India Money Market Outlook
Gilts seen steady before state bond auction Tue
This story was originally published at 20:54 IST on 9 February 2026
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MUMBAI – Government bond prices may open steady Tuesday due to caution ahead of the state bond auction at 1030-1130 IST, dealers said. Fourteen states will raise INR 486.15 billion this week, higher than INR 427.50 billion mentioned in the indicative calendar for Jan-Mar, dealers said.
Overnight indexed swap rates are seen opening steady after the volatility in the market following the decision of the Reserve Bank of India's Monetary Policy Committee on Friday, dealers said. Traders said volumes may be subdued in the next two sessions after the recent volatility, with no strong interest rate cues until Thursday when data for Consumer Price Index for January is released. The MPC kept the repo rate unchanged at 5.25% and maintained the policy stance at "neutral", as was expected by the market.
Significant movement in US Treasury yields, the rupee and crude oil prices may also influence both the markets, dealers said. The one-day call rate is seen opening near the RBI's repo rate of 5.25% due to low demand for funds amid surplus liquidity in the banking system.
GOVERNMENT BONDS
On Tuesday, bond prices are seen opening steady on caution ahead of the state bond auction. Traders do not expect further liquidity infusion from the RBI and open market operation auctions to buy bonds after its officials' comments following the MPC decision.
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.
Some traders expect 'Others' – a category which includes the central bank – to have been net buyers of gilts in the secondary market Thursday. Any indication of RBI purchases will be seen as a positive Tuesday, with the RBI expected to continue buying gilts sporadically in the secondary market to send a signal to cap yields, dealers said.
Traders will also keep a close watch on the surplus liquidity in the banking system after it rose to a six-month high of INR 3.62 trillion on Friday, before declining over the weekend. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.70-6.82% Tuesday. On Monday, the bond ended at INR 98.06, or 6.76% yield.
OIS RATES
On Tuesday, OIS rates may open steady after the volatility following the monetary policy decision, dealers said. On Friday, RBI Governor Sanjay Malhotra was seen hinting at a terminal repo rate of 5.25%, with the MPC likely to opt for a prolonged pause, dealers said.
Traders expect overnight MIBOR fixings to remain near the policy repo rate going ahead. The one-year swap rate is seen at 5.40-5.60% and the five-year at 6.05-6.28%. On Monday, the one-year swap rate ended at 5.52% and the five-year swap rate ended at 6.18%.
CALL
On Tuesday, the one-day call money rate may open at 5.05%, near the RBI's Standing Deposit Facility rate of 5.00%, due to low demand for funds amid surplus liquidity in the banking system. The one-day call rate ended at 4.40% on Monday.
During the day, the call money rate is expected to move in a range of 4.25-5.10%. Liquidity is also expected to rise slightly due to inflows of INR 22.98 billion for coupon payment on state bonds.
RBI AUCTION
--14 states to raise INR 486.15 bln via bond sale
LIQUIDITY
Total net inflows of INR 245.65 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 16.74 billion as coupon on state bonds Tuesday
--INR 43.66 billion as coupon on 7.50%, 2034 Tuesday
--INR 185.25 billion as redemption of state bonds on Tuesday
* Outflows
--nil
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Pratiksha
Edited by Ashish Shirke
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