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Informist, Monday, Jul. 14, 2025

MUMBAI – Government bond prices may fall on Tuesday and overnight indexed swap rates may rise after the Reserve Bank of India announced another variable rate reverse repo auction for Tuesday, dealers said. Traders see this as a move where the RBI wants to keep overnight money market rates anchored to the policy repo rate of 5.50%, which may weigh on gilts maturing up to seven years and swap rates maturing up to two years.

The RBI will conduct a three-day VRRR auction for a notified amount of INR 1 trillion at 1000-1030 IST Tuesday. This is after the central bank accepted all offers worth INR 1.52 trillion at the seven-day, INR 2.50 trillion VRRR auction Friday. On the global front, the movement in US Treasury yields and crude oil prices may lend cues, dealers said. 

Separately, traders 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. The rupee topped 86 a dollar Monday for the first time in a week due to continued uncertainty on the trade deal.

On Tuesday, the one-day call rate may open near RBI's repo rate before the INR 1 trillion, 3-day VRRR auction at 1000-1030 IST. 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 Tuesday after the RBI announced another variable rate reverse repo auction for Tuesday. Short-term bonds may fall more while gilts maturing in 10 years or more may not be influenced by the liquidity measure, and track the overnight movement in US Treasury yields, dealers said.

The government's decision to buy back INR 250 billion 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.

Meanwhile, the state bond auction result may lend direction to gilt prices later in the day, dealers said. Twelve states will raise INR 269 billion through bonds on Tuesday, against INR 174 billion scheduled in the states' indicative borrowing calendar. 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 and renewed trader interest, 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. The rupee topped 86 a dollar Monday for the first time in a week due to continued uncertainty on the trade deal.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.26-6.34% and that on the most traded 6.79%, 2034 bond is seen at 6.32-6.40%. On Monday, the 6.33%, 2035 bond ended at INR 100.09, or 6.32%, while the 6.79%, 2034 bond ended at INR 102.82, or 6.38%.

OIS RATES

Short-term swap rates may rise after the RBI announced a three-day, INR-1.00-trillion variable rate reverse repo auction for Tuesday. Some sections of the market had expected an announcement, which is seen pushing up money market rates, dealers said.

On the domestic front, traders will closely track overnight borrowing rates. The overnight MIBOR fixing will also lend cues after the initial trading hours. Swaps may track gilt yields, especially if traders hedge their bond forward-rate agreements with insurance companies.  

Swaps may also take cues from the movement in US Treasury yields, and comments from US President Donald Trump. Swap traders will also track developments in US-India trade talks and the negotiations between the US and other trading partners, dealers said. The impact of a US-India trade deal, or the lack of one, will be seen on swaps through the movement in the rupee against the dollar, dealers said.

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 last week.

The one-year swap rate is seen in the range of 5.46-5.60% Tuesday. The five-year contract is seen at 5.62-5.78%. On Monday, the one-year swap ended at 5.54% and the five-year swap at 5.74%.

CALL

On Tuesday, the one-day call rate may open near RBI's repo rate before the INR 1 trillion, 3-day VRRR auction at 1000-1030 IST. 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%. On Monday, the one-day call money rate ended at 4.90%, while the tri-party repo rate ended at 5.12%.

RBI AUCTION

--Twelve states to raise INR 269.00 billion via bond sale

LIQUIDITY

--Total net outflows of INR 90.08 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 9.33 billion as coupon on state bonds

--INR 80.75 billion as redemption of state bonds

* Outflows

--Nil

End

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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