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Informist, Friday, Sept. 25, 2026

NEW DELHI – Government bond prices and overnight indexed swap rates are Monday expected to take cues from developments in the West Asia war over the weekend and their impact on US Treasury yields and crude oil prices, dealers said. The government's borrowing calendar for Oct-Mar, announced after market hours Friday, is likely to lead to a rise in long-term bond yields, they said. Money markets are shut on Saturday.

Most traders expect the Reserve Bank of India'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. 

 

The one-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 one-day call rate is seen at 4.50-5.40% Monday.

 

GOVERNMENT BONDS

On Monday, bond prices may take cues from developments in the West Asia war and their impact on crude oil prices and US Treasury yields. The government's borrowing calendar for Oct-Mar, released after market hours Friday, is unlikely to have a directional impact on gilt prices but would lead to changes in relative value, dealers said.

 

The major takeaway from the release of the borrowing calendar was that the government refrained from additional borrowing and the plan would be non-disruptive to the market, dealers said. At the same time, it allowed the RBI to continue selling short-term gilts via open market operations should the central bank choose to extend its auctions from September into October. The cut in the share of the 10-year bond's supply may help it outperform peers Monday, they said. 

 

The spread of the 15-year benchmark 7.06%, 2041 gilt over the 10-year benchmark 6.94%, 2036 gilt may rise to near 30 basis points from 16 bps Friday. The spread of longer-term bonds is also likely to increase, dealers said. Meanwhile, short-term gilts are unlikely to benefit from the reduction in the share of their supply as traders would fear upcoming OMO sales and rate hikes, at least until the next rate decision on Oct. 7, they said.

 

In line with market feedback, the government has raised the share of the seven- and 15-year securities in the calendar, while also reducing the share of bonds maturing in up to five years due to the hefty redemptions already lined up in those tenures. The seven-year bond will make up 9.1% of the Oct-Mar calendar, against 8.1% in Apr-Sept, while the 15-year bond will make up 17.6% of the issuance. This is the largest sequential increase, from 14.5% in the first half of the financial year.

 

Meanwhile, the three-year bond's share in the supply has fallen by 120 basis points to 6.9% in the second half. The five-year bond will also make up only 12.1% of the Oct-Mar issuance, down from 15.4% in Apr-Sept. The calendar gives the RBI room to conduct more open market operation auctions to sell gilts maturing in up to 2032, as it has done in September, bond market dealers said. This month, the central bank has announced OMO auctions to sell INR 1 trillion of short-term gilts.

 

After two calendars where their share has reduced, long-term bonds saw their issuance rise in the Oct-Mar borrowing plan. The 30-year bond will now make up 9.2% of the calendar, against 7.3?rlier. The rise in the share of the 40- and 50-year bond is marginal, rising to 8.9% and 9.9%, respectively.

 

Traders will also track the result of the INR-250-billion auction the RBI will conduct to sell gilts through open market operations at 0930-1030 IST. This is the final tranche of the INR-1-trillion OMO sales the central bank had announced for September. The central bank has offered to sell the 7.59%, 2029 bond, the 6.45%, 2029 bond, the 7.61%, 2030 bond, the 5.85%, 2030 bond, the 6.54%, 2032 bond, and the 7.26%, 2032 bond at the auction at 0930-1030 IST. 

 

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. On Friday, the bond ended at INR 98.76 or 7.1194%, the highest closing yield level since May 20.

 

OIS RATES

On Monday, swap rates are likely to open lower after the government said post market hours that it would auction INR 7.86 trillion worth of gilts in Oct-Mar, aiming to cut FY27 gross gilt issuance to INR 16.00 trillion from INR 16.09 trillion. Some traders had expected the Oct-Mar borrowing to be around INR 8.20 trillion, while others had pegged it as low as INR 7.60 trillion. Swap rates will also continue to track overnight moves in crude oil prices and US Treasury yields.

 

Traders will focus on comments by RBI Governor Sanjay Malhotra, dealers said. As the US Fed began its rate hike cycle, 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 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 open-market operations sales of INR 500 billion or INR 1 trillion. Traders will also assess the outcome of meetings the central bank is conducting this week on 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%. On Friday, the one-year rate ended at 6.16% and the five-year rate at 6.63%.

 

CALL

On Monday, the one-day call money rate is expected to open near the RBI's repo rate of 5.25% due to early demand for funds from primary dealers amid the bank strike, dealers said. The large liquidity surplus in the banking system and inflows from the government's month-end spending may cap overnight rates. The three-day call rate ended at 5.20% Friday.

 

The RBI will conduct an overnight VRRR auction of INR 2.00 trillion at 0930-1000 IST Monday. Traders do not expect large subscription at the auction because of banks' month-end and quarter-end funding needs, dealers said. 

 

Some market participants expect the RBI to conduct more open market operation auctions to sell gilts next month after announcing INR 1 trillion worth of such sales in September. Dealers expect the one-day call rate to be at 4.50–5.40% Monday, while the one-day tri-party repo rate is seen at 4.50-5.30%.

 

RBI AUCTION

--RBI to hold overnight VRRR auction for INR 2.00 trillion 0930-1000 IST Monday

--RBI to sell six gilts worth INR 250 billion at OMO sale auction 0930-1030 IST Monday

 

LIQUIDITY

Total net outflows of INR 129.37 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 83.63 billion as coupon on state bonds

--INR 127.00 billion as redemption of state bonds Monday

--INR 902.80 billion as reversal of three-day variable rate reverse repo Monday

 

* Outflows

--INR 340.00 billion as payment for gilt auction

 

End

 

US$1 = INR 95.81

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

 

Reported by Aaryan Khanna

Edited by Avishek Dutta

 

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