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Informist, Wednesday, Dec. 10, 2025

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

Fed fund futures are pricing in a 90% chance of a 25-basis-point cut in the federal funds rate, according to the CME's FedWatch tool. 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, to be released at 1600 IST 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 call money rate may open at the RBI's repo rate of 5.25% Thursday due to early demand for funds. During the day, the one-day call money rate is seen in the range of 4.50-5.25%, dealers said.

GOVERNMENT BONDS

On Thursday, gilts will open tracking overnight movement in US Treasury yields after the FOMC outcome. The movement in the spot rupee and foreign exchange derivatives, as well as the movement in OIS rates may lend cues after significant volatility in those markets, dealers said.

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 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. The cut-offs at the auction and the quantum accepted may provide direction for bond prices, dealers said. 

Later in the day, primary dealers may begin short-selling bonds to make room for gilts at the weekly auction Friday. The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 120 billion of the 6.90%, 2065 gilt at 1030-1130 IST. With the sharp fall in prices this week, demand at the auction for the long-term bonds is likely to be poor, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.55-6.70% Thursday. The yield on the 6.33%, 2035 bond is seen at 6.58-6.75%. On Wednesday, the 6.48%, 2035 bond ended at INR 98.93 or 6.62% yield, its highest closing yield since Mar. 25. The 6.33%, 2035 bond ended at INR 97.68, or 6.66% yield.

OIS RATES

On Thursday, swap rates will open tracking overnight movement in US Treasury yields after the US FOMC outcome and release of the Summary of Economic Projections at 0030 IST, dealers said. Offshore flows are likely to continue to drive movement in OIS rates amid a lack of interest rate cues on the domestic front since the Monetary Policy Committee's repo rate cut Friday.

The one-year swap rate is seen at 5.40-5.55% and the five-year rate is seen at 5.85-6.02%. On Wednesday, the one-year swap rate ended at 5.48% and the five-year swap rate ended at 5.97%, its highest since Mar. 13. 

CALL

On Thursday, the one-day call money rate may open at the RBI's repo rate of 5.25% on early demand for funds. The first tranche of the RBI's open market operation to buy bonds scheduled for Thursday will infuse INR 500 billion of liquidity Friday if the central bank buys the entire notified amount. 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

--RBI to buy INR 500 billion of 7 gilts at OMO auction 0930-1030 IST

LIQUIDITY

Total net inflows of INR 88.42 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 12.95 billion as coupon on state bonds

--INR 229.94 billion as redemption of 91-day T-bill

--INR 102.00 billion as redemption of 182-day T-bill

--INR 72.72 billion as redemption of 364-day T-bill

--INR 1.81 billion as coupon on 7.24%, 2033 sovereign green bond

* Outflows

--INR 180.00 billion as payment for 91-day T-bill

--INR 75.00 billion as payment for 182-day T-bill

--INR 76.00 billion as payment for 364-day T-bill

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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