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Informist, Thursday, Jul. 31, 2025

MUMBAI – Government bond prices are seen opening lower ahead of gilts auction Friday, dealers said. Gilts and overnight indexed swap rates may take cues from the overnight movement in US Treasury yields, they said. 

Data released after market hours showed initial jobless claims in US rose 1,000 to a seasonally adjusted 218,000 for the week ended Saturday. Traders now await non-farm payrolls data in the US, due post market hours Friday, along with further clarity on US President Donald Trump's tariff policy on Indian goods. The lack of a deal before the Aug. 1 deadline is likely to keep the rupee under pressure.

Traders are now mainly focussed on the Reserve Bank of India's Monetary Policy Committee meeting outcome, dealers said. While traders do not expect a rate cut next week, they will track any indications of further rate cuts. A few dealers expect that the RBI's CPI inflation forecasts could be lowered by 5-10 basis points.

Traders also await the revised liquidity management framework, expected either before or at the MPC meeting outcome next week. 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.

On Friday, the three-day call rate is likely to open above the RBI's repo rate on the seven-day variable rate reverse repo auction notice.

GOVERNMENT BONDS

On Friday, bond prices are likely to open lower ahead of the INR-320-billion gilt auction, dealers said. Traders will await the auction results, and some expect prices to rise afterwards, driven by strong demand from long-term investors, they said. 

Traders will also look out for any further announcements on US tariffs on India. Some demand could come as traders now expect US tariffs to lead to a slowdown in domestic growth, which could prompt the RBI to cut rates later in the year, dealers said. On the global front, traders await non-farm payrolls data on Friday, along with further clarity on Trump's tariff policy.

Traders will also look out for any announcement of a new liquidity framework by the RBI for cues to trade gilts maturing up to seven years. Governor Sanjay Malhotra had said he would like the call money rates to adhere to the policy repo rate of 5.50%.

Movements in crude oil prices may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.35-6.41% and that on the 6.79%, 2034 bond is seen at 6.38-6.47%. On Thursday, the 2035 bond ended at INR 99.68 or 6.37% yield, while the 2034 bond ended at INR 102.55 or 6.42% yield. 

OIS RATES

On Friday, overnight indexed swap rates may track the movement in US Treasury yields after the release of weekly jobless claims in the US. Swaps may also track the movement of crude oil prices and gilt yields. Traders await non-farm payrolls data in the US, due post market hours Friday, along with further clarity on US President Donald Trump's tariff policy on Indian goods. Swaps may also take cues from the movement of the rupee against the dollar.

Near-term swap rates will track the movement of the overnight Mumbai Interbank Offered Rate. The one-year swap rate is seen in the range of 5.42-5.58% Friday. The five-year contract is seen at 5.62-5.78%. On Thursday, the one-year swap ended at 5.51% and the five-year swap ended at 5.73%. 

CALL

On Friday, the three-day call rate is likely to open above the RBI's repo rate on the seven-day variable rate reverse repo auction notice. The RBI will hold seven-day INR-2-trillion variable rate reverse repo auction at 0930-1000 IST. During the day, the call rate is seen in a range of 4.80-5.60% and the triparty repo rate in seen in a range of 4.70-5.55%. On Thursday, the one-day call rate ended at 4.95%. 

RBI AUCTION

--RBI to hold seven-day INR-2.00-trillion variable rate reverse repo auction at 0930-1000 IST 

--Government to auction two gilts worth INR 320 billion at 1000-1030 IST 

LIQUIDITY

--Total net inflows of INR 13.92 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 13.92 billion as coupon on state bonds

--INR 1.25 trillion on reversal on seven-day VRRR tender

--INR 460.58 billion on reversal on three-day VRRR tender

--INR 130.75 billion on reversal on overnight VRRR tender

* Outflows

--Nil

End

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

Reported by Srijita Bose

Edited by Deepshikha Bhardwaj

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