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Informist, Thursday, Jun. 12, 2025

MUMBAI – Government bond prices may open lower Friday after the Reserve Bank of India, post-market hours, said it would skip its 14-day main liquidity operations on review of liquidity conditions, dealers said. Short-term overnight indexed swap rates may rise due to the announcement. Fears of a variable rate reverse repo announcement had already caused a fall in bonds and a rise in swap rates since Monday, dealers said. The skipping of the 14-day operations, especially when advance tax outflows are expected, would heighten traders' fears, they said.  

Gilts and swaps may also take cues from the overnight movement of US Treasury yields after the release of weekly jobless claims, dealers said. Traders now await the outcome of the US Federal Open Market Committee meeting next week. Traders expect status quo on rates but will keenly track the commentary from US Federal Reserve officials. US jobless claims were unchanged at 248,000 in the week ended Saturday, against a Dow Jones consensus estimate of 246,000. 

On Friday, the three-day call rate is likely to open near the RBI's repo rate of 5.50%. During the day, the call rate is seen in a range of 5.00-5.60% and the triparty repo rate in a range of 4.95-5.45%.

GOVERNMENT BONDS

On Friday, bond prices are likely to open lower after the RBI said, post-market hours, it is skipping its 14-day main liquidity operation on review of liquidity conditions. The announcement is likely to heighten traders' fears of a VRRR auction, dealers said, especially when advance tax outflows are expected to begin Friday.

Traders may also trade on India's CPI inflation print since the data was released only one hour before end of trade. However, market sentiment continues to be 'sour' and bond prices are likely to be volatile for the next few trading sessions, dealers said. Traders are yet to find a trading range. Bond prices will take cues from the result of the INR 300-billion gilt auction. Underwriting commissions at the auction are expected to be lower than last week, but remain at the higher end, especially on the green bond, dealers said.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.20-6.35%. The yield on the most-traded 6.79%, 2034 bond is seen at 6.30-6.42% Friday. On Wednesday, the 6.33%, 2035 bond ended at INR 100.36, or 6.28% yield. The 6.79%, 2034 gilt ended at INR 103.09, or 6.34% yield. 

OIS RATES

On Friday, swap rates may track the overnight movement of US yields after the release of US economic data, dealers said. Longer-tenure swaps may also track the movement of gilt yields, dealers said.

With domestic rate cuts seen nearly done after the RBI's rate-setting panel delivered a 50 bps cut in the repo rate Friday, traders are now more keenly tracking US yields and data, dealers said. Traders are also waiting for the US FOMC statement next week for its outlook on rates, they said.

Traders will also track the overnight Mumbai Interbank Offered Rate for direction on short-term swap rates. The one-year swap rate is seen in a range of 5.52-5.58% Friday. The five-year contract is seen at 5.72-5.80%. On Thursday, the one-year swap ended at 5.55%, and the five-year swap ended at 5.73%.

CALL

On Friday, the three-day call rate is likely to open near the RBI's repo rate of 5.50%. During the day, the call rate is seen in a range of 5.00-5.60% and the triparty repo rate in a range of 4.95-5.45%. On Thursday, the one-day call ended at 5.00%.

RBI AUCTION

--Govt to auction three gilts worth INR 300 billion

LIQUIDITY

--Total net inflows of INR 275.58 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 18.14 billion as coupon on state bonds

--INR 257.44 billion as payment from government gilt buyback auction Thursday

* Outflows

--Nil

End

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

Reported by Cassandra Carvalho

Edited by Saji George Titus

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