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Informist, Monday, Oct. 20, 2025

NEW DELHI – Money markets will remain shut on Tuesday and Wednesday for Diwali. On Thursday, government bonds and overnight indexed swap rates may open steady and trade volumes may be thin during the truncated week, with several traders on leave around the festival, dealers said.

Traders may closely track the movement in US Treasury yields and geopolitical developments amid a lack of domestic cues this week, dealers said. There is no weekly gilt auction on Friday, as is tradition during the Diwali week. 

On Thursday, the one-day call money rate may open near the Reserve Bank of India's repo rate due to demand for funds owing to tight systemic liquidity after goods and tax-related outflows, dealers said. Some banks may also be in need of funds due to lending uptake during the festival season.

GOVERNMENT BONDS

Trade volume may be low Thursday as some traders may be on leave around the festival season, and there are no significant triggers this week, dealers said. As is the tradition, the government has not offered to sell any gilts this week.

Traders will largely track the movement of US Treasury yields and offshore triggers ahead of the US Federal Open Market Committee's meeting next week due to lack of domestic triggers, dealers said. The FOMC is largely expected to cut rates by 25 bps this month. The US Bureau of Labor Statistics said it will release US CPI data for September on Friday, despite a partial government shutdown. FPIs are also likely to continue picking up gilts as US monetary policy is seen easing and US yields have fallen, dealers said. 

Geopolitical developments, especially developments on 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.

Movement of crude oil price may also influence 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 is seen at 6.47-6.57%. On Monday, the 6.33%, 2035 bond ended at INR 98.78 or 6.50% yield. The newly-issued 6.48%, 2035 bond ended at INR 100.29, or 6.44% yield.

OIS RATES

On Thursday, OIS rates may open steady. Traders may focus on the movement in US yields before the US FOMC meeting next week for direction due a lack of domestic cues, 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 the partial government shutdown, it 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. Swaps may also track the movement 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 Monday, the one-year swap rate ended at 5.42% and the five-year swap rate ended at 5.61%.

CALL

On Thursday, the one-day call money rate may open near the RBI's repo rate owing to tight systemic liquidity after GST-related outflows, dealers said. During the day, the one-day call money rate is seen in the range of 4.90-5.70%, dealers said. On Monday, the three-day call rate ended at 5.62%.

On Thursday, the RBI will conduct an overnight variable rate repo auction of INR 500 billion at 0930-1000 IST. The reversal of a VRR auction held Monday will drain INR 120 billion from liquidity.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 70 billion

--RBI to auction 182-day T-bills worth INR 60 billion

--RBI to auction 364-day T-bills worth INR 60 billion

LIQUIDITY

Total net inflows of INR 167.57 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 3.04 billion as coupon on state bonds Tuesday

--INR 15.96 billion as coupon on state bonds Wednesday

--INR 26.16 billion as coupon on 7.37%, 2028 gilt Wednesday

--INR 141.00 billion as redemption of 91-day Treasury bills Thursday

--INR 88.00 billion as redemption of 182-day T-bills Thursday

--INR 63.41 billion as redemption of 364-day T-bills Thursday

* Outflows

--INR 170.00 billion as payment for state bonds on Thursday

--INR 120.00 billion as reversal of three-day variable rate repo tender Thursday

End

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

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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