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Informist, Tuesday, Jun. 30, 2026

 

MUMBAI – Traders are likely to be cautious in the government bond market Wednesday after the sharp rise and fall in prices Tuesday, both of which were larger than expected, dealers said. Mutual funds, primary dealers and private-sector banks were net sellers on Tuesday, all recording significant net sales. This may reinforce speculation among traders that there were no fundamental triggers for the sharp decline from the day's high and that it was driven by profit-booking. 

 

Any significant developments in the peace negotiations between the US and Iran, as well as movements in US Treasury yields, will also lend cues, dealers said. Overnight indexed swap rates are seen as guided by offshore triggers amid a lack of domestic interest rate cues. 

 

US government data released after Indian market hours Tuesday showed US job openings were steady at 7.6 million in May. The June non-farm payrolls report, tracking jobs added in the month, follows on Thursday. Investors will closely examine both to assess the strength of the US economy, as that will have a bearing on US policy rate decisions, dealers said.

 

The one-day interbank call money rate Wednesday is likely to open above the Reserve Bank of India's repo rate as primary dealers and some banks will borrow early to meet routine payments, dealers said. Dealers expect the call rate to be at 4.60–5.50% Wednesday.

 

GOVERNMENT BONDS

Wednesday, traders are likely to be cautious after the sharp rise and fall in prices Tuesday, both of which were unexpected at this scale, dealers said. Several traders were expecting the yield on the 10-year benchmark bond to fall to 6.60% in the near term, but some of those bets faded after Tuesday, they said. 

 

Traders also eye the INR 340-billion supply of the 6.94%, 2036 bond at auction Friday, which is likely to limit a fall in its yield this week and also weighed on the market Tuesday, dealers said. The 10-year benchmark bond ended at INR 101.34 or 6.7501% yield Tuesday.

 

Traders remain optimistic that Indian sovereign bonds will be added to Bloomberg's flagship Global Aggregate Index. If the inclusion proceeds, they expect India's Fully Accessible Route bonds to account for 0.8-1.0% of the index. Bloomberg had said in its September consultation note that a weight of 0.7% was under consideration.  

 

OIS RATES

Swap rates are seen tracking US Treasury yields and crude oil prices Wednesday. Traders are likely to play on spreads between swaps and gilt yields as the latter are seen as having greater scope to fall in the near term, dealers said. Lacking offshore triggers, swap rates are expected to remain steady with no domestic interest rate triggers this week, they said.

 

Deficient rainfall and higher food prices are expected to push up retail inflation in the coming months, while the RBI is likely to drain systemic liquidity ahead of a likely rate hike cycle, dealers said. Though most traders no longer expect a repo rate hike in August or October, they are wary of a US Federal Open Market Committee rate hike that could sharply change expectations for domestic rates, dealers said.

 

The movement of the rupee could also lend cues Wednesday. The one-year swap rate is seen at 5.60-5.90% and the five-year at 6.02-6.25%. On Tuesday, the one-year swap rate closed at 5.76% and the five-year swap rate ended at 6.18%. 

 

CALL

The one-day interbank call money rate Wednesday is likely to open above the RBI's repo rate as primary dealers and some banks will borrow early to meet routine payments, dealers said. The reversal of INR 1.44 trillion from two VRR auctions conducted earlier this week is scheduled for Wednesday. On Tuesday, the one-day call rate ended at 5.45%. 

 

The RBI has announced a two-day, INR 1.25 trillion VRR auction on Wednesday, which will help banks meet their funding needs below the Marginal Standing Facility rate of 5.50%, dealers said. Borrowing requirements are also expected to ease at the beginning of the reporting fortnight and the new quarter, which is likely to bring lenders back into the market and may help money market volumes bounce back. 

 

Dealers expect the call rate to be at 4.60–5.50% Wednesday. The tri-party repo rate is expected to be in the 4.90–5.45?nd. The weighted average call rate is expected to be in the 5.25–5.35?nd, and that of the tri-party repo market is likely to be in the 5.20–5.30?nd, they said. 

 

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 90 billion at 1030-1130 IST

--RBI to auction 182-day T-bills worth INR 80 billion at 1030-1130 IST

--RBI to auction 364-day T-bills worth INR 70 billion at 1030-1130 IST

--RBI to conduct two-day, INR 1.25 trillion variable rate repo auction 0930-1000 IST

 

LIQUIDITY

Total net outflows of INR 115.94 billion. The calculation of flows does not take into account redemption of the standing deposit facility and scheduled variable rate repo and variable rate reverse repo operations.

 

* Inflows

--INR 20.06 billion as coupon on state bonds

 

* Outflows

--INR 136.00 billion as payment on state bonds

--INR 750.21 billion as reversal of two-day variable rate repo auction

--INR 694.13 billion as reversal of overnight variable rate repo auction

 

End

 

Reported by Meera Nair

Edited by Saji George Titus

 

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