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Informist, Monday, Jul. 21, 2025

MUMBAI – On Tuesday, bonds and overnight interest rate swaps are likely to take cues from the overnight movement of US yields, dealers said. The board of governors of the US Federal Reserve began a closed-door meeting at 2100 IST Monday. Traders expect the US Federal Open Market Committee to hold the Fed funds rate at its meeting on Jul. 29-30.

Gilt traders are also likely to place bets on a rate cut or softer commentary from the Reserve Bank of India at the monetary policy review in early August, dealers said. During the day, traders may take cues from the result of the state bond auction Tuesday, they said. Six states plan to raise INR 107.50 billion through bonds at the auction at 1030-1130 IST.

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 traded below 86 a dollar again Monday.

Tuesday, the one-day call rate is likely to open near the RBI's repo rate on demand for funds to meet the remainder of goods and services tax outflows. During the day, the call rate is seen in a range of 5.00-5.50% and the tri-party repo rate in a range of 4.90-5.50%.

GOVERNMENT BONDS

Gilts may take cues at the opening from the movement in US Treasury yields overnight. Traders may build up portfolios betting on a rate cut or softer commentary from the RBI at the monetary policy review in early August, dealers said.

Short-term bonds may remain well bid after RBI Governor Sanjay Malhotra provided 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 6.33%, 2035 gilt may underperform other gilts this week ahead of its auction Friday, with INR 300.00 billion of fresh supply of the 10-year benchmark gilt.

During the day, traders may take cues from the result of the state bond auction Tuesday, dealers said. Six states plan to raise INR 107.50 billion through bonds at the auction at 1030-1130 IST. The indicative calendar for state borrowing for Jul-Sept showed 12 states would borrow INR 185.00 billion this week.

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 6.32-6.38%. Monday, the 6.33%, 2035 bond ended at INR 100.21, or 6.30% yield, while the 6.79%, 2034 bond ended at INR 103.00, or 6.35%.

OIS RATES

On Tuesday, swaps may track the overnight movement of US Treasury yields, dealers said. Traders expect the US FOMC to hold rates at its meeting at the end of this month, and some traders expect the RBI's Monetary Policy Committee to not cut rates further until the FOMC does, to protect the interest rate differential between the two countries. Traders will closely track any comments from US President Donald Trump on Fed Chair Jerome Powell.

On the domestic front, traders will track overnight borrowing rates and the overnight Mumbai Interbank Offered Rate. Traders do not expect the RBI to announce any further variable rate reverse repo auctions until Friday, and are now pricing in an overnight call money rate of 5.40-5.50%, especially after the RBI governor said the call money rate should be closer to the repo rate. Swaps may track the movement in gilt yields.

Swap traders will also track developments in the India-US trade talks as well as the continuing negotiations between the US and other trading partners, dealers said. The one-year swap rate is seen in the range of 5.42-5.55% Tuesday. The five-year contract is seen at 5.62-5.78%. On Monday, the one-year swap ended at 5.48% and the five-year swap at 5.68%.

CALL

On Tuesday, the one-day call rate is likely to open near the RBI's repo rate on demand for funds to meet the remainder of GST outflows. During the day, the call rate is seen in a range of 5.00-5.50% and the tri-party repo rate in a range of 4.90-5.50%. On Monday, the one-day call money rate ended at 5.00%, while the tri-party repo rate ended at 5.50%.

RBI AUCTION

--Six states to raise INR 107.50 billion via bond sale

LIQUIDITY

--Total net inflows of INR 9.90 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 6.22 billion as coupon on state bonds

--INR 3.69 billion as coupon on 6.79%, 2031 gilt

* Outflows

--Nil

End

Reported by Vidhushi RajPurohit

Edited by Rajeev Pai

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