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Informist, Thursday, Aug. 13, 2026

MUMBAI – Government bond prices and overnight indexed swap rates will track developments in West Asia and their impact on Brent crude oil prices, dealers said. The market will also take cues from movements in US Treasury yields, dealers added.

Thursday, Brent crude oil futures for October delivery fell below $87 per barrel post market hours. Government bond prices are likely to open higher if Brent crude oil stays at these levels or falls further, dealers said. However, unless Brent crude falls below at least $85 per barrel, swaps are unlikely to fall significantly, though traders are not expecting a hike in the repo rate at the Reserve Bank of India's Monetary Policy Committee meeting in October.

A fall in Brent crude oil prices also pulled down US Treasury yields Thursday, dealers said. The yield on the benchmark 10-year US Treasury note fell below 4.65% after remaining near 4.70% levels. This is likely to help bond prices Friday, dealers said.   

CALL

On Friday, the three-day interbank call money rate is seen near the RBI's repo rate of 5.25% on demand from primary dealerships ahead of the gilt auction and due to reporting requirements for the fortnight ending Saturday, dealers said. The RBI will conduct a three-day VRRR for INR 1.50 trillion Friday, on a day when two VRRRs totalling INR 1.23 trillion reverse. Traders will also borrow to provide for any obligations over the two-day weekend, with money markets shut on Saturday for Independence Day, despite it being a working Saturday. Traders have begun watching out for any drain in liquidity through currency in circulation, nearing the festive season. 

Liquidity continues to be ample amid inflows through foreign currency non-resident (banks) deposits, at least until outflows for goods and services tax begin in the latter half of the month, dealers said. Core systemic liquidity surplus could hit INR 9 trillion if inflows from FCNR(B) deposits continue to grow at a robust pace. Traders estimate inflows from these deposits to have hit about $45 billion as of this week from Jun. 8. Dealers expect the three-day call rate at 4.60–5.45% Friday. The three-day tri-party repo rate is expected to be in the 4.60–5.30% band. The weighted average call rate is expected to be in the 5.05–5.20% band and the tri-party repo rate is likely to be 4.90-5.15%, dealers said.

GOVERNMENT BONDS

Gilt prices may take direction from the developments in the war in West Asia and their impact on crude oil prices and US Treasury yields Friday, dealers said. The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.72% and 6.80% Friday, dealers said. Any significant movement in the rupee and swap rates will also lend cues, dealers said. 

Bond prices may also take cues from the result of the weekly gilt auction Friday, dealers said. The government will sell INR 320 billion of four gilts, which include a new 2029 bond, a new 2033 bond, 7.24%, 2055 bond, and 7.50%, 2056 green bond. Demand for the new 2029 and new 2033 bonds at the auction on Friday is expected from banks, with state-owned banks seen picking up about half the notified amount, dealers said. The coupon on the 2029 bond is seen at about 6.13% and that on the 2033 bond at about 6.55%, dealers said.

Traders speculate the presence of a foreign portfolio investor at the 2029 bond auction, since the FPI has picked up stock at previous 2029 bond auctions recently, they said. Demand from banks deploying foreign currency non-resident (bank) deposits is also seen for short-term bonds, but some asset and liability managers may bid at higher yields, dealers said. 

OIS RATES

On Friday, swap rates will track the overnight movement of crude oil prices and US Treasury yields, dealers said. Traders will watch out for received bets from fundraisers to hedge their bond issuances, dealers said. However, the five-year OIS is unlikely to sustain a fall below the key 6.21-6.22% levels, dealers said. Elevated US Treasury yields are also a concern for traders, limiting a fall in swaps, they said. 

Some banks are still seen receiving fixed rates due to inflows through foreign currency non-resident (banks) deposits, dealers said. However, swap rates are seen sticky with little direction barring global triggers. Offshore traders have been largely absent from swaps this week, with a slight receiving bias. The upside for swaps, too, is seen as limited, after recent commentary from the Reserve Bank of India indicated little urgency to hike the repo rate. Swaps are currently fairly pricing in rate hikes in India, dealers said. The movement of the rupee and overnight borrowing rates will also lend cues. The one-year swap rate is seen in the range of 5.65-6.10% and the five-year at 6.12-6.40%.

RBI AUCTION

--Govt to auction four gilts worth INR 320 billion 

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

LIQUIDITY

Total net inflows of INR 85.72 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 13.56 billion as coupon on state bonds

--INR 72.16 million as coupon on 7.50%, 2034 bond

--INR 425.60 billion as redemption of 3-day variable rate reverse repo tender 

--INR 801.70 billion as redemption of overnight variable rate reverse repo tender 

* Outflows

--Nil

End

US$1 = INR 95.44

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

Reported by Diksha Tripathy

Edited by Deepshikha Bhardwaj

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