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Informist, Friday, Oct. 17, 2025

MUMBAI – On Saturday, the two-day call rate may open near the Reserve Bank of India's repo rate owing to demand for funds as goods and services tax payment outflows are likely to drain system liquidity, dealers said. During the day, the two-day call money rate is seen in the range of 4.90-5.70%, dealers said.

On Monday, the RBI will conduct a four-day variable rate repo auction for INR 1.75 trillion at 0930-1000 IST. Reversal of the three-day variable rate repo auction of INR 27.50 billion is due Monday. On Friday, the three-day call rate ended at 5.50%.

Government bonds and overnight indexed swap rates are not traded on Saturdays. 

GOVERNMENT BONDS

Gilts are not traded Saturdays. On Monday, government bonds may track the overnight movement of US Treasury yields and the movement of the rupee against the dollar at market open. Later in the day, bonds may also track the result of the INR-170-billion state bond auction and the INR-190-billion switch auction. The state bond auction size is slightly higher than the indicated size of INR 167.50 billion, but due to the relatively small size of the auction--compared to above INR-300-billion sizes seen in Jul-Sept--it may sail through, some dealers said. However, participation from long-term investors will determine the result of the auction, dealers said. As for the switch auction, several dealers expect the auction to be fully subscribed due to its small size and as many traders have stock of the source securities.

Trade volumes may be low next week as some traders may be on leave for Diwali. RBI-administered markets are shut Tuesday and Wednesday for Diwali. The RBI will not conduct the weekly gilt auction next week. With lack of fresh gilt supply to prepare for next week, traders will largely track the movement of US Treasury yields and offshore triggers ahead of the US Federal Open Market Committee's meeting this month, due to lack of domestic triggers, dealers said. The FOMC is largely expected to cut rates by 25 bps this month. Some expect bond yields to fall by 5-7 basis points if the 10-year US yield falls to 3.80%. On Oct. 24, the US Bureau of Labor Statistics will release US CPI data for September, inspite of a partial government shutdown, it said.      

If US yields continue to fall, foreign portfilio investors will purchase gilts. In its investment outlook for Oct-Dec, Singapore-headquartered DBS Bank said Monday that current yields on Indian government bonds make these securities attractive to purchase. However, the bank's senior investment strategist said that Indian government bonds are facing competition from US Treasury notes, with the 10-year US Treasury note currently offering a yield of around 4%, up from 1-2% earlier.

Geopolitical developments, especially developments on an India-US trade deal, will also be closely tracked. If a trade deal is announced, the appreciation of the rupee against the dollar will be positive for gilts in the short term, but in the longer run, traders will unwind bets of a rate cut and bond prices could slump, dealers said.   

Crude oil price movements may also influence the movement of gilts. 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 6.47-6.57%. 

On Friday, the 6.33%, 2035 bond ended at INR 98.71 or 6.51% yield. The newly-issued 6.48%, 2035 bond ended at INR 100.24, or 6.45% yield.

OIS RATES

OIS rates are not traded on Saturdays. On Monday, OIS rates may take cues from the movement in US Treasury yields. The movement in swap rates may be limited in a truncated week, with RBI-administered markets shut on Tuesday and Wednesday for Diwali, dealers said.

With minutes of the Monetary Policy Committee's Sept. 29-Oct. 1 meeting 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 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 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.

On the global front, traders may track developments in the US after the government partially shut down in early October. Traders may take cues from further geopolitical developments, especially on India-US trade talks.

Swaps may also track the movement of the rupee against the dollar and of crude oil prices. 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 Friday, the one-year swap rate ended at 5.44% and the five-year swap rate ended at 5.62%.

RBI AUCTION

--Nil

LIQUIDITY

Total net inflows of INR 65.48 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 14.40 billion as coupon on state bonds

--INR 14.15 billion as coupon on 6.99%, 2026 gilt 

--INR 36.93 billion as coupon on 7.17%, 2030 gilt

* Outflows

--Nil

End

Reported by Cassandra Carvalho

Edited by Avishek Dutta

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