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Informist, Friday, Oct. 10, 2025

MUMBAI – Government bond prices are expected to rise Monday after the Reserve Bank of India announced a smaller-than-indicated quantum of state bond auction for Tuesday, dealers said. Both gilts and overnight indexed swap rates may also take further cues on India's rate trajectory from the release of India's CPI inflation data for September, due at 1600 IST Monday, they said.

CPI inflation in India likely fell to 1.5% in September, the lowest since June 2017, largely because of the statistical effect of a high base and lower food prices, according to an Informist poll of 15 economists.

In a release after market hours Friday, the RBI said eight states will raise INR 128 billion through bonds Tuesday. According to the indicative calendar for state bond issuance in Oct-Mar, states were to raise INR 291 billion next week.

On the global front, traders may track developments in the US after the government partially shut down last week. Traders may take cues from geopolitical developments, especially on India-US trade talks. Gilts and swaps may also track the movement of the rupee against the dollar and crude oil prices. 

The one-day call rate may open near the Reserve Bank of India's repo rate Monday owing to demand for funds from banks amid the investments in initial public offerings.

GOVERNMENT BONDS

Money markets are shut Saturday. On Monday, government bonds may open higher after the size of the state bond auction next week turned out to be smaller than indicated, dealers said.

Traders are also looking ahead to the release of India's CPI data next week. A low reading was already priced into gilts. Geopolitical developments, rupee and crude oil price movements, as well as movements in US Treasury yields may influence gilts Monday. The impact of these offshore triggers may be limited before the auction and with traders' focus on domestic monetary policy easing, dealers said. 

The rate-setting panel last week said there was room to ease monetary policy further to support growth. The 2035 bond yield is seen falling up to 6.40% before the next policy review in December, but bouts of profit-taking have erased gains as traders await fresh economic data, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.46-6.55%. On Friday, the 2035 bond ended at INR 98.54 or 6.54% yield. 

OIS RATES

Swaps are not traded on Saturdays. On Monday, swap rates may take cues from the movement in US Treasury yields. Traders will also watch out for the CPI inflation print, due at 1600 IST on Monday, for further cues on rates, dealers said. CPI inflation in India likely fell to 1.5% in September, the lowest since June 2017, according to an Informist poll. 

Any sharp movement in gilt yields could also lend cues to OIS rates, they said. Any movement in overnight money market rates will also lend cues to swaps, dealers said. Traders will watch out for any further fine-tuning of liquidity operations by the RBI, dealers said. 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.

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 Friday, the one-year swap rate ended at 5.44% and the five-year swap rate ended at 5.66%. 

CALL

The one-day call rate may open near the RBI's repo rate Monday owing to demand for funds from banks amid the investments in initial public offerings. During the day, the one-day call money rate is seen in the range of 4.90-5.75%, dealers said. On Friday, the three-day call rate ended at 5.00%.

RBI AUCTION

--Nil

LIQUIDITY

Total net outflows of INR 196.41 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 7.36 billion as coupon on state bonds on Saturday

--INR 8.79 billion as coupon on state bonds on Sunday

--INR 19.05 billion as coupon on state bonds on Monday

--INR 26.31 billion as coupon on 5.63%, 2026 gilt on Monday

--INR 22.08 billion as coupon on 6.90%, 2065 gilt on Monday

* Inflows

--INR 280.00 billion as payment for gilts on Monday

--INR 379.29 billion on reversal of variable rate repo tender on Monday

End

Reported by Vaishali Tyagi

Edited by Tanima Banerjee

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