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Informist, Monday, Jun. 15, 2026

NEW DELHI – Government bond prices and overnight indexed swap rates will take cues from the overnight movement of crude oil prices and US Treasury yields at the open on Tuesday. Despite the announcement of a peace deal between the US and Iran, traders are uncertain whether the terms of the deal will hold until its formal signing, scheduled on Friday. 

Bond yields and swap rates may inch lower as the geopolitical environment clears up and the risk appetite improves, with trading portfolios already having grown larger over the past two weeks. However, crude oil futures are not expected to sustain below $80 per barrel after falling to near-$82 per barrel Monday, making further gains in the Indian market unlikely, dealers said.

Traders now look ahead to the potential inclusion of India's bonds in Bloomberg's flagship Global Aggregate Index, which may lead to over $20 billion of inflows by next year. The review could be as soon as next week, dealers said.

Traders also look ahead to the US Federal Open Market Committee's rate decision on Wednesday. The panel is widely expected to stand pat on policy rates, but traders await comments from newly appointed US Federal Reserve Chair Kevin Warsh on inflation and employment to gauge the direction of US interest rates, which have swung wildly since the war in West Asia began.

The one-day call money rate is expected to open higher than the policy repo rate of 5.25% on Tuesday due to an early demand for funds from primary dealerships amid tight surplus liquidity, dealers said. Dealers expect the call rate to be in the 4.70–5.45% range.

GOVERNMENT BONDS

On Tuesday, prices are expected to track crude oil prices, with traders cautious about whether the US-Iran peace deal will be signed by Friday. Traders are not expecting Brent crude oil prices to sustain a fall below $80 a barrel in the near-term, even if a deal is signed, since supply chains are likely to remain disrupted.

Similarly, the 10-year benchmark gilt yield is not seen sustaining a move below 6.80%, though some traders see 6.75% as the floor. The yield is unlikely to fall to pre-war level of 6.66%, they said. The bond yield curve could, however, steepen further, with demand seen as robust for the shorter end of the curve. The 10-year benchmark 6.94%, 2036 gilt ended at INR 100.49, or 6.8704% yield, Monday. 

Tuesday, traders will also track the result of the INR-216-billion state bond auction. The supply is lower than indicated for the week in the borrowing calendar, but these securities are not in favour as most tenures are long-term, dealers said. 

Market sentiment is expected to remain positive, given the likelihood that FPI flows will sustain for at least the next two weeks, dealers said. This will depend on Bloomberg's review of India for the possible inclusion of gilts in its flagship bond index, they said. The FPI inflows are expected to increase the liquidity in the banking system, which is likely to support the market, they said. Demand for short-term gilts in the secondary market is expected to rise as well, with more inflows, dealers added. If the peace deal holds, traders are likely to pare bets of rate hikes by the MPC this calendar year, with bets of a hike in August lowered Monday.

OIS RATES

Swap rates may trend lower if the peace deal between the US and Iran continues without further issue until the official signing scheduled for Friday. The one-year OIS rate could fall to 5.80% while the five-year swap rate is seen falling to 6.20% if the peace deal continues as planned and the Strait of Hormuz is reopened, dealers said.

A likely liquidity boost due to the RBI's measures to shore up capital could temper a rise in short-term rates, dealers said. Most traders now do not expect a repo rate hike in August, though concerns over deficient rainfall and higher food prices remain. The Monetary Policy Committee may hike the repo rate in October, but a rate-hike in the near-term seems unlikely with the peace deal coming to fruition and May's CPI inflation lower than expected. 

Traders will also track any development on the inclusion of Indian government bonds on Bloomberg Index Services' flagship Global Aggregate Index after the RBI and the Centre unveiled a slew of measures to improve foreign inflows earlier this month, dealers said. Government sources said that such measures were intended to secure the inclusion. Bloomberg, which deferred its decision on the inclusion of Indian bonds in January, said it plans to provide the next update on the potential inclusion by mid-2026. The movement of the rupee could also lend cues.

The one-year swap rate is seen at 5.80-6.15% and the five-year at 6.20-6.42%. On Monday, the one-year swap rate ended at 5.93% and the five-year rate ended at 6.32%.

CALL

The one-day call money rate is expected to open higher than the policy repo rate of 5.25% on Tuesday due to an early demand for funds from primary dealerships amid tight surplus liquidity, dealers said. Advance tax payments may continue Tuesday, though the majority took place Monday, they said. The one-day call money rate ended at 5.35% Monday. 

The RBI's seven-day, INR-1.50-trillion variable rate repo auction at 0930-1030 IST Tuesday may help keep the call money rate below the Marginal Standing Facility rate of 5.50%. However, traders had mixed views on subscription at the auction, with banks not preferring to borrow funds for seven days. At the same time, systemic liquidity is expected to remain tight due to the advance tax payments and the goods and services tax payments next week. 

Dealers expect the call rate to be in the 4.70–5.45% range. The tri-party repo rate is expected to trade in a 4.90–5.30% band. The weighted average call rate is expected to be around 5.25–5.30%, and the weighted average rate in the tri-party repo market is likely to be around 5.15-5.20%, they said. 

RBI AUCTION

--RBI to hold seven-day variable rate repo auction for INR 1.50 trillion 0930-1000 IST

--Nine states to raise INR 216 billion via bond sale 1030-1130 IST

LIQUIDITY

Total net inflows of INR 130.00 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 6.14 billion as coupon on state bonds

--INR 7.50 billion as redemption of state bonds

--INR 52.97 billion as coupon on 6.64%, 2035 gilt

--INR 54.66 billion as coupon on 6.95%, 2051 gilt

--INR 8.73 billion as coupon on 6.98%, 2054 sovereign green bond

* Outflows

--INR 282.20 billion as reversal of overnight variable rate repo auction

End

US$1 = INR 94.71

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

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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