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Informist, Monday, Oct. 6, 2025

 

MUMBAI – Government bond prices and overnight indexed swap rates may take cues from the movement in US Treasury yields at open Tuesday, dealers said. The movement in gilts across tenures may diverge due to different supply pressures, and gilt prices may take cues from the result of the state bond auction Tuesday, dealers said. Five states are set to borrow INR 94.10 billion Tuesday.

 

Traders have begun to price in a rate cut by the Reserve Bank of India's Monetary Policy Committee in its next policy meet in December, while the cut is already reflected in swap rates, they said. Traders said the domestic interest rate markets had largely factored in the commentary from policymakers at the MPC's meeting last week.

 

Geopolitical developments, the movement in the rupee, and crude oil prices may lend cues to gilts and swap rates, dealers said. Traders also look forward to more details of a potential bilateral trade agreement between the US and India, with the tariffs on Indian exports a key headwind to growth projections.

 

The one-day call rate may open below the RBI's repo rate due to a significant liquidity surplus, especially with the central bank avoiding the announcement of any variable rate reverse repo operation to drain short-term liquidity. Tax outflows may drain liquidity beginning Tuesday.

 

GOVERNMENT BONDS

On Tuesday, government bond prices may take cues from the results of the state bond auction at 1030-1130 IST, dealers said. The overnight movement in US Treasury yields may also impact prices at the open.

 

The smaller-than-expected state bond borrowing calendar for Oct-Dec could continue to push up prices on longer-tenure bonds, dealers said. However, with expectations of a steepening in the yield curve due to rate-cut bets, more traders may prefer shorter-tenure bonds, dealers said. 

 

Traders expect gilts to continue to rise after the RBI's Monetary Policy Committee seemed to open the door for a rate cut in the future. The 10-year benchmark gilt yield is seen falling up to 6.40-6.45% levels, but traders will wait for the auction and the CPI inflation for September as the next trigger to take further cues, dealers said. 

 

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.47-6.55% on Tuesday. On Monday, the 2035 bond ended at INR 98.67 or 6.52% yield. 

 

OIS RATES

On Tuesday, swap rates may take cues from the movement of US Treasury yields at open, especially if they rise further. Traders may continue receiving fixed rates and ramp up bets of one or more rate cuts in December and beyond after the MPC signalled that low inflation had opened space for policy easing, dealers said.

 

On the global front, traders may track developments in the US after the government partially shut down last week. The one-year swap rate is seen in the range of 5.40-5.50% and the five-year contract at 5.62-5.73%. On Monday, the one-year swap rate ended at 5.42% and the five-year swap rate ended at 5.66%. 

 

CALL

The one-day call rate may open below the RBI's repo rate due to a significant liquidity surplus, especially with the central bank avoiding the announcement of a VRRR operation to drain short-term liquidity. During the day, the one-day call money rate is seen in the range of 4.75-5.45%, dealers said. On Monday, the one-day call rate ended at 5.00%.

 

RBI AUCTION

--Five states to raise INR 94.10 billion via bonds

 

LIQUIDITY

Total net inflows of INR 75.36 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 23.32 billion as coupon on state bonds

--INR 15.00 billion as redemption of state bonds

--INR 37.04 billion as coupon on 6.45%, 2029 gilt

 

* Outflows

--Nil

 

End

 

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

 

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

 

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