India Money Market Outlook
Gilts, swaps may open steady Tue on lack of cues
This story was originally published at 22:05 IST on 16 February 2026
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MUMBAI – Government bond prices and overnight indexed swap rates may open steady Tuesday due to lack of significant domestic cues. The movement in US Treasury yields in early Asian trade may lend direction as the US market was shut Monday, dealers said.
The result of the state bond auction may lend direction in the second half of the day to both markets, dealers said. Fourteen states will raise INR 379 billion through bonds at auction Tuesday, with four bonds having greenshoe options of up to INR 15.50 billion in total. States had indicated they would borrow INR 390 billion in the calendar for Jan-Mar and demand is expected to be robust, dealers said.
Significant movement in the rupee and crude oil prices may also lend cues to gilts and OIS rates, dealers said. On Tuesday, the one-day call money rate may open below the Reserve Bank of India's repo rate of 5.25% due to low demand for funds amid the surplus liquidity in the banking system.
GOVERNMENT BONDS
On Tuesday, bond prices may open steady due to lack of significant domestic cues. The result of the state bond auction may lend direction in the second half of the day, dealers said.
The state bond auction announced after market hours Friday was in line with the indicated amount of INR 390 billion and is likely to sail through, dealers said. Fourteen states will raise INR 379 billion through bonds at auction Tuesday, with four bonds having greenshoe options of up to INR 15.50 billion in total.
The RBI's Monetary Policy Committee is expected to keep the policy repo rate at 5.25% through 2026-27 (Apr-Mar), dealers said. Traders do not expect further liquidity infusions or open market operations auctions to buy bonds from the RBI following comments by central bank officials after the monetary policy meeting earlier this month. This is likely to keep the 10-year gilt yield in a band of 6.55-6.85% till March, dealers said.
Traders expect liquidity in the banking system to remain in surplus. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.62-6.72% Tuesday. On Monday, the bond ended at INR 98.70, or 6.66% yield.
OIS RATES
On Tuesday, OIS rates may track the movement of US Treasury yields in early Asian trade, dealers said. Traders are betting on the 10-year US yield falling to 4.00% or lower. The minutes of the US FOMC's January meeting, due 0030 IST Thursday, is the next global cue traders are tracking.
While offshore traders are likely to continue to receive fixed rate contracts in swaps, the fall in short-term swap rates is seen limited as traders expect the Overnight Mumbai Interbank Outright Rate to rise in the near term, dealers said. After India's CPI inflation data for January, the RBI's Monetary Policy Committee is now seen holding the policy repo rate at 5.25% through FY27, dealers said.
The one-year swap rate is seen at 5.40-5.55% and the five-year at 5.95-6.15%. The one-year swap rate ended at 5.49% Monday and the five-year swap rate closed at 6.03%.
CALL
On Tuesday, the one-day call money rate may open below the repo rate of 5.25% due to low demand for funds amid the surplus liquidity in the banking system. During the day, the call rate is expected to move in a range of 4.50-5.20%. The one-day call rate ended at 4.60% Monday.
RBI AUCTION
--Fourteen states to raise INR 379 billion via bond sale 1030-1130 IST
LIQUIDITY
Total net inflows of INR 19.74 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 14.74 billion as coupon on state bonds
--INR 5.00 billion as redemption of state bonds
* Outflows
--Nil
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Reported by Aaryan Khanna
Edited by Ashish Shirke
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