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Informist, Thursday, Jan. 22, 2026

MUMBAI – Government bond prices may open steady Friday ahead of the weekly gilt auction, dealers said. The government will sell INR 90 billion of a new 2029 bond, INR 110 billion of a new 2033 bond, and INR 130 billion of the 7.24%, 2055 bond at auction 1030-1130 IST.

Gilt prices and overnight indexed swap rates will also track the overnight movement in US Treasury yields. The offshore trigger has led to volatility in OIS rates, which may continue to reflect in gilt prices, dealers said. 

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

On Friday, the four-day call money rate may open above the Reserve Bank of India's repo rate of 5.25% due to early demand for funds. Money markets are shut Monday for Republic Day. During the day, the call money rate is expected to move in a range of 4.70-5.55%, dealers said.

GOVERNMENT BONDS

On Friday, gilt prices may open steady ahead of the INR-330-billion weekly gilts auction during 1030 IST-1130 IST. A reduction in the 'Others' net buys Thursday may weigh on gilt prices, dealers said. Gilts may also be influenced by the overnight movement in US Treasury yields.

The government will sell INR 90 billion of a new 2029 bond, INR 110 billion of a new 2033 bond, and INR 130 billion of the 7.24%, 2055 bond, Friday. The seven-year bond will likely remain in focus after the yield on the 6.28%, 2032 paper ended one basis point higher than the 10-year benchmark paper, making it lucrative for asset-liability managers. The 30-year paper is likely to attract firm demand from life insurers and pension funds, dealers said.

'Others'--a category that includes the RBI--net purchased gilts worth INR 19.62 billion in the secondary market Thursday, according to Clearing Corp. of India data released after market hours. The pace was slower than the INR 83 billion that this segment net bought Mon-Wed, which bond traders largely attribute to the central bank.

Meanwhile, 15 states will raise INR 398 billion through bonds Tuesday, the RBI said in a release Thursday. While the amount is lower than the amount of INR 473 billion indicated for the week in the Jan-Mar calendar, the large supply may lead investors to delay their purchases of gilts, dealers said. 

Traders are also keenly tracking the Union Budget for 2026-27 (Apr-Mar), which will be presented Feb. 1. The Centre's gross borrowing aim is expected to be between INR 16 trillion and INR 17 trillion, compared with INR 14.72 trillion for FY26. A number higher than expected may 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 6.60-6.70% Friday. On Thursday, the gilt ended at INR 98.89 or 6.64% yield.

OIS RATES

On Friday, OIS rates may take cues from overnight movement in US Treasury yields due to lack of domestic interest rate triggers, dealers said. With most traders not betting on any further rate cuts in India, benchmark OIS rates may continue to rise, dealers said.

Traders are uncertain about the direction of OIS rates, especially after the five-year OIS rose past the key 6.05% level this week. Some domestic traders have been unwinding paid fixed rate bets at a profit, while offshore traders are expected to continue paying fixed rates, dealers said. The Monetary Policy Committee is expected to next take action on the repo rate by raising it in 2027.

Domestic traders are expected to pay fixed rates below the 6.05% rate on the five-year swap. 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 Friday, the one-year swap rate is seen at 5.48-5.62% and the five-year at 5.95-6.12%. On Thursday, the one-year swap rate ended at 5.57% and the five-year rate at 6.09%.

CALL

On Friday, the four-day call money rate may open above the RBI's repo rate of 5.25% due to early demand for funds. Liquidity is expected to return to a surplus by Friday after the settlement of the RBI's INR 500-billion purchase of gilts through OMOs, with no major inflows or outflows Thursday.

During the day, the call money rate is expected to move in a range of 4.70-5.55%, dealers said. On Thursday, the one-day call rate ended at 5.55%.

RBI AUCTION

--Govt to auction three gilts worth INR 330 billion 1030-1130 IST

LIQUIDITY

Total net inflows of INR 707.41 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 198.00 billion as redemption of 91-day T-bills

--INR 9.41 billion as coupon on state bonds

--INR 500.00 billion as RBI's payment for open market operation auction

* Outflows

--INR 587.40 billion as reversal of four-day variable rate repo

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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