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Informist, Tuesday, Jul. 15, 2025

NEW DELHI – Government bond prices and overnight indexed swap rates Wednesday may take cues from the overnight movement in US Treasury yields after the release of US CPI data for June, dealers said. There are no interest rate cues on the domestic front scheduled. 

According to data released at 1800 IST, US headline CPI inflation was slightly higher than expectation at 0.3% on month, but on an annualised basis, was up 2.7%, in line with a Dow Jones poll. Core CPI inflation was cooler at 0.2% on month, against expectation of a 0.3% rise. At 2020 IST, the 10-year US yield rose to 4.47%, against 4.43% at 1700 IST, when India's bonds and swaps stop trading for the day.

On Wednesday, the one-day call rate may open below the Reserve Bank of India's repo rate due to lack of major outflows. 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 on Wednesday may take cues from the movement in US Treasury yields after the release of US CPI data for June. Lack of domestic cues may keep trade volumes muted, dealers said.

Short-term bonds may remain well bid after RBI Governor Sanjay Malhotra provided clarity on the RBI's liquidity management aims, and said he would ideally like call money rates to adhere to the policy repo rate of 5.50%, 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 in up to two years, they said. The RBI said the government would buy back the 7.27%, 2026, 5.63%, 2026, and 6.99%, 2026 gilts on Thursday.

Prices of long-term bonds may continue to rise after firm demand for the 50-year benchmark bond at the weekly gilt auction Friday and renewed trader interest, dealers said. However, bonds maturing in 30 years may remain under pressure as traders make room for the 7.09%, 2054 gilt that the government will sell this week.

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.

Crude oil price movements may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.26-6.34% Wednesday 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 100.14, or 6.31%, while the 6.79%, 2034 bond ended at INR 102.85, or 6.38%.

OIS RATES

On Wednesday, swaps may track the movement in US Treasury yields after the release of US CPI data for June, dealers said. Data released after market hours showed that the US CPI inflation was 2.7% on year in June, in line with expectations. The data is closely tracked for cues on the outcome of the US Federal Open Market Committee's meeting at the end of this month, though most traders do not expect a rate cut.

Traders will closely track overnight borrowing rates and the Mumbai Interbank Offered Rate. Traders are now pricing in an overnight call money rate of 5.45%, especially after Malhotra said the call money should be closer to repo. Swaps in two and five years may rise if traders hedge their bond forward-rate agreements with insurance companies. 

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 it, 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% Wednesday. The five-year contract is seen at 5.62-5.78%. On Tuesday, the one-year swap ended at 5.53% and the five-year swap at 5.73%.

CALL

On Wednesday, the one-day call rate may open below the RBI's repo rate due to a lack of major outflows. 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 Tuesday, the one-day call money rate ended at 4.90%, while the tri-party repo rate ended at 5.25%.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 90 billion on Wednesday

--RBI to auction 182-day T-bills worth INR 60 billion on Wednesday

--RBI to auction 364-day T-bills worth INR 50 billion on Wednesday

LIQUIDITY

--Total net outflows of INR 250.54 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 18.46 billion as coupon on state bonds

* Outflows

--INR 269.00 billion as payment for state bonds

End

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

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