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Informist, Wednesday, Jul. 16, 2025

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

According to data released after Indian market hours, US producer price inflation was flat on month in June. Core producer price inflation, stripping out volatile items like food and fuel, was also unchanged in June. Both readings were expected to rise 0.2% on month, according to a Dow Jones poll. At 1930 IST, the 10-year US yield fell to 4.45%, against 4.49% at 1700 IST, when India's bonds and swaps stop trading for the day.

On Thursday, 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 Thursday may take cues from movement in US Treasury yields amid lack of scheduled cues on the domestic front, dealers said. With trading interest muted, prices may remain in a narrow band, they said. 

Short-term bonds may remain well-bid after RBI Governor Malhotra gave clarity on the central bank'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 250.00 billion of gilts maturing in the financial year 2026-27 (Apr-Mar) may lend some support to Treasury bills and bonds maturing 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 Thursday. The quantum accepted and cut-off prices may lend cues to short-term bonds, dealers said.

Traders may short-sell bonds near the end of market hours Thursday to make room for fresh supply at the weekly gilts auction worth INR 270.00 billion Friday. The government will sell INR 150.00 billion of a new 2030 bond and INR 120.00 billion of the 7.09%, 2054 gilt.

Traders also expect India and the US 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 fell below 86 a dollar again Wednesday before recovering.

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 Wednesday, the 6.33%, 2035 bond ended at INR 100.12, or 6.31%, while the 6.79%, 2034 bond ended at INR 102.85, or 6.38%.

OIS RATES

On Thursday, swaps may track the movement of US Treasury yields after the release of US producer price index data for June, dealers said. The data is closely tracked for cues on the rate trajectory in the US, especially after Tuesday's CPI inflation data dampened hopes of a rate cut by the FOMC in September.

Traders will closely track overnight borrowing rates and the Mumbai Interbank Offered Rate, as well as announcements by the RBI on variable-rate reverse repo auctions, if any. Traders are now pricing in an overnight call money rate of 5.40-5.50%, especially after the RBI governor said that the call money rate should be closer to the repo rate. Swaps may track the movement in gilt yields. Two- and five-year swaps may rise if banks 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 thereof, will be seen on swaps through the movement in the rupee against the dollar, dealers said.

Traders also await the development of a collateralised money market benchmark with interest. 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% Thursday. The five-year contract is seen at 5.62-5.78%. On Wednesday, the one-year swap ended at 5.52% and the five-year swap at 5.73%.

CALL

On Thursday, the one-day call rate may open below the RBI'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%. On Wednesday, the one-day call money rate ended at 4.90%, while the tri-party repo rate ended at 5.25%.

RBI AUCTION

--Government to buy back INR 250 billion worth of three gilts 1030-1130 IST

LIQUIDITY

--Total net outflows of INR 233.79 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 5.18 billion as coupon on state bonds

--INR 51.01 billion as coupon on 6.75%, 2029 gilt

* Outflows

--INR 164.00 billion as payment for 91-day Treasury bill

--INR 62.80 billion as payment for 182-day Treasury bill

--INR 63.18 billion as payment for 364-day Treasury bill

End

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

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