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Informist, Wednesday, Nov. 12, 2025

NEW DELHI – Government bond prices may open steady Thursday after October CPI inflation was in line with expectations, dealers said. Further net purchases by the "Others" category could continue to stoke hopes of the Reserve Bank of India buying bonds in the secondary market at a consistent pace for the first time since January.

Net secondary market purchases from the "Others" segment, which includes the RBI, totalled over INR 300 billion in the week to Monday. "Others" were not the top net buyers Wednesday for the first time since that period began, though they net bought INR 13.8 billion in the secondary market Wednesday. Bonds maturing in up to 15 years are seen as the target of these purchases and will be preferred by traders, dealers said.

Overnight indexed swap rates may track the movement in US Treasury yields and gilt yields during the day after the CPI data failed to significantly change rate-cut bets. Some traders expect swaps to open higher as traders who were expecting deflation are likely to unwind their received fixed rate positions. Gilt prices and swap rates may also track crude oil prices and movements in the rupee. 

The one-day call money rate may open below the RBI's repo rate because of low demand for funds as the liquidity is in a comfortable surplus with no significant outflows, dealers said. Some traders expect the RBI to announce a variable rate reverse repo operation to prop up money market rates to near the repo rate of 5.50%.

GOVERNMENT BONDS

On Thursday, government bond prices may open steady amid a lack of fresh domestic cues. CPI inflation for October was in line with expectations and is unlikely to lead to any further market movement, dealers said. While several traders expect a rate cut at the upcoming monetary policy review in December, some said the RBI's rate-setting panel may hold off on a cut if GDP growth remains robust, as the inflation trajectory is expected to rise in the next few months.

Further net purchases by the "Others" category could continue to stoke hopes of the RBI buying bonds in the secondary market at a consistent pace for the first time since January. Net secondary market purchases from the "Others" segment, which includes the RBI, totalled over INR 300 billion in the week to Monday. "Others" were not the top net buyers Wednesday for the first time since that period began, though they net bought INR 13.8 billion in the secondary market Wednesday. Bonds maturing in up to 15 years are seen as the target of these purchases and will be preferred by traders, dealers said.

Traders continue to expect the RBI to conduct auctions to buy gilts in December, or in the March quarter, to infuse durable liquidity into the system. The fear of additional bond supply from the Centre and the states has receded amid muted borrowing from both entities since the beginning of October, dealers said. These expectations may be revisited after the Union Cabinet, after market hours Wednesday, approved packages worth INR 451 billion to protect exporters from the impact of US tariffs. 

Developments following the blast in Delhi may also be tracked after the Cabinet termed it an act of terrorism. A security concern in the national capital or a strong response by the government may keep traders on tenterhooks, especially after the skirmish between Indian and Pakistan armed forces following a terrorist attack earlier this year, dealers said.

Some traders also expect the announcement of an India-US trade deal as soon as this week, which may dent bond prices in two ways, they said. An expected reduction in the 50% US tariff on India's exports would increase the growth outlook and weaken the case for a rate cut. At the same time, the rupee might rebound against the dollar, prompting the RBI to buy the greenback to shore up its foreign exchange reserves. The infusion of rupee liquidity this will cause may weaken the case for OMO purchases in December, dealers said.

Movement in US Treasury yields, crude oil prices, and the rupee may also influence gilts. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.44-6.51% Thursday against 6.46% Wednesday. The yield on the 6.33%, 2035 bond is seen at 6.46-6.54%, from 6.50% Wednesday.

OIS RATES

On Thursday, swap rates are likely to track gilt and US Treasury yields at the market opening, dealers said. Some traders expect swaps to open higher as traders digest the CPI inflation print. Those who were expecting deflation are likely to unwind their "over-received" positions.

CPI inflation data for October failed to increase bets of a rate cut in December. The next major data cue will be the Jul-Sept GDP data, due Nov. 28, for cues on the possibility of rate cuts by the RBI's Monetary Policy Committee, dealers said.

Traders will also track systemic liquidity and the overnight Mumbai Interbank Offered Rate, dealers said. Traders will also track developments in India-US trade talks and developments on the blast in Delhi on Monday. Swaps may also track the rupee's movement against the dollar and crude oil prices.

The one-year swap rate is seen in the range of 5.40-5.55% and the five-year contract is seen at 5.65-5.80%. On Wednesday, the one-year rate ended at 5.46% and the five-year rate ended at 5.71%.

CALL

On Thursday, the one-day call money rate may open below the RBI's repo rate as liquidity is in a comfortable surplus with no significant outflows, dealers said. Some traders expect the RBI to announce a VRRR operation to prop up money market rates to near the repo rate of 5.50%.

During the day, the call money rate is seen in the range of 4.80-5.50%, dealers said. Activity by banks and mutual funds in initial public offerings may lead to volatility in money-market rates, dealers said.

RBI AUCTION

--Nil

LIQUIDITY

Total net inflows of INR 240.27 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 15.06 billion as coupon on state bonds

--INR 198.00 billion as redemption of state bonds

--INR 25.62 billion as coupon on 7.32%, 2030 gilt

--INR 1.81 billion as coupon on 7.25%, 2028 gilt

--INR 150.00 billion as redemption of 91-day Treasury bill

--INR 60.00 billion as redemption of 182-day T-bill

--INR 62.67 billion as redemption of 364-day T-bill

* Outflows

--INR 125.00 billion as payment for 91-day T-bill

--INR 70.00 billion as payment for 182-day T-bill

--INR 77.89 billion as payment for 364-day T-bill

End

Reported by Aaryan Khanna

Edited by Rajeev Pai

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