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Informist, Monday, Jan. 5, 2026

MUMBAI – On Tuesday, government bond prices are seen tracking the result of the INR-301-billion state bond auction, the first of the March quarter. Overnight indexed swap rates are seen tracking the movement of bond yields. 

The government's first advance estimate of GDP for 2025-26 (Apr-Mar), to be released on Wednesday, may also provide cues on interest rates, dealers said. However, traders are currently focused on supply in the bond market.

Foreign banks, primary dealers, and offshore traders are expected to receive swap rates and buy gilts this month, dealers said. Market participants expect inflows into debt instruments from foreign portfolio investors to begin this year and exceed $25 billion as India's fully accessible route bonds are likely to be added to Bloomberg's flagship Global Aggregate Index. So far, the only foreign inflows have been passive flows tracking indices in which Indian gilts are already included, dealers said. 

The rupee's movement against the dollar in early trade will also provide cues for bond prices, as will the movement in US Treasury yields. Developments in the India-US trade deal negotiations may also influence bond prices. Some traders are also tracking developments in Venezuela and its impact on crude oil prices.

On Tuesday, the one-day call money rate may open near the Reserve Bank of India's repo rate of 5.25% as the liquidity surplus is expected to remain under INR 1.00 trillion. Later in the day, rates may ease due to Tuesday's settlement of the RBI's INR-500-billion open market operation auction conducted Monday. Some traders still expect the RBI to conduct a variable rate repo auction of INR 250 billion to INR 500 billion Tuesday. Later in the week, outflows for excise duty payments will put pressure on systemic liquidity, dealers said.

Systemic liquidity is seen returning to a comfortable surplus by next week, after two tranches of open market operation 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 that will add to durable liquidity. That may cause the central bank to begin conducting 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.

GOVERNMENT BONDS

Gilt prices are seen steady Tuesday ahead of the weekly state bond auction, the result of which will lend further cues, dealers said. Nine states aim to raise a heavy INR 301 billion through bonds, most of them maturing in 10-20 years, tenures that traders are not comfortable holding. Foreign banks are likely to front-run the expected announcement of the inclusion of Indian bonds in the Bloomberg Global Aggregate Index in January.  

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.58-6.70% Tuesday. On Monday, the 6.48%, 2035 bond ended at INR 98.90, or 6.63% yield.

OIS RATES

On Tuesday, swap rates may track the movement of bond yields ahead of heavy supply of INR 301 billion at the first state bond auction of the March quarter. Volumes may pick up as traders, especially offshore, return to their desks after the New Year holidays, dealers said. Traders will closely track technical levels on swaps, as the five-year swap inched close to the key 6.00% level Monday.

The one-year swap rate is seen at 5.40-5.52% Tuesday and the five-year at 5.85-6.10%. The one-year rate Monday ended at 5.49% and the five-year rate closed at 5.98%.

CALL

On Tuesday, the one-day call money rate may open near the RBI's repo rate of 5.25% as the liquidity surplus is expected to remain under INR 1.00 trillion. Later in the day, rates may ease due to Tuesday's settlement of the RBI's INR-500-billion open market operation auction conducted Monday. Some traders still expect the RBI to conduct a variable rate repo auction of INR 250 billion to INR 500 billion Tuesday. Later in the week, outflows for excise duty payments will put pressure on systemic liquidity, dealers said.

Systemic liquidity is seen returning to a comfortable surplus by next week, after two tranches of open market operation 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 that will add to durable liquidity. That may cause the central bank to begin conducting 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. The one-day call rate ended at 5.40% Monday.

RBI AUCTION

--Nine states to raise INR 301 billion via bond sale

LIQUIDITY

Total net inflows of INR 515.96 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 10.96 billion as coupon on state bonds

--INR 5.00 billion as redemption on state bonds

--INR 500.00 billion as payment from RBI gilt buy at OMO auction Monday

* Outflows

--INR 146.25 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 Deepshikha Bhardwaj

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