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Informist, Friday, Jul. 11, 2025

MUMBAI – Government bond prices may open lower on Monday after the Reserve Bank of India notified a larger-than-scheduled bond auction by states for Tuesday, dealers said. Twelve states will raise INR 269 billion through bonds on Tuesday, against INR 174 billion scheduled in states' indicative borrowing calendar for Jul-Sept. Money markets are shut Saturday.

Traders are also uncertain about the RBI's liquidity management, with concern that the central bank wants to drive up overnight money market rates and may soon introduce an on-tap variable rate reverse repo window or daily VRRR auctions, dealers said. This will keep up the downward pressure on short-term gilt prices and upward pressure on short-term swaps, dealers said.

Dealers will also look forward to inflation data for June, scheduled at 1600 IST Monday. India's CPI inflation likely fell to its lowest level in over six years in June on the back of the statistical effect of a high base and relatively low food prices. According to an Informist poll of 16 economists, headline inflation in June is seen falling to 2.3%, the lowest level since January 2019. Traders have discounted benign inflation prints until September, and bond prices are not likely to move up unless CPI inflation is below 2%, dealers said.

Traders also expect the US and India to strike a preliminary trade deal soon. This is likely to help the rupee appreciate and also result in some foreign portfolio investment inflows into both equities and fixed income, dealers said. However, some of the recent commentary from both sides has not been encouraging, they added. 

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. It was set below the Standing Deposit Facility rate of 5.25% on Monday and Tuesday, but rose to 5.39% Friday.

On the global front, the movement in US Treasury yields and crude oil prices over the weekend, may lend cues, dealers said. 

On Monday, 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 a range of 4.75-5.40% and the tri-party repo rate in a range of 4.70-5.30%.

GOVERNMENT BONDS

Bond prices may open slightly lower on Monday after the RBI notified a larger-than-scheduled bond auction by states for Tuesday, dealers said. However, prices of long-term bonds may continue to rise after firm demand for the 7.09%, 2074 bond at the weekly gilt auction Friday.

On other hand, the government's decision to buy back INR 250 billion worth of gilts maturing in 2026-27 (Apr-Mar) may lend some support to Treasury bills and bonds maturing up to two years, dealers said. The RBI said the government would buy back the 7.27%, 2026, 5.63%, 2026, and 6.99%, 2026 gilts on Thursday.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.26-6.34% Monday and that on the most-traded 6.79%, 2034 bond is seen at 6.32-6.40%. Friday, the 6.33%, 2035 bond ended at INR 100.21, or 6.30%, while the 6.79%, 2034 bond ended at INR 102.95, or 6.36%.

OIS RATES

On Monday, short-term swap rates may open slightly lower after the RBI, post market hours, announced that the central government will buy back bonds worth INR 250 billion Thursday. The liquidity infusion may be a welcome relief for traders since the RBI's recent liquidity moves have sparked confusion in the market. The overnight MIBOR fixing will also lend cues after the initial trading hours. 

The one-year swap rate is seen in the range of 5.46-5.60% Monday. The five-year contract is seen at 5.62-5.78%. Friday, the one-year swap ended at 5.54% and the five-year swap at 5.70%.

CALL

On Monday, 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 a range of 4.75-5.40% and the tri-party repo rate in a range of 4.70-5.30%. Friday, the three-day call money rate ended at 5.00%, while the tri-party repo rate ended at 5.10%.

RBI AUCTION

--Nil 

LIQUIDITY

--Total net outflows of INR 105.65 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 18.24 billion as coupon on state bonds on Saturday

--INR 46.47 billion as coupon on 7.04%, 2029 gilt on Saturday

--INR 12.19 billion as coupon on state bonds on Sunday

--INR 20.00 billion as coupon on state bonds on Monday

--INR 47.45 billion as coupon on 6.13%, 2028 gilt on Monday

* Outflows

--INR 250.00 billion as payment for gilts on Monday

End

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

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