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Informist, Tuesday, Jan. 13, 2026

NEW DELHI – Government bond prices and overnight indexed swap rates may open steady Wednesday due to lack of fresh domestic cues on interest rates. The Reserve Bank of India's likely purchases to replace the 7.59%, 2026 bond that matured last week may lead to rise in prices if its speculated buys in the secondary market continue, dealers said.

Overnight movement in US Treasury yields after the US CPI data is released may lend cues. US CPI inflation for December printed was 0.3% on month and 2.7% on year, in line with a Wall Street Journal estimate. Core CPI inflation was marginally lower than estimated, at 0.2% on month. The 10-year US Treasury yield was at 4.19% at 2130 IST, down from 4.20% at 1700 IST Tuesday. Fed funds futures reflected a 97.2% chance of status quo on rates at the FOMC's January meeting after the data was released, according to the CME's FedWatch tool.

With the 10-year US yield in the 4.10-4.20% range it has stuck to since early December, the overseas trigger may have a limited impact on domestic markets. Some traders are also keeping track of the US Supreme 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 rupee's movement against the dollar will also provide cues as will the movement in crude oil prices, dealers said. Traders will also monitor developments in India-US negotiations for a trade deal and geopolitical developments for cues.

On Wednesday, the two-day call money rate may open above the RBI's repo rate of 5.25% on early demand for funds amid tight liquidity. Money markets are shut Thursday for municipal corporation elections in Maharashtra. During the day, the two-day call money rate is expected to move in a range of 4.70-5.50%, dealers said.

GOVERNMENT BONDS

On Wednesday, gilt prices may open steady due to lack of firm domestic cues. The RBI's likely purchases to replace the 7.59%, 2026 bond that matured last week may lead to a rise in prices if its speculated buys in the secondary market continue, dealers said.

Traders may trim their portfolios and short sell gilts in the latter half of the day to make room for the weekly gilt auction Friday, since Thursday is a holiday. The government will sell INR 180 billion of the 6.01%, 2030 gilt and INR 130 billion of a new 50-year, 2076 bond Friday. Foreign portfolio investor sales after Bloomberg Index Services' announcement that it had kept India's bonds on review for inclusion on its flagship Global Aggregate Index, rather than announcing an inclusion as traders had expected, may also weigh on gilt prices.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.58-6.66% Wednesday. On Tuesday, the benchmark gilt ended at INR 98.94 or 6.63% yield. 

OIS RATES

On Wednesday, swap rates may open steady, given the lack of firm interest rate triggers. Traders may pay swap rates with the Bloomberg Global Aggregate index inclusion not imminent and the five-year OIS rate may test the key 6.00% mark, dealers said.

The one-year swap rate is seen at 5.42-5.55% and the five-year at 5.91-6.02%. On Tuesday, the one-year swap rate ended at 5.51% and the five-year rate ended at 5.96%.

CALL

On Wednesday, the two-day call money rate may open above the RBI's repo rate of 5.25% on early demand for funds amid tight liquidity. The redemption and coupon payment of the 7.59%, 2026 bond will add nearly INR 1 trillion of liquidity into the banking system. With the RBI speculated to be buying gilts to replace the bond on its book after it matured Sunday, the full benefit is only expected to be visible on banking system liquidity once the central bank's purchases end, dealers said.

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.

The RBI's announcement of a two-day, INR 500-billion variable rate repo auction Wednesday may also cap money market rates after a lack of such an auction had put pressure on the money markets Tuesday, dealers said. During the day, the two-day call money rate is expected to move in a range of 4.70-5.50%, dealers said.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 90 billion at 1030-1130 IST

--RBI to auction 182-day T-bills worth INR 120 billion at 1030-1130 IST

--RBI to auction 364-day T-bills worth INR 80 billion at 1030-1130 IST

--RBI to conduct two-day, INR 500-billion variable rate repo auction 0930-1000 IST

LIQUIDITY

Total net outflows of INR 200.33 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 12.19 billion as coupon on state bonds

--INR 45.27 billion as coupon on 7.26%, 2029 gilt

--INR 10.36 billion as coupon on 6.28%, 2032 gilt

* Outflows

--INR 268.15 billion as payment for state bonds

End

US$1 = INR 90.19

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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