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Informist, Tuesday, Jul. 7, 2026

MUMBAI – Prices of government bonds and overnight indexed swap rates are likely to track movement in US Treasury yields ahead of the release of the minutes of the US Federal Open Market Committee's June meeting, scheduled for 2330 IST Wednesday, dealers said. The rates will also track movement in prices of Brent crude oil, dealers added.

Traders also await an announcement related to the inclusion of India's sovereign bonds into 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, which is expected to be announced 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.

GOVERNMENT BONDS

On Wednesday, bond prices will track overnight movement in US Treasury yields at the open ahead of the release of the minutes of the US FOMC's June meeting. Any significant movement in Brent crude oil price will also provide cues, dealers said. However, domestic focus will largely be on foreign inflows and any news regarding the inclusion of Indian bonds in Bloomberg's 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 foreign portfolio investors purchasing bonds persist, dealers said.

Until clarity on the triggers mentioned above emerge, bond prices are seen moving sideways, with technical support for the 10-year benchmark gilt at 6.68% and resistance of 6.70%, limiting the scope for strong movement, dealers said.

Traders are also likely to remain cautious ahead of the release of India's June inflation data Monday, dealers said. The data are expected to be on the higher side, reflecting the rise in energy prices, they said. Deficient Southwest monsoon rainfall will also contribute to higher inflation, they said.

OIS RATES

On Wednesday, swap rates are seen tracking the movement of US Treasury yields and crude oil prices overnight. Offshore cues are in focus due to the 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, they added.

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 Wednesday, the one-day interbank call money rate is seen at the RBI's repo rate of 5.25% as tax outflows are likely to drain the liquidity surplus, dealers said. Traders will also gauge any liquidity drain from intervention by the RBI in the spot rupee market. However, 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, the 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% Wednesday. 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 auction 91-day T-bills worth INR 90 billion

--RBI to auction 182-day T-bills worth INR 80 billion

--RBI to auction 364-day T-bills worth INR 70 billion

--RBI to hold overnight VRR auction for INR 250 bln 0930-1000 IST

LIQUIDITY

Total net outflows of INR 155.82 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 20.63 billion as coupon on state bonds

--INR 37.05 billion as coupon on 7.17%, 2028 gilt

* Outflows

--INR 213.50 billion as payment on state bonds

--INR 11.35 billion as reversal of overnight variable rate repo auction

End

US$1 = INR 94.9675

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

Reported by Diksha Tripathy

Edited by Deepshikha Bhardwaj

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