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Informist, Tuesday, Jul. 1, 2025

MUMBAI – Government bond prices and overnight indexed swap rates will Wednesday take cues from the overnight movement in US Treasury yields after US Federal Reserve Chair Jerome Powell's speech at the European Central Bank forum at Sintra in Portugal, dealers said. The Reserve Bank of India's liquidity management will also be watched keenly after the central bank Friday conducted its first variable rate reverse repo operation since November. Movement of crude oil prices may also lend cues, dealers said.

Powell reiterated that the US Federal Open Market Committee would've cut rates further if it wasn't for US President Donald Trump's tariff policy. Powell said a majority of Fed officials in recent projections still expect to cut rates in the remainder of 2025, with none of the remaining four meetings off the table.

On Wednesday, the one-day call rate may open slightly below the RBI's repo rate due to comfortable liquidity on month-end inflows from the government. During the day, the call rate is seen in a range of 4.90-5.50% and the tri-party repo rate in a range of 4.80-5.30%.

GOVERNMENT BONDS

On Wednesday, bond prices may take cues from the overnight movement of US Treasury yields. Traders said the impact on US rate expectations after Fed Chair Jerome Powell's speech at the European Central Bank forum at Sintra in Portugal may lend direction to gilts, dealers said.

On the domestic front, traders will now watch for any further announcement of variable rate reverse repo auctions by the RBI. Traders are closely tracking overnight money market rates, which settled close to the Standing Deposit Facility rate Tuesday after hovering near the repo rate on Friday and Monday. State-owned banks may purchase gilts for their held-to-maturity books at the start of the Jul-Sept quarter, dealers said.

A sharp movement in crude oil prices may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.25-6.34% Wednesday and that on the most-traded 6.79%, 2034 bond is seen at 6.31-6.39%. On Tuesday, the 6.33%, 2035 bond ended at INR 100.26 or 6.29%, while the 6.79%, 2034 bond ended at INR 103.02 or 6.35%.

OIS RATES

On Wednesday, swap rates are likely to take cues from the movement in US Treasury yields after Powell's comments in Portugal, dealers said. Some traders said that if the FOMC votes to cut rates in July, then the five-year swap rate could also fall by more than 10 bps as domestic rate cut expectations could resurface.

Traders will also watch whether the Senate passes US President Donald Trump's contentious spending bill. Trump is urging lawmakers to pass it before Jul. 4, the US Independence Day holiday.

"I think the focus is all on US yields now," a dealer at a private sector bank said. "The US rate cut scenario is gaining momentum.

On the domestic front, traders will now watch for any further announcement of variable rate reverse repo auctions by the RBI. Traders are closely tracking overnight borrowing rates, which have risen since the VRRR auction Friday. The daily MIBOR fixing will also lend cues after the initial hours.

Swap rates may also track the movement of gilt yields. The one-year swap rate is seen in the range of 5.46-5.60% Wednesday. The five-year contract is seen at 5.62-5.84%. Tuesday, the one-year swap ended at 5.53% and the five-year swap at 5.67%.

CALL

Wednesday, the one-day call rate may open slightly below the RBI's repo rate due to comfortable liquidity on month-end inflows from the government. During the day, the call rate is seen in a range of 4.90-5.50% and the tri-party repo rate in a range of 4.80-5.30%. Tuesday, the one-day call rate ended at 4.90%, while the tri-party repo rate also ended at 4.90%.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 90 billion

--RBI to auction 182-day T-bills worth INR 60 billion

--RBI to auction 364-day T-bills worth INR 50 billion

LIQUIDITY

--Total net outflows of INR 122.54 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 19.85 billion as coupon on state bonds

--INR 38.60 billion as coupon on 2031 floating rate bond 

* Outflows

--INR 181.00 billion as payment for state bonds

End

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

Reported by Cassandra Carvalho

Edited by Ashish Shirke

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