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Informist, Tuesday, Jan. 6, 2026

MUMBAI – On Wednesday, government bond prices are seen lower after the Reserve Bank of India did not include the liquid, erstwhile 10-year benchmark 6.33%, 2035 in the list of gilts it has offered to purchase at Monday's open market operation auction. Overnight indexed swap rates are seen tracking the movement of bond yields.

The RBI has offered to buy the 7.04%, 2029; the 6.79%, 2031; the 8.32%, 2032; the 7.10%, 2034; the 6.64%, 2035; the 7.18%, 2037; and the 7.30%, 2053 gilts Monday at the third tranche of the OMO auctions announced Dec. 23. Traders were expecting the central bank to buy the 6.33%, 2035 bond at the auction. Some were also expecting the 7.10%, 2034 bond, the 7.18%, 2033 bond, or the 6.79%, 2034 gilt.

The government's first advance estimate of GDP for the financial year 2025-26 (Apr-Mar), to be released at 1600 IST, may also provide cues on interest rates, dealers said. According to an Informist poll of 11 economists, India's GDP is expected to rise 7.5% in FY26. However, positioning before the data print was light for most traders, dealers said. Traders were more focused on supply concerns in the government bond market and would likely only track the data for cues on the Centre's target for GDP growth in FY27, dealers said.

Foreign banks, primary dealers, and offshore traders are expected to buy gilts and receive swap rates this month, dealers said. Market participants await the announcement of the inclusion of India's fully accessible route bonds in Bloomberg's flagship Global Aggregate Index. The announcement is expected this month. 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 Wednesday, the one-day call money rate may open near the RBI's repo rate of 5.25% on account of outflows of INR 400 billion to INR 500 billion for excise duty payments, dealers said. Rates may ease later because of the RBI's variable rate repo auction. 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 opening lower after the RBI did not include the 6.33%, 2035 bond, the erstwhile 10-year benchmark, in the list of gilts it offered to purchase at Monday's OMO auction. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.57-6.67%. On Tuesday, it had ended at INR 99.04, or 6.61% yield.

OIS RATES

Swap rates may open higher, tracking an expected rise in bond yields after the RBI left the 6.33%, 2035 bond off the list of gilts it has offered to purchase at Monday's OMO auction. Traders will closely track technical levels on swaps as the five-year swap had neared the key 6.00% level Monday. The one-year swap rate is seen at 5.40-5.52% and the five-year at 5.85-6.10%. The one-year rate Tuesday ended at 5.48% and the five-year rate at 5.95%.

CALL

The one-day call money rate may open near the RBI's repo rate of 5.25% on outflows of INR 400 billion to INR 500 billion for excise duty payments, dealers said. However, rates may ease because of the RBI's variable rate repo auction.

Systemic liquidity is seen returning to a comfortable surplus by next week after one gilt redemption and two tranches of OMO auctions add nearly INR 2 trillion of liquidity by Jan. 12. A three-year $10 billion dollar-rupee buy-sell swap auction on Jan. 13 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 4.80% Tuesday.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 90 billion

--RBI to auction 182-day T-bills worth INR 120 billion

--RBI to auction 364-day T-bills worth INR 80 billion

--RBI to hold two-day variable rate repo auction for INR 1.00 trillion 0930-1000 IST 

LIQUIDITY

Total net outflows of INR 269.38 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 4.90 billion as coupon on state bonds

--INR 26.72 billion as coupon on 6.68%, 2040 gilt

* Outflows

--INR 257.95 billion as reversal of five-day variable rate repo tender

--INR 301.00 billion as payment on state bonds

End

US$1 = INR 90.1650

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

Reported by Cassandra Carvalho

With inputs from Janwee Prajapati 

Edited by Rajeev Pai

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