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Informist, Saturday, Sept. 20, 2025

MUMBAI – Government bond prices may open lower Monday as Tuesday's state bond auction size is larger than indicated. Gilts and overnight indexed swap rates may also take cues from the movement in US Treasury yields over the weekend, dealers said.

With Bloomberg inviting feedback on inclusion of Indian bonds in its flagship Global Aggregate Index, foreign portfolio investors may buy gilts expecting an eventual inclusion, which may lead to a rise in bond prices and fall in swap rates Monday, they said.

Traders may also take cues from developments on the India-US trade talks after the recent thaw in relations between the two countries. Bonds and swaps may also track the movement in crude oil prices and the rupee against the dollar.

On Monday, the one-day call money rate is likely to open near the RBI's repo rate due to demand for goods and services tax payments. However, later in the day, rates may fall as the RBI will conduct an overnight variable rate repo auction for INR 1.00 trillion. During the day, the call rate is seen in the range of 4.75-5.60%, dealers said.

GOVERNMENT BONDS

On Monday, bonds may open lower after the RBI post market hours Friday said 11 states will raise INR 270.00 billion through the sale of bonds on Tuesday. The indicative calendar for state borrowing for Jul-Sept showed 12 states would borrow INR 201.00 billion on Tuesday. Gilts may also take cues from the movement in the US Treasury yields, dealers said. 

Some traders are hopeful of a rate cut by the Reserve Bank of India's Monetary Policy Committee in December due to anticipated rate cuts in the US, which may lead to a rise in shorter-tenure bonds. However, traders may refrain from aggressively placing bets with the gilts borrowing calendar for Oct-Mar seen as the next cue for the market. The calendar is expected to be released near the end of the month.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.40-6.55%. On Friday, the benchmark gilt closed at INR 98.87 or 6.49% yield.

OIS RATES

On Monday, swaps may take cues from the movement in the US Treasury yields. Traders said there were no scheduled triggers on interest rates in India until the MPC meeting begins at the end of September, dealers said.

Traders remain uncertain about further rate cuts in India after the US Federal Open Market Committee signalled it would take a slow and steady path to rate cuts, though OIS rates are pricing in a December rate cut of 25 basis points in India. Offshore traders are likely to continue receiving fixed rates and put downward pressure on swap rates, with domestic traders also raising their rate cut bets in the run-up to the domestic policy review, dealers said.

Traders may also take cues from geopolitical developments, especially on US tariffs on Indian goods. Recent positive comments on a trade deal and a thaw signalled by the leaders of the two countries augur well for swap rates to shed some risk premium due to the tariffs while also attracting more offshore traders, 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 5.62-5.80%. On Friday, the one-year swap rate ended at 5.45% and the five-year swap rate ended at 5.71%.

CALL

On Monday, the one-day call money rate is likely to open near the RBI's repo rate due to demand for goods and services tax payments. However, later in the day, rates may fall as the RBI will conduct an overnight variable rate repo auction for INR 1.00 trillion. During the day, the call rate is seen in the range of 4.75-5.60%, dealers said. On Saturday, the two-day call rate ended at 4.95%.

RBI AUCTION

--RBI to hold overnight VRR auction for INR 1.00 trillion at 0930-1000 IST Monday 

LIQUIDITY

--Total net outflows of INR 243.78 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 32.20 billion as coupon on state bonds Sunday

--INR 35.06 billion as coupon on 8.28%, 2027 gilt Sunday

--INR 634.11 million as coupon on 8.33%, 2032 gilt Sunday

--INR 13.58 billion as coupon on state bonds Monday

--INR 34.75 billion as coupon on 2033 floating rate bond Monday

* Outflows

--INR 360.00 billion as payment for gilts Monday

--INR 3.90 billion as reversal of three-day VRR auction tender Monday

End

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

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

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