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Informist, Tuesday, Oct. 7, 2025

 

MUMBAI – Government bond prices and overnight indexed swap rates may take cues from the overnight movement in US Treasury yields at open on Wednesday, dealers said. The movement in gilts across tenures may be divergent due to different supply pressures, they said.

    

On the global front, traders may track developments in the US after the government remained partially shut down since last week. Traders may take cues from any developments regarding US tariffs on Indian goods. Bonds and swap rates may also track the movement of crude oil prices and that of the rupee against the dollar, dealers said. 

 

On Wednesday, the one-day call rate may open below the Reserve Bank of India's repo rate due to a significant liquidity surplus in the banking system, especially with the central bank avoiding the announcement of any variable rate reverse repo operations to drain short-term liquidity.

 

GOVERNMENT BONDS

On Wednesday, government bond prices may take cues from the overnight movement in US Treasury yields.

 

While some dealers said the smaller-than-expected state bond borrowing in Oct-Dec could continue to push up prices of longer-tenure bonds, others said the INR 280 billion auction of the 15-year and 40-year benchmark gilts on Friday could limit their rise. Expectations of a steepening in the yield curve due to rate cut bets could lead some traders to buy shorter tenure bonds, dealers said.

 

Traders expect gilts to continue to rise after the Monetary Policy Committee opened the door to the possibility of a rate cut in the future. The 2035 bond yield is seen falling up to 6.40-6.45% levels, but traders will wait for the gilt auction scheduled Friday and the CPI inflation data for September next week for further cues, dealers said.

 

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.45-6.60% on Wednesday. On Tuesday, the 2035 bond ended at INR 98.73 ,or 6.51% yield. 

 

OIS RATES

On Wednesday, 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 Monetary Policy Committee signalled that low inflation had opened space for policy easing, dealers said.

 

Swaps may also track the movement of the rupee against the dollar, and that of crude oil prices. 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 Tuesday, the one-year swap rate ended at 5.41% and the five-year swap rate ended at 5.64%.

 

CALL

The one-day call rate may open below the RBI's repo rate due to a significant liquidity surplus in the banking system, especially with the central bank avoiding the announcement of any VRRR operations 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 Tuesday, the one-day call rate ended at 5.00%.

 

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 70 billion on Wednesday

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

--RBI to auction 364-day T-bills worth INR 60 billion on Wednesday

 

LIQUIDITY

Total net outflows of INR 68.52 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 11.24 billion as coupon on state bonds

--INR 14.34 billion as coupon on 7.27%, 2026 gilt

 

* Outflows

--INR 94.10 billion as payment for state bonds

End

 

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

 

Reported by Srijita Bose

Edited by Tanima Banerjee

 

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