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Informist, Tuesday, Sept. 15, 2026

 

MUMBAI – Government bond prices and overnight indexed swap rates are seen tracking movements in crude oil prices and US Treasury yields at open Wednesday, along with developments in the West Asia war.

 

The US Federal Open Market Committee's rate decision late Wednesday is also being closely watched for domestic rate cues. There are widespread expectations that the US rate-setting panel will raise its policy rate, which is likely to put pressure on the RBI's MPC to tighten monetary policy and raise the repo rate as well, dealers said. However, no rate hike in the US could lead to a significant fall in short-term US yields and benefit gilts maturing in up to five years, which are seen out of favour until the decision at 2330 IST Wednesday. 

Alongside liquidity-draining measures from the RBI such as OMO sales and variable rate reverse repo operations, traders also expect the central bank to conduct dollar-rupee sell-buy swaps both in the primary and secondary markets. 

 

GILTS

On Wednesday, bond prices are seen taking cues from the overnight movement in crude oil prices and US Treasury yields, along with developments in the West Asia war. The RBI's upcoming OMO auction Thursday to sell INR 500 billion of six gilts will continue to weigh on prices, dealers said. The RBI will sell the 7.59%, 2029 bond, the 6.79%, 2029 bond, the 7.61%, 2030 bond, the 5.77%, 2030 bond, the 6.68%, 2031 bond, and the 8.28%, 2032 bond at the auction.

 

Traders are also waiting for the release of the borrowing calendar for state and central government bond issuances for the next quarter and the second half of the current financial year, respectively. The proportion of different bond tenures in the calendar will lend cues to the shape of the gilt yield curve, dealers said. The RBI has held several meetings with market participants this month to discuss the Centre's borrowing calendar, they said. 

 

Any significant movement in the rupee and swap rates will also lend cues, they said. The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.98% and 7.15%, dealers said. The 10-year benchmark 6.94%, 2036 gilt ended at INR 99.07, against INR 99.41 Friday. The bond's yield rose to 7.0727%, up from 7.0233% at the end of the previous session.

 

OIS

On Wednesday, swap rates are seen tracking the movement in US yields and oil prices. Dealers expect that if the Fed opts for a rate hike in September, the RBI's rate-setting panel will follow suit in October. The one-year swap rate ended at 6.10% on Tuesday, the highest since Jun. 4 and up 7 basis points from 6.03% Friday. The five-year swap rate ended at 6.66%, against 6.57% Friday.

 

As received bets linked to banks' inflows from foreign currency non-resident (banks) deposits have stopped this week, nearing the end of the deadline Friday to swap dollars under this scheme, swap rates may no longer be capped, dealers said. After the OMO sales announcement, bets that the swap rate curve will flatten would take time to play out have been wiped out as the RBI begins draining liquidity. The one-year swap rate is seen in the range of 5.95-6.15% and the five-year at 6.40-6.70%.

 

CALL

The one-day call money rate is seen opening above the RBI's Standing Deposit Facility rate of 5.00% on Wednesday due to early demand for funds from primary dealers. There is likely to be demand from some banks too as major portion of advance tax payments for income tax and corporation tax for the September quarter will be seen Wednesday, dealers said. The tri-party repo rate is likely to open in the range of 4.80-4.85%, dealers said. Dealers expect the one-day call rate to be at 4.50–5.18% Wednesday.

 

Overnight VRRR auctions are expected to continue till the end of this month. But most market participants expect the RBI to reduce the size of the auction from INR 5 trillion to around INR 3.5 trillion for the rest of the month as the banking system liquidity surplus is likely to fall post tax outflows. Some market participants expect the RBI to conduct a seven-day VRRR auction, but most market participants favour overnight auctions. Market participants will take cues from the RBI's INR-500-billion open market operations auction Thursday to sell gilts, dealers said. The central bank will conduct an overnight INR-2.50-trillion auction to drain liquidity at 0930-1000 IST Wednesday. On Tuesday, the one-day call rate ended at 5.20%, the highest closing level since Aug. 27 and up from 5.10% on Friday for four-day loans. 

 

RBI AUCTION

--RBI to conduct overnight variable rate reverse repo auction for INR 2.50 trillion at 0930-1000 IST Wed

 

LIQUIDITY

Total net inflows of INR 249.95 billion. The calculation does not take into account redemption of the Standing Deposit Facility and scheduled variable rate repo and variable rate reverse repo operations.

 

* Inflows

--INR 9.62 billion as coupon on state bonds

--INR 46.23 billion as coupon on 6.19%, 2034 gilt

--INR 40.65 billion as coupon on on 6.22%, 2035 gilt

--INR 3.93 trillion as reversal of overnight variable rate reverse repo tender

 

* Outflows

--INR 346.45 billion as payments for state bonds

 

End

 

US$1 = INR 95.96

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

 

Reported by Kabir Sharma

Edited by Avishek Dutta

 

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