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Informist, Friday, Dec. 12, 2025

MUMBAI – Government bond prices may open higher Monday on optimism around the Reserve Bank of India's open market operation auction on Thursday. The central bank said it would buy more liquid gilts at auction next week than it did this week, in line with banks' recommendations and allowing traders to book profit, dealers said.

The RBI will Thursday buy seven government bonds worth INR 500 billion in the second tranche of OMO purchases this month, the central bank said after gilt market hours Friday. The RBI has offered to buy the 6.75%, 2029; the 6.10%, 2031; the 6.54%, 2032; the 7.18%, 2033; the 6.33%, 2035; the 7.23%, 2039; and the 7.09%, 2054 gilts at the auction. The addition of the erstwhile 10- and 30-year benchmarks is likely to increase the tendering of bonds by banks at the auction, after a modest bid-offer ratio at this week's open market purchase, dealers said. Banks had passed on feedback to the RBI to add more liquid gilts at the OMO auctions. 

Money markets are shut on Saturday. Bond and overnight indexed swap rate traders will also track the movement in the rupee, crude oil prices and any developments on an India-US trade deal. Bond prices and OIS rates may also track the movement of US Treasury yields over the weekend after scheduled comments from US Federal Reserve officials Friday. The rupee's movement early in trade will also lend cues, dealers said.

The one-day call money rate may open at the RBI's repo rate of 5.25% Monday due to early demand for funds amid advance tax outflows. During the day, the one-day call money rate is seen in the range of 4.50-5.30%, dealers said.

GOVERNMENT BOND PRICES

When the market opens Monday, gilt prices may open higher after the RBI's choice of bonds to buy at its OMO auction next week was seen to be favourable and providing profitable exits to traders, dealers said. The RBI will Thursday buy seven government bonds worth INR 500 billion in the second tranche of OMO purchases this month, the central bank said after gilt market hours Friday.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.53-6.61%. The yield on the 6.33%, 2035 bond is seen at 6.54-6.62%. On Friday, the 6.48%, 2035 bond ended at INR 99.18, or 6.59% yield, while the 6.33%, 2035 gilt ended at INR 98.04, or 6.61% yield.

OIS RATES

On Monday, swaps may track the overnight movement in US Treasury yields after comments by Fed officials scheduled Friday. The rupee's movement in early trade will also lend cues as the RBI is seen avoiding policy easing to better manage the currency's recent weakness, dealers said. The domestic unit fell to a record low of 90.56 a dollar intraday Friday.

Offshore flows are likely to continue to drive movement in OIS rates amid a lack of interest rate cues on the domestic front after last week's repo rate cut to 5.25%. Activity may continue to hold up next week but will decline in the Christmas week and heading into the new year as offshore traders close their accounts at the year-end or go on holiday, dealers said.

Traders are more focused on the CPI prints from January onwards, with the RBI projecting retail inflation to average 0.6% in the December quarter. India's GDP estimate for 2025-26 (Apr-Mar) in the first week of January may also be crucial for traders to take bets on further repo rate cuts by the MPC, dealers said. 

The one-year swap rate is seen at 5.40-5.55% and the five-year swap rate is seen at 5.85-6.02%. The one-year rate ended at 5.46% while the five-year rate closed at 5.92% Friday. 

CALL

On Monday, the one-day call money rate may open near the RBI's repo rate of 5.25% on early demand for funds. Outflows for advance tax are expected to drain liquidity starting Monday, dealers said. During the day, the one-day call money rate is seen in a range of 4.50-5.30%, dealers said.

The outflows will be offset in part by the RBI's bond buys through OMO auctions to buy bond, which will add INR 1 trillion of liquidity between Friday and Dec. 19, dealers said. In addition, the central bank has announced an 11-day VRR auction on Monday and a 10-day VRR auction on Tuesday of INR 750 billion each, which will keep money market rates in check amid the outflows, they said. The maturity of the auctions will be after goods and services tax outflows are also calculated, creating a liquidity buffer for market participants that may reduce friction amid the outflows, dealers said.

RBI AUCTION

--Govt to switch six gilts worth INR 150 billion with five longer-term bonds 1030-1130 IST

LIQUIDITY

Total net outflows of INR 61.07 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 41.78 billion as coupon on state bonds

--INR 56.68 billion as coupon on 6.67%, 2035 gilt

--INR 32.63 billion as coupon on 7.72%, 2049 gilt

--INR 51.85 billion as coupon on 6.99%, 2051 gilt

--INR 35.99 billion as coupon on 6.80%, 2060 gilt

* Outflows

--INR 280.00 billion as payment for gilt auction

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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