India Money Market Outlook
Gilts seen tad down Tue before state bond tender
This story was originally published at 22:26 IST on 23 February 2026
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NEW DELHI – Gilt prices may open slightly lower Tuesday as traders make room for the INR-445.50-billion state bond auction 1030-1130 IST, dealers said. The supply is in line with INR 442.21 billion in the indicative calendar for Jan-Mar but would put pressure on gilts as investors would look to mop-up the fresh issuance at higher yields, they said.
Overnight indexed swap rates may track the movement in bond yields in India and the US. Traders are virtually unanimous in expecting a pause on rates in 2026-27 (Apr-Mar) after members of the Monetary Policy Committee said in the minutes of the February meeting that they would continue to remain data-driven, dealers said.
The one-day call money rate may open near the Reserve Bank of India's repo rate of 5.25% due to demand for funds after outflows for goods and services tax payments. During the day, the call money rate is expected to move in a range of 4.80-5.50%.
GOVERNMENT BONDS
Gilt prices may open slightly lower Tuesday as traders make room for the INR 445.50-billion state bond auction 1030-1130 IST, dealers said. The supply is in line with the indicative calendar but would put pressure on gilts as investors would look to mop up the fresh issuance at higher yields. Some dealers had been worried the actual amount would exceed expectations as states typically increase their borrowing towards the end of the March quarter.
Traders may also track the overnight movement in the US Treasury yields. Further developments on rising tensions between Iran and the US will also be tracked, dealers said.
On Friday, government will sell INR 320 billion of 6.48%, 2035 bond ahead of which bond prices will likely slip as traders will place short bets to make space in their portfolio for the huge supply. Any such impact on bond prices will likely be seen Wednesday onwards, dealers said.
After the auction on Friday, India's GDP for Oct-Dec based on the new series and second advance estimate for GDP growth in FY26 will lend direction later in the day if the data changes bets on the rate trajectory, dealers said. Significant movement in the rupee, the five-year OIS rate, and crude oil prices may also lend cues, dealers said.
The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.68-6.75% Tuesday. On Monday, the bond ended at INR 98.47, or 6.70% yield.
OIS RATES
On Tuesday, OIS rates may track movement in bond yields in India and the US. Traders are virtually unanimous in expecting a pause on rates in FY27 after members of the rate-setting panel said in the minutes of the February MPC meeting that they would remain data-driven, dealers said.
Further developments on the US-Iran front will be watched closely. Significant movement in the rupee and crude oil prices may also lend cues, dealers said.
Traders also look ahead to the release of India's GDP data for Oct-Dec and the second advance estimate for FY26 growth at 1600 IST Friday. The data will be released under a new series with 2022-23 as the base year. India's annualised GDP growth is likely to have slowed to 7.5% in the December quarter from 8.2% in Jul-Sept, Bank of America Securities said in a note last week.
Traders expect the overnight Mumbai Interbank Outright Rate to remain at or below the repo rate of 5.25% in the near term after RBI Governor Malhotra's comments assuring surplus liquidity, dealers said.
The one-year swap rate is seen at 5.40-5.60% and the five-year at 5.95-6.20%. On Monday, the one-year swap rate ended at 5.49% and the five-year swap rate at 6.04%.
CALL
On Tuesday, the one-day call may open near the RBI's repo rate of 5.25% amid increased demand for funds following GST outflows. During the day, the call money rate is expected to move in a range of 4.80-5.50%.
Some participants expect the RBI to announce a variable rate repo rate auction of up to INR 250 billion to cool money market rates and prevent them from rising above the repo rate as liquidity surplus shrinks. The one-day call money rate ended at 4.60% Monday.
RBI AUCTION
--Sixteen states to raise INR 445.50 billion via bond sale 1030-1130 IST
LIQUIDITY
Total net outflows of INR 229.99 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 24.34 billion as coupon on state bonds
--INR 205.95 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 Akul Nishant Akhoury
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