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Informist, Thursday, Jul. 24, 2025

MUMBAI – Government bond prices may open lower ahead of the weekly gilt auction at 1030-1130 IST on Friday, dealers said. The government will sell INR 60 billion of the 5.91%, 2028 gilt and INR 300 billion of the 10-year benchmark 6.33%, 2035 bond. Traders will also await any comments by Reserve Bank of India Governor Sanjay Malhotra, who is scheduled to speak at the Modern BFSI Summit hosted by Financial Express at 1025 IST Friday. 

Gilts and overnight interest rate swaps may also take direction from the overnight movement of US Treasury yields after key US economic data, dealers said. US weekly jobless claims for the week ended Saturday fell to 217,000 from 221,000, and lower than a consensus of 227,000 from The Wall Street Journal. Flash purchasing managers index data was mixed, with services activity up and manufacturing down in July.

On Friday, the three-day call rate is likely to open near the RBI's repo rate on demand for funds from banks to meet reserve requirements as the current reporting fortnight ends. 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 4.90-5.60%.

Traders will also track developments in India-US trade talks and 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

On Friday, bond prices are seen opening lower as traders may place short bets ahead of the INR-360-billion auction, dealers said. Traders will also await any comments from RBI Governor Malhotra, who is scheduled to speak at the Modern BFSI Summit hosted by Financial Express at 1025 IST Friday. 

The 6.33%, 2035 gilt may underperform other gilts ahead of fresh supply of the 10-year benchmark at Friday's auction. Traders may take cues from the result of the gilt auction, dealers said. Gilts are also 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.

Traders will also watch out for any further liquidity management operations by the RBI. Malhotra had 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 reverse repo auction either after market hours Thursday or Friday and will closely watch liquidity in the banking system and movement in money market rates, they said.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.26-6.35% and that on the most traded 6.79%, 2034 bond is seen at 6.32-6.40%. On Thursday, the 2035 bond ended at INR 100.01, or 6.33% yield, while the 2034 bond ended at INR 102.81, or 6.38% yield.

OIS RATES

On Friday, swaps may track the overnight movement of US Treasury yields after the release of weekly unemployment claims and purchasing managers' index data, dealers said.

Traders don't see any significant cues on domestic interest rates before the RBI's rate-setting panel's next meeting in early August. They may take cues from the movement in overnight MIBOR, which is expected to subside to 5.30-5.35% in the next few days from 5.63% Thursday, dealers said.

Meanwhile, the weekly gilts auction Friday is unlikely to have an impact on swap rates as there are no long-term bonds on offer, dealers said. Bond forwards and forward-rate agreements for gilts maturing in 30-50 years at auction typically push up two- and five-year swap rates.

Traders await the outcome of the US Federal Open Market Committee's meeting next week. They expect the FOMC to hold rates at this meeting. Some believe the RBI's rate-setting panel will not cut rates further until the FOMC does so, to protect the interest rate differential between the two countries. Traders will closely track any comment from Trump on Powell.

The one-year swap rate is seen in the range of 5.42-5.55% Friday. The five-year contract is seen at 5.62-5.78%. On Thursday, the one-year swap ended at 5.50% and the five-year swap ended at 5.69%.

CALL

On Friday, the three-day call rate is likely to open near the RBI's repo rate on demand for funds from banks to meet reserve requirements as the current reporting fortnight ends. 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 4.90-5.60%. On Thursday, the one-day call rate ended at 5.00%.

Reversal of the seven-day variable rate reverse repo auction will release INR 2 trillion that banks had parked with the RBI. Two variable rate repo auctions worth INR 514.22 billion are also due for reversal Friday. The central bank will conduct a seven-day variable rate reverse repo auction for INR 1.25 trillion at 1000-1030 IST.

RBI AUCTION

--Govt to auction two gilts worth INR 360 billion

LIQUIDITY

--Total net inflows of INR 16.98 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 16.86 billion as coupon on state bonds

--INR 115.15 million as coupon on 5.85%, 2030 bond

--INR 2.00 trillion as reversal of seven-day VRRR auction

* Outflows

--INR 500.00 billion as reversal of two-day VRR auction

--INR 14.21 billion as reversal of overnight VRR auction

End

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

Reported by Aaryan Khanna

Edited by Avishek Dutta

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