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Informist, Monday, Jul. 6, 2026

MUMBAI – Government bond prices and overnight indexed swap rates are expected to track overnight movement in US Treasury yields and prices of Brent crude oil on Tuesday, dealers said. Bond prices will also track the result of the INR-213.50-billion state bond auction Tuesday, dealers added.

Traders also await any announcement related to the inclusion of India's sovereign bonds to Bloomberg's flagship Global Aggregate Index, which may pull down bond yields to 6.65%. Traders have already piled into gilts, expecting the addition, and may book profits after the inclusion is announced, which is expected by mid-July. If Indian bonds are included, dealers expect India's Fully Accessible Route bonds to have a weight of 0.8-1.0% in the index, driving in around $25 billion in foreign portfolio investment.

The one-day interbank call money rate is expected to open at the Reserve Bank of India's repo rate of 5.25% due to tax outflows, though liquidity is in surplus may provide support to the rate, dealers said.

GOVERNMENT BONDS

On Tuesday, bond prices will track overnight movements in US Treasury yields. Any significant movement in Brent crude oil prices will also provide cues, dealers said. However, domestic focus will be largely on foreign inflows and any news regarding the inclusion of Indian bonds in the Global Aggregate Index. Traders expect Bloomberg to publish its review between Jul. 15 and the end of the month. Most traders expect an inclusion, though some technical difficulties for FPIs purchasing bonds persist, dealers said. Traders will also track the result of the INR-213.50-billion state bond auction Tuesday. Most of the bonds being issued mature in more than 10 years. The yield is seen falling to 6.65% in the near term, which would be below 6.66% seen before the West Asia war began, on bets of gilts being included in Bloomberg's flagship Global Aggregate Index.

Traders are also likely to remain cautious ahead of the release of India's June inflation data, dealers said. Traders await the release of India's June inflation data, which is expected to be on the higher side, reflecting the rise in energy prices, dealers said. Deficient southwest monsoon rainfall will also contribute to higher inflation, dealers said. CPI inflation data for June will be released on Jul. 13.  

OIS RATES

On Tuesday, swap rates are seen tracking the movement of US Treasury yields and crude oil prices overnight. Offshore cues are in focus due to lack of scheduled domestic rate triggers until next week's CPI data release, dealers 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. However, no rate hike is expected until December after assessing recent commentary from RBI officials, dealers said. 

Traders await Bloomberg's decision on the inclusion of gilts in its flagship index, with most traders betting on an inclusion. Traders also expect overnight rates to ease due to a liquidity boost from inflows into foreign-currency non-resident bank deposits.

The movement of the rupee could also lend cues. The one-year swap rate is seen in the range of 5.60-5.90% and the five-year at 6.05-6.23%. 

CALL

On Tuesday, the one-day interbank call money rate is expected to open at the RBI's repo rate of 5.25% amid tax outflows but as liquidity is in surplus, dealers said. Liquidity conditions are expected to improve in the near term as foreign currency non-resident bank deposits are expected to pick up pace. Banks hedging deposits under the central bank's concessional swap window will gain rupee liquidity, potentially easing money market rates, dealers said. Later in the week, maturity of the 8.33%, 2026 gilt with an outstanding of over INR 310 billion Thursday will also add to systemic liquidity. 

Dealers expect the call rate to be at 4.60–5.30% Tuesday. The tri-party repo rate is expected to be in the 4.90–5.20% band. The weighted average call rate is expected to be in the 5.20–5.30% band, and that in the tri-party repo market is likely to be in the 5.10–5.20% band, they said.

RBI AUCTION

--RBI to hold overnight VRR auction for INR 500 bln 0930-1000 IST Tue 

--13 states to raise INR 213.50 billion via bond sale

LIQUIDITY

Total net inflows of INR 82.48 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 5 billion as redemption of state bonds

--INR 18.37 billion as coupon on state bonds

--INR 59.12 billion as coupon on 6.68%, 2040 gilt

* Outflows

--Nil

End

US$1 = INR 95.3950

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

Reported by Diksha Tripathy

Edited by Avishek Dutta

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