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Informist, Monday, Jul. 28, 2025

MUMBAI – Government bond prices and overnight indexed swap rates Tuesday are likely to take cues from the overnight movement in US Treasury yields, dealers said. Gilt prices may also take cues from the results of the INR 300-billion state bond auction on Tuesday, dealers said. 

On the global front, traders await the outcome of the US Federal Open Market Committee's meeting Wednesday. Although traders expect the FOMC to hold rates steady, they will keenly track commentary from US Federal Reserve officials, especially given the recent backlash from US President Donald Trump for not cutting rates sooner. Some believe the Reserve Bank of India's Monetary Policy Committee will not cut rates further until the FOMC does so, to protect the interest rate differential between the two countries. 

Trump's deadline for the pause on the 'reciprocal' tariffs also ends Friday. Some traders are sceptical about a trade deal between India and the US before the deadline ends. An agreement between the two countries is likely to help the rupee appreciate and result in some foreign portfolio investment inflows into equities as well as fixed income, dealers said.

On Tuesday, the one-day call rate is likely to open near the RBI's repo rate due to the variable rate reverse repo auction.

GOVERNMENT BONDS

On Tuesday, bond prices are likely to take cues from movement in US Treasury yields. Gilts may fall during the day as traders trim August rate cut bets and make room to absorb a higher-than-expected supply of bonds this week, dealers said. Traders are likely to take cues from the results of the INR 300-billion state bond auction Tuesday, they 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%. Prices of extremely short-term bonds may be supported after the RBI announced an INR-300-billion buyback auction on Thursday, 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.

Crude oil price movements may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.35-6.40% and that on the most traded 6.79%, 2034 bond is seen at 6.38-6.45%. On Monday, the 2035 bond ended at INR 99.70 or 6.37% yield, while the 2034 bond ended at INR 102.52 or 6.42% yield. 

OIS RATES

On Tuesday, the overnight indexed swap rates may track the movement of US Treasury yields and gilt yields. Traders don't see any significant cues on domestic interest rates before the RBI's rate-setting panel's meeting next week. Near-term swap rates may take cues from the movement in overnight Mumbai Interbank Offered Rate, which is expected to remain in the 5.30-5.40% band, dealers said.

On the global front, traders await the outcome of the US FOMC's meeting Wednesday. Caution may limit volatility in swap rates due to a data-heavy week in the US. The US personal income and outlays for June are due Thursday, and the US employment report, which includes the crucial non-farm payroll data, for July is due Friday. 

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%. The one-year swap rate ended at 5.55% and the five-year swap rate ended at 5.75% on Monday. 

CALL

On Tuesday, the one-day call rate is likely to open near the RBI's repo rate due to the variable rate reverse repo auction. During the day, the call rate is seen in a range of 4.80-5.60% and the triparty repo rate in a range of 4.90-5.55%. On Monday, the one-day call rate ended at 5.00%. 

RBI AUCTION

--RBI to hold INR 500-billion, three-day variable rate reverse repo auction at 0930-1000 IST

--Twelve states to raise INR 300 billion via bond sale at 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 151.63 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 10.38 billion as coupon on state bonds 

--INR 141.25 billion on redemption of state bonds

* Outflows

--Nil

End

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

Reported by Srijita Bose

Edited by Saji George Titus

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