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Informist, Wednesday, Jun. 25, 2025

MUMBAI – Government bond prices and overnight indexed swap rates may take cues from the overnight movement in US Treasury yields and crude oil prices at open on Thursday, dealers said. 

Short-term gilts may remain lower, swaps higher after the Reserve Bank of India said it will conduct a variable rate reverse repo auction on Friday, the first such auction since November. Though most traders were of the view that the VRRR auction to be conducted Friday will not materially impact liquidity in the banking system, they feared that the auction could be a step towards raising overnight rates closer to the repo rate, dealers said. Traders now await the result of the VRRR auction for cues.

On Thursday, 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 4.90-5.40% and the tri-party repo rate in a range of 4.80-5.30%.

GOVERNMENT BONDS

On Thursday, bonds may take cues from US yields at open after the release of economic data and comments from Federal Reserve officials. Prices may remain lower after the RBI announced a VRRR auction. Short-term bonds maturing in up to five years may remain down on fears that more VRRR auctions could be on the way, dealers said. 

Gilts will also take cues from developments in the Israel-Iran conflict, dealers said. Traders now await the weekly gilt auction Friday, which will be the 10-year benchmark 6.33%, 2035 gilt's third auction. The result of the VRRR auction will also be closely tracked for cues. Some traders expect almost full subscription, while others said that Thursday's liquidity data would provide a better picture on the cut-off and subscription since banks may not want to park funds for seven days with the RBI at the end of the June quarter. 

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.26-6.35% Thursday and that on the most-traded 6.79%, 2034 bond is seen at 6.33-6.40%. The 2035 bond ended at INR 100.30 or 6.29%, while the 2035 bond ended at INR 102.93 or 6.37% on Wednesday. 

OIS RATES

On Thursday, swap rates are likely to open steady after the recent volatility, dealers said. The overnight movement in US Treasury yields and crude oil prices will lend cues early in the day, while the daily overnight Mumbai Interbank Offered Rate fixing will lend cues after the initial hours.

The spread of the five-year swap rate over the one-year swap rate is likely to reduce in the coming days as traders assess the impact of the RBI's announcement of a VRRR auction on Tuesday. The seven-day, INR-1-trillion auction's result on Friday will be a key factor for OIS traders to estimate surplus liquidity in the banking system over the next week, and the overnight MIBOR fixings, dealers said.

On the global front, Brent crude futures for August delivery are expected to stay below $70 a barrel as the conflict between Israel and Iran is seen at an end. Comments from US Federal Reserve officials on further rate cuts will continue to be tracked closely as expectations of a July rate cut have increased over the past week.

Swap rates may also track the movement of gilt yields. The one-year swap rate is seen in a range of 5.46-5.60% Thursday. The five-year contract is seen at 5.62-5.84%. On Wednesday, the one-year swap rate ended at 5.54%, while the five-year swap rate ended at 5.69%.

CALL

On Thursday, 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 4.90-5.40% and the tri-party repo rate in a range of 4.80-5.30%. The one-day call ended at 5.30% Wednesday.

RBI AUCTION

--Nil

LIQUIDITY

--Total net outflows of INR 71.02 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 146.87 billion on redemption of 91-day Treausury bills

--INR 44.43 billion on redemption of 182-day T-bills

--INR 17.12 billion on redemption of 364-day T-bills

--INR 40.68 billion as coupon on state bonds

* Outflows

--INR 205.00 billion on payment for 91-day T-bills

--INR 50.00 billion on payment for 182-day T-bills

--INR 65.12 billion on payment for 364-day T-bills

End

US$1 = INR 86.09

Reported by Srijita Bose

Edited by Deepshikha Bhardwaj

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