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Informist, Tuesday, Jul. 14, 2026

 

MUMBAI – Government bond prices and swap rates are likely to track overnight developments in the war in West Asia and movements in Brent crude oil prices on Wednesday, dealers said. Brent crude oil futures for September delivery hovered near $85 per barrel throughout Tuesday's trading session. Many dealers see the current rise in crude oil prices as short-lived, as reflected in strong gilt purchases by state-owned banks on Tuesday. 

 

Traders will also monitor movement in US Treasury yields, they said. US yields fell after CPI inflation in the world's largest economy fell 0.4% on month in June, against the Wall Street Journal poll estimate of a 0.1?ll.

 

Traders will track foreign inflows from the Reserve Bank of India's measures announced last month to shore up capital, dealers said. Several bankers have said that inflows from foreign-currency non-resident bank deposits have so far been below expectations. Systemic liquidity will also be in focus, with the RBI's dollar sales in the foreign exchange spot market likely to have drained rupee liquidity this week. 

 

GOVERNMENT BONDS

On Wednesday, traders are expected to be cautious about developments in West Asia and their impact on Brent crude oil prices. After Indian market hours, US Treasury yields fell as US CPI inflation declined 0.4% month-on-month in June, compared with the Wall Street Journal poll estimate of a 0.1?ll. The 12-month CPI inflation rate was 3.5%, against a forecast of 3.8%.

 

Domestic focus will continue to be on news regarding the inclusion of Indian gilts in Bloomberg's flagship index and foreign capital inflows following measures announced by the RBI last month. Traders will assess the outcome of meetings between the chiefs of banks with the RBI held Tuesday.

 

The depreciation of the rupee against the dollar is a concern for some traders, as the fall comes despite the RBI deploying various measures to prevent it. Traders will also track monsoon rainfall, as deficient southwest monsoon rainfall will contribute to higher inflation, they said.

 

The 10-year 2036 bond is seen moving between 6.75% and 6.90%, with 6.85% seen as the next crucial level for the gilt on the upside, dealers said.

 

OIS RATES

On Wednesday, OIS rates will take cues from movements in crude oil prices and US Treasury yields, dealers said. The developments in West Asia will also influence traders' views on domestic rate increases, given their potential impact on imported inflation, they said. 

 

The last CPI inflation reading before the MPC's August meeting was in line with expectations but showed price pressures building and likely to increase in the coming months, dealers said. CPI inflation rose to 4.38% in June from 3.93% in May. With food and fuel prices driving retail inflation higher and the military escalation in West Asia, traders now expect the MPC to hike the repo rate in October.

 

Deficient rainfall and higher food prices may 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. The RBI projects CPI inflation to average 5.9% in Oct-Dec, higher than the policy rate of 5.25%. The view of rate increase in India is influenced by the expectation that the US Federal Open Market Committee may also hike rates in 2026, dealers said. 

 

Traders await Bloomberg's decision on the inclusion of Indian gilts in its flagship index, with most traders betting on a favourable decision. Traders also expect overnight rates to ease due to a liquidity boost from inflows into foreign-currency non-resident bank deposits. The Bloomberg announcement on the inclusion of Indian bonds is expected any time between this week and September, dealers said. 

 

The movement in the rupee could also lend cues. The one-year swap rate is seen in the range of 5.78-6.05% and the five-year at 6.18-6.45%. 

 

CALL

On Wednesday, the one-day interbank call money rate is seen at the RBI's repo rate of 5.25% on the last day of the reporting fortnight. Demand for funds is high amid initial public offerings and strong credit growth, which is at a two-year high, according to the latest data, dealers said. Traders expect a liquidity crunch on the last day of SBI Funds Management's IPO on Thursday, when qualified institutional buyers are expected to be most active. The portion reserved for QIBs was subscribed to a mere 8% Tuesday, the first day of the IPO. Traders will continue to gauge the liquidity drain from intervention by the RBI in the spot rupee market after the rupee hit an eight-week low Tuesday. 

 

Traders will also assess the outcome of the meeting held between the RBI and heads of state-owned and select private sector banks Tuesday. The outlook for inflows through the RBI's measures to shore up capital is hazy, with several banks yet to finalise their leverage schemes for foreign-currency non-resident bank deposits, and some fundraisers refraining from overseas borrowing due to high spreads amid large supply. Some banks have received inflows from these deposits, but liquidity in the system remains skewed. State Bank of India economists estimate current inflows from these deposits at $8-$9 billion, according to a note published Monday.

 

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?nd. The weighted average call rate is expected to be in the 5.20–5.30?nd, and that in the tri-party repo market is likely to be in the 5.00–5.20?nd, 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

 

LIQUIDITY

Total net outflows of INR 215.70 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 20.00 billion as coupon on state bonds

--INR 10.00 billion as redemption of state bonds

 

* Outflows

----INR 245.70 billion as payment on state bonds

 

End

 

US$1 = INR 96.20

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

 

Reported by Diksha Tripathy

Edited by Saji George Titus

 

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