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Informist, Saturday, Feb. 7, 2026

MUMBAI – Government bond prices may open lower Monday after states announced a larger-than-expected bond auction for next week, dealers said. Fourteen states will raise INR 486.15 billion on Tuesday, higher than INR 427.50 billion in the indicative calendar for Jan-Mar, according to a release after market hours Friday.

Overnight indexed swap rates are seen opening steady after the volatility last week with no forthcoming interest rate cues till the release of India's CPI data for January on Thursday. Short-term swap rates may ease after the Reserve Bank of India refrained from announcing a variable rate reverse repo operation for Monday. 

The movement in US Treasury yields and the rupee may also influence both markets. Traders are also tracking geopolitical developments and crude oil prices for cues after fresh tensions between the US and Iran on Friday following a reported breakdown in negotiations over a nuclear deal.

The one-day call rate is seen opening below the RBI's repo rate of 5.25% due to low demand for funds from banks amid hefty surplus liquidity in the banking system. The one-day call money rate is seen at 4.50-5.25% Monday.

GOVERNMENT BONDS

On Monday, bond prices are seen opening lower after the higher-than-indicated state bond supply of INR 486.15 billion for Tuesday. A slight rise in US Treasury yields and crude oil prices over the weekend may also weigh, dealers said.

Traders do not expect further liquidity infusion and monetary policy support from the RBI after its officials' comments following the decision of the Monetary Policy Committee Friday. No further rate cuts are likely to be forthcoming from the rate-setting panel in the remainder of 2026, dealers said. This is likely to keep the 10-year gilt yield in a band of 6.60-6.85% till March, they said.

Traders will also track liquidity in the banking system, as the RBI's liquidity infusion measures this week are expected to add around INR 1.4 trillion to the liquidity surplus Friday. The lack of a VRRR notice for Monday may limit losses in bonds maturing up to five years, dealers said. 

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.70-6.82% Monday. On Friday, the bond ended at INR 98.19, or 6.74% yield.

OIS RATES

On Monday, OIS rates may open steady after the volatility following the monetary policy decision on Friday, dealers said. Offshore triggers may also lend cues amid few bets on domestic interest rate movements in the rest of 2026. 

With the MPC maintaining a status quo on the repo rate at 5.25% and policy stance at "neutral", as expected, traders wait for upcoming data prints in the domestic market. RBI Governor Sanjay Malhotra was seen hinting at a terminal repo rate at 5.25%, with the rate-setting panel likely to opt for a prolonged pause, dealers said. Traders expect overnight MIBOR fixings to remain near the policy repo rate going ahead, though the lack of a VRRR auction Monday may pull down swap rates maturing up to six months, dealers said.

The one-year swap rate is seen at 5.40-5.60% and the five-year at 6.05-6.28%. On Friday, the one-year swap rate ended at 5.53% and the five-year swap rate ended at 6.19%.

CALL

On Monday, the one-day call money rate may open below the RBI's repo rate of 5.25% due to low demand for funds amid surplus liquidity in the banking system. During the day, the call money rate is expected to move in a range of 4.50-5.25%. The two-day call rate ended at 4.20% Saturday amid low trade.

The surplus liquidity in the banking system is expected to have risen to over INR 3.5 trillion Friday after the settlement of a $10-billion dollar-rupee buy-sell swap auction as well as the INR-500-billion open market operation auction by the RBI to buy bonds. The call money rate may rise to around the repo rate Monday for tax and excise duty payments, which are expected to drain around INR 700 billion of liquidity in total.

RBI AUCTION

--Nil

LIQUIDITY

Total net outflows of INR 256.41 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 10.61 billion as coupon on state bonds Sunday

--INR 22.98 billion as coupon on state bonds Monday

* Outflows

--INR 290.00 billion as payment for gilt auction Monday

End

US$1 = INR 90.66

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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