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Informist, Saturday, Dec. 20, 2025

MUMBAI – Gilts and swap rates will track the overnight movement in US Treasury yields and the rupee's movement at open on Monday. Traders will also assess the minutes of the Reserve Bank of India Monetary Policy Committee's December meeting, released post market hours Friday. Developments around the India-US trade deal will also be in focus, with movement in crude oil prices also lending cues.

After India's CPI-based inflation for November was essentially a "non-event" for swaps and gilts, traders are now focussed on the CPI prints January onwards, with the RBI projecting retail inflation to average 2.9% in the March quarter. India's advance estimate on GDP 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.

Bond yields may fall next month, as traders expect the RBI to announce additional open market purchases of gilts. Traders also expect Indian government bonds to be included in Bloomberg's flagship Global Aggregate Index in September, with the announcement expected in January. Market participants expect inflows from foreign portfolio investors to begin in the new year and to total $25 billion in 2026.

On Monday, the one-day call money rate may open above RBI's repo rate of 5.25% due to pressure from outflows for goods and services tax payments.

"We can have one more VRR (variable rate repo) of 1 lakh (crore) (INR 1 trillion) because of GST outflows. Also two VRRs will be maturing on (Dec.) 26th," a dealer said.

GOVERNMENT BONDS

On Monday, government bonds are expected to open steady as the RBI's MPC minutes for December meeting were in line with expectations and did not provide any fresh cues, dealers said.

Long-term bonds might see some support after the RBI set a higher-than-expected cut off price on the 7.09%, 2074 bond at the auction. However, bonds up to 15-year maturity is likely to open lower after the fresh supply of INR 180 billion of the 6.01%, 2030 gilt, which was higher than market appetite, dealers said.

The spread between the 6.33%, 2035 bond and the 10-year benchmark 6.48%, 2035 bond will likely rise to 3-4 basis points as traders will likely switch their position in erstwhile 10-year benchamrk bond to 6.48%, 2035 bond, dealers said.  

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.54-6.63% Monday. The yield on the 6.33%, 2035 bond is seen at 6.56-6.65%. On Friday, the 6.48%, 2035 bond ended at INR 99.12, or 6.60% yield, while the 6.33%, 2035 gilt ended at INR 98.04, or 6.61% yield.

OIS RATES

As the year nears its end and the Christmas holiday season begins, trade volumes may remain low, with several traders likely on leave, dealers said. Offshore activity will decline during the Christmas week and heading into the New Year as foreign banks and portfolio investors close their accounts at the year-end or go on holiday, dealers said.

This month, some offshore investors have taken calls to pay fixed-rate contracts in markets across Asia amid current geopolitical and monetary policy conditions, dealers said. However, in January, foreign investors and banks may be more active and look to receive fixed-rate contracts.

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 Friday ended at 5.48% and the five-year rate closed at 5.95%.

CALL

On Monday, TREPS may open above repo rate at 5.30%. Call will open at 5.40%. During the day, the one-day call money rate is seen in the range of 4.80%-5.50%, dealers said. The inflows from the central bank's INR-500-billion bond purchases at the open market operation auction held Thursday will be shown in Friday's liquidity number which will be released on Monday. Friday's liquidity is expected to be in surplus of INR 250 billion to INR 300 billion because of OMO.   

RBI AUCTION

--Nil

LIQUIDITY

Total net outflow of INR 245.67 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 6.80 billion as coupon on state bonds on Sunday

--INR 7.69 billion as coupon on state bonds on Monday

--INR 39.84 billion as coupon on 8.13%, 2045 gilt

* Outflows

--INR 300.00 billion as payment for gilts on Monday

--INR 500.53 billion as payment of four-day variable rate repo on Monday

End

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

Reported by Janwee Prajapati

Edited by Deepshikha Bhardwaj

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