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Informist, Saturday, Nov. 29, 2025

MUMBAI – Government bond prices and overnight index swap rates are likely to inch higher Monday ahead of the three-day meeting of the Reserve Bank of India's Monetary Policy Committee starting Wednesday. Traders will monitor global cues, especially from the US, as markets reopen after Thanksgiving weekend, and the lack of an India-US trade deal may boost bets of a rate cut next week. The absence of a India-US trade deal, and continued high US tariffs on Indian exports, may prompt the RBI to ease monetary policy. Traders expect clarity on the trade deal by the end of the month. Bond traders will also actively track the rupee's movement against the dollar.

Traders have mixed views about the levels at which the market will open Monday. Some expect bond prices to fall further as traders digest the September quarter GDP print, which was released near the end of trade Friday. However, any consequential rise in the 10-year 6.33%, 2035 bond yield is seen capped at 6.55-6.56%. Some other traders expect bond prices to open higher, since the fall in prices Friday was too sharp. Going into the monetary policy decision at the end of next week, bond prices may rise on optimism of a rate cut, especially since nominal GDP is lower than the budgeted estimate, dealers said. The nominal GDP print was 8.7% for the September quarter against the Budget Estimate of 10.1% for 2025-26 (Apr-Mar). The nominal GDP print for the Apr-Sept was 8.8%, which is also below the estimate for FY26.

Swap rates may inch higher Monday as traders position for the MPC meeting after the higher-than-expected GDP growth, dealers said. Volumes may be significant Monday and Tuesday but are likely to fall the rest of the week as the six-member panel deliberates the central bank's interest rate trajectory. Most traders now expect the RBI will maintain interest rates at the current level next week, after betting on a 25-bps cut before the GDP data.

On Monday, the one-day call money rate may open near the RBI's repo rate as the RBI will drain INR 750 billion through a four-day variable rate reverse repo later that day. Banks' insurance premium payment to the Deposit Insurance and Credit Guarantee Corp. will drain another INR 120 billion-INR 150 billion from the system. During the day, the one-day call money rate is seen in a range of 5.20-5.50%, dealers said. 

GOVERNMENT BONDS

Traders have mixed expectations Monday, with some expecting bond prices to fall further due to the GDP print, while others anticipate a rise. The 10-year bond yield is seen capped at 6.55-6.56%. Hopes of an announcement of an open market calendar to purchase gilts through auction are also gaining momentum and traders now expect the RBI will buy bonds worth INR 2 trillion to INR 3 trillion, up from INR 1.50 trillion earlier. Traders also expect the central bank to downgrade its CPI forecast due to the Centre's recent cut in the goods and services tax and a near-zero inflation print in October. 

On the flip side, some dealers expect bond prices to open lower after the RBI post market hours Friday said 13 states will raise INR 313.50 billion through bonds Tuesday, higher than the INR 210 billion indicated in states' borrowing calendar for Oct-Dec. The fresh supply of INR 320 billion of a 10-year government bond on Dec. 5, the same day as the MPC decision will be announced, may weigh on risk appetite, dealers said. 

Traders will also look out for bond purchases of around INR 120 billion from the Deposit Insurance and Credit Guarantee Corp., a wholly-owned subsidiary of the RBI. The institution will likely bid for the seven-year gilt at the auction Friday. The RBI arm insures bank deposits up to INR 500,000 and the premium for the first half of the financial year will be paid by the last working day of November. The institution usually invests this premium in gilts, especially in the 10-year and 15-year bonds. 

The 10-year benchmark 6.48%, 2035 bond is seen in the 6.45-6.55% range Monday. The yield on the 6.33%, 2035 bond is seen at 6.50-6.60%.

The 6.48%, 2035 gilt ended at INR 99.80, or 6.51% yield, on Friday, while the 6.33%, 2035 bond ended at INR 98.49, or 6.55% yield.

OIS RATES

Swap rates may edge up Monday as traders prepare for the MPC meeting, with volumes expected to be high Monday and Tuesday, then drop as the panel deliberates interest rates, and most traders now anticipate a pause in rate cuts.

Traders will also track the overnight Mumbai Interbank Outright Rate and crude oil prices for cues, dealers said. The one-year swap rate is seen at 5.38-5.50% and the five-year rate is seen at 5.66-5.75%. On Friday, the one-year rate ended at 5.43% and the five-year rate ended at 5.71%.

CALL
On Monday, the one-day call money rate may open around the RBI's repo rate as the RBI will drain INR 750 billion through   a four-day variable rate reverse repo auction. Banks are also likely to complete their payment of insurance premium to the Deposit Insurance and Credit Guarantee Corp., which will drain INR 120 billion-INR 150 billion from the system. Inflows from the government's month-end expenditure will boost the systemic liquidity surplus. During the day, the one-day call money rate is seen in a range of 4.85-5.45%, dealers said. The two-day call rate ended at 4.95% Saturday.

RBI AUCTION

--RBI to auction INR 750 billion through 4-day variable rate reverse repo Monday.

LIQUIDITY

Total net outflows of INR 232.11 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 12.13 billion as coupon on state bonds 

--INR 35.34 billion as coupon on 5.85%, 2030 gilt on Monday

--INR 40.42 billion as coupon on 8.17%, 2044 gilt on Monday

* Outflows

--INR 320.00 billion as payment for gilts

End

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

Edited by Tanima Banerjee

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