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Informist, Wednesday, Sept. 24, 2025

MUMBAI – Government bond prices and overnight indexed swap rates may take cues from any sharp overnight movement in US Treasury yields Thursday, dealers said. The movement of the rupee against the dollar could also lend cues to markets, they said.

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

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

GOVERNMENT BONDS

Thursday, bonds may take cues from the overnight movement in US Treasury yields and the movement in the rupee against the dollar at the market open, dealers said. However, positive sentiment may push prices up later in the day as traders are optimistic the RBI's rate-setting panel will open the door next week to further rate cuts by raising concern about India's growth prospects or cutting the CPI inflation forecast 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 placing aggressive bets ahead of the release of the gilts borrowing calendar for Oct-Mar, seen as the next cue for the market. The calendar is expected to be released Friday or early next week. However, purchases of longer-term bonds may pick up on expectation of lower supply in the segment in the second half of the financial year, dealers said. 

Traders may also take cues from developments in the India-US trade talks. Bond traders may also track the movement of crude oil prices. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.42-6.52%. Wednesday, it ended at INR 98.86 or 6.49% yield. 

OIS RATES

Thursday, swap rates may open steady on lack of significant cues before the rate-setting panel begins its three-day policy review Monday, dealers said. Any sharp movement in US Treasury yields 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 Federal Reserve 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 by December. Offshore traders are likely to continue receiving fixed rates, exerting 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.

Traders may 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.

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% and the five-year contract at 5.62-5.80%. Wednesday, the one-year swap rate ended at 5.46% and the five-year swap rate ended at 5.73%.

CALL

Thursday, the one-day call money rate is likely to open near the RBI's repo rate on demand for funds and ahead of the variable rate repo auction. Rates may cool thereafter as the RBI will conduct an overnight variable rate repo auction for INR 1.25 trillion at 0930-1000 IST. During the day, the call rate is seen in a range of 4.75-5.60%, dealers said. On Wednesday, the one-day call rate ended at 5.00%. 

RBI AUCTION

--RBI to hold overnight VRR auction for INR 1.25 trillion 

LIQUIDITY

--Total net inflows of INR 239.28 billion. The calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and variable rate reverse repo operations.

* Inflows

--INR 166.88 billion on redumption of 5.97%, 2025 (Conv) bond

--INR 4.98 billion as coupon on 5.97%, 2025 (Conv) bond

--INR 205.00 billion on redemption of 91-day Treasury-bills

--INR 121.50 billion on redemption of 182-day T-bills

--INR 30.18 billion as coupon on state bonds

--INR 10.00 billion as redemption on state bonds

--INR 4.51 billion as coupon on 6.01%, 2028 (C Align) bond

* Outflows

--INR 182.80 billion as payment for 91-day T-bills

--INR 60.00 billion as payment for 182-day T-bills

--INR 60.96 billion as payment for 364-day T-bills

--INR 599.67 billion as reversal of six-day VRR auction tender

--INR 489.80 billion as reversal of one-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 Rajeev Pai

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