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Informist, Wednesday, Jul. 23, 2025

MUMBAI – Government bonds and overnight interest rate swaps are likely to take cues Thursday from the overnight movement of US Treasury yields, dealers said. Traders expect the US Federal Open Market Committee to hold the Fed funds rate at its meeting on Jul. 29-30.

On Thursday, the one-day call rate is likely to open above the Reserve Bank of India's repo rate on demand for funds after goods and services tax outflows. Some traders expect the RBI to announce another variable rate repo auction Thursday and will closely watch liquidity in the banking system and movement in money market rates, dealers said.

Traders will also track developments in the India-US trade talks and the negotiations between the US and other trading partners, especially after US President Donald Trump announced deals with two countries. Crude oil price movements may also lend cues to gilts and swaps, dealers said.

GOVERNMENT BONDS

At Thursday's opening, gilts are likely to take cues from overnight movement in US Treasury yields. Traders may build up portfolios betting on a rate cut or softer commentary from the RBI at its monetary policy review meeting early next month, dealers said.

Short-term bonds may remain well bid after the clarity provided by RBI Governor Sanjay Malhotra on the central bank's liquidity management aims, dealers said. The governor has said he would like the call money rates to adhere to the policy repo rate of 5.50%. Some traders expect the RBI to announce another variable rate repo auction Thursday and will closely watch liquidity in the banking system and movement in money market rates, they said. The 6.33%, 2035 gilt may underperform other gilts ahead of the fresh supply of the 10-year benchmark at Friday's auction.

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 equities as well as fixed income, dealers said.

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%. On Wednesday, the 2035 bond ended at INR 100.12, or 6.31% yield, while the 2034 bond ended at INR 102.96, or 6.36% yield.

OIS RATES

Thursday, swaps may track the overnight movement of US Treasury yields, dealers said. 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 repo auction Thursday owing to pressure on systemic liquidity on outflows for GST payments. Swaps may also track the movement in gilt yields.

On the global front, traders await the outcome of the FOMC meeting at the end of the month. Traders expect the FOMC to hold rates at this meeting. Some expect the RBI's own rate-setting panel to hold the repo rate until the FOMC cuts its policy rate, to protect the interest rate differential between India and the US. Traders will also track any comments from US President Donald Trump on US Federal Reserve Chair Jerome Powell.

Dealers said swap traders will also track developments in the India-US trade talks and the negotiations between the US and other trading partners, especially after Trump announced deals with two countries. The one-year swap rate is seen in the range of 5.42-5.55% Thursday. The five-year contract is seen at 5.62-5.78%. Wednesday, the one-year swap ended at 5.49% and the five-year swap ended at 5.67%.

CALL

On Thursday, the one-day call rate is likely to open above the RBI's repo rate on demand for funds after GST outflows. During the day, the call rate is seen in a range of 5.00-5.65% and the triparty repo rate in a range of 4.90-5.70%. On Wednesday, the one-day call rate ended at 5.05%.

RBI AUCTION

Nil

LIQUIDITY

--Total net inflows of INR 317.66 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 352.00 billion on redemption on 91-day Treasury bills

--INR 89.58 billion on redemption on 182-day T-bills

--INR 60.71 billion on redemption on 364-day T-bills

--INR 27.02 billion as coupon on state bonds

--INR 61.75 billion as coupon on 8.97%, 2030 bond

* Outflows

--INR 141.00 billion as payment for 91-day T-bills

--INR 70.00 billion as payment for 182-day T-bills

--INR 62.40 billion as payment for 364-day T-bills

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Srijita Bose

Edited by Rajeev Pai

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