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Informist, Thursday, Jul. 16, 2026

MUMBAI - Government bond prices and swap rates are seen tracking offshore triggers such as US Treasury yields and Brent crude oil futures Friday, dealers said. Dealers will also track the result of the INR-320-billion weekly gilt auction.

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. Money market rates are likely to remain elevated Friday ahead of the weekend and as funds are locked up in the initial public offering of SBI Funds Management.

GOVERNMENT BONDS

On Friday, traders will track oil prices at market open. Close attention will be on the INR-320-billion weekly gilt auction, at which the government will sell INR 110 billion of the 6.03%, 2029 bond, INR 110 billion of the 6.68%, 2033 bond and INR 100 billion of the 7.24%, 2055 bond. Traders are cautious of developments in West Asia and the movement of US Treasury yields closer to the US Federal Open Market Committee's July meeting.

The 10-year 2036 bond is seen moving between 6.70% and 6.80%, dealers said. On Thursday, the 10-year benchmark bond ended at INR 101.35, up from INR 101.17 Wednesday. The yield on the bond fell to 6.7478% from 6.7738% at the end of the previous session. 

OIS RATES

On Friday, 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 due to the potential impact on imported inflation. Traders may avoid aggressive bets before the weekend, with the potential of an escalation looming when oil markets are shut, they 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%. The one-year swap rate closed at 5.89%, down from 5.94% Wednesday. The five-year swap rate ended at 6.34%, lower than 6.38% Wednesday.

CALL

On Friday, the three-day interbank call money rate is seen above the RBI's repo rate of 5.25% as funds will be locked up in the IPO of SBI Funds Management, while banks will provide for three-day funding requirements and prepare for payments of goods and services tax of around INR 1.8 trillion beginning early next week, dealers said. 

Dealers expect the call rate to be at 4.60–5.50% Friday. The tri-party repo rate is expected to be in the 4.90–5.30% band. The weighted average call rate is expected to be in the 5.20–5.30% band, and that in the tri-party repo market is likely to be in the 5.00–5.20% band, they said. The one-day call money rate ended at 5.50% Thursday, higher than 5.35% Wednesday. The weighted average call rate was 5.35%, up from 5.24% Wednesday.

RBI AUCTION

--Govt to auction three gilts worth INR 320 billion

LIQUIDITY

Total net inflows of INR 187.59 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 120.00 billion as redemption of 182-day Treasury bills

--INR 16.58 billion as coupon on state bonds

--INR 51.01 billion as coupon on 6.54%, 2032 gilt

* Outflows

--INR 184.25 billion as reversal of overnight variable rate repo tender

End

US$1 = INR 96.3450

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

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

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