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Informist, Thursday, Sept. 17, 2026

 

MUMBAI – Government bond prices are seen largely steady ahead of the INR-280-billion gilt auction Friday. Bonds are attractive to buy at current yields since a rate hike by the Reserve Bank of India's Monetary Policy Committee in October is already priced in, dealers said. Bonds and overnight indexed swap rates are seen taking direction from the movement in crude oil prices and US Treasury yields overnight and intraday, dealers said.  

 

As the US Federal Open Market Committee began its rate hike cycle Wednesday, the RBI's rate-setting panel is seen following suit with a 25-bps repo rate hike in October, dealers said. Traders also expect the central bank to introduce more measures to drain systemic liquidity, beyond the government bond sales it is conducting this month and variable rate reverse repo operations, they said. 

 

GILTS

On Friday, gilt prices will take direction from developments in the war in West Asia and its impact on crude oil prices. Traders will also track movements in US yields, they said. Elevated US yields have pushed Indian gilts out of favour with foreign investors and strengthened the case for a domestic repo rate hike as soon as October, dealers said.

 

Traders are likely to refrain from placing aggressive bets ahead of the weekly gilt auction on Friday, they said. Traders expect the auction to sail through; however, higher yields in the secondary market may dampen demand for the papers at the auction, in turn impacting cut-off prices. Some traders are likely to cover short positions at the auction, which could support higher cut-off prices for the papers, dealers said. The auction result is likely to lend direction to the market later in the day on Friday, they said.

 

Traders also await 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 provide cues on 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, dealers said. The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 7.00% and 7.10%, dealers said. The 10-year benchmark 6.94%, 2036 gilt ended at INR 99.25, or 7.0463% yield Thursday. 

 

SWAP RATES

Friday, swap rates are seen tracking the overnight movement of crude oil prices, with some traders expecting these prices to form a downtrend in the near term. Swaps will also track movement in US Treasury yields, with the US yield curve flattening after the FOMC hiked the fed funds target rate for the first time since 2023. Thursday, the spread between the one-year and five-year swap rates was little changed from Wednesday. The one-year swap rate is seen in the range of 5.95-6.15% and the five-year at 6.40-6.70%. On Thursday, the one-year swap rate ended at 6.04%, while the five-year swap rate ended at 6.58%.

 

CALL

On Friday, the three-day call money rate is expected to open near the RBI's Standing Deposit Facility rate of 5.00%, at 5.05-5.10%, as has been the case recently. Outflows for settlement of the central bank's intervention in the foreign exchange market is likely to drain liquidity, dealers said. From Monday, payments of about INR 1.8 trillion will begin for goods and services tax. Monday is also the last day of the initial public offering of National Stock Exchange of India Ltd., which is the day likely to see the highest participation from institutional investors, adding to upward pressure on overnight borrowing rates, dealers said. "Monday is when we as a bank will be participating because by then we'll have a clearer picture of the GMP, etc (grey market premium)," a dealer at a private sector bank said. 

 

After outflows for goods and services tax payments, the RBI is likely to reduce the size of the VRRR auctions further, from about INR 3 trillion currently. The RBI will conduct a three-day VRRR of INR 2.25 trillion Friday, down from the INR-3-trillion operation it held Thursday. Some market participants expect the RBI to conduct more open market operation auctions to sell gilts after announcing INR 1 trillion worth of such sales for September. Dealers expect the three-day call rate to be at 4.50–5.20% Friday, while the three-day tri-party repo rate is seen at 4.50-5.10%. On Thursday, the one-day call rate ended at 5.10%.

 

RBI AUCTION

--Govt to auction two gilts worth INR 280 billion Friday

--RBI to hold three-day VRRR auction for INR 2.25 trillion 0930-1000 IST Friday  

 

LIQUIDITY

Total net outflows of INR 315.67 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 159.11 billion as redemption of 182-day Treasury bills 

--INR 25.22 billion as coupon on state bonds

--INR 2.40 trillion as redemption of overnight variable rate reverse repo tender

 

* Outflows

--INR 500 billion as payment for RBI gilt sale at OMO auction Thursday

 

End

 

US$1 = INR 95.93

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

 

Reported by Cassandra Carvalho

Edited by Avishek Dutta

 

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