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Informist, Friday, Jan. 9, 2026

MUMBAI – On Monday, government bond prices are seen tracking the result of the Reserve Bank of India's open market operation auction of INR 500 billion, dealers said. Gilts and overnight indexed swap rates may also track the movement in US Treasury yields over the weekend after the release of the US employment report for December, released post market hours Friday. However, bond prices and swaps are likely to react to US yield movements only if the 10-year US yield falls below 4.10% or rises above 4.20%, the current trading range, dealers said. Money markets are shut Saturday.

The world's largest economy added a seasonally adjusted 50,000 jobs in December, below the 73,000 jobs estimated by the Wall Street Journal and 56,000 added in November. Job gains in the prior two months were also revised down by 76,000. However, the US unemployment rate fell to 4.4% in December from a downwardly revised 4.5% in November. Fed funds futures reflected a 95% chance of a status quo on rates at the US Federal Open Market Committee's meeting scheduled for Jan. 27-28 after the data release, according to the CME's FedWatch tool.  

On the domestic front, 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 next week. The rupee's movement against the dollar in early trade will also provide cues as will the movement in crude oil prices, dealers said. Traders will also monitor developments in the India-US negotiations for a trade deal and geopolitical developments for cues. 

The one-day call money rate on Monday may open above the RBI's repo rate of 5.25% on the back of early demand for funds. Liquidity conditions will improve Monday onwards after the redemption and coupon payment of the 7.59%, 2026 bond add nearly INR 1 trillion of liquidity into the banking system.

Systemic liquidity is seen returning to a comfortable surplus by the end of next week, after the gilt redemption and an INR 500-billion OMO auction add nearly INR 1.5 trillion of liquidity. A three-year, $10 billion dollar-rupee buy-sell swap auction on Tuesday will add to durable liquidity by Jan. 16. During the day, the one-day call money rate is expected to move in the range of 4.70-5.50%, dealers said. 

GOVERNMENT BONDS

Monday, gilt prices will track the result of the open market operation auction where the RBI has said it will purchase INR 500 billion worth of seven gilts. The gilts selected for auction are the 7.10%, 2029; 7.95%, 2032; 7.73%, 2034; 7.40%, 2035; 7.41%, 2036; 8.30%, 2040; and 7.09%, 2054 bonds. Traders were not too happy about these bonds being selected for the auction as most of them are fairly illiquid, dealers said. Some traders expect bonds to be offered at prices lower than market levels as bondholders seek to get rid of them. Others, however, are of the view that traders would want to make some profit on their holdings and would bid at a premium to the market level.

Tuesday, 11 states are in line to raise INR 268.15 billion, lower than the amount of INR 361.90 billion in the indicative calendar for the Jan-Mar quarter. The lower quantum of borrowing is likely to lead to a rise in bond prices as fear of a large quantum weighed on prices, dealers said. The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.58-6.65% Monday. Friday, it ended at INR 98.85, or 6.64% yield.

OIS RATES

On Monday, swap rates may track the movement of US Treasury yields over the weekend after US non-farm payrolls data, released after Indian market hours Friday, dealers said.

Swaps will also track the movement of gilt yields during the day, dealers said. Traders will closely track technical levels on swaps, with 5.89% seen as a strong support and 6.00% a strong resistance, difficult to break without a firm trigger on either side, dealers said. 

The one-year swap rate is seen at 5.42-5.55% and the five-year at 5.88-6.02% Monday. The one-year rate Friday ended at 5.49% and the five-year rate at 5.96%.

CALL

The one-day call money rate on Monday may open above the RBI's repo rate of 5.25% on the back of early demand for funds. Liquidity conditions will improve from Monday onwards after the redemption and coupon payment of the 7.59%, 2026 bond adds nearly INR 1 trillion of liquidity into the banking system.

Systemic liquidity is seen returning to a comfortable surplus by the end of next week, after the gilt redemption and an INR 500-billion OMO auction add nearly INR 1.5 trillion of liquidity. A three-year, $10 billion dollar-rupee buy-sell swap auction on Tuesday will add to durable liquidity by Jan. 16. During the day, the one-day call money rate is expected to move in the range of 4.70-5.50%, dealers said. The three-day call rate ended at 5.30% Friday.

RBI AUCTION

--RBI to buy INR 500 billion of seven gilts via open market operation auction Monday 

LIQUIDITY

Total net inflows of INR 740.66 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 15.82 billion as coupon on state bonds on Saturday

--INR 907.86 billion as redemption of 7.59%, 2026 gilt on Sunday

--INR 13.16 billion as coupon on state bonds on Sunday

--INR 34.45 billion as coupon on 7.59%, 2026 gilt on Sunday

--INR 12.90 billion as coupon on state bonds on Monday

--INR 46.47 billion as coupon on 6.10%, 2031 gilt on Monday

* Outflows

--INR 290.00 billion as payment for gilts on Monday

End

US$1 = INR 90.1625

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

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

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