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Informist, Saturday, Jan. 17, 2026

MUMBAI – On Monday, government bond prices may rise after the state bond auction notified for next week was much smaller than indicated, dealers said. Overnight indexed swap rates may track the decline in gilt yields. 

Traders will likely focus on any significant movement in the five-year OIS rates. If the five-year OIS rate rises above the key technical level of 6.05%, bond prices may see a further fall and the 10-year gilt yields may rise to 6.70%, dealers said. The movement in US Treasury yields may also lend cues. If the 10-year US yield is in the 4.10-4.20% range it has stuck to since early December, the overseas trigger may have a limited impact on gilt prices and swap rates. Any development on the India-US trade deal may also influence bond prices. The rupee's movement against the dollar will also provide cues, as will crude oil prices. 

On Monday, the one-day call money rate may open near the RBI's repo rate due to early demand for funds, dealers said. Outflows for goods and services tax, scheduled for next week, are likely to weigh on the systemic liquidity, they said. 

GOVERNMENT BONDS

On Monday, gilt prices are likely to open higher due to the significantly lower quantum of state bond supply at the auction Tuesday. Six states will raise INR 130 billion on Tuesday, sharply lower than INR 386 billion indicated in the borrowing calendar for Jan-Mar.

The disappointment over Bloomberg Index Services' announcement to still review India's inclusion in its flagship Global Aggregate Index may weigh on prices through the day, though traders expect the RBI to continue buying gilts on screen, which may limit losses. The 10-year benchmark 6.48%, 2035 gilt may see firm demand from state-owned banks if its yield rises to near 6.70%, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.62-6.70% Monday. On Friday, the gilt ended at INR 98.60, or 6.68% yield. The benchmark yield was at its highest closing level since Mar. 17.

OIS RATES

OIS rates may fall Monday, tracking an expected fall in gilt yields. Some traders may also unwind paid fixed rate positions or receive OIS rates at levels seen as lucrative and at multi-month highs, dealers said. However, traders are expected to pay fixed rates below the 6.00% rate on the five-year swap. Swap rates are expected to continue rising as traders are betting that the Monetary Policy Committee will not ease rates further and its net action will be to raise the repo rate early in 2027. Monday, the one-year swap rate is seen at 5.45-5.58% and the five-year at 5.91-6.05%. On Friday, the one-year swap rate ended at 5.53% and the five-year rate at 6.03%, both multi-month highs.

CALL

On Monday, the one-day call money rate may open near the RBI's repo rate due to early demand for funds, dealers said. Outflows for goods and services tax, scheduled for next week, are likely to weigh on the systemic liquidity, they said. 

A three-year, $10 billion dollar-rupee buy-sell swap auction conducted Tuesday will add to the liquidity surplus when Friday's money market data is released Monday, dealers said. The RBI's announcement of a four-day, INR 1-trillion variable rate repo auction for Monday is expected to help keep money market rates near the repo rate of 5.25%, though demand at the auction may be tepid due to the longer tenure. The two-day call rate closed at 4.75% Saturday.

RBI AUCTION

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

LIQUIDITY

Total net outflows of INR 288.86 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 7.06 billion as coupon on state bonds on Sunday

--INR 7.71 billion as coupon on state bonds on Monday

--INR 6.37 billion as coupon on 6.83%, 2039 gilt on Monday

* Outflows

--INR 310.00 billion as payment for gilts on Monday

End

US$1 = INR 90.87

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

Reported by Cassandra Carvalho

Edited by Vandana Hingorani

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