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Informist, Friday, Sept. 26, 2025

MUMBAI – Government bond prices are on Monday likely to move in line with the change in the supply pattern in the government Oct-Mar borrowing calendar, released after market hours Friday, dealers said. Money markets are shut on Saturday. 

Long-term bonds may rise sharply after their share of supply was cut more than expected and dumped into bonds maturing in 10 years or less, which may fall Monday, dealers said. Traders may also take positions before the Reserve Bank of India's Monetary Policy Committee meeting, with some traders betting on a rate cut. 

Overnight indexed swap rates may take cues Monday from the movement in US Treasury yields after key inflation data. The impact is likely to be limited before the MPC outcome, and short-term swap rates may continue to inch lower, dealers said. 

The one-day call money rate is expected to open near the RBI's repo rate Monday on early demand from funds from primary dealerships and banks near the quarter-end. Rates may ease later in the day as the government's month-end spending is expected to add liquidity into the banking system, dealers said.

GOVERNMENT BONDS

On Monday, government bond prices will move in line with the change in the supply pattern in the Oct-Mar borrowing calendar, released after market hours. The 10-year gilt's price is likely to fall after the government said it would issue 28.4% of its INR 6.77 trillion supply through that tenure, up from 26.2% in Apr-Sept, dealers said.

The government slightly trimmed its gross borrowing plan by INR 100 billion from the Budget aim to INR 14.72 trillion. The cut is unlikely to have an effect on bond prices, with the RBI rejecting all bids for a 30-year green bond in Apr-Sept and leading to an INR-50-billion reduction already, dealers said.

Long-term gilts will rise sharply after the government slashed the share of 30-50-year gilts to 29.5% in Oct-Mar from 35% in Apr-Sept, dealers said. The gains may be limited after the RBI announced states' plan to raise INR 341 billion at auction Tuesday, against INR 151 billion indicated in the Jul-Sept calendar.

After the reaction to the calendar, traders may refrain from placing aggressive and large bets on caution ahead of the MPC outcome on Wednesday dealers said. Traders are optimistic the RBI's rate-setting panel could open the door to further rate cuts next week, either by raising concern about India's growth prospects amid external headwinds or cutting the CPI inflation forecasts further.

Traders may also take cues from developments on the India-US trade talks and the movement of crude oil prices. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.48-6.56%. On Friday, the 2035 bond ended at INR 98.63, or 6.52% yield.

OIS RATES

On Monday, swap rates may open steady on caution ahead of the MPC outcome on Wednesday, dealers said. The three-day policy review will begin Monday.

The movement in US Treasury yields may lend cues to swap rates, especially after key US inflation data. The US government said after Indian market hours personal consumption expenditures inflation rose to 2.7% on year in August from 2.6% in July, while the annual core inflation rate was unchanged at 2.9%. The prints were in line with expectations. 

Traders remain uncertain about further rate cuts in India after the US Fed 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 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.

Traders may take cues from geopolitical developments, especially on US tariffs on Indian goods. 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%. On Friday, the one-year swap rate ended at 5.46% and the five-year at 5.75%.

CALL

On Monday, the one-day call money rate is likely to open near the RBI's repo rate due to demand for funds by primary dealerships. Later in the day, rates may cool as the as month-end government spending is likely to commence from Monday. During the day, the call rate is seen in a range of 4.75-5.60%, dealers said. On Friday, the three-day call rate ended at 5.57%. 

RBI AUCTION

--Nil

LIQUIDITY

--Total net outflows of INR 261.81 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 12.45 billion as coupon on state bonds on Saturday

--INR 21.68 billion as coupon on state bond on Sunday

--INR 24.06 billion as coupon on state bonds on Monday

* Outflows

--INR 320.00 billion as payment for gilts on Monday

End

Reported by Srijita Bose and Aaryan Khanna

Edited by Deepshikha Bhardwaj

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