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Informist, Thursday, Jul. 3, 2025

MUMBAI – Government bond prices and overnight indexed swap rates will Friday take cues from the overnight movement in US Treasury yields after the release of jobs data in the US, which weakened the case for rate cuts in the world's largest economy, dealers said. Data showed the US added 147,000 jobs in June, against 110,000 seen in a Wall Street Journal poll. The unemployment rate fell to 4.1% from 4.2% in May. US jobless claims for the week ended Saturday fell by 4,000 to 233,000, lower than a consensus estimate of 240,000. After the data, US Fed funds futures showed less than 5% chance of a rate cut in the US Federal Open Market Committee's July meeting, against around 20% before the data. Financial markets in the US are shut Friday for independence day. Movement of crude oil prices may also lend cues, dealers said.

On the domestic front, the Reserve Bank of India's announcement of a seven-day, INR-1-trillion variable rate reverse repo auction for Friday was expected, dealers said. The size of the auction was slightly lower than what some traders had feared. The seven-day auction conducted last week matures on Friday and will add around INR 850 billion to the banking system, on top of the liquidity surplus already at a three-year high. Traders are closely tracking overnight money market rates, which have settled close to the Standing Deposit Facility rate since Tuesday after hovering near the repo rate on Friday and Monday.

On Friday, the three-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 4.90-5.50% and the tri-party repo rate in a range of 4.80-5.30%. Thursday, the one-day call rate ended at 5.28%, while the tri-party repo rate ended at 5.00%.

GOVERNMENT BONDS

On Friday, bond prices may take cues from overnight movement in US yields after the release of non-farm payrolls data. Volatility may be limited ahead of the INR 320 billion auction at 1030-1130 IST, dealers said.

On the domestic front, demand for the new 15-year gilt and the 6.90%, 2065 gilt at auction is likely to be muted, and traders said they would demand higher returns to pick up the gilts. Demand from life insurers and pension funds is not expected to be significant and there was a demand-supply mismatch in long-term bonds, likely leading to a rise in the 40-year bond's yield, dealers said.

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 Thursday, the 6.33%, 2035 bond ended at INR 100.30 or 6.29%, while the 6.79%, 2034 bond ended at INR 103.09 or 6.34%.

OIS RATES

Friday, swap rates are likely to take cues from movement in US yields after the US jobs data. Swap traders are closely tracking comments from US Federal Reserve 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 fall by more than 10 basis points as domestic rate cut expectations could resurface. 

The daily overnight Mumbai Interbank Offer Rate 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% Friday. The five-year contract is seen at 5.62-5.84%. Thursday, the one-year swap ended at 5.51% and the five-year swap at 5.65%.

CALL

On Friday, the three-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 4.90-5.50% and the tri-party repo rate in a range of 4.80-5.30%. Thursday, the one-day call rate ended at 5.28%, while the tri-party repo rate ended at 5.00%.

RBI AUCTION

--Govt to auction two gilts worth INR 320 billion

--RBI to hold seven-day VRRR auction for INR 1.00 trillion 1000-1030 IST

LIQUIDITY

--Total net inflows of INR 13.66 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 13.66 billion as coupon on state bonds

--INR 849.75 billion as reversal of seven-day variable rate reverse repo auction

* Outflows

--Nil

End

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

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