India Money Market Outlook
Gilts, swaps may take cues from US yields Wed
This story was originally published at 22:08 IST on 28 October 2025
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NEW DELHI – Government bond prices and overnight indexed swap rates may take cues from the overnight movement of US Treasury yields at the market opening Wednesday. US yields are being closely tracked ahead of the US Federal Open Market Committee's rate decision at 2330 IST Wednesday.
The US rate-setting panel is universally expected to cut its policy rate by 25 basis points due to the recent labour market weakness. Expectations of a deeper rate-cut cycle in the US may aid bets for a December rate cut by the Reserve Bank of India's Monetary Policy Committtee and push up gilt prices while pulling down swap rates, dealers said.
Developments in trade talks between India and the US are being closely watched for rate cues, with a deal struck before the December meeting of the Monetary Policy Committee seen weakening the case for rate cuts in India. Traders remain uncertain of further rate cuts in India as the trade talks progress. The movement of the rupee against the dollar and crude oil prices may also lend cues, dealers said.
Wednesday, the one-day call money rate may open near the RBI's repo rate of 5.50% owing to tight systemic liquidity, dealers said. During the day, the rate is seen in the range of 4.90-5.70%, dealers said.
GOVERNMENT BONDS
At the market opening on Wednesday, government bond prices may take cues from overnight movements in US yields, dealers said. The offshore cue may assume importance ahead of the FOMC outcome at 2330 IST Wednesday.
Tightening liquidity conditions and uncertainty about a domestic rate cut may drive up cut-off yields on Treasury bills at Wednesday's auction. The government will sell INR 190 billion of 91-day, 182-day, and 364-day T-bills in total Wednesday.
The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.48-6.58%. The 6.48%, 2035 bond is seen moving in a range of 6.43-6.50%. Tuesday, the 6.33%, 2035 bond ended at INR 98.56 or 6.54% yield. The 6.48%, 2035 bond ended at INR 100.09 or 6.47% yield.
OIS RATES
On Wednesday, swap rates may also track the movement of US Treasury yields. Investors await the US Federal Reserve's monetary policy decision late Wednesday. Traders will also track developments in the India-US trade talks.
No immediate data release that may have a significant impact on swap rates is scheduled on the domestic front, dealers said. The one-year swap rate is seen in the range of 5.38-5.52% and the five-year contract at 5.55-5.74%. Tuesday, the one-year swap rate ended at 5.47% and the five-year swap rate ended at 5.66%.
CALL
On Wednesday, the one-day call money rate may open near the RBI's repo rate owing to tight systemic liquidity, dealers said. Money market rates could ease after the RBI conducts a variable rate repo auction of INR 1.50 trillion at 0930-1000 IST. The reversal of the overnight variable rate repo auction held Tuedsay will drain INR 1.26 trillion of liquidity.
During the day, the rate is seen in a range of 4.90-5.70%, dealers said. Tuesday, the one-day call rate ended at 5.55%.
RBI AUCTION
--RBI to hold overnight variable rate repo auction for INR 1.50 trillion 0930-1000 IST
--RBI to auction 91-day T-bills worth INR 70 billion at 1030-1130 IST
--RBI to auction 182-day T-bills worth INR 60 billion at 1030-1130 IST
--RBI to auction 364-day T-bills worth INR 60 billion at 1030-1130 IST
LIQUIDITY
Total net outflows of INR 128.13 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 19.76 billion as coupon on state bonds
--INR 17.92 billion as coupon on 7.33%, 2026 gilt
--INR 12.19 billion as coupon on floating rate bond 2034
* Outflows
--INR 178.00 billion as payment for state bonds
--INR 1.26 trillion as reversal of overnight variable rate repo tender
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Aaryan Khanna
Edited by Rajeev Pai
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