More Stories

Informist, Thursday, Jan. 1, 2026

MUMBAI – Government bond prices are seen opening steady on caution ahead of the weekly gilt auction Friday. A lack of other cues may keep trade volumes lacklustre, dealers said. Trade volume is also likely to be thin because several traders are on leave for the New Year weekend and many offshore markets are closed. 

The movement of the rupee against the dollar in early trade will also provide cues for bond prices, as will the overnight movement in US Treasury yields and crude oil prices. Foreign banks are likely to frontrun the likely announcement of the inclusion of Indian bonds in the Bloomberg Global Aggregate Index in January. The government's first advance estimate of GDP for the financial year 2025-26 (Apr-Mar), scheduled for Jan. 7, may also lend cues, dealers said.

Friday, the three-day call money rate may open above the Reserve Bank of India's repo rate of 5.25% on early demand for funds. An expected increase in the liquidity surplus and the RBI's INR-1-trillion, five-day variable rate repo auction at 0930-1000 IST are likely to keep the rate below the marginal standing facility rate of 5.50%, dealers said.

GOVERNMENT BONDS

Gilt prices may open steady Friday before the INR 320-billion auction of the 10-year benchmark 6.48%, 2035 gilt at 1030-1130 IST. Short sales before the auction to make room for the fresh supply may weigh on gilts, dealers said.

Demand for the benchmark gilt is seen to be firm across the market, with traders holding the view that bond prices will rise next week as foreign banks and portfolio investors add to their Indian bond portfolios after the year-end lull. Some banks were also looking to replace gilts sold to the RBI at Monday's OMO auction with the 10-year benchmark, after bidding aggressively for state bonds at Tuesday's auction as well, dealers said.

The RBI's weekly bond purchases through OMO auctions until Jan. 22 will limit the impact of fresh supply this month. The central bank will buy the 7.10%, 2029; the 7.95%, 2032; the 7.73%, 2034; the 7.40%, 2035; the 7.41%, 2036; the 8.30%, 2040; and the 7.09%, 2054 bonds at Monday's OMO auction, it had said in a release Tuesday.

Traders keenly await states' indicative borrowing calendar for the March quarter. They expect borrowing of about INR 4.5 trillion. The announcement was expected earlier in the week and may finally come Friday, along with a notification for next week's state bond auction, dealers said. If the borrowing plan is higher than expected, the yield on the 10-year benchmark 6.48%, 2035 gilt may rise to as high as 6.70%, the highest in FY26, dealers said. Otherwise, the 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.53-6.65%. On Thursday, it ended at INR 99.26, or 6.58% yield.

OIS RATES

Swap rates may track the movement of bond yields Friday, especially after the gilt auction. Traders may hedge their bond purchases by paying fixed rate contracts in swaps, dealers said. The trading volume is likely to be thin with several traders on leave for the New Year weekend and many offshore markets shut.

This month, foreign banks, primary dealers, and offshore traders are expected to resume active trading and receive swap rates, dealers said. Market participants expect inflows into debt instruments from foreign portfolio investors to exceed $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 swap rates down, dealers said.

The one-year swap rate is seen at 5.40-5.52% Friday. The five-year swap is seen at 5.85-6.02%. The one-year swap rate ended at 5.45% Thursday. The five-year rate closed at 5.93%.

CALL

Friday, the three-day call money rate may open above the RBI's repo rate of 5.25% on early demand for funds. An expected increase in the liquidity surplus and the RBI's INR 1-trillion, five-day variable rate repo auction at 0930-1000 IST are likely to keep rates below the marginal standing facility rate of 5.50%, dealers said.

Systemic liquidity is seen returning to a comfortable surplus only by mid-January, after two tranches of OMO auctions add INR 1 trillion of liquidity by Jan. 12 and a three-year $10 billion dollar-rupee buy-sell swap auction on Jan. 13, which will add to durable liquidity. That may cause the central bank to start variable rate reverse repo auctions soon, dealers said. During the day, the one-day call money rate is expected to move in a range of 4.70-5.50%, dealers said. It ended at 4.85% Thursday.

RBI AUCTION

--RBI to hold five-day variable rate repo auction for INR 1 trillion 0930-1000 IST

--Govt to auction one gilt worth INR 320 billion

LIQUIDITY

Total net inflows of INR 122.05 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 72.00 billion as redemption of 91-day Treasury bills 

--INR 11.45 billion as coupon on state bonds

--INR 38.60 billion as coupon on 8.30%, 2040 gilt

* Outflows

--INR 577.97 billion as reversal of overnight variable rate repo tender

End

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

Reported by Cassandra Carvalho

Edited by Rajeev Pai

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2026. All rights reserved.