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Informist, Wednesday, Jul. 1, 2026

 

MUMBAI – Government bond prices and overnight indexed swap rates are expected to track the overnight movement in US Treasury yields and any significant changes in Brent crude oil prices Thursday, dealers said. Market participants will also monitor developments related to a possible US-Iran peace agreement, which could influence global crude oil prices and risk sentiment.

 

Traders remain optimistic about the inclusion of Indian government bonds in Bloomberg's flagship Global Aggregate Index. If that happens, they expect India's Fully Accessible Route bonds to carry a weight of 0.8-1.0% in the index, higher than the 0.7% weight proposed by Bloomberg in its consultation paper last year.

 

However, concern over domestic inflation continues to linger. Dealers said deficient rainfall and rising food prices could push up retail inflation in the coming months. They also expect the Reserve Bank of India to gradually withdraw surplus liquidity from the banking system ahead of any future policy tightening. While most traders no longer anticipate a repo rate hike in August or October, they remain cautious about the possibility of a US Federal Open Market Committee rate increase, which could alter expectations for India's interest rate trajectory.

 

In the money market, the overnight interbank call money rate is expected to open around the RBI's repo rate of 5.25% on routine funding requirements from primary dealers and some banks. Dealers expect money market rates to remain close to the policy rate before easing later in the week, as there are no major scheduled liquidity-draining events.

 

GOVERNMENT BONDS

On Thursday, bond prices will track overnight movement in US Treasury yields and any significant movement in Brent crude oil prices, dealers said. Traders will also track any development in the US-Iran peace agreement, they said. However, traders are likely to remain cautious ahead of the release of US economic data and the weekly gilt auction Friday.

 

Traders will also keep an eye on the US non-farm payrolls report for June, due Thursday. Investors will examine the data closely to assess the strength of the US economy, as it will have a bearing on US policy rate decisions, dealers 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, dealers said. Traders will track the movement in bond prices Thursday to determine the demand for the bond at the auction Friday. The 10-year benchmark 6.94%, 2036 bond ended at INR 101.30, or 6.7563% yield, Wednesday.

 

OIS RATES

Thursday, swap rates are seen tracking the overnight movement in US Treasury yields following comments by US Federal Reserve Chair Kevin Warsh after Indian market hours. Swaps may also track crude oil prices, though traders have priced in Brent crude oil prices at about $72 a barrel, they said. 

 

The movement of the rupee could also lend cues Thursday. The one-year swap rate is seen at 5.60-5.90% and the five-year at 6.10-6.30%. On Wednesday, the one-year swap rate closed at 5.79% and the five-year swap rate ended at 6.22%. 

 

CALL

On Thursday, the one-day interbank call money rate is expected to open around the RBI's repo rate of 5.25% on routine early funding requirements, dealers said. The one-day call money rate ended at 4.60% Wednesday, a seven-week low. 

 

Dealers expect the call rate to be at 4.60–5.45% Thursday. 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.

 

"This week we expect the weighted average call rate to fall below repo rate as there is nothing much (inflow or outflow) scheduled till next week," the dealer at the state-owned bank said.

 

RBI AUCTION

--Nil

 

LIQUIDITY

Total net outflows of INR 135.75 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 54.60 billion as redemption of 364-day Treasury bills

--INR 11.45 billion as coupon on state bonds

--INR 67.42 billion as coupon on 8.30%, 2040 gilt

 

* Outflows

--INR 99.00 billion as payment for 91-day T-bills

--INR 82.02 billion as payment for 182-day T-bills

--INR 88.20 billion as payment for 364-day T-bills

 

End

 

US$1 = INR 95.2475

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

 

Reported by Meera Nair

Edited by Rajeev Pai

 

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