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Informist, Tuesday, Sept. 23, 2025

 

MUMBAI – On Wednesday, government bond prices and overnight indexed swap rates may take cues from the overnight movement in US Treasury yields at open, dealers said. However, most traders are likely to stay focussed on domestic cues ahead of the Reserve Bank of India's Monetary Policy Committee meeting next week, they said. 

 

US Federal Reserve Chair Jerome Powell is set to speak at the Greater Providence Chamber of Commerce Economic Outlook Luncheon at 2205 IST, which may lend cues to US yields. Gilts and OIS are likely to take cues only if the movement in US yields is sharp, dealers said. Meanwhile, the Trump administration released a proposal on Tuesday to rework the selection process for obtaining H-1B visas to favour higher-skilled and better-paid workers

 

Traders are optimistic that the RBI's rate-setting panel could open the door to further rate cuts, either by raising concerns about India's growth prospects amid external headwinds or cutting the CPI inflation forecasts further. However, some have turned hopeful of a 25-basis-point rate cut by the Monetary Policy Committee next week.

 

Traders may also take cues from developments on 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. The rupee closed at a record low of 88.7550 to a dollar Tuesday.

 

On Wednesday, 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

Bonds may take cues from the overnight movement of US yields at market open on Wednesday, dealers said. Traders are optimistic that the RBI's rate-setting panel could open the door to further rate cuts, either by raising concerns about India's growth prospects amid external headwinds or cutting the CPI inflation forecasts further. As caution sets in before the policy outcome, traders are seen preferring the liquid 10-year benchmark bond over relatively illiquid bonds, dealers said. 

 

Traders may refrain from aggressively placing bets, with the release of the gilt borrowing calendar for Oct-Mar seen as the next cue for the market. The calendar is expected to be released on Friday or early next week. However, purchases of longer-term bonds may pick up on expectations of lower supply in the segment in the second half of the financial year, dealers said. 

 

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.42-6.52%. On Tuesday, the 2035 bond ended at INR 98.98 or 6.47% yield. 

 

OIS RATES

On Wednesday, swap rates may open steady due to lack of significant cues before the MPC begins its three-day policy review Monday, dealers said. Any sharp movement in US Treasury yields after Powell's speech may lend cues, though the impact is likely to be muted ahead of the key domestic event.

 

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 rate cut of 25 bps in India within 2025. 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 next week, dealers said.

 

Recent positive comments on a trade deal between the US and India, and a thaw signalled by 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 a range of 5.40-5.55% Wednesday and the five-year contract is seen at 5.62-5.80%. On Tuesday, the one-year swap rate ended at 5.46% and the five-year swap rate ended at 5.72%.

 

CALL

On Wednesday, the one-day call money rate is likely to open near the RBI's repo rate due to demand for funds, ahead of the VRR auction. Later in the day, rates may cool as the RBI will conduct an overnight variable rate repo auction for INR 1.50 trillion at 0930-1000 IST. During the day, the call rate is seen in a range of 4.80-5.80%, dealers said. On Tuesday, the one-day call rate ended at 4.95%.

 

RBI AUCTION

--RBI to hold overnight VRR auction for INR 1.50 trillion 

--RBI to auction 91-day Treasury-bills worth INR 100 billion 

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

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

 

LIQUIDITY

--Total net inflows of INR 343.73 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 21.93 billion as coupon on state bonds

--INR 549.28 billion on redemption of 8.20%, 2025 gilt

--INR 22.52 billion as coupon on 8.20%, 2025 gilt

 

* Outflows

--INR 250.00 billion as payment on state bonds

--INR 1.00 trillion as reversal of one-day VRR auction tender

--INR 405.10 billion as reversal of one-day VRR auction tender

End

 

US$1 = INR 88.76

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

 

Reported by Srijita Bose

Edited by Avishek Dutta

 

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