India bonds seen steady ahead of RBIs debt sale, liquidity moves

Mint

18-07-2025

MUMBAI, July 18 (Reuters) - Indian government bond yields are expected to be largely unchanged as traders await fresh debt supply through the weekly auction, while the central bank's larger-than-expected quantum for its liquidity withdrawal operation keeps investors cautious.
The yield on the benchmark 10-year bond is likely to trade between 6.30% and 6.33%, a trader at a private bank said, after closing at 6.3010% on Thursday. The five-year 6.75% 2029 bond ended at 5.9704%.
New Delhi will sell bonds worth 270 billion rupees ($3.14 billion), which includes a new five-year paper and a 30-year bond. The cutoff for the five-year bond would provide insight into the appetite for shorter-duration papers.
"There was some relief rally yesterday as foreign banks entered after rate cut bets strengthened," the trader said.
"But we could be back to rangebound trades today due to debt sale and higher quantum of reverse repo from the Reserve Bank of India (RBI)."
The RBI will conduct a seven-day variable rate reverse repo (VRRR) auction for 2 trillion rupees against a similar maturing amount.
Market participants, however, were anticipating a lower amount as outflows for goods and services tax would start from Friday.
Overnight and short-term rates have risen since the central bank started the VRRRs three weeks ago.
Meanwhile, bets for interest rate cuts have started rising after retail inflation slipped to 2.10% in June, the slowest pace in more than six years, down from 2.82% in May.
An estimated drop in inflation to a record low in July is prompting calls for at least one more rate cut this year. RATES India's shorter duration overnight index swap rates (OIS) are expected to see paying pressure due to aggressive cash withdrawal from the RBI.
The one-year OIS rate ended at 5.51% and the two-year OIS rate at 5.48%. The liquid five-year finished at 5.7250%.
** Benchmark Brent crude futures little changed at $69.50 per barrel after rising 1.5% on Thursday
** Ten-year U.S. Treasury yield at 4.4443%; two-year yield at 3.9170%
** India to auction sovereign bonds worth 270 billion rupees
** RBI to set underwriting fees for sovereign bond auction worth 270 billion rupees
** RBI to conduct seven-day variable rate reverse repo auction worth 2 trillion rupees ($1 = 85.9940 Indian rupees) (Reporting by Dharamraj Dhutia; Editing by Sumana Nandy)