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Informist, Thursday, Jun. 26, 2025

MUMBAI – Government bond prices and overnight indexed swap rates are seen opening steady Friday. They will take cues from the result of the seven-day INR 1.00-trillion variable rate reverse repo auction, dealers said. Gilt traders will also await the result of the INR 360.00-billion bond auction Friday, they said.

Traders may also take cues from overnight movement in US Treasury yields after the release of economic data and track comments by US Federal Reserve officials. Thursday, US President Donald Trump said he may replace Fed Chair Jerome Powell, calling him "terrible" and saying he has several potential successors in mind. While Trump has publicly urged the Fed chief to cut the benchmark lending rates, Powell has been firm on "cautiously" easing the monetary policy amid inflationary risks due to uncertainties arising from Trump's disruptive trade and tariff policies. Traders still anticipate two rate cuts by the US Federal Open Market Committee this year. According to the CME FedWatch tool, traders see a 75.2% probability of the Fed holding rates at the July meeting of the FOMC, but the chances of a July cut have increased over the past week.

Meanwhile, data released Thursday after market hours showed US GDP declined 0.5% in Apr-Jun, against expectations of a contraction of 0.2%. US weekly jobless claims for the week ended Saturday fell to 236,000, lower than 245,000 estimated.

Gilts and swaps will also take cues from any developments in West Asia, dealers said. Brent crude futures for August delivery are expected to stay below $70 a barrel with the ceasefire between Israel and Iran holding so far.

Friday, the three-day call rate is likely to open below the Reserve Bank of India'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

Friday, bond prices may open steady before the weekly gilts auction of INR 360 billion at 1030-1130 IST, dealers said. The result of the VRRR auction will also be tracked closely.

Though demand at the gilts auction is expected to be firm, with the 10-year benchmark 6.33%, 2035 gilt expected to surpass the trade volume of the 6.79%, 2034 bond from next week, traders may bid at prices lower than current levels, dealers said. Some traders expect almost full subscription at the VRRR auction, while others said Thursday's liquidity data would provide a better picture of 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.

Gilts may also take cues from US yields after the release of economic data and comments by Fed officials. Gilts will also take cues from any developments in West Asia, dealers said.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.25-6.35% Friday and that on the most-traded 6.79%, 2034 bond is seen at 6.33-6.40%. The 2035 bond ended at INR 100.38 or 6.28%, while the 2034 gilt ended at INR 102.94 or 6.36% Thursday.

OIS RATES

Swap rates are likely to open steady Friday 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. The result of the auction 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.

Comments from Fed officials on further rate cuts will continue to be tracked closely. Swap rates may also track any developments in West Asia and the movement of gilt yields. The one-year swap rate is seen in a range of 5.46-5.60% Friday. The five-year contract is seen at 5.62-5.84%. Thursday, the one-year swap ended at 5.54% and the five-year OIS ended at 5.68%.

CALL

Friday, the three-day call rate is likely to open below the RBI's repo rate given the 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%. Thursday, the one-day call rate ended at 5.30% and the tri-party repo rate ended at 5.05%. 

RBI AUCTION

--Government to auction two gilts worth INR 360.00 billion at 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 101.92 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 80.00 billion on redemption of 182-day Treausury bills

--INR 21.92 billion as coupon on state bonds

* Outflows

--Nil

End

US$1 = INR 85.70

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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