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Informist, Saturday, Jan. 31, 2026

 

MUMBAI – On Monday, government bond prices and overnight indexed swap rates will track the movement in bond yields after the Union Budget for 2026-27 (Apr-Mar) is presented on Sunday. However, bond prices may rise and swap rates may fall at open after weekly statistical data released post-market hours showed that the Reserve Bank of India purchased gilts worth INR 126.55 billion outside open market operation auctions in the week ended Jan. 23.

 

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 monitor developments related to the India-US trade negotiations, crude oil prices, and geopolitics which will impact gilt prices and swap rates. Moreover, significant movements in the five-year overnight indexed swap rate, the rupee, and crude oil prices may also lend cues to bond prices, dealers said.

 

On Monday, the one-day call money rate will take cues from the Union Budget for FY27 on Sunday. Traders will focus on the Centre's gross borrowing quantum, which may impact call rates. However, the one-day call money rate is expected to open below the RBI's repo rate of 5.25% as demand for funds eased after the RBI's variable rate repo auctions Friday. The call money rate is likely to trade between 5.05-5.20% during the day, dealers said. 

 

Moreover, INR 500 billion of open market operation auction lined up on Thursday will also add to durable liquidity in the system. Some traders are also expecting announcement of another INR 1 trillion-INR 2-trillion of OMO in the March quarter, which is likely to be announced in the Monetary Policy Committee meeting's outcome on Feb. 6.   

 

GOVERNMENT BONDS

Government bonds are not traded on Saturday and Sunday. On Monday, bond prices will take cues from the Centre's market borrowing figures, which will be presented in the Union Budget for FY27 on Sunday, dealers said. However, bond prices may rise at open after weekly statistical data released post-market hours showed that the RBI purchased gilts worth INR 126.55 billion outside OMO auctions in the week ended Jan. 23. Moreover, fulfilling the hopes of traders, the RBI selected the erstwhile 10-year benchmark 6.33%, 2035 bond to buy, along with six other gilts, at the INR-500-billion OMO auction Thursday. 

 

Post market hours, the RBI said it will buy seven gilts for INR 500 billion at the OMO auction Thursday; namely the 6.75%, 2029; the 6.28%, 2032; the 7.18%, 2033; the 6.79%, 2034; the 6.33%, 2035; the 6.92%, 2039; and the 7.09%, 2054 gilts. The erstwhile 10-year benchmark 6.33%, 2035 bond outperformed the 10-year benchmark bond Friday, even as its trade volume was low, as traders had expected its inclusion in the INR-500-billion auction Thursday. Some market participants had also speculated that the RBI would buy the 7.18%, 2033 bond at the auction. 

 

Traders will 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. Any development on the India-US trade deal front may also influence bond prices. Significant movements in the five-year overnight indexed swap rate, the rupee, and crude oil prices may also lend cues, dealers said. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.60-6.77%. On Friday, the bond ended at INR 98.47, or 6.70% yield.

 

OIS RATES

Swaps are not traded Saturdays and Sundays. On Monday, overnight indexed swap rates will track the movement in bond yields after the Union Budget for FY27 is presented Sunday. Traders await the Centre's market borrowing figures, which will be detailed in the Union Budget. Albeit, swap rates may fall at open Monday after weekly statistical data released post-market hours showed that the RBI purchased gilts worth INR 126.55 billion outside open market operation auctions in the week ended Jan. 23.

 

The movement of swaps will hinge on offshore flows, as offshore traders continue to pay fixed rates, dealers said. After the Budget, traders await the outcome of the RBI's Monetary Policy Committee meeting next week, even though a rate cut is not expected, dealers said. Swap rates are currently pricing in rate hikes. 

 

Traders will also monitor developments related to the India-US trade negotiations, crude oil prices, and geopolitics. The one-year swap rate is seen at 5.52-5.68% and the five-year at 6.03-6.25%. Friday, the one-year swap rate ended at 5.56% and the five-year swap rate ended at 6.16%. 

 

CALL

On Monday, the one-day call money rate will take cues from the Union Budget for FY27 on Sunday. Traders will focus on the Centre's gross borrowing quantum, which may impact call rates. However, the one-day call money rate is expected to open below the RBI's repo rate of 5.25% due to eased demand for funds after the RBI's VRR auctions on Friday. The call money rate is likely to trade between 5.05-5.20% during the day, dealers said. 

 

Moreover, INR 500 billion of open market operation auction lined up on Thursday will also add to durable liquidity in the system. Some traders are also expecting announcement of another INR 1 trillion-INR 2 trillion of OMO in the March qaurter, which is likely to be announced in the Monetary Policy Committee meeting's outcome on Feb. 6. The two-day call rate closed at 4.75% Saturday.

 

RBI AUCTION

--Nil

 

LIQUIDITY

Total net outflow of INR 205.30 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 14.78 billion as coupon on state bonds on Sunday

--INR 8.94 billion as coupon on state bonds on Monday

--INR 7.50 billion as redemption of state bonds on Monday

--INR 35.68 billion as coupon on 8.26%, 2027 gilt on Monday

--INR 47.80 billion as coupon on 8.32%, 2032 gilt on Monday

 

* Outflows

--INR 320.00 billion as payment for gilts on Monday

 

End

 

US$1 = INR 91.98

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

 

Reported by Janwee Prajapati

Edited by Tanima Banerjee

 

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