India Money Market Outlook
Gilts may take cues from US yields Thu post FOMC
This story was originally published at 22:22 IST on 29 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 open Thursday. US yields may move sharply after the outcome of the US Federal Open Market Committee's two-day meeting at 2330 IST Wednesday.
The US rate-setting panel is widely expected to cut its policy rate by 25 basis points due to recent weakness in the labour market. 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 Committee 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 after US President Donald Trump Wednesday said he would do a great trade deal with India. The movement of the rupee against the dollar and crude oil prices may also lend cues, dealers said.
On Thursday, 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 a range of 4.90-5.70%, dealers said.
GOVERNMENT BONDS
On Thursday, government bond prices may take cues from overnight movement of US yields at the open, dealers said. The offshore cue may assume importance after the US FOMC outcome.
Tightening liquidity conditions and uncertainty about a domestic rate cut may keep bond prices in check. Some traders expect the RBI to announce open market operations to buy gilts in order to infuse durable liquidity into the banking system, which would drive up gilt prices sharply, dealers said.
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%. Wednesday, 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 Thursday, swap rates may also track the movement of US Treasury yields after the US Federal Reserve's monetary policy decision late Wednesday. The FOMC is expected to cut rates by 25 bps. 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%. Wednesday, the one-year swap rate ended at 5.47% and the five-year swap rate ended at 5.66%.
CALL
On Thursday, 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 1.00 trillion at 0930-1000 IST. The reversal of the overnight variable rate repo auction held Wednesday will drain INR 585.12 billion of liquidity.
During the day, the rate is seen in a range of 4.90-5.70%, dealers said. Wednesday, the one-day call rate ended at 5.40%.
RBI AUCTION
--RBI to hold overnight variable rate repo auction for INR 1.00 trillion 0930-1000 IST
LIQUIDITY
Total net outflows of INR 55.24 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 8.71 billion as coupon on state bonds
--INR 262.50 billion as redemption of 91-day Treasury bill
--INR 66.80 billion as redemption of 364-day T-bill
* Outflows
--INR 260.00 billion as payment for 91-day T-bill
--INR 66.00 billion as payment for 182-day T-bill
--INR 67.25 billion as payment for 364-day T-bill
--INR 585.12 billion 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 Ashish Shirke
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