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Informist, Thursday, Oct. 16, 2025

MUMBAI – Government bond prices will track the result of the weekly gilt auction Friday. The overnight movement of US Treasury yields and the rupee's movement against the dollar will also provide cues for gilts and overnight indexed swap rates. Geopolitical developments, especially those related to the India-US trade deal, will also be closely tracked. The movement of crude oil prices may also lend direction.

On the global front, traders may track developments in the US after the government partially shut down in early October. The New York Times reported that the US CPI data for September may be released during the week, despite the shutdown. 

On Friday, the three-day call rate may open near the RBI's repo rate owing to demand for funds from primary dealerships in early trade ahead of the weekly gilt auction, especially due to a likely liquidity drain from the settlement of the RBI's intervention in the foreign exchange market Wednesday, dealers said. Later in the day, rates may ease due to the RBI's 3-day VRR auction.

Traders will track subscriptions at initial public offerings of companies after money market rates shot up last week due to funds locked up in IPOs, dealers said. During the day, the three-day call money rate is seen in the range of 4.90-5.70%, dealers said.

GOVERNMENT BONDS

Friday, government bonds may open steady ahead of the weekly gilt auction. Bond prices will track the results of the auction later in the day. eopolitical developments, especially developments on an India-US trade deal, will also be closely tracked. Any announcement of a deal will be positive for gilts in the short term as it is likely to lead to an appreciation of the rupee against the dollar. But in the longer run, traders will unwind bets of a rate cut and bond prices could slump, dealers said.   

The 10-year benchmark bond yield is seen falling to 6.40% before the next policy review in December, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond on the day is seen at 6.45-6.55%. On Thursday, the 6.33%, 2035 bond ended at INR 98.80 or 6.50% yield. The newly-issued 6.48%, 2035 bond ended at INR 100.29, or 6.44% yield.

OIS RATES

On Friday, OIS rates may take cues from the overnight movement in US Treasury yields. With the minutes of the MPC's Sept. 29-Oct. 1 seen weakening the case for a February rate cut, traders do not expect a sharp movement in OIS rates based on domestic cues in the near term, dealers said. Traders are likely to retain their rate cut bets for December after CPI inflation fell to an over-eight-year low of 1.54% in September. 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 MPC to ease rates further, though a December rate cut is fully priced into the one-year swap rate for the past several weeks and will not move swap rates lower, dealers said.

The one-year swap rate is seen in the range of 5.38-5.48% and the five-year contract at 5.55-5.66%. On Thursday, the one-year swap rate ended at 5.43% and the five-year swap rate ended at 5.63%.

CALL

On Friday, the three-day call rate may open near the RBI's repo rate owing to demand for funds from primary dealerships in early trade ahead of the weekly gilt auction, especially due to a likely liquidity drain from the settlement of the RBI's intervention in the foreign exchange market Wednesday, dealers said. Later in the day, rates may ease due to the RBI's 3-day VRR auction. Traders will track subscriptions at initial public offerings of companies after money market rates shot up last week due to funds locked up in IPOs, dealers said.

During the day, the three-day call money rate is seen in the range of 4.90-5.70%, dealers said. On Thursday, the one-day call rate ended at 5.35%.

RBI AUCTION

--Govt to auction two gilts worth INR 300 billion

--RBI to hold three-day variable rate repo auction for INR 500 billion 0930-1000 IST

LIQUIDITY

Total net inflows of INR 10.82 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 10.82 billion as coupon on state bonds

--INR 162.85 billion as redemption of two-day variable rate reverse repo tender

* Outflows

--Nil

End

Reported by Cassandra Carvalho

Edited by Saji George Titus

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