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Informist, Monday, Dec. 8, 2025

MUMBAI – Government bond prices and overnight indexed swap rates may take cues from the overnight movement in US Treasury yields at the open Tuesday, dealers said. The focus has shifted to offshore cues after the Reserve Bank of India's Monetary Policy Committee meeting last week and ahead of the US Federal Open Market Committee's rate decision at 0030 IST Thursday. 

Fed fund futures are pricing in an 88% chance of a 25 basis point cut in the federal funds rate, dealers said. The US Federal Reserve's Summary of Economic Projections and comments from Chair Jerome Powell following the decision are awaited for further cues. Bond and OIS traders will also track the movement in the rupee, crude oil prices and any developments on an India-US trade deal.

On the domestic front, India's CPI inflation for November, scheduled for release Friday, may lend cues. However, traders are more focussed on CPI prints January onwards with the RBI projecting retail inflation to average 0.6% in the December quarter. Chances of another cut in the repo rate are seen unlikely at the current juncture unless India's GDP growth slumps, dealers said. 

The one-day interbank call money rate may open below the RBI's repo rate of 5.25% Tuesday amid surplus liquidity. During the day, the one-day call money rate is seen in the range of 4.50-5.25%, dealers said.

GOVERNMENT BONDS

On Tuesday, gilts will open tracking overnight movement in US Treasury yields and the rupee's movement. Traders will closely track movement in OIS rates through the day after the sharp rise seen Monday.

The result of the state bond auction may lend cues later in the day, dealers said. Ten states plan to raise INR 159.64 billion via bonds at auction 1030-1130 IST, lower than the indicated amount of INR 216.80 billion in the Oct-Dec calendar. 

Bonds at the OMO auction Thursday may continue to be in favour. The RBI will purchase INR 500 billion worth of seven government bonds across tenures through an open market operation auction Thursday. The RBI will buy seven gilts--the 6.75%, 2029 gilt; the 7.02%, 2031 gilt; the 7.26%, 2032 gilt; the 6.79%, 2034 gilt; the 7.54%, 2036 gilt; the 6.92%, 2039 gilt; and the 6.67%, 2050 gilt. Traders expect aggressive participation for the bonds across tenures. However, the 6.67%, 2050 paper will likely be tendered at a lower price, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.48-6.56% Tuesday. The yield on the 6.33%, 2035 bond is seen at 6.50-6.60%. On Monday, the 6.48%, 2035 bond ended at INR 99.60 or 6.53% yield, while the 6.33%, 2035 bond ended at INR 98.33 or 6.57% yield.

OIS RATES

On Tuesday, swap rates will open tracking overnight movement in US Treasury yields and the rupee's movement early in the day. Volatility may be contained on caution ahead of the US FOMC decision and release of the Summary of Economic Projections at 0030 IST Thursday, dealers said.

The one-year swap rate is seen at 5.42-5.53% and the five-year rate is seen at 5.75-6.00%. On Friday, the one-year swap rate ended at 5.47% and the five-year swap rate ended at 5.91%, its highest since Mar. 27. 

CALL

On Tuesday, the one-day call money rate may open below the RBI's repo rate of 5.25%, given the comfortable liquidity surplus. Traders expect liquidity conditions to remain comfortable this week despite excise duty and tax-deducted-at-source payments, with the first tranche of the RBI's open market operation to buy bonds scheduled for Thursday. During the day, the one-day call money rate is seen in a range of 4.50-5.25%, dealers said.

Traders expect the RBI to hold off on liquidity fine-tuning measures through a variable rate repo or reverse repo operation until Friday. However, the central bank may conduct a VRR auction Friday, or next week, due to banks' liquidity requirements amid advance tax outflows worth around INR 1.5 trillion Monday.

RBI AUCTION

--Ten states to raise INR 159.64 billion via bond sale at 1030-1130 IST

LIQUIDITY

Total net inflows of INR 192.55 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 13.22 billion as coupon on state bonds

--INR 166.38 billion as redemption of state bonds

--INR 12.95 billion as coupon on 6.64%, 2027 gilt

* Outflows

--Nil

End

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

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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