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Informist, Tuesday, Feb. 3, 2026

MUMBAI – On Wednesday, government bond prices may open higher and overnight indexed swap rates may open lower, continuing the movement seen Tuesday on optimism that the US-India trade deal will lead to a rise in the rupee and that the Centre may lower its gross borrowing for 2026-27 (Apr-Mar), dealers said. A comfortable liquidity surplus amid a lack of major outflows is likely to aid bond prices and the receiving interest in swap rates, dealers said.  

Traders will closely track the details of the trade deal. Commerce and Industry Minister Piyush Goyal said Tuesday that the US and India will soon issue a joint statement on the deal. A trade ministry official, who did not want to be identified, said the joint statement may come within a week. The official also said that negotiations with the US will continue even after the current deal is signed.

Traders will also closely track the systemic liquidity and any indications of liquidity infusion from the RBI. Bonds and swaps may also track overnight movement in US Treasury yields, though the impact of the offshore cue may be limited as traders focus on the trade deal and the outcome of the Reserve Bank of India's Monetary Policy Committee meeting this week, dealers said. Traders do not expect the rate-setting panel to cut rates further, after cutting the repo rate by 25 basis points to 5.25% in December.

Several participants see the terminal repo rate at 5.25%, with the MPC likely to opt for a "prolonged pause". Given the disruption in global trade and geopolitical conflicts even after the trade deal, the MPC is unlikely to change its stance to "accommodative" after reverting to "neutral" in June, participants said. While nothing of significance is expected on the interest rate front, the focus is on the central bank's communication on liquidity at the post-policy announcement. Crude oil prices, the rupee's movement against the dollar, and geopolitical tensions may influence bond prices and swap rates.

On Wednesday, the one-day call money rate may open below the RBI's repo rate of 5.25% on surplus liquidity and lack of major scheduled outflows this week. Traders will also track the result of the $10 billion, three-year dollar-rupee buy-sell swap auction Wednesday and its impact on forward dollar-rupee premiums. Any rise in premiums will push up demand for funds as traders would want to play on the arbitrage between rates and receive forward premiums. The call rate is likely to be in the range of 4.40-5.20% during the day, dealers said.

GOVERNMENT BONDS

On Wednesday, bond prices are likely to open higher, continuing the buying momentum seen Tuesday, on bets of foreign inflows and lower government borrowing after the US and India agreed to a trade deal. Traders expect the yield on the 10-year benchmark gilt to fall to 6.68-6.70% before rising again on concerns of heavy bond supply in FY27, and profit-booking, dealers said. "Now is a good time to sell because you've got the levels, and you know this is going to be short-lived. The buying will fizzle out because of supply issues," a dealer at another state-owned bank said. 

Some traders were expecting the RBI to announce more OMO auctions of INR 1 trillion to INR 1.5 trillion in February, with the number potentially rising to INR 2 trillion by the end of the March quarter. Those bets were pared after the trade deal, dealers said. Some traders expect RBI Governor Sanjay Malhotra to Friday signal scope for further softening of monetary policy, while emphasising that the central bank will continue to provide liquidity to the banking system. Some traders also expect the RBI to announce a relaxation in liquidity coverage ratio norms, which could negatively impact bond prices, dealers said. On Tuesday, the bond ended at INR 98.27, or 6.72% yield.

OIS

On Wednesday, OIS rates will likely fall further due to heavy surplus liquidity and low Mumbai Interbank Offered Rate rates, dealers said. Offshore investors and traders are expected to step up investment in India's assets, which may also drag OIS rates lower. Traders may also track the movement in US Treasury yields and Indian government bond yields. The one-year swap rate is seen at 5.40-5.60% and the five-year at 6.00-6.20%. Tuesday, the one-year swap rate ended at 5.52% and the five-year swap rate ended at 6.12%. 

CALL

On Wednesday, the one-day call money rate may open below the RBI's repo rate of 5.25% on surplus liquidity and a lack of major scheduled outflows this week. Traders will also track the result of the $10 billion, three-year dollar-rupee buy-sell swap auction Wednesday and its impact on forward dollar-rupee premiums. Any rise in premiums will push up demand for funds as traders would want to play on the arbitrage between rates and receive forward premiums. The call rate is likely to be in the range of 4.40-5.20% during the day, dealers said. The one-day call rate closed at 4.40% Tuesday.

RBI AUCTION

--RBI to hold $10 billion, three-year dollar-rupee buy-sell swap auction 1030-1130 IST

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

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

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

LIQUIDITY

Total net outflows of INR 375.07 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 5.43 billion as coupon on state bonds

* Outflows

--INR 380.50 billion as payment for state bonds

End

US$1 = INR 90.2650

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

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

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