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Informist, Tuesday, Jun. 23, 2026

NEW DELHI – Government bond prices and overnight indexed swap rates will track the overnight movement in crude oil prices and peace negotiations between the US and Iran, dealers said. There are no significant domestic triggers lined up overnight or on Wednesday, they said.

Should the overall global scenario remain unchanged, traders expect the yield on the 10-year benchmark 6.94%, 2036 gilt to remain in the range of 6.83-6.88%, dealers said. State-owned banks are likely to continue selling bonds at a profit as gilt yields are near three-month lows. The movement in the rupee and US Treasury yields will also lend direction to gilt prices and OIS rates. 

The one-day call money rate is likely to open above the Reserve Bank of India's repo rate of 5.25% due to initial demand for funds to meet payment obligations ahead of the quarter-end, dealers said. Dealers expect the call rate at 4.60–5.50% Wednesday.

GOVERNMENT BONDS

Wednesday, government bond prices will track the overnight movement in crude oil prices and any significant development in the peace negotiations between the US and Iran, dealers said. Given that the overall global scenario remains unchanged, traders expect the yield on the 10-year benchmark 6.94%, 2036 gilt to remain in the range of 6.83-6.88%, dealers said. On Tuesday, the bond ended at INR 100.73 or 6.8364% yield.

Traders will also track the INR 240-billion auction of Treasury bills Wednesday as a higher-than-expected cut-off will pull down bond prices, dealers said. However, traders largely expect the cut-off yield on T-bills to be similar to the previous week's auction as the possibility of a rate hike is weak until the end of the current calendar year, they said.

The government will buy back four gilts worth INR 300 billion Monday, the central bank said Tuesday. The buyback auction will be held at 1030-1130 IST Monday. All four gilts at the buyback mature in FY27, which means the government is effectively pre-paying the securities. The gilts up for buyback are the 7.33%, 2026 bond; the 5.74%, 2026 bond; the 8.15%, 2026 bond; and the 8.24%, 2027 bond. No amount has been notified for each of the securities.

Traders also await the release of the state borrowing calendar for the September quarter. Higher-than-expected borrowing will pull bond prices down, dealers said. Traders are divided on the size of state borrowing for Jul-Sept. Some expect it to be broadly in line with the borrowing quantum in the June quarter, dealers said. Others expect it to be slightly higher than the borrowing in the September quarter a year ago. Traders expect the state borrowing calendar to be released Thursday or Friday with a quantum between INR 2.60 trillion and INR 3.30 trillion, dealers said.

Dealers expect market sentiment to stay positive on the likelihood of stronger foreign inflows, which should add liquidity to the banking system and support bond prices. They said that if the US-Iran peace deal holds, traders may scale back bets on an RBI Monetary Policy Committee rate hike in 2026.

Traders remained optimistic that Indian bonds will be added to Bloomberg's flagship Global Aggregate Index. If the inclusion goes ahead, they expect India's Fully Accessible Route bonds to make up 0.8-1.0% of the index. Bloomberg had said in its September consultation note that a weight of 0.7% was under consideration.

OIS RATES

Swap rates are seen tracking the overnight movement in crude oil prices on Wednesday. Offshore flows may also dictate the movement in swap rates, with no significant releases expected on the domestic rate view this week, dealers said. Most traders do not expect the RBI's MPC to hike the policy repo rate of 5.25% in August despite rising inflation.

Short-term swap rates may remain under pressure this week due to a crunch in banking system liquidity, before easing next week on the government's spending adding to systemic liquidity. System liquidity fell into a deficit Monday for the first time since Mar. 22. The overnight Mumbai Interbank Outright Rate has been set above the repo rate since May 19 and has been in the 5.38-5.44% band since Jun. 15.

A likely liquidity boost due to the RBI's measures to lure foreign capital is seen adding to the fall in short-term rates but at the same time, the central bank is likely to drain this liquidity starting in July, dealers said. Deficient rainfall and higher food prices are seen pushing up retail inflation in the coming months. The MPC may raise the repo rate in October, especially if the US Fed begins raising rates, they said.

Swap rates are seen rising in the medium term as domestic inflation is likely to rise due to the weak monsoon and supply disruption in crude oil, dealers said. Swap rates may fall if there is an uptick in non-resident dollar-denominated bank deposits of three- to five-year tenors. This is likely to lead to demand for short-term bonds and banks may begin to unwind their paid fixed rate positions that were hedging against a fall in the prices of their bond holdings, dealers said.

The movement of the rupee and US Treasury yields could also lend cues. The one-year swap rate is seen at 5.76-5.94% and the five-year at 6.18-6.40%. On Tuesday, the one-year swap rate ended at 5.85% and the five-year swap rate ended at 6.26%, both multi-month lows.

CALL 

On Wednesday, the one-day call money rate is likely to open above the RBI's repo rate of 5.25% due to initial demand for funds to meet payment obligations ahead of quarter-end, dealers said. Funding requirements to meet quarter-end credit disbursal needs from the banks are expected to keep the weighted average call rate above the policy rate, they said.

Most dealers expect the RBI to conduct more liquidity infusions this week of INR 500 billion to INR 750 billion, while some others said it will not conduct any auctions after Tuesday's VRR, which infused INR 1.41 trillion. This was seen as sufficient to tide banks over until month-end spending by the central government is likely to begin next week, dealers said. The one-day call money rate ended at 4.85% Tuesday. 

Dealers expect the call rate to be at 4.60–5.50% Wednesday.The tri-party repo rate is expected to be in the range of 4.90–5.40%. The weighted average call rate is expected to be around 5.25–5.35%, and that of the tri-party repo market is likely to be at 5.20-5.30%, dealers said. 

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 120 billion at 1030-1130 IST

--RBI to auction 182-day T-bills worth INR 60 billion at 1030-1130 IST

--RBI to auction 364-day T-bills worth INR 60 billion at 1030-1130 IST

LIQUIDITY

Total net outflows of INR 151.25 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 27.75 billion as coupon on state bonds

* Outflows
--INR 179.00 billion as payment for state bond auction

End

US$1 = INR 94.74

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

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

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