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Informist, Thursday, Jul. 17, 2025

NEW DELHI – Government bond prices may open steady Friday ahead of the INR-270-billion weekly gilt auction at 1030-1130 IST, dealers said. The government will sell INR 150 billion of a new five-year, 2030 bond and INR 120 billion of the 7.09%, 2054 gilt.

Gilt prices and overnight indexed swap rates may also take cues from the overnight movement in US Treasury yields after the release of weekly unemployment claims data in the US. For the week ended Saturday, US jobless claims fell by 7,000 on week to 221,000, the lowest since early April. At 2155 IST, the 10-year US yield was 4.45%, against 4.47% at the time when India's gilts and swap markets shut at 1700 IST.

On Friday, the three-day call rate may open near the Reserve Bank of India's repo rate due to weekend funding needs. 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 Friday may open steady ahead of the INR-270-billion weekly gilt auction at 1030-1130 IST. The movement in US Treasury yields after the release of US weekly unemployment claims may lend cues at the open, dealers said.

The government will sell INR 150 billion of a new 2030 gilt and INR 120 billion of the 7.09%, 2034 gilt at 1030-1130 IST. Short-term bonds may remain well-bid after RBI Governor Sanjay 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.

Traders and asset-liability managers are likely to bid aggressively for the five-year gilt, with hope building that the RBI's Monetary Policy Committee could cut the repo rate in August. Some traders may cover short sales in the 30-year gilt at auction, and pension funds are likely to bid in large sizes for the 2054 bond with no supply of long-term gilts in the next auction, dealers said.

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 Thursday.

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% and that on the most traded 6.79%, 2034 bond is seen at 6.33-6.39%. On Thursday, the 6.33%, 2035 bond ended at INR 100.20, or 6.30%, while the 6.79%, 2034 bond ended at INR 102.98, or 6.36%.

OIS RATES

On Friday, swaps may track the movement of US Treasury yields after the release of weekly jobless claims for the week ended Saturday, dealers said. The data is closely tracked for cues on the rate trajectory in the US, especially after Tuesday's US CPI inflation data dampened hopes of a rate cut by the Federal Open Market Committee in September. Traders expect the FOMC to hold rates at its meeting at the end of this month. Traders will closely track any comments from US President Donald Trump on the US Federal Reserve chair. 

On the domestic front, traders will track overnight borrowing rates and the overnight Mumbai Interbank Offer Rate – the floating leg of the OIS contract. Traders expect the RBI to announce a variable-rate reverse repo auction of INR 1 trillion for Friday, to roll over the quantum from previous auctions, which is due to be reversed Friday. Even if the VRRR size exceeds INR 1 trillion, it is unlikely to be subscribed for more than that due to outflows of goods and service tax starting Monday. 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 reflected in swaps through the movement of the rupee against the dollar, dealers said.

The one-year swap rate is seen in the range of 5.46-5.60% Friday. The five-year contract is seen at 5.62-5.78%. On Thursday, the one-year swap ended at 5.51% and the five-year swap at 5.73%.

CALL

On Friday, the three-day call rate may open near the RBI's repo rate due to weekend funding needs. 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 Thursday, the one-day call money rate ended at 4.90%, while the tri-party repo rate ended at 5.27%.

RBI AUCTION

--Government to sell INR 270 billion of two gilts

LIQUIDITY

--Total net inflows of INR 67.85 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 7.71 billion as coupon on state bonds

--INR 60.14 billion as redemption of 364-day Treasury bills

--INR 1.52 trillion as redemption of seven-day variable rate reverse repo

--INR 574.50 billion as redemption of three-day variable rate reverse repo

* Outflows

--Nil

End

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

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