India Money Market Outlook
GIlts may take cues from US ylds before auction
This story was originally published at 22:48 IST on 30 October 2025
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NEW DELHI – Government bond prices and overnight indexed swap rates may take cues from the overnight movement in the US Treasury yields at the market open Friday tracking policymakers' comments, dealers said. In the latter half of the day, gilt prices may take direction from the result of the INR-320-billion weekly gilt auction.
US yields have risen sharply as US Federal Reserve Chair Jerome Powell pushed back against market expectation of another rate reduction in December at the post-policy press conference. He said rates were closer to neutral after the FOMC's 50 bps of policy easing since September and that lack of concrete data during the partial government shutdown in the US may lead to caution from policymakers on further action. Fed fund futures are now pricing in a 69% chance of a 25-bps cut in December, from 91% a day ago, according to the CME FedWatch tool.
Progress 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 in the rupee against the dollar and crude oil prices may also lend cues, dealers said.
On Friday, the three-day call money rate may open above the Reserve Bank of India'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 Friday, government bond prices may take cues from overnight movement of US yields at the open ahead of the weekly gilt auction, dealers said.
The government will sell INR 90 billion of the 5.91%, 2028 bond, INR 110 billion of 6.28%, 2032 bond, INR 70 billion of the 7.24%, 2055 bond and INR 50 billion of the 6.98%, 2054 green bond at 1030-1130 IST Friday. Demand for bonds is expected to be modest, with banks looking to cut down on additional statutory liquidity ratio securities amid tight liquidity and firm credit demand. Long-term investors such as life insurers are expected to mop-up the supply of the 30-year bonds after the sharp rise in their yields Thursday, dealers said.
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 6.52-6.62%. The 6.48%, 2035 bond is seen moving in a range of 6.45-6.52%. On Thursday, the 6.33%, 2035 bond ended at INR 98.30 or 6.57% yield. The 6.48%, 2035 bond ended at INR 99.92 or 6.49% yield.
OIS RATES
On Friday, swap rates may track movement in US Treasury yields after comments from US Federal Reserve Vice Chair Michelle Bowman. Any sharp movement in government bond yields could also lend cues to swaps, dealers said. Traders will also track developments in 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%. On Thursday, the one-year swap rate ended at 5.48% and the five-year swap rate ended at 5.69%.
CALL
On Friday, the three-day call money rate may open above the RBI's repo rate owing to tight systemic liquidity, dealers said. Rates may trend towards the marginal standing facility rate as the central bank has not announced a variable rate auction on the reporting Friday. The reversal of the overnight variable rate repo auction held Wednesday will drain INR 1.00 trillion of liquidity.
During the day, the rate is seen in a range of 4.90-5.70%, dealers said. Thursday, the one-day call rate ended at 5.45%.
RBI AUCTION
--Govt to sell four gilts worth INR 320 billion at 1030-1130 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 12.37 billion as coupon on state bonds
--INR 67.00 billion as redemption of 182-day Treasury bill
* Outflows
--INR 1.00 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 Akul Nishant Akhoury
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