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Informist, Thursday, Sept. 24, 2026

 

NEW DELHI – Government bond prices and overnight indexed swap rates will take direction from the overnight movement in US Treasury yields and crude oil prices at the open on Friday, dealers said. Developments in the West Asia war are being closely watched, as is the activity of foreign investors.

 

After the initial move, gilt prices will take cues from the result of the INR 340-billion auction of the 10-year benchmark 6.94%, 2036 gilt. This is the last scheduled auction in the Apr-Sept borrowing calendar and is likely to sail through due to short-covering and attractive yields for investors, dealers said. Traders will also look out for the release of the Oct-Mar borrowing calendar for dated securities, which is likely Friday, according to a senior finance ministry official.

 

The three-day call money rate is expected to open below the Reserve Bank of India's repo rate of 5.25% due to a comfortable liquidity surplus and the government's early month-end spending, dealers said. The three-day call rate is seen at 4.60-5.30% Friday.

 

GOVERNMENT BONDS

Friday, gilt prices will track movements in US yields and crude oil prices at the open. Later in the day, bond prices are likely to take cues from the result of the 10-year benchmark 6.94%, 2036 bond's auction at 1030-1130 IST, dealers said. Bond prices may be under pressure before the auction though the supply is likely to sail through on short-covering and investor demand at the highest yields on offer in FY27, they said. 

 

Many traders expect the RBI's Monetary Policy Committee to hike the repo rate by 25 basis points and the RBI to announce more measures to drain durable liquidity, including more open market operation sales of up to INR 1 trillion in October. Some traders find current yields attractive for buying bonds, since the 10-year bond is unlikely to sustain a rise above its May high of 7.14%, 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. Informist reported, quoting a senior finance ministry official, that the calendar is likely to be released Friday. Some expect more supply of seven-year bonds while others expect more 15-year bond supply. Still others expect more supply of three- to five-year bonds.

 

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 expected to move between 7.00% and 7.18%, dealers said. Thursday, the bond ended at INR 98.84 or 7.1067%, the highest closing level since May 21.

 

OIS RATES

On Friday, swap rates are likely to continue tracking overnight movements in crude oil prices and US Treasury yields, dealers said. As the US Federal Reserve has hiked interest rates in September, the RBI's rate-setting panel is seen following suit with a 25 bp repo rate hike in October, dealers said. Traders will focus on comments by RBI Governor Sanjay Malhotra, dealers said. 

 

Traders also expect the RBI 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. Some expect more OMO sales of INR 500 billion or INR 1 trillion. The Centre's borrowing plan for Oct-Mar is also awaited, with the proportion of bond maturities in the plan likely to be an indication of the rate hike cycle and of how the RBI prefers the yield curve to move. Traders expect the announcement Friday.

 

Traders will also assess the outcome of meetings the central bank is conducting this week to gather feedback from market participants ahead of the policy decision. The one-year swap rate is seen in the range of 5.95–6.25% and the five-year at 6.40–6.70%. Thursday, the one-year swap rate ended at 6.17% and the five-year swap was at 6.64%.

 

CALL

On Friday, the three-day call money rate is expected to open below the RBI's repo rate of 5.25% due to a large liquidity surplus in the banking system and inflows from the government's month-end spending. Outflows on account of the central bank's intervention in the foreign exchange market may drain liquidity, dealers said. Thursday, the one-day call rate ended at 5.25%.

 

The RBI will conduct a three-day VRRR of INR 1.50 trillion Friday, dealers said. Banks are split on the kind of subscription to expect at the auction, with most expecting it may not be fully subscribed. However, since banks have reduced funds held in long-term VRRRs with the RBI, they may choose to use the short-term VRRRs to maximise returns, dealers said.

 

Some market participants expect the RBI to conduct more OMO auctions to sell gilts next month after announcing INR 1 trillion worth of such sales in September. Dealers expect the three-day call rate to be at 4.50–5.30% Friday, while the three-day tri-party repo rate is seen at 4.50-5.30%.

 

RBI AUCTION

--RBI to hold three-day VRRR auction for INR 1.50 trillion 0930-1000 IST

--Govt to sell INR 340 billion of 6.94%, 2036 gilt 1030-1130 IST

 

LIQUIDITY

Total net inflows of INR 42.39 billion. The calculation does not account for redemptions of the Standing Deposit Facility and scheduled variable rate repo and variable rate reverse repo operations.

 

* Inflows

--INR 37.88 billion as coupon on state bonds

--INR 4.51 billion as coupon on 6.01%, 2028 curve-align gilt

--INR 1.01 trillion as redemption of overnight variable rate reverse repo tender 

 

* Outflows

--Nil

 

End

 

US$1 = INR 95.95

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

 

Reported by Aaryan Khanna

Edited by Rajeev Pai

 

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