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Informist, Wednesday, Jul. 2, 2025

MUMBAI – Government bond prices and overnight indexed swap rates will Thursday take cues from the overnight movement in US Treasury yields after the release of the US June ADP National Employment Report that was due 1745 IST. The report showed the US economy lost private-sector jobs for the first time since 2023 due to trade wars.

Movement of crude oil prices may also lend cues, dealers said. After market hours Thursday, traders will track the US employment report for June and US weekly jobless claims for the week ended Saturday. Financial markets in the US are shut Friday for independence day.

On the domestic front, traders will watch for any further announcement of variable rate reverse repo auctions by the Reserve Bank of India. Some traders said that since the RBI has not announced another VRRR auction on Monday or Tuesday, the next auction will only be announced for Friday, when last week's VRRR is due for reversal. Last week, the RBI accepted bids worth INR 849.75 billion at the INR 1-trillion VRRR auction. Traders are closely tracking overnight money market rates, which settled close to the Standing Deposit Facility rate since Tuesday after hovering near the repo rate on Friday and Monday.

On Thursday, the one-day call rate may open slightly below the RBI's repo rate due to comfortable liquidity. 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 4.80-5.25%.

GOVERNMENT BONDS

On Thursday, bond prices may take cues from the overnight movement of US yields. Lack of domestic triggers has led traders to track US data - including the key non-farm payrolls data for June due Thursday - to position for change in gilt prices as US rate cut expectations develop in accordance with the data, dealers said. 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% Thursday and that on the most-traded 6.79%, 2034 bond is seen at 6.31-6.39%. On Wednesday, the 6.33%, 2035 bond ended at INR 100.29 or 6.29%, while the 6.79%, 2034 bond ended at INR 103.07 or 6.34%.

OIS RATES

On Thursday, swap rates are likely to take cues from movement in US yields. Swap traders are closely tracking comments from Fed officials and the movement of US yields. Some traders said that if the FOMC votes to cut rates at the end of this month, then the five-year swap rate could also fall by more than 10 bps as domestic rate cut expectations could resurface. 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% Thursday. The five-year contract is seen at 5.62-5.84%. Wednesday, the one-year swap ended at 5.52% and the five-year swap at 5.67%.

CALL

On Thursday, the one-day call rate may open slightly below the RBI's repo rate due to comfortable liquidity. 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 4.80-5.25%. Wednesday, the one-day call rate ended at 4.90%, while the tri-party repo rate also ended at 5.10%.

RBI AUCTION

--Nil

LIQUIDITY

--Total net inflows of INR 31.46 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 96.04 billion as redemption of 91-day Treasury bills

--INR 80.00 billion as redemption of 182-day T-bills

--INR 60.99 billion as redemption of 364-day T-bills

--INR 10.80 billion as coupon on state bonds

* Outflows

--INR 101.77 billion as payment for 91-day T-bills

--INR 60.00 billion as payment for 182-day T-bills

--INR 54.60 billion as payment for 364-day T-bills

End

Reported by Cassandra Carvalho

Edited by Ashish Shirke

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