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Informist, Monday, Sept. 22, 2025

MUMBAI – Government bond prices and overnight indexed swap rates may take cues from the overnight movement of US Treasury yields at open Tuesday, dealers said. Results of the INR 270-billion state bond auction may lend cues to the gilts later in the day, they said.

The larger-than-indicated size of state bond auction Tuesday may keep gilt prices, especially those bonds maturing in 10 years or above, under pressure, 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. However, some have turned hopeful of a rate cut by the Reserve Bank of India's Monetary Policy Committee or for the panel to hint at future rate cuts at its policy outcome next week. These expectations have grown after State Bank of India Group Chief Economic Advisor Soumya Kanti Ghosh, in a report earlier Monday, said that a quarter percentage point rate cut next week was the "best possible option" for the RBI.

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

On Tuesday, the one-day call money rate is likely to open near the RBI's repo rate due to demand for funds and ahead of the variable rate repo auction.

GOVERNMENT BONDS

When the market open Tuesday, bonds may take cues from the overnight movement of US yields, dealers said. The larger-than-indicated size of state bond auction Tuesday may keep prices under pressure.

Results of the INR 270-billion auction may lend cues to the market later in the day, dealers said. Demand from banks for state bonds maturing under 10 years is expected to be firm both at the auction and in the secondary market, they said. 

Some traders are hopeful of a rate cut by the Monetary Policy Committee in December due to anticipated rate cuts in the US, which may lead to 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 towards the end of this month.

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 98.87 or 6.49% yield.

OIS RATES

On Tuesday, swaps may take cues from the movement of US Treasury yields. Traders said there were no scheduled triggers on interest rates in India until the MPC meet, dealers said.

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

Recent positive comments on a trade deal between US and India, 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% Tuesday. The five-year contract is seen at 5.62-5.80%. On Monday, one-year swap rate ended at 5.45% and the five-year swap rate ended at 5.72%. 

CALL

On Tuesday, the one-day call money rate is likely to open near the RBI's repo rate due to demand for funds and ahead of the VRR auction. However, later in the day, rates may cool down as the RBI will conduct an overnight variable rate repo auction for INR 1.00 trillion at 0930-1000 IST. During the day, the call rate is seen in the range of 4.80-5.60%, dealers said. On Monday, the one-day call ended at 5.74%.

RBI AUCTION

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

--Eleven states to raise INR 270 billion via bond sale at 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 116.21 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 14.61 billion as coupon on state bonds

--INR 101.60 billion on redemption of state bonds

* Outflows

--INR 211.51 billion as reversal of three-day VRR auction tender

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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