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Informist, Tuesday, Jan. 20, 2026

NEW DELHI – Government bond prices may open higher Wednesday on speculation the Reserve Bank of India was buying gilts in the secondary market Tuesday. Clearing Corp. of India data released after market hours showed 'Others' – a category that includes the central bank – net bought gilts worth INR 35.45 billion Tuesday. Traders had speculated central bank was buying bonds to cap the yield on the 10-year 6.48%, 2035 bond near 6.70%, its highest level in the current financial year ending March.

Gilt prices and overnight indexed swap rates will also track the overnight movement in US Treasury yields amid geopolitical tensions between the US and Europe. The offshore trigger has led to volatility in OIS rates, which may continue to reflect in gilt prices, dealers said. US President Donald Trump's scheduled remarks at the World Economic Forum in Davos after Indian market hours Wednesday will be closely watched and may keep some foreign investors on the sidelines.

Any development on the India-US trade deal may also influence bond prices and OIS rates. Significant movement in the rupee and crude oil prices may also lend cues, dealers said.

On Wednesday, the one-day call money rate may open above the Reserve Bank of India's repo rate of 5.25% due to early demand for funds amid outflows for goods and services tax payments. During the day, the call money rate is expected to move in a range of 4.70-5.55%, dealers said. 

GOVERNMENT BONDS

On Wednesday, bond prices may open higher on speculation of the RBI buys, which traders hope will continue for a few days, dealers said. The movement in US Treasury yields may also lend cues. 

Later on Wednesday, cut-off yields on treasury bills may influence prices of short-term bonds amid tight liquidity in the banking system, with investors looking to demand higher yields, dealers said. The government will sell INR 90 billion of 91-day T-bill, INR 120 billion of 182-day T-bill and INR 800 billion of 364-day T-bill at auction at 1030-1130 IST Wednesday.

The INR-500-billion open market auction operation by the RBI to buy bonds on Thursday may lift prices. Thursday's auction will be the last scheduled OMO among the four announced on Dec. 23, but traders expect the RBI to announce another set of OMO purchases worth up to INR 1.5 trillion for February.

On the other hand, some traders expect bond yields to rise after Friday's weekly gilt auction and heading into the Union Budget on Feb. 1. Traders will focus on the government's gross borrowing aim in the budget release, which is expected to be between INR 16 trillion and INR 17 trillion for 2026-27 (Apr-Mar), compared with INR 14.72 trillion in the current fiscal. A number higher than expected might weigh on bond prices while an increase in funding through Treasury bills or small savings and a gross borrowing number below INR 16 trillion would boost bond prices, dealers said. Bets on rate cuts at the Monetary Policy Committee's February meeting remain muted.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.64-6.72% Wednesday. On Tuesday, the gilt ended at INR 98.63, or 6.67% yield.

OIS RATES

On Wednesday, OIS rates may take cues from the movement of US Treasury yields overnight. The increase in offshore activity in swap rates had led them to more closely track US yields, especially amid a lack of domestic interest rate cues, dealers said. 

Traders are uncertain about the direction of OIS rates, especially after the five-year OIS rose past the key 6.05% level Monday. With most traders not betting on any further rate cuts in India, benchmark OIS rates may continue to rise to fresh multi-month highs, dealers said. The RBI's Monetary Policy Committee is expected to next take action on the repo rate by raising it early in 2027.

Domestic traders are expected to pay fixed rates below the 6.05% rate on the five-year swap. However, others may unwind their paid fixed rate bets at a profit, capping the rise. The five-year OIS rate is expected to trade in the 6.03-6.20% range in the near-term amid heightened geopolitical uncertainty and a rise in US yields. 

On Wednesday, the one-year swap rate is seen at 5.48-5.62% and the five-year at 5.95-6.12%. On Tuesday, the one-year swap rate ended at 5.59% and the five-year OIS rate ended at 6.10%, both multi-month highs. 

CALL

On Wednesday, the one-day call money rate may open above the RBI's repo rate of 5.25% due to early demand for funds. The liquidity surplus is expected to shrink on further outflows for GST payments. During the day, the call money rate is expected to move in a range of 4.70-5.55%, dealers said. 

The RBI has announced an eight-day, INR-500-billion variable rate repo auction at 0930-1000 IST Wednesday. The auction may aid market sentiment as some traders have been wanting longer-term VRR auctions to meet their funding requirements. However, this also shows the central bank does not expect government spending to kick in until the very end of the month, dealers said. The settlement of the central bank's open market operation to buy INR 500 billion of bonds Thursday will add to liquidity by Friday.

RBI AUCTION

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

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

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

LIQUIDITY

Total net outflows of INR 111.07 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 18.93 billion as coupon on 6.01%, 2030 gilt

* Outflows

--INR 130.00 billion as payment for state bond auction

End

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

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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