India Money Market Outlook
Gilts, swaps to Tuesday track movement of US ylds
This story was originally published at 21:39 IST on 13 October 2025
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MUMBAI – Government bond prices and overnight indexed swap rates will track the overnight movement of US Treasury yields when the markets open Tuesday. Gilts may track the result of the state bond auction later in the day.
On the global front, traders may track developments in the US after the government's partial shutdown. 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.
On Tuesday, the one-day call rate may open at the Reserve Bank of India's repo rate owing to demand for funds from banks amid demand for cash for subscribing to initial public offerings of companies.
GOVERNMENT BONDS
On Tuesday, government bonds may take cues from the overnight movement of US Treasury yields. Long-term bonds may open higher due to the small size of the state bond auction. Later in the day, bond prices will track the result of the INR-128-billion auction. According to the indicative calendar for state bond issuance in Oct-Mar, states were to raise INR 291 billion Tuesday.
Traders will take positions ahead of the minutes of the Monetary Policy Committee's meeting held in October. The minutes are due Wednesday. Later in the week, traders will realign portfolios ahead of the weekly gilt auction Friday. Post-market hours, the RBI said the government will sell INR 180 billion of the 6.01%, 2030 bond and INR 120 billion of the 7.09%, 2074 bond on Friday.
Geopolitical developments, movement of the rupee against the dollar and crude oil price may influence gilts Tuesday. The impact of these offshore triggers may be limited, with traders' focus on domestic monetary policy easing, dealers said.
The rate-setting panel had said there is 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, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.46-6.55%. On Monday, the 6.33%, 2035 bond ended at INR 98.66 or 6.52% yield.
OIS RATES
Tuesday, swap rates may take cues from the movement of US Treasury yields in early Asian trade. 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.
These bets got a fillip after September CPI inflation fell to an over-eight-year low of 1.54% from 2.07% in August. Economists project October CPI inflation at less than 1%, the lowest in the current series with 2012 as the base year. This is likely to put pressure on the Monetary Policy Committee to ease rates further, though a December rate cut is fully priced in to the one-year swap rate for the past several weeks, 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 Monday, the one-year swap rate ended at 5.43% and the five-year swap rate ended at 5.64%.
CALL
On Tuesday, the one-day call rate may open at the RBI's repo rate owing to demand for funds from banks amid demand for cash for subscribing to initial public offerings of companies. During the day, the one-day call money rate is seen in the range of 4.90-5.75%, dealers said. On Monday, the one-day call rate ended at 5.50%.
RBI AUCTION
--Eight states to raise INR 128 billion via bond sale
LIQUIDITY
Total net inflows of INR 210.49 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 5.07 billion as coupon on state bonds
--INR 163.12 billion as redemption of state bonds
--INR 42.30 billion as coupon on 7.23%, 2039 gilt
* Outflows
--Nil
End
Reported by Cassandra Carvalho
Edited by Ashish Shirke
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