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Informist, Monday, Dec. 22, 2025

NEW DELHI – Gilts and swap rates may track overnight movement in the US Treasury yields and the rupee's movement at open on Tuesday. Bond traders may refrain from taking large bets early ahead of the INR-332.20-billion auction of state bonds. Demand at the auction is likely to be muted as the quantum is way higher than the INR 268.55 billion indicated in the Oct-Dec borrowing calendar.

Swaps may also track movements in the forward premiums, with the one-year benchmark dollar-rupee forward premium rising to an over-three-year high Monday. As the year nears its end and the Christmas holiday season begins, trade volumes may remain low, with several traders likely to be on leave, dealers said.

On Tuesday, the one-day call money rate may open above the RBI's repo rate of 5.25%, as the liquidity deficit is expected to widen due to the payments of goods and services tax. During the day, the one-day call money rate is seen moving in a range of 4.80-5.30%, dealers said.

GOVERNMENT BONDS

On Tuesday, gilts are expected to track overnight movements in US Treasury yields. The movement in the OIS and the rupee may also lend cues, dealers said.

Traders may refrain from taking large bets early ahead of the INR-332.20-billion auction of state bonds. Demand at the auction is likely to be muted as the quantum is way higher than the INR 268.55 billion indicated in the Oct-Dec borrowing calendar.

Traders will monitor developments on the India-US trade deal and will keep an eye on crude oil prices. Some traders are also hopeful that the likely inclusion of Indian government bonds in Bloomberg's Global Aggregate Index in January will pull up bond prices, dealers said. 

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.60-6.70%. On Monday, the 6.48%, 2035 bond ended at INR 98.65, or 6.67% yield.

OIS RATES

On Tuesday, swaps may track movements in the US Treasury and gilt yields due to lack of other significant triggers on interest rates. They may also track the rupee's movement against the dollar and the movement in forward premiums, with the one-year benchmark dollar-rupee forward premium rising to an over-three-year high Monday. 

As the year nears its end and the Christmas holiday season begins, trade volumes may remain low, with several traders likely to be on leave, dealers said. Offshore activity will decline during the Christmas week and heading into the New Year as foreign banks and primary dealers 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. Bond yields may also 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 a January announcement. Market participants expect inflows from foreign portfolio investors to begin in the new year and to total $25 billion in 2026, which may pull down swap rates as well.

After India's CPI for November was essentially a "non-event" for swaps, traders are focused 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 the financial year 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, though there are no rate-cut bets for February currently reflected in OIS rates, dealers said.

Traders will monitor developments around the India-US trade deal and may also track crude oil prices. The one-year swap rate is seen at 5.38-5.60% and the five-year swap rate is seen at 5.85-6.02%. The one-year rate Monday ended at 5.51% and the five-year rate closed at 5.98%.

CALL

On Tuesday, the one-day call money rate may open above the RBI's repo rate of 5.25%, as the liquidity deficit is expected to widen due to the payments of goods and services tax. During the day, the one-day call money rate is seen moving in the range of 4.80-5.30%, dealers said.

As some market participants expected, the Reserve Bank of India will hold an overnight variable rate repo auction for INR 750 billion from 0930 IST to 1000 IST Tuesday, the central bank said Monday after market hours. The one-day call rate ended at 5.46% Monday.

RBI AUCTION

--15 states to raise INR 332.20 billion via bond sale on Tuesday

LIQUIDITY

Total net inflow of INR 202.31 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 120.25 billion as redemption of state bonds

--INR 16.02 billion as coupon on state bonds

--INR 29.36 billion as coupon on 6.75%, 2029 gilt

--INR 36.68 billion as coupon on 9.23%, 2043 gilt

* Outflows

--Nil

End

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

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

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