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Informist, Friday, Dec. 26, 2025

NEW DELHI – Government bond prices and interest rate swaps are seen opening steady Monday. Both gilts and swaps may track the movements in US Treasury yields and crude oil prices. Movement in rupee in early trade may also lend cues to bond prices, dealers said. Money markets are shut on Saturday.

Bond dealers will focus on the open market operation auction Monday, where the Reserve Bank of India will buy seven gilts worth INR 500 billion. Traders will also monitor developments around the India-US trade deal for cues.

The one-day call money rate may open near the RBI's MSF rate of 5.50% due to the prevailing liquidity deficit in the financial system. During the day, the one-day call money rate is expected to move in a range of 4.70-5.65%, dealers said.

GOVERNMENT BONDS

On Monday, at open, gilts will track movements in US Treasury yields. Movement in rupee in early trade will also lend cues to the bond prices. Later in the day, traders will focus on the results of the open market auction.

The Reserve Bank of India will buy INR 500 billion of 7 gilts via OMO auction on Monday. The RBI will purchase the 6.67%, 2035 gilt, the 7.18%, 2037 gilt, the 7.26%, 2033 gilt, the 6.79%, 2034 gilt, the 6.79%, 2029 gilt, the 7.61%, 2030 gilt, and the 7.30%, 2053 bond at auction. The RBI will buy a total of INR 2 trillion worth of government bonds through open market operation auctions in four tranches across December and January, it said in a release Tuesday. It will buy gilts worth INR 500 billion each on Monday, Jan. 5, Jan. 12, and Jan. 22. Traders are expected to offer these bonds at a premium to the market price, dealers said.

Traders will monitor developments on the India-US trade deal and will keep an eye on crude oil prices. Some traders are also hopeful that the likely inclusion of Indian government bonds in Bloomberg's Global Aggregate Index in January will push bond prices higher, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.54-6.59%. On Friday, the 10-year benchmark bond ended at INR 99.39, or 6.56% yield.

OIS RATES

Swap rates may open steady Monday due to lack of significant domestic interest rate cues, dealers said. The movement in US Treasury yields over the weekend may also lend cues. 

Trading activity is likely to be muted as several traders are on leave between Christmas and the New Year. Furthermore, foreign banks and primary dealerships, as well as traders offshore, have limited trading activity near the year-end as they close their accounts, dealers said.

Market participants expect inflows into debt instruments from foreign portfolio investors to begin in the new year and to top $25 billion in 2026 as India's fully accessible route bonds are expected to be added to Bloomberg's flagship Global Aggregate Index. This may pull down swap rates as well, dealers said.

India's advance estimate on GDP for the financial year 2025-26 (Apr-Mar) in the first week of January may also be crucial for traders to take bets on further repo rate cuts by the Monetary Policy Committee, though there are no rate-cut bets for February currently reflected in OIS rates, dealers said. After India's CPI for November was essentially a "non-event" for swaps, traders are focused on the CPI prints January onwards, with the RBI projecting retail inflation to average 2.9% in the March quarter. 

Traders will monitor developments around the India-US trade deal and may also track crude oil prices for cues. The one-year swap rate is seen at 5.40-5.52% and the five-year swap rate is seen at 5.85-6.00%. The one-year rate ended at 5.47% Friday. The five-year rate closed at 5.93%.

CALL

On Monday, one-day call money rate may open near the RBI's MSF rate of 5.50% due to the prevailing liquidity deficit in the financial system. During the day, the one-day call money rate is expected to move in a range of 4.70-5.65%, dealers said.

Traders said the RBI is unlikely to hold another VRR auction Monday as Friday's tenders mature only on Tuesday and have infused INR 2.03 trillion of liquidity temporarily into the banking system. However, some expect an overnight variable rate repo auction Monday if the call money rate is above 5.50%. With the RBI constantly providing liquidity through short-term measures and announcing durable liquidity infusion starting Monday, traders were upbeat about liquidity conditions improving in the first half of January, dealers said. The three-day call rate ended at 4.85% Friday.

RBI AUCTION

--RBI to buy INR 500 billion of 7 gilts at OMO auction 0930-1030 IST

LIQUIDITY

Total net outflow of INR 299.80 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 20.20 billion as coupon on state bonds 

* Outflows

--INR 320 billion as payment for gilt auction

End

US$1 = INR 89.85

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

Reported by Shubham Rana

Edited by Akul Nishant Akhoury

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