Informist, Thursday, Apr. 24, 2025

MUMBAI – Government bond prices may open a little lower on Friday due to some short sales by traders before the weekly gilt auction. Traders will await further cues from the results of INR 270 billion worth of weekly gilt auction, dealers said. 

Gilt prices may also open lower as the Reserve Bank of India did not announce further liquidity measures after market hours, against many traders' expectations, dealers said. 

Traders continue to closely track the evolving geopolitical situation between India and Pakistan in the wake of a terror attack earlier this week in Jammu and Kashmir, dealers said. Any escalation may drag down gilt prices while rising overnight indexed swap rates, they said. The overnight movement in US Treasury yields may also lend direction to swap rates. The impact of the offshore trigger may be muted as domestic interest rates are expected to fall further, dealers said.

On Friday, the three-day call rate may open below the repo rate due to a lack of demand, dealers said. During the day, the call rate is seen at 5.70-6.00% and the tri-party repo rate at 5.50-6.00%.

GOVERNMENT BONDS

On Friday, traders will await further cues from the results of INR 270 billion worth of weekly gilt auction, dealers said. Gilt prices may open lower due to some short sales by traders before the auction. 

If the RBI announces further liquidity measures or additional open market operation auctions post market hours, gilt prices are likely to open higher, dealers said. Any sharp movement in US Treasury yields could also lead to movement in gilt prices. However, even as uncertainty on trade and tariffs by US President Donald Trump persists, gilt prices are expected to follow domestic triggers as conditions for rate cuts remain positive, dealers said. India's provisional GDP growth estimates for Jan-Mar and 2024-25 (Apr-Mar), due at the end of May, will be the next major triggers for gilts. 

Some dealers see bond yields rising slightly, as traders take out profits and investors look to purchase gilts at higher yields, dealers said. However, the fall in prices could be limited as investors will look to buy gilts as hope of further rate cuts by the RBI's rate-setting panel persists. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.40% on Friday. On Thursday, the 10-year benchmark gilt ended at INR 103.29, or at 6.32% yield.

OIS RATES

On Friday, swap rates may open steady due to a lack of fresh interest rate cues. Traders continue to closely track the evolving geopolitical situation between India and Pakistan, dealers said. Any escalation may lead to a rise in swap rates by up to 5 basis points, they said.

The overnight movement in US Treasury yields may also lend direction to swap rates. The impact of the offshore trigger may be muted as traders have a high conviction that domestic interest rates are going to fall further, particularly after the minutes of the April Monetary Policy Committee meeting, dealers said.

With no major data releases scheduled, traders will closely track the movement of the overnight Mumbai Interbank Offered Rate for direction on short-term swap rates. Swap rates maturing in three years and above may be sensitive to developments on the impact of the ongoing US-China trade war.

The one-year swap rate is seen in a range of 5.55-5.75%. The five-year contract is seen within 5.63-5.82%. On Thursday, the one-year swap closed at 5.71% and the five-year swap closed at 5.66%.

CALL

Friday, the three-day call rate may open below the repo rate due to lack of demand, dealers said. During the day, the call rate is seen at 5.70-6.00% and the tri-party repo rate at 5.50-6.00%. On Thursday, one-day call ended at 5.50%.

RBI AUCTION

--RBI to hold three-day variable rate repo auction for INR 500 billion 1000-1030 IST

--Govt to auction two gilts worth INR 270 billion at 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 22.48 billion. The calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and reverse repo operations.

* Inflows

--INR 22.48 billion as coupon on state bonds

* Outflows

--INR 96.34 billion on reversal of overnight VRR tender

End

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

Reported by Srijita Bose

Edited by Deepshikha Bhardwaj

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