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Informist, Monday, Sept. 29, 2025

MUMBAI – Government bond prices and overnight indexed swap rates may take cues from the overnight movement in US Treasury yields at open Tuesday. However, ahead of the Reserve Bank of India's Monetary Policy Committee outcome Wednesday, traders will focus on domestic cues, they said. 

Gilts may take cues from the results of the larger-than-indicated state bond auction during the day, dealers said. Swaps may take cues from gilt yields if there is a sharp movement Tuesday, they said. 

Traders are optimistic the RBI's rate-setting panel could open the door to further rate cuts Wednesday, either by raising concern about India's growth prospects amid external headwinds or cutting the CPI inflation forecasts further. A marginal section of the market is also expecting a rate cut of 25 basis points Wednesday. But traders may refrain from placing large and aggressive bets ahead of the event, dealers said. 

Traders may also take cues from further developments on the India-US trade talks. Traders may also track the movement of crude oil prices and rupee against the dollar. 

On Tuesday, the one-day call money rate is likely to open below the RBI's repo rate due to ample liquidity surplus and the overnight variable rate repo auction of INR 2 trillion.

GOVERNMENT BONDS

On Tuesday, government bond prices could take cues from the results of the larger-than-indicated state bond auction, dealers said. However, prices may move in a thin band ahead of the RBI Monetary Policy Committee's outcome Wednesday.

On Tuesday, 13 states will raise INR 341 billion through the sale of bonds. The indicative calendar for state borrowing for Jul-Sept showed 10 states would borrow INR 151.00 billion on Tuesday. This is the last scheduled auction in the September quarter. Traders expect the state bond calendar for Oct-Dec, which will be released this week, to come at INR 3.2 trillion to INR 3.5 trillion, higher than INR 2.87 trillion indicated in the Jul-Sept calendar. This could limit investors from picking state bonds at auction Tuesday, dealers said. 

The 10-year benchmark 6.33%, 2035 gilt may continue to underperform after the government increased the share of the gilt to 28.4% in the Oct-Mar borrowing plan and ahead of the fresh supply at auction Friday, dealers said. However, buying by state-owned banks to mark a higher valuation at the end of the September quarter could lead to a rise in prices, others said. 

Long-term gilts will likely rise after the government slashed the shares of 30- to 50-year gilts to 29.5% in Oct-Mar from 35% in Apr-Sept. However, traders may refrain from placing aggressive and large bets on caution ahead of the RBI rate-setting panel's decision, dealers said. 

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.50-6.60%. On Monday, the 2035 bond ended at INR 98.41 or 6.55% yield. 

OIS RATES

On Tuesday, swap rates may open steady on caution ahead of the MPC outcome on Wednesday, dealers said. The three-day policy review began Monday. The movement in US Treasury yields may lend cues to swap rates but the impact of these will be limited before the domestic policy outcome.

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. With such a cut already reflected, comments from RBI Governor Malhotra signalling further rate cuts may have a limited impact on swap rates, though a reduction in India's policy rate to 5.25% Wednesday will send OIS rates tumbling, dealers said. 

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 Monday, the one-year swap rate ended at 5.47% and the five-year swap rate ended at 5.75%. 

CALL

On Tuesday, the one-day call money rate is likely to open below the RBI's repo rate due to ample liquidity surplus and VRR auction. During the day, the call rate is seen in a range of 4.75-5.60%, dealers said. On Monday, the one-day call rate ended at 5.00%.

RBI AUCTION

--RBI to hold overnight VRR auction for INR 2 trillion

--Thirteen states to raise INR 341 billion via bond sale

LIQUIDITY

--Total net inflows of INR 446.64 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 14.49 billion as coupon on state bonds 

--INR 30.16 billion as coupon on 9.20%, 2030 gilt

* Outflows

--INR 909.31 billion as reversal of four-day VRR tender

End

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

Reported by Srijita Bose

Edited by Akul Nishant Akhoury

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