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Informist, Monday, Jan. 12, 2026

NEW DELHI – Government bond prices and overnight indexed swap rates may take cues from the overnight movement in US Treasury yields at the open Tuesday ahead of the release of US CPI data after Indian market hours. Gilts will also be directed by the result of the state bond auction during the day, dealers said. 

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. Meanwhile, 11 states will raise INR 268.15 billion at auction 1030-1130 IST Tuesday, lower than INR 361.90 billion as per the indicative calendar for the March quarter.

Market participants await the decision of Bloomberg Index Services Ltd. on the proposal of India's fully accessible route bonds on its flagship Global Aggregate Index. The announcement is expected by Thursday. Traders estimate foreign portfolio investment inflows of $10 billion to $25 billion in 2026 should India be added to the index. If the inclusion is announced, the yield on the 10-year benchmark 6.48%, 2035 bond may go down to 6.46-6.47% whereas a negative announcement could push up the yield to 6.70%, dealers said.

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 Tuesday may open near the RBI's repo rate of 5.25% on the back of early demand for funds amid tight liquidity. 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

On Tuesday, gilt prices will track the results of the state bond auction where 11 states are in line to raise INR 268.15 billion, lower than INR 361.90 billion as per the indicative calendar for the Jan-Mar quarter. At the state bond auction, public-sector banks will likely bid aggressively as they would want to add these bonds to their held-to-maturity books, citing the lucrative yield between state bonds and gilts, dealers said.

Some of the banks will also likely buy state bonds to fill up their held-to-maturity books after they sold gilts from their investment books to the RBI at the OMO auction Monday, dealers said. Traders will likely remain on the sidelines as they expect the spread of state bonds and gilts to widen in coming weeks due to the announced INR 5-trillion state bond supply in the March quarter. Further, as state bonds are less liquid compared to gilts, it is difficult for traders to book profit on these holdings in the secondary market, dealers said.

Later in the day, traders may refrain from placing aggressive bets as they will likely watch out for the US CPI data for December, scheduled to be released at 1900 IST Tuesday. The data comes ahead of the FOMC meeting scheduled for Jan. 27-28.

Some traders are also tracking the US apex court's ruling on the legality of the tariffs levied by US President Donald Trump, a decision which is likely to be made Wednesday. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.57-6.65% Tuesday. On Monday, it ended at INR 99.10, or 6.61% yield.

OIS RATES

Tuesday, swap rates may track the overnight movement of US Treasury yields. After Monday's dull trade, some traders may receive short-term swap rates after the overnight Mumbai Interbank Outright Rate fell sharply, dealers said. The rate was set at 5.39% Monday and is expected to fall to near the repo rate of 5.25% in the coming days.

Offshore traders' activity may be limited ahead of the release of US CPI data for December after Indian market hours, dealers said. Fed funds futures reflected a 95% chance of status quo on rates at the FOMC's December meeting after the release, according to the CME's FedWatch tool. 

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% as a strong resistance, difficult to break without a firm trigger on either side, dealers said. 

Traders will also monitor developments in the India-US negotiations for a trade deal. They may also track crude oil prices and geopolitical developments for cues. Tuesday, the one-year swap rate is seen at 5.42-5.55% and the five-year at 5.88-6.02%.

CALL

The one-day call money rate may open near the RBI's repo rate of 5.25% on the back of early demand for funds amid tight liquidity. Liquidity conditions will improve this week after the redemption and coupon payment of the 7.59%, 2026 bond added nearly INR 1 trillion of liquidity to the banking system.

The settlement of the RBI's INR 500-billion OMO auction will also add to banking system liquidity Tuesday and reduce demand for funds, dealers said. Some dealers are still of the view that the RBI would need to conduct a VRR auction of up to INR 750 billion as the maturity of two VRR auctions drain nearly INR 1.3 trillion from the banking system Tuesday.

By the end of the week, the central bank will no longer have to conduct liquidity injections and may even withdraw transient liquidity through a variable rate reverse repo auction, dealers said. A three-year, $10 billion dollar-rupee buy-sell swap auction on Tuesday will add to durable liquidity by Friday. During the day, the one-day call money rate is expected to move in the range of 4.70-5.50%, dealers said. 

RBI AUCTION

--11 states to raise INR 268.15 billion via bond sale at 1030-1130 IST

--RBI to conduct $10-billion, dollar-rupee buy-sell swap 1030-1130 IST

LIQUIDITY

Total net inflows of INR 210.33 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 21.63 billion as coupon on state bonds

--INR 188.70 billion as redemption of state bonds

* Outflows

--INR 500.11 billion as reversal of four-day VRR auction

--INR 771.99 billion as reversal of four-day VRR auction

End

US$1 = INR 90.15

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

Reported by Aaryan Khanna

Edited by Ashish Shirke

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