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Informist, Tuesday, Jul. 8, 2025

MUMBAI – Government bond prices are likely to open slightly lower Wednesday while overnight indexed swap rates are likely to open higher after the Reserve Bank of India, after market hours Tuesday, announced a two-day variable rate reverse repo auction for INR 1.00 trillion, dealers said. Traders will closely track overnight borrowing rates, though the VRRR announcement was expected and is unlikely to hamper surplus liquidity in the banking system, dealers said. Bonds and swaps may also take cues from the overnight movement of US Treasury yields.

Traders fear, from a technical perspective, that the 10-year US Treasury yield could rise to 4.50% after remaining above the 4.20-4.30% range. They now await the minutes of the US Federal Open Market Committee's June meeting due after market hours Wednesday.

Updates on a preliminary US-India trade deal before US President Donald Trump's tariffs are implemented Aug. 1 will be closely tracked, dealers said. Traders expect India and the US to strike a preliminary trade deal soon. This is likely to help the rupee appreciate and also lead to some foreign portfolio investment inflows into both equities and fixed-income, dealers said. Any sharp movement in crude oil prices may also lend cues.

Traders also await with interest the development of a collateralised money market benchmark. Financial Benchmarks India Ltd. published the new benchmark Secured Overnight Rupee Rate for the first time Monday, and it was set at 5.16%, below the standing deposit facility rate. 

On Wednesday, 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 the range of 4.90-5.40% and the tri-party repo rate in the range of 4.80-5.30%.

GOVERNMENT BONDS

Wednesday, bond prices may open lower, though the fall may be limited as traders were expecting a VRRR auction. Updates on a preliminary India-US trade deal, expected by media reports to be announced within a few hours, and the minutes of the FOMC meeting will be closely tracked, dealers said. Cut-off yields at the weekly treasury bill auction are seen higher after the VRRR announcement.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.26-6.33% Wednesday and that on the most-traded 6.79%, 2034 bond is seen at 6.32-6.38%. Tuesday, the 6.33%, 2035 bond ended at INR 100.17, or 6.31%, while the 6.79%, 2034 bond ended at INR 102.91, or 6.37%.

OIS RATES

Swap rates are likely to open higher, though the rise may be limited as the VRRR auction was not unexpected. Swaps may also take cues from the overnight movement in US yields. The overnight Mumbai Interbank Offer Rate 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% Wednesday. The five-year contract is seen at 5.68-5.78%. Tuesday, the one-year swap ended at 5.52% and the five-year swap at 5.71%.

CALL

Wednesday, the one-day call rate may open slightly below the RBI's repo rate on comfortable liquidity. During the day, the call rate is seen in the range of 4.90-5.40% and the tri-party repo rate in a range of 4.80-5.30%. Tuesday, the one-day call money rate ended at 4.90%, while the tri-party repo rate ended at 5.27%.

RBI AUCTION

--RBI to hold two-day variable rate reverse repo auction for INR 1.00 trillion 1000-1030 IST

--RBI to auction 91-day T-bills worth INR 90.00 billion

--RBI to auction 182-day T-bills worth INR 60.00 billion

--RBI to auction 364-day T-bills worth INR 50.00 billion

LIQUIDITY

--Total net outflows of INR 89.88 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 27.67 billion as coupon on 7.38%, 2027 gilt

--INR 15.45 billion as coupon on state bonds

* Outflows

--INR 133.00 billion as payment for state bonds

End

Reported by Cassandra Carvalho

Edited by Rajeev Pai

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