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Informist, Tuesday, Dec. 30, 2025

MUMBAI – Government bond prices and overnight indexed swap rates are seen tracking the overnight movement of US Treasury yields Wednesday after the release of the minutes of the US Federal Open Market Committee's December meeting, dealers said. However, the impact of the offshore cue may be limited due to a lack of significant domestic interest rate cues, dealers said. Both gilts and swaps may track the movement in the rupee against the dollar and crude oil prices, dealers said. 

Since Wednesday is the last day of the December quarter, traders may continue to adjust their balance sheets before closing their accounts, dealers said. Trading activity may be muted as several traders are on leave for Christmas and the New Year. Furthermore, foreign banks, primary dealers, and offshore traders have limited trading activity near year-end because they have already closed their accounts, dealers said.

Traders will also monitor developments around the India-US trade deal for cues. 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 Reserve Bank of India's Monetary Policy Committee, though there are no rate-cut bets for February currently reflected in OIS rates, dealers said. After India's CPI for November was essentially a "non-event" for gilts and swaps, traders are focused on the CPI prints January onwards, with the RBI projecting retail inflation to average 2.9% in the March quarter. 

On Wednesday, the one-day call money rate may open near the RBI's Marginal Standing Facility rate of 5.50% to reporting requirements on the last day of the month. Heavy quarter-end disbursements are likely to push up rates amid a liquidity deficit, dealers said. Some dealers expect the RBI to conduct an overnight VRR auction of INR 500 billion. During the day, the one-day call money rate is expected to move in a range of 4.70-5.65%, dealers said.

GOVERNMENT BONDS

On Wednesday, at open, gilts will likely track the overnight movement in US Treasury yields after the release of the minutes of the US Federal Open Market Committee's December meeting, dealers said. 

After market hours Tuesday, the RBI said it will purchase seven gilts worth INR 500 billion Monday. The 7.10%, 2029, the 7.95%, 2032, the 7.73%, 2034, the 7.40%, 2035, the 7.41%, 2036, the 8.30%, 2040, and the 7.09%, 2054 bonds are selected for the OMO auction. The 6.33%, 2035 gilt price may fall Wednesday, since some traders bought the gilt Tuesday on hopes that the RBI would buy the gilt Monday.

Traders are expecting states' borrowing calendar for the March quarter between INR 4.5 trillion and INR 5.0 trillion. The announcement is expected after market hours Wednesday. If the borrowing calendar surprises on the higher side, the yield on the 10-year benchmark 6.48%, 2035 gilt may rise to as high as 6.70%, dealers said.

In January, traders expect bond prices to rise due to lower supply as the RBI has scheduled the remaining three tranches of open market operation auctions of INR 500 billion each. Expected foreign inflows due to the likely inclusion of Indian government bonds in Bloomberg's Global Aggregate Index in January will push bond prices higher, dealers said. The banking system liquidity will also likely be in a surplus by mid-January, dealers said.  

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.55-6.63%. On Tuesday, the 10-year benchmark bond ended at INR 99.29, or 6.58% yield.

OIS RATES

On Wednesday, swap rates may track overnight movement of US Treasury yields after the release of the minutes of the US Federal Open Market Committee's December meeting, dealers said.

Market participants expect inflows into debt instruments from foreign portfolio investors to begin in the new year and top $25 billion in 2026 as India's fully accessible route bonds are expected to be added to Bloomberg's flagship Global Aggregate Index. This may also pull down swap rates, dealers said.

The one-year swap rate is seen at 5.40-5.52% and the five-year at 5.85-6.02%. The one-year swap rate ended at 5.45% Tuesday. The five-year rate closed at 5.92%.

CALL

On Wednesday, the one-day call money rate may open near the RBI's MSF rate of 5.50% to reporting requirements on the last day of the month. Heavy quarter-end disbursements are likely to push up rates amid a liquidity deficit, dealers said. Some dealers expect the RBI to conduct an overnight VRR auction of INR 500 billion. During the day, the one-day call money rate is expected to move in a range of 4.70-5.65%, dealers said. The one-day call rate ended at 5.48% Tuesday.

RBI AUCTION

--Nil

LIQUIDITY

Total net outflows of INR 310.63 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 43.87 billion as coupon on 8.30%, 2042 gilt 

* Outflows

--INR 354.50 billion as payment for state bonds

End

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

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

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