.55%, dealers said. Developments on India-US trade deal will also be watched closely following signs of a thaw in the relationship between the two countries.

Bond traders may also track the movement of crude oil prices and the rupee against the dollar. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.40-6.55%. On Monday, the 2035 bond ended at INR 98.81 or 6.50% yield.

OIS RATES

Swaps may open steady on caution ahead of the US FOMC rate decision, dealers said. Offshore flows are unlikely to be significant a day ahead of the outcome.

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. At the same time, offshore traders are likely to continue receiving fixed rates and put downward pressure on swap rates, dealers said.

India and the US will hold the next round of talks on the proposed bilateral trade agreement Tuesday in the national capital, India's chief negotiator, Rajesh Agrawal, said Monday. Traders may take cues from developments that emerge from the meeting.

Swaps may also track the movement of crude oil prices and the rupee against the dollar. The one-year swap rate is seen in a range of 5.40-5.55% Tuesday. The five-year contract is seen at 5.60-5.78%. On Monday, the one-year swap rate ended at 5.48% and the five-year swap rate ended at 5.71%.

CALL

On Tuesday, the one-day call money rate is likely to open near the RBI's repo rate of 5.50% ahead of the three-day INR 750-billion VRRR auction Tuesday. During the day, the call rate is seen in the range of 4.75-5.55%, dealers said. The one-day call rate Monday ended at 4.75%.

RBI AUCTION

--RBI to hold three-day variable rate reverse repo auction for INR 750 billion at 0930 IST-1000 IST 

--Fourteen states to raise INR 184 billion via bond sale 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 942.53 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 7.18 billion as coupon on state bonds

--INR 50.00 billion on redemption of state bonds 

--INR 42.70 billion as coupon on 6.19%, 2034 gilt

--INR 39.37 billion as coupon on 6.22%, 2035 gilt

* Outflows

--Nil

End

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

Reported by Srijita Bose

Edited by Ashish Shirke

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