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Informist, Tuesday, Dec. 23, 2025

MUMBAI – Prices of gilts will rise while swap rates may fall Wednesday after the RBI announced INR-2-trillion gilt buys across December and January, and a three-year, $10-billion dollar-rupee buy-sell auction on Jan. 13. This will bring down government bond yields and dollar-rupee forward premia, easing OIS rates as well, dealers said.

However, the fall in bond yields and swap rates may be limited after the 10-year US Treasury yield jumped to 4.20% at 2000 IST from 4.15% at the end of Indian market hours, approaching levels it had last topped in September. US GDP grew 4.3% on year in Jul-Sept against 3.2% expected in a Dow Jones poll, weakening the case for the US Federal Open Market Committee to cut rates further.

The offshore activity will be closely assessed as it usually slows 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. Trade volume may remain low with several traders also on leave.

Market participants expect inflows into debt instruments from foreign portfolio investors to begin in the new year and to top $25 billion in 2026 as India's fully accessible route bonds get added to Bloomberg's flagship Global Aggregate Index. This may pull down swap rates as well, dealers said. Traders will monitor developments around the India-US trade deal and may also track crude oil prices for cues

On Wednesday, the two-day call money rate may open below the RBI's repo rate of 5.25%, amid INR 2.31 transient liquidity in the banking system. Dealers also expect the liquidity deficit to narrow due to no major outflows on Tuesday. During the day, the two-day call money rate is expected to move in a range of 4.50-5.65%, dealers said.

GOVERNMENT BONDS

On Wednesday, gilts are expected to open higher following the announcement of the open market operations auction on Tuesday, after the market close. Traders expect the yield on the 6.48%, 2035 bond to fall to 6.55%-6.56% Wednesday.

The Reserve Bank of India will buy INR 500 billion of seven gilts via OMO auction on Monday. The RBI will purchase the 6.67%, 2035 gilt, the 7.18%, 2037 gilt, the 7.26%, 2033 gilt, the 6.79%, 2034 gilt, the 6.79%, 2029 gilt, the 7.61%, 2030 gilt, and the 7.30%, 2053 bond at auction. The RBI will buy a total of INR 2 trillion worth of government bonds through open market operation auctions in four tranches across December and January, it said in a release Tuesday. It will buy gilts worth INR 500 billion each on Monday, Jan. 5, Jan. 12, and Jan. 22. 

The central bank will also conduct a three-year, dollar-rupee buy-sell swap auction on Jan. 13 for $10 billion. This will likely lead to an appreciation in the rupee against the dollar, which will aid bond prices.

The RBI will sell INR 70 billion of 91-Day T-bill, INR 60 billion of 182-Day T-bill, and INR 60 billion of 364-Day T-bill through a multiple-price method auction from 1030 IST to 1130 IST on Wednesday. 

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.55-6.65%. On Tuesday, the 6.48%, 2035 bond ended at INR 98.90, or 6.63% yield.

OIS RATES

OIS rates may fall Wednesday after the RBI announced INR 2 trillion of gilt buys across December and January and a three-year, $10 billion dollar-rupee buy-sell auction on Jan. 13. This will bring down government bond yields and dollar-rupee forward premia, easing OIS rates as well, dealers said.

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 for cues. The one-year swap rate is seen at 5.42-5.55% and the five-year swap rate is seen at 5.85-6.02%. The one-year rate Tuesday ended at 5.50% and the five-year rate closed at 5.96%.

CALL

On Wednesday, the two-day call money rate may open below the RBI's repo rate of 5.25%, amid INR 2.31 transient liquidity in the banking system. Dealers also expect the liquidity deficit to narrow due to no major outflows on Tuesday. During the day, the two-day call money rate is expected to move in a range of 4.50-5.65%, dealers said.

The Reserve Bank of India will hold an overnight variable rate repo auction for INR 1.25 billion from 0930 IST to 1000 IST Wednesday, the central bank said Tuesday after market hours.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 70 billion on Wednesday

--RBI to auction 182-day T-bills worth INR 60 billion on Wednesday

--RBI to auction 364-day T-bills worth INR 60 billion on Wednesday

LIQUIDITY

Total net outflow of INR 319.97 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 17.23 billion as redemption of state bonds

* Outflows

--INR 337.20 billion as payment of state bonds

--INR 155.07 billion as payment of two-day variable rate repo

--INR 750.33 billion as payment of one-day variable rate repo

--INR 376.22 billion as payment of one-day variable rate repo 

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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