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Informist, Saturday, Oct. 18, 2025

MUMBAI – On Monday, government bond prices and overnight indexed swap rates may track the movement of US Treasury yields and the rupee against the dollar when the markets open, dealers said. The movement in gilts and swap rates may be limited and trade volumes may be low in a truncated week, with markets administered by the Reserve Bank of India shut on Tuesday and Wednesday for Diwali, dealers said.

On the domestic front, 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 Monetary Policy Committee 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.

Geopolitical developments, especially those about India-US trade deal, will also be closely tracked due to lack of domestic triggers. 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, dealers said. The FOMC is largely expected to cut rates by 25 bps this month. Traders may track developments in the US after the government partially shut down in early October. On Oct. 24, the US Bureau of Labor Statistics will release US CPI data for September, despite of the partial government shutdown, it said. Gilts and swaps may also track the movement of crude oil prices.

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

On Monday, the three-day call money rate may open near the Reserve Bank of India's repo rate due to demand for funds as goods and services tax payment outflows are likely to drain system liquidity, dealers said. RBI-administered markets are shut on Tuesday and Wednesday for Diwali. During the day, the three-day call money rate is seen in the range of 4.90-5.70%, dealers said.

GOVERNMENT BONDS

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 over INR 300-billion 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 sail through due to its small size and since many traders have stock of the source securities.

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. Some expect bond yields to fall by 5-7 basis points if the 10-year US yield falls to 3.80%.

If US yields continue to fall, foreign portfolio investors will continue to purchase gilts. In its investment outlook for Oct-Dec, Singapore-headquartered DBS Bank said 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.

If a US-India 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.

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

On Monday, OIS rates may take cues from the movement of US Treasury yields. 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. The one-year swap rate is seen in the range of 5.38-5.48% and 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%.

CALL

On Monday, the three-day call money rate may open near the RBI's repo rate owing to demand for funds as goods and services tax payment outflows are likely to drain system liquidity, dealers said. RBI-administered markets are shut on Tuesday and Wednesday for Diwali. During the day, the three-day call money rate is seen in the range of 4.90-5.70%, dealers said. On Saturday, the two-day call rate ended at 5.24%.

RBI AUCTION

--Five states to raise INR 170 billion via bond sale on Monday

--Govt to switch five gilts worth INR 190 billion with five other bonds via auction Monday

--RBI to hold four-day variable rate repo auction for INR 1.75 trillion 0930-1000 IST Monday 

LIQUIDITY

Total net outflows of INR 150.51 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 1.21 billion as coupon on state bonds on Sunday

--INR 56.30 billion as coupon on 7.10%, 2029 gilt on Sunday

--INR 4.26 billion as coupon on state bonds on Monday

--INR 87.71 billion as coupon on 7.34%, 2064 gilt on Monday

* Outflows

--INR 300.00 billion as payment for gilts on Monday

--INR 27.50 billion as reversal of three-day variable rate repo tender on Monday

End

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

Reported by Cassandra Carvalho

Edited by Ashish Shirke

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