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Informist, Tuesday, Jul. 29, 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. US government data released after Indian markets had closed Tuesday showed job openings fell to 7.43 million at the end of June, against the consensus estimate of 7.55 million, indicating a cooling labour market. 

Triggers from the US are especially key this week as traders await the outcome of the US Federal Open Market Committee's meeting at 2330 IST Wednesday. Although traders expect the FOMC to hold rates steady, they will keenly track commentary from US Federal Reserve officials, considering the push by US President Donald Trump to cut interest rates. 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 Wednesday, the one-day call rate is likely to open below the RBI's repo rate as month-end inflows will likely start. During the day, the call rate is seen in a range of 4.80-5.50% and the triparty repo rate in a range of 4.80-5.45%.

GOVERNMENT BONDS

On Wednesday, bond prices are likely to take cues from movement in US Treasury yields ahead of the US Federal Open Market Committee meeting outcome late Wednesday, dealers said. Focus will be on offshore triggers this week, with no fresh triggers on domestic interest rates before the MPC meeting next week. Long-term gilts may remain under pressure ahead of the INR-320-billion auction Friday, with supply split between the 15- and 40-year benchmarks. 

Traders will also watch out for any announcement by the RBI on liquidity management operations. Governor Malhotra had said he would like the call money rates to adhere to the policy repo rate of 5.50%. Prices of bonds maturing within two years may be supported after the government said it would buy back three bonds maturing in 2026-27 (Apr-Mar) worth INR 300 billion 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 equities as well as fixed income, dealers said. The domestic currency hit its lowest level in over four months during the day.

Movements in crude oil prices may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.33-6.39% and that on the 6.79%, 2034 bond is seen at 6.37-6.44%. On Tuesday, the 2035 bond ended at INR 99.78 or 6.36% yield, while the 2034 bond ended at INR 102.64 or 6.40% yield. 

OIS RATES

On Wednesday, 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 Outright Rate, which is expected to hover around 5.30-5.40%, dealers said. 

On the liquidity front, traders have priced in overnight borrowing rates close to the repo, not below or above, and await the central bank's draft guidelines on the liquidity management framework expected at the end of this month. Dealers expect the RBI to define the optimal level of liquidity in the banking system in the draft guidelines.

On the global front, traders await the outcome of the US FOMC's meeting. Trump's pause on 'reciprocal' tariffs also ends Friday. Some traders are sceptical about a trade deal between India and the US before the deadline.   

The one-year swap rate is seen in the range of 5.42-5.55% Wednesday. The five-year contract is seen at 5.62-5.78%. The one-year swap rate ended at 5.52% and the five-year swap rate ended at 5.73% on Tuesday. 

CALL

On Wednesday, the one-day call rate is likely to open below the RBI's repo rate as month-end inflows will likely start. During the day, the call rate is seen in a range of 4.80-5.50% and the triparty repo rate in a range of 4.80-5.45%. On Tuesday, the one-day call rate ended at 4.95%. 

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 100 billion

--RBI to auction 182-day T-bills worth INR 60 billion

--RBI to auction 364-day T-bills worth INR 50 billion

LIQUIDITY

--Total net outflows of INR 246.76 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 31.43 billion as coupon on state bonds 

* Outflows

--INR 277.19 billion on payment for state bonds

End

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

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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