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Informist, Wednesday, Feb. 25, 2026

NEW DELHI – Government bond prices and overnight indexed swap rates may take cues from the overnight movement in US Treasury yields at the market opening Thursday, dealers said. There is a lack of significant domestic cues on interest rates before the release of India's GDP data Friday, they said. 

Later in the day, gilt prices may fall as traders make room for the weekly gilt auction Friday, dealers said. The government will sell INR 320 billion of the 6.48%, 2035 bond, the last scheduled auction of the 10-year benchmark gilt in the financial year ending March, Friday.

Traders 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 (Apr-Mar) as the base year. India's GDP growth is likely to have slowed to 7.5% on year in the December quarter, according to the median of economists' estimates in an Informist Poll. In Jul-Sept, GDP growth was 8.2% on year in the old series with FY12 as the base year.

The one-day call money rate may open below the Reserve Bank of India's repo rate of 5.25% due to the comfortable liquidity surplus in the banking system despite outflows for goods and services tax payments over the weekend. During the day, the call money rate is expected to move in a range of 4.80-5.50%.

GOVERNMENT BONDS

Thursday, gilt prices may open tracking overnight movement in US Treasury yields. However, later in the day, prices may fall as traders make room for the gilt auction Friday, dealers said, when the government will sell INR 320 billion of the 6.48%, 2035 bond. The large supply is likely to be mopped up, though traders expect lower demand from banks as they have focused on picking up higher-yielding state bonds in recent weeks, dealers said. Some traders expect demand at the auction to be subdued on caution ahead of India's GDP growth data.

After market hours Wednesday, the RBI announced the government will switch four bonds worth INR 250 billion maturing in FY27 with five longer-term gilts through an auction Monday. This upcoming supply may weigh on demand for gilts maturing in six to 13 years, dealers said.

Traders may also track geopolitical developments between Iran and the US, they said. Significant movement in the rupee, the five-year OIS rate, and crude oil prices may also lend cues. The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.64-6.72%. Wednesday, it ended at INR 98.61, or 6.68% yield.

OIS RATES

On Thursday, OIS rates may track US Treasury yields amid a lack of domestic cues. Traders do not expect much volatility in swap rates up to one year, while the five-year OIS rate may not fall below the psychologically crucial 6.00% mark without a firm trigger, dealers said.

Traders are virtually unanimous in expecting a pause on rates in FY27 after members of the RBI's rate-setting panel said in the minutes of their February meeting that they would remain data-driven. 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 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 Sanjay Malhotra's comments Monday assuring surplus liquidity, dealers said. The one-year swap rate is seen at 5.40-5.60% and the five-year at 5.95-6.15%. Wednesday, the one-year swap rate ended at 5.50% and the five-year swap rate at 6.05%.

CALL

On Thursday, the one-day call may open below the RBI's repo rate of 5.25% due to the comfortable liquidity surplus in the banking system. During the day, the call money rate is expected to move in a range of 4.80-5.50%.

No major inflows or outflows are expected Thursday, with the government's spending expected to add to banking system liquidity by Friday, dealers said. Wednesday, the one-day call money rate ended at 4.75%.

RBI AUCTION

--Nil

LIQUIDITY

Total net outflow of INR 216.11 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 14.01 billion as coupon on state bonds

--INR 140.07 billion as redemption of 91-day Treasury bills

* Outflows

--INR 155.19 billion as payment for 91-day T-bills

--INR 135.00 billion as payment for 182-day T-bills

--INR 80.00 billion as payment for 364-day T-bills

End

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

Reported by Aaryan Khanna

Edited by Rajeev Pai

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