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Informist, Thursday, Jan. 29, 2026

 

MUMBAI – Government bond prices and overnight indexed swap rates Friday may track the overnight movement in US Treasury yields. Later in the day, bonds and swaps will take cues from the result of the weekly gilt auction. The government will sell INR 320 billion of the 6.48%, 2035 bond at the auction Friday.  

 

In the US, initals jobless claims for the week ended Saturday fell by 1,000 to 209,000, which was slightly above the Wall Street Journal's consensus estimate of 205,000 new claims. .

 

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, especially after Brent crude oil futures for March rose above the psychologically crucial $70-per-barrel mark, dealers said.
 

On Friday, the three-day call money rate may open above the Reserve Bank of India's repo rate due to tight liquidity in the banking system. During the day, the call money rate is expected to move in a range of 4.50-5.45%, dealers said.

 

GOVERNMENT BONDS

On Friday, bond prices may track the overnight movement in US Treasury yields at open. Prices will likely trade in a thin band ahead of the gilt auction, dealers said. Later in the day, the result of the INR-320-billion auction will lend cues. However, traders will likely refrain from placing aggressive bets ahead of the Union Budget for 2026-27 (Apr-Mar).  

 

Traders are keenly tracking the Union Budget for FY27. The Centre's gross borrowing aim is expected to be between INR 16 trillion and INR 17 trillion, compared with INR 14.72 trillion in 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 till 6.80%, dealers said.

 

Traders will also look out for confirmation of the speculated gilt switch between the RBI and the Centre, on hopes that it will reduce the Centre's gross borrowing for FY27. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.65-6.75%. On Thursday, the bond ended at INR 98.45, or 6.70% yield.

 

OIS RATES

On Friday, overnight indexed swap rates will track the overnight movement in US Treasury yields, and will track bond yields later in the day after the result of the INR-320-billion gilt auction. 

 

The movement of swaps will hinge on offshore flows, as they continue to pay fixed rates, dealers said. Until the FY27 Budget 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 Friday, the one-year swap rate is seen at 5.52-5.68% and the five-year at 6.03-6.25%. Thursday, the one-year swap rate ended at 5.57% and the five-year swap rate ended at 6.16%. 

 

CALL

On Friday, the three-day call money rate may open above the RBI's repo rate due to tight liquidity in the banking system. Participation at the 90-day variable rate repo auction is seen robust, especially after the RBI provided a prepayment option for any amount borrowed at the auction. During the day, the call money rate is expected to move in a range of 4.50-5.45%, dealers said. On Thursday, the one-day call money rate ended at 5.45%. 

 

RBI AUCTION

--Govt to auction one gilt worth INR 320 billion

--RBI to hold 90-day variable rate repo auction for INR 250 billion 0930-1000 IST

 

LIQUIDITY

Total net inflows of INR 516.45 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 16.45 billion as coupon on state bonds

--INR 500.00 billion as payment from RBI gilt buy at OMO auction Thursday

 

* Outflows

--INR 62.35 billion as reversal of two-day variable rate repo tender

 

End

 

US$1 = INR 91.9550

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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