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Informist, Wednesday, Jan. 28, 2026

MUMBAI – Government bond prices and overnight indexed swap rates Thursday may track the overnight movement in US Treasury yields after the outcome of the US Federal Open Market Committee's meeting, even though the market sees the policy decision as a "non-event", dealers said. At 2100 IST, the CME FedWatch tool showed that Fed fund futures reflected a 97.2% probability of the central bank maintaining a status quo on rates early Thursday. Traders await remarks from US Federal Reserve Chair Jerome Powell and other Fed officials for guidance on the future path of interest rates. 

Any development related to the India-US trade deal may also influence bond prices. Significant movement in the five-year OIS rate, the rupee, and crude oil prices may also lend cues, dealers said.
 

On Thursday, the one-day call money rate is likely to open at or above the Reserve Bank of India's repo rate of 5.25% due to tight liquidity in the banking system. However, inflows from the Centre's month-end expenditure may aid liquidity. During the day, the call money rate is expected to move in a range of 4.50-5.55%, dealers said.

GOVERNMENT BONDS

On Thursday, government bond prices may track the overnight movement in US Treasury yields after the outcome of the US FOMC meeting. Traders will likely refrain from placing aggressive bets ahead of the INR-500-billion open market operation auction, dealers said. Most of the bonds selected by the RBI for the OMO are in banks' held-to-maturity books, dealers said. Some traders said that most of the bonds are in-the-money or profitable for banks, with bonds maturing in up to seven years likely to be in focus, dealers said.

"I think the bond prices will likely open higher tomorrow (Thursday) since the closing today was around 6.70% (yield on the benchmark 6.48%, 2035 paper)," a dealer at a state-owned bank said. "Prices should have recovered today itself, but it did not...those who did not cover (short bets) today will cover tomorrow...later in the day, OMO cut-off will lend cues to bond prices." 

The RBI has chosen to buy the 6.75%, 2029; the 7.17%, 2030; the 7.95%, 2032; the 7.26%, 2033; the 6.22%, 2035; the 7.18%, 2037; and the 7.30%, 2053 gilts at Thursday's auction. After the OMO auction Thursday, traders will likely continue to place short bets to make space in their portfolio for the large supply of INR 320 billion of 6.48%, 2035 bond at the weekly gilt auction Friday. The 10-year benchmark saw a turnover of INR 227.25 billion out of a market-wide turnover of INR 382.40 billion in Wednesday's session.   

Traders are also keenly tracking the Union Budget for 2026-27 (Apr-Mar), due on Sunday. 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 higher-than-expected number 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. If the actual amount is significantly higher than INR 17 trillion, the yield on the 10-year benchmark bond will likely rise up to 6.80%, dealers said. The yield on the 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.65-6.75%. On Wednesday, the bond ended at INR 98.42, or 6.7026% yield.

OIS RATES

On Thursday, overnight indexed swap rates will track overnight movement in US Treasury yields after the outcome of the US Federal Open Market Committee's meeting. The movement of swaps will hinge on offshore flows, as they continue to pay fixed rates, dealers said. Until the Budget for FY27 is presented on Sunday, which will indirectly impact swaps through movements in bond yields, and the outcome of the RBI's Monetary Policy Committee next week is known, swaps are expected to trade in a narrow range, if not for offshore activity, dealers said.   

On Thursday, the one-year swap rate is seen at 5.52-5.68% and the five-year at 6.03-6.25%. Wednesday, the one-year swap rate ended at 5.58% and the five-year swap rate ended at 6.15%. 

CALL

On Thursday, the one-day call money rate may open at or above the RBI's repo rate of 5.25% amid tight liquidity in the banking system. However, inflows from the Centre's month-end expenditure may aid liquidity. During the day, the call money rate is expected to move in a range of 4.50-5.55%, dealers said. On Wednesday, the one-day call money rate ended at 5.35%. 

RBI AUCTION

--RBI to buy INR 500 billion of seven gilts via open-market operations auction 

LIQUIDITY

Total net inflows of INR 72.14 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 260.00 billion as redemption of 91-day Treasury bills

--INR 70.00 billion as redemption of 182-day T-bills

--INR 109.21 billion as redemption of 364-day T-bills

--INR 22.93 billion as coupon on state bonds

* Outflows

--INR 170.00 billion as payment for 91-day T-bills

--INR 130.00 billion as payment for 182-day T-bills

--INR 90.00 billion as payment for 364-day T-bills

--INR 265.35 billion as reversal of eight-day variable rate repo tender

End

US$1 = INR 91.7825

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

Reported by Cassandra Carvalho

Edited by Tanima Banerjee

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