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Informist, Friday, Jul. 4, 2025

MUMBAI – On Saturday, the two-day call rate may open slightly below the RBI's repo rate due to comfortable liquidity conditions. Volume is expected to be low, which is generally the case for working Saturdays, as banks meet their funding requirements the previous day. Government bonds and overnight indexed swaps are not traded on Saturday.

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%. On Friday, the three-day call money rate ended at 4.75%, while the triparty repo rate ended at 5.00%.

GOVERNMENT BONDS

On Monday, bond prices may open steady in a data-light week for both India and the US. The movement in US yields after an extended weekend may lend cues, especially ahead of the release of the US FOMC minutes for its June meeting Wednesday, dealers said.

The RBI's further actions on liquidity are being keenly watched by traders after the central bank announced a lower-than-expected VRRR auction Friday at INR 1.00 trillion. Any short-term liquidity absorptions through VRRRs could be announced for Tuesday or later, when the central bank assesses banking system liquidity after scheduled outflows for excise duty.

The auction results Friday showed demand-supply conditions were broadly in check and the yield curve is unlikely to materially steepen or flatten here on, dealers said. Some long-term bonds may rise early next week as insurers take delivery of their zero-coupon securities from the auction. Lack of RBI liquidity absorption measures may also keep short-term bonds in favour due to the significant liquidity surplus, 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 6.26-6.33% Monday and that on the most-traded 6.79%, 2034 bond is seen at 6.32-6.38%. On Friday, the 6.33%, 2035 bond ended at INR 100.25 or 6.29%, while the 6.79%, 2034 bond ended at INR 103.01 or 6.35%.

OIS RATES

On Monday, swap rates are likely to take cues from movement in US Treasury yields over the weekend. Traders fear that the 10-year US yield could rise to 4.50%, from a technical perspective, after breaking the 4.20-4.30% range Thursday. 

Swap traders will also track any developments on US-India trade talks and trade talks between the US and its trade partners in general, as US President Donald Trump's Jul. 9 deadline for imposition of reciprocal tariffs nears. 

On the domestic front, traders will watch for announcements of further variable rate reverse repo auctions by the RBI. Traders are closely tracking overnight borrowing rates, which have cooled after rising earlier in the week. The daily MIBOR fixing will also lend cues after the initial hours.

Swap rates may also track the movement in gilt yields. The one-year swap rate is seen in the range of 5.46-5.60% Monday. The five-year contract is seen at 5.55-5.72%. On Friday, the one-year swap ended at 5.50% and the five-year swap at 5.68%.

RBI AUCTION

--Nil

LIQUIDITY

--Total net inflows of INR 10.96 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 10.96 billion as coupon on state bonds

* Outflows

--Nil

End

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

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