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Informist, Thursday, Aug. 7, 2025

 

MUMBAI – Government bond prices and overnight indexed swap rates are seen tracking the overnight movement of US Treasury yields Friday, after the release of weekly jobless claims data in the US. Data released after market hours showed jobless claims rose by 7,000 to 226,000 in the week ended Saturday, higher than a Wall Street Journal consensus estimate of 221,000.  

 

Bonds and swaps may also track the movement of crude oil prices, the movement of the rupee against the dollar, and global developments. Traders await developments on tariffs and confirmation if talks between US President Donald Trump and his Russian counterpart Vladimir Putin could soothe market sentiment, dealers said.  

 

On the domestic front, traders may remain on the sidelines as they assess whether the rate-setting panel will reduce the policy repo rate further, with the next key data point being the July CPI inflation print to be released on Tuesday.

 

The MPC's unanimous pause on rates and the RBI's forecasts for growth and inflation in the June quarter of 2026 suggest a high bar for rate cuts. However, traders still see the possibility of the panel cutting rates in Oct-Dec if GDP growth surprises on the downside, particularly with the US imposing a cumulative 50% tariffs on imports from India, dealers said. On the liquidity front, traders have priced in overnight borrowing rates close to the repo rate.

 

Friday, the three-day call money rate may open near the RBI's repo rate of 5.50% due to the notice of two variable rate reverse repo auctions. RBI will hold a three-day variable-rate reverse repo auction for INR 1 trillion at 1030-1100 IST, and a six-day VRRR auction for INR 2 trillion at 0930-1000 IST Friday. Traders had expected a single seven-day VRRR auction of INR 2.00 trillion and had expected shorter-term VRRRs to be conducted next week. During the day, the call rate is seen in a range of 4.70-5.50%, dealers said.

 

GOVERNMENT BONDS

On Friday, bond prices may take cues from global developments and the overnight movement in US Treasury yields after the release of weekly jobless claims in the US for the week ended Saturday.

 

Traders will also take cues from the result of the weekly gilt auction. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.38-6.45% and that on the 6.79%, 2034 bond is seen at 6.42-6.50%. On Thursday, the 2035 gilt ended at INR 99.59 or 6.3861% yield, and the 2034 bond ended at INR 102.25, or 6.4591% yield. 

 

OIS RATES

On Friday, OIS rates may open steady after the volatility following the MPC decision, dealers said. Near-term swap rates will track the movement of the overnight Mumbai Interbank Outright Rate.

 

The one-year swap rate is seen in the range of 5.45-5.56% Friday. The five-year contract is seen at 5.64-5.76%. On Thursday, the one-year swap rate ended at 5.49% and the five-year swap rate ended at 5.67%. 

 

CALL

Friday, the three-day call money rate may open near the RBI's repo rate of 5.50% due to the notice of the two variable rate reverse repo auctions. RBI will hold a three-day variable-rate reverse repo auction for INR 1 trillion at 1030-1100 IST, and a six-day VRRR auction for INR 2 trillion at 0930-1000 IST Friday. Traders had expected a single seven-day VRRR auction of INR 2.00 trillion and had expected shorter-term VRRRs to be conducted next week. During the day, the call rate is seen in a range of 4.70-5.50%, dealers said. On Thursday, the one-day call rate ended at 4.95%. 

 

RBI AUCTION

--Govt to auction two gilts worth INR 250 billion

--RBI to hold 6-day VRRR auction for INR 2 trillion 0930-1000 IST

--RBI to hold 3-day VRRR auction for INR 1 trillion 1030-1100 IST 

 

LIQUIDITY

--Total net inflows of INR 21.40 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 21.40 billion as coupon on state bonds

--INR 1.72 trillion as reversal of seven-day variable rate reverse repo auction

--INR 677.55 billion as reversal of two-day variable rate reverse repo auction

--INR 490.55 billion as reversal of overnight variable rate reverse repo auction

 

* Outflows

--Nil

 

End

 

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

 

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