India Money Market Outlook
Gilts, swap may track US yields at open Thursday
This story was originally published at 21:48 IST on 17 December 2025
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NEW DELHI – Government bond prices and overnight indexed swap rates Thursday may track the overnight movement in US Treasury yields ahead of the release of US inflation data for November. US CPI is seen rising 3.1% on year in November, according to a Wall Street Journal poll.
Traders look forward to the OMO auction, which is expected to lend further cues to bond prices. Bond and swap traders will monitor developments around the India-US trade deal and may also track crude oil prices for cues.
Bonds and swaps may also track the rupee's movement against the dollar. The rupee rose sharply to end at 90.38 a dollar Wednesday after falling a record low of 91.08 a dollar on Tuesday.
The one-day call money rate may open above the RBI's repo rate of 5.25% due to lower liquidity in the banking system. Dealers expect the VRR auction Thursday to infuse transient liquidity in the banking system. During the day, the one-day call money rate is seen moving in a range of 4.50-5.50%, dealers said.
GOVERNMENT BONDS
On Thursday, gilts are expected to track the overnight movement of US Treasury yields. The OIS and rupee's movement early in the trade will also lend cues, dealers said.
Traders look forward to the OMO auction Thursday, which is expected to lend further cues to bond prices. Traders will monitor developments around the India-US trade deal and may also track crude oil prices for cues. Some traders are also hopeful of likely inclusion of Indian bonds in the Bloomberg's Global Aggregate Index in January, which will pull up bond prices, dealers said.
The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.54-6.63%. The yield on the 6.33%, 2035 bond is seen at 6.56-6.65%. On Wednesday, the 6.48%, 2035 bond ended at INR 99.14, or 6.60% yield, while the 6.33%, 2035 gilt ended at INR 98.10, or 6.60% yield.
OIS RATES
On Thursday, swaps may track the overnight movement in US Treasury yields ahead of the release of US inflation data for November. US CPI is seen rising 3.1% on year in November, according to a Wall Street Journal poll.
Offshore flows are likely to continue to drive movement in OIS rates amid a lack of interest rate cues on the domestic front. The five-year swap rate has risen 19 bps so far this month, largely due to offshore flows. Activity may continue to hold up this 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.
Swaps may also track the rupee's movement against the dollar and its impact on dollar-rupee forward premiums. Swaps may also track the movement of gilts yields after the result of the INR-500-billion open market operation auction Thursday.
On the domestic front, after India's CPI for November was largely a "non-event" for swaps, traders are more focused on the CPI prints 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 Monetary Policy Committee, dealers said.
Traders will monitor developments around the India-US trade deal and may also track crude oil prices for cues. The one-year swap rate is seen at 5.38-5.60% and the five-year swap rate is seen at 5.78-6.02%. The one-year rate ended at 5.49% while the five-year rate closed at 5.95% Wednesday.
CALL
On Thursday, the one-day call money rate may open above the RBI's repo rate of 5.25% due to lower liquidity in the banking system. Dealers expect the VRR auction Thursday to infuse transient liquidity in the banking system. During the day, the one-day call money rate is seen moving in a range of 4.50-5.50%, dealers said. The one-day call rate ended at 5.35% Wednesday.
RBI AUCTION
--RBI to buy INR 500 billion of 7 gilts at OMO auction 0930-1030 IST
LIQUIDITY
Total net outflows of INR 59.9 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 179.00 billion as redemption of 91-day T-bill
--INR 78.00 billion as redemption of 182-day T-bill
--INR 61.02 billion as redemption of 364-day T-bill
--INR 17.23 billion as coupon on state bonds
--INR 22.46 billion as coupon on 7.02%, 2031 gilt
* Outflows
--INR 276.91 billion as payment for 91-day T-bill
--INR 68.00 billion as payment for 182-day T-bill
--INR 72.70 billion as payment for 364-day T-bill
End
Reported by Shubham Rana
Edited by Deepshikha Bhardwaj
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