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Informist, Tuesday, Jun. 24, 2025

MUMBAI – Government bond prices are expected to open lower while overnight indexed swap rates rise Wednesday after the Reserve Bank of India announced a seven-day variable rate reverse repo for Friday for INR 1.00 trillion. This will be the first VRRR auction since Nov. 29.

Earlier this month, gilts had fallen while swap rates had risen sharply on fears of a restrictive monetary policy after Reuters cited a source aware of the central bank's thinking saying "the RBI could start conducting variable rate reverse repo auctions to suck out surplus liquidity as and when required".

On the global front, traders will track the developments in crude oil prices and the Iran-Israel conflict, though most traders believe the conflict has largely ended. They will also track the movement of US Treasury yields after US Federal Reserve Board Chair Jerome Powell presents the Monetary Policy Report to the Financial Services Committee of the US House of Representatives. The central bank chair's testimony comes amid mounting pressure from President Donald Trump to begin cutting interest rates. Tuesday, Atlanta Fed President Raphael Bostic said he expects only one rate cut late in 2025, indicating that the US Federal Open Market Committee has time before cutting interest rates.

Wednesday, the one-day call rate is likely to open below the RBI's repo rate on comfortable liquidity conditions. During the day, the call rate is seen in a range of 4.80-5.35% and the tri-party repo rate is seen in a range of 4.70-5.25%.

GOVERNMENT BONDS

Wednesday, bonds are likely to open lower after the RBI, after market hours Tuesday, said it would conduct a seven-day INR 1.00-trillion VRRR auction Friday. This will be the first such operation to absorb short-term liquidity since November. Though some traders had expected the RBI to come up with a VRRR auction, most said such an announcement could come only next month, with outflows scheduled near the end of the June quarter.

"Short-term bonds will be hit the most as usual, but even in the 10-year (gilts) we may see a 2 bps (basis points) rise (in yield)," a trader at a mutual fund said. Gilts will also take cues from developments in the Israel-Iran conflict, dealers said. Traders will also take cues from US Treasury yields at the opening.

Traders may continue to prefer liquid bonds such as the 10-year and 15-year gilts as uncertainty on the geopolitical front persists, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.22-6.32% Wednesday and that on the most-traded 6.79%, 2034 bond is seen at 6.30-6.40%. The 10-year benchmark ended at INR 100.57, or 6.25%, while the 6.79%, 2034 bond ended at INR 103.12, or 6.34%, Tuesday.

OIS RATES

Wednesday, swap rates are likely to open higher after the RBI announced a seven-day VRRR auction for INR 1.00 trillion Friday, the first since Nov. 29. Traders will track liquidity in the banking system and the overnight Mumbai Interbank Offer Rate for direction on short-term swap rates.

Swaps may also track the movement of gilt yields. The one-year swap rate is seen in a range of 5.45-5.58% Wednesday. The five-year contract is seen at 5.62-5.84%. Tuesday, the one-year swap rate ended at 5.49% and the five-year swap ended at 5.67%.

CALL

Wednesday, the one-day call rate is likely to open below the RBI's repo rate on comfortable liquidity in the banking system. During the day, the call rate is seen in a range of 4.80-5.35% and the tri-party repo rate is seen in a range of 4.70-5.25%. Tuesday, the one-day call rate ended at 5.30%.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 90.00 billion Wednesday

--RBI to auction 182-day T-bills worth INR 50.00 billion

--RBI to auction 364-day T-bills worth INR 50.00 billion

LIQUIDITY

--Total net outflows of INR 261.51 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 10.49 billion as coupon on state bonds

* Outflows

--INR 272.00 billion on payment for state bonds

End

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

Reported by Srijita Bose

Edited by Rajeev Pai

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