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Informist, Tuesday, Sept. 16, 2025

MUMBAI – On Wednesday, government bond prices and overnight indexed swap rates are likely to take cues from the overnight movement of US Treasury yields, dealers said. Both gilts and swaps may trade in a thin band on caution ahead of the US Federal Open Market Committee's rate decision at 2330 IST, they said. 

The US rate-setting panel is universally expected to cut its policy rate by at least 25 basis points, but Fed funds futures show around a 4% chance of a 50-bps rate cut, according to the CME FedWatch tool. Traders will await the committee's commentary and any projection of future rate cuts during the rest of the year. 

Traders may also take cues from geopolitical developments, especially on the US tariffs on Indian goods. India and the US agreed to intensify efforts for an early conclusion of the Bilateral Trade Agreement that was proposed in February, the commerce ministry said Tuesday after a day-long discussion between the chief negotiators of both countries in New Delhi. US Assistant Trade Representative for South and Central Asia Brendan Lynch met Commerce Ministry Special Secretary Rajesh Agrawal.

On Wednesday, the one-day call money rate is likely to open below the Reserve Bank of India's repo rate on comfortable liquidity surplus. During the day, the call rate is seen in the range of 4.75-5.50%, dealers said.

GOVERNMENT BONDS

On Wednesday, bond prices may take cues from the overnight movement in US yields, dealers said. Gilts may trade in a thin band, and volumes may be muted as traders await the US FOMC decision later in the day.  

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. Developments on a potential 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%. The 2035 bond ended at INR 98.84, or 6.49% yield, on Tuesday. 

OIS RATES

On Wednesday, swaps may open steady on caution ahead of the US FOMC rate decision at 2330 IST, dealers said. Offshore flows are unlikely to be significant 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. 

Swaps may also track the movement of crude oil prices and the rupee against the dollar. The one-year swap rate is seen in the range of 5.40-5.55% Wednesday. The five-year contract is seen at 5.60-5.78%. On Tuesday, the one-year swap rate ended at 5.47% and the five-year swap rate ended at 5.70%. 

CALL

On Wednesday, the one-day call money rate is likely to open below the RBI's repo rate on comfortable liquidity surplus. During the day, the call rate is seen in the range of 4.75-5.50%, dealers said. On Tuesday, one-day call rate ended at 5.50%. 

RBI AUCTION

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

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

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

LIQUIDITY

--Total net outflows of INR 129.84 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 14.51 billion as coupon on state bonds

--INR 39.65 billion as coupon on 6.68%, 2031 gilt

* Outflows

--INR 184 billion as payment on state bonds

End

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

Reported by Srijita Bose

Edited by Deepshikha Bhardwaj

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