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Informist, Wednesday, Jun. 24, 2026

 

NEW DELHI – Government bond prices and overnight indexed swap rates will track overnight movements in crude oil prices and any significant development in the peace negotiations between the US and Iran on Thursday, dealers said. After Indian market hours Wednesday, Brent crude futures for August delivery fell over 4% intraday to $73.22 per barrel, a fresh low since the West Asia war began. Thursday will be the last trading day this week with money markets shut on Friday for Muharram.

 

However, traders are likely to refrain from placing aggressive bets in gilts ahead of the weekly auction at 1030-1130 IST, dealers said. On Thursday, the government will sell INR 170 billion of the 6.68%, 2040 bond and INR 110 billion of the 7.43%, 2076 bond. Traders have increased risk appetite with the geopolitical situation normalising and are keen to pick up the 15-year benchmark gilt. Meanwhile, insurers and pension funds may pile into the 50-year bond to match their liabilities and to lock in current yields, with a downward trend expected in the coming days. 

 

Comments from Reserve Bank of India Governor Sanjay Malhotra Wednesday that expecting rate hikes was premature eased concerns over rate hikes in the coming months, which is likely to spur purchases in the coming days. Bond prices and swap rates may also take cues from the movement in US Treasury yields, which also fell after Indian market hours, and in the rupee.

 

Meanwhile, the four-day call money rate is expected to open above the RBI's policy repo rate of 5.25% Thursday amid tight liquidity in the banking system and early demand from primary dealers. Dealers expect the call rate to be at 4.60–5.55% Thursday.

 

GOVERNMENT BONDS

On Thursday, government bond prices will track overnight movements in crude oil prices and any significant development in the peace negotiations between the US and Iran, dealers 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 6.75-6.85%, dealers said. On Wednesday, the 2036 gilt ended at INR 101.10, or 6.7832%, the lowest closing level for a 10-year benchmark yield since Mar. 20.

 

Traders also await the release of the state borrowing calendar for the September quarter. Higher-than-expected state government borrowing will pull down bond prices, dealers said. Traders are divided on the size of state borrowing in 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 borrowing in the calendar to be released on Thursday or Friday, to be between INR 2.60 trillion and INR 3.30 trillion, dealers said.

 

Traders remained optimistic that Indian bonds would be added to Bloomberg's flagship Global Aggregate Index. If the inclusion proceeds, they expect India's Fully Accessible Route bonds to account for 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 may open steady Thursday after the tumble in OIS rates over the past two sessions on easing concern over rate hikes in India. Though most traders still see a base case of 50 basis points of a repo rate increase in India FY27, the continued fall in crude oil prices and RBI comments seem to suggest the Monetary Policy Committee may forego material policy tightening, dealers said.

 

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. Another positive is the likely inflow of 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.

 

However, swap rates are seen rising in the medium term as domestic inflation is likely to rise due to weak monsoon and supply disruption in crude oil, dealers said. Deficient rainfall and higher food prices are seen pushing up retail inflation in the coming months. Even though most traders now do not expect a repo rate hike in August or October, they are wary of US Federal Open Market Committee rate hikes changing expectations sharply on domestic rates, dealers said.

 

The movement of the rupee and US Treasury yields could also lend cues. The one-year swap rate is seen at 5.70-5.94% and the five-year at 6.10-6.35%. On Wednesday, the one-year swap rate ended at 5.78% and the five-year swap rate ended at 6.18%, both multi-month lows.

 

CALL

The four-day interbank call money rate Thursday is likely to open above the repo rate on routine demand from primary dealerships amid liquidity deficit in the banking system, dealers said. Funding requirements from banks to meet quarter-end credit disbursal needs are also expected to support the rise in call rate, they said.

 

Dealers had mixed views on the RBI conducting a variable rate repo auction Thursday. Some traders said the central bank would come up with a four-day variable rate repo auction for INR 500 billion to INR 1.25 trillion as banks need liquidity due to quarter-end demand. Dealers expect the call rate to cross the Marginal Standing Facility rate of 5.50% Thursday on four-day borrowings and quarter closing demand if the central bank does not conduct a VRR auction.

 

Dealers expect the call rate to be at 4.60–5.55% Thursday. The tri-party repo rate is expected to be in the range of 4.90–5.45%. 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

--Govt to auction two gilts worth INR 280 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 65.12 billion as redemption of 364-day Treasury bills

--INR 14.01 billion as coupon on state bonds

 

* Outflows
--INR 131.00 billion as payment for 91-day T-bills

--INR 68.00 billion as payment for 182-day T-bills

--INR 60.00 billion as payment for 364-day T-bills

 

End

 

US$1 = INR 94.67

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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