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Informist, Monday, Jul. 7, 2025

MUMBAI – On Tuesday, government bond prices and overnight indexed swap rates are likely to open steady due to lack of significant cues, dealers said. Bonds and swaps may also take cues from the overnight movement in US Treasury yields. 

Updates on a preliminary US-India trade deal before US President Donald Trump's tariffs will be implemented on Aug. 1, and the minutes of the US Federal Open Market Committee's June meeting will be closely tracked, dealers said.

Traders expect the US and India to strike a preliminary trade deal within the week, which will likely help the rupee appreciate and also lead to some FPI inflows into both equities and fixed income, dealers said. 

The Reserve Bank of India's further actions on liquidity are being keenly watched by traders after the central bank announced a lower-than-expected variable rate reverse repo 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, dealers said. A sharp movement in crude oil prices may also lend cues.

On Tuesday, 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 4.80-5.30%.

GOVERNMENT BONDS

Tuesday, bond prices may open steady amid a lack of significant domestic cues. A lack of RBI liquidity absorption measures may keep short-term bonds in favour due to the significant liquidity surplus. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.26-6.33% Tuesday and that on the most-traded 6.79%, 2034 bond is seen at 6.32-6.38%. On Monday, the 6.33%, 2035 bond ended at INR 100.26 or 6.29%, while the 6.79%, 2034 bond ended at INR 103.03 or 6.35%.

OIS RATES

On Tuesday, swap rates are likely to take cues from the overnight movement in US Treasury yields. Traders fear that the 10-year US yield could rise to 4.50%, from a technical perspective, after remaining above the 4.20-4.30% range. The daily MIBOR fixing will also lend cues after the initial trading 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% Tuesday. The five-year contract is seen at 5.55-5.72%. On Monday, the one-year swap ended at 5.51% and the five-year swap at 5.68%.

CALL

On Tuesday, 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 4.80-5.30%. On Monday, the one-day call money rate ended at 4.90%, while the triparty repo rate ended at 5.26%.

RBI AUCTION

--Seven states to raise INR 133 billion via bond sale

LIQUIDITY

--Total net inflows of INR 49.53 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 40.02 billion as coupon on 8.60%, 2028 gilt

--INR 4.51 billion as coupon on state bonds

--INR 5.00 billion as redemption of state bonds

* Outflows

--Nil

End

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

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