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Informist, Thursday, Feb. 26, 2026

NEW DELHI – Government bond prices are seen opening lower Friday after states announced a larger-than-indicated auction for next week, which may weigh on demand at the weekly gilt auction at 1030-1130 IST Friday. The Reserve Bank of India said after market hours 13 states will raise INR 431.30 billion via bonds Monday, higher than the indicated INR 358.05 billion in the Jan-Mar calendar.

Overnight indexed swap rates may track bond yields in India and the US. The volatility may be limited and traders may avoid large bets before the release of India's GDP data, dealers said.

The median estimate in an Informist poll puts India's GDP growth at 7.5% for the December quarter. The GDP for Oct-Dec based on the new series and second advance estimate for GDP growth in FY26 are scheduled for release at 1600 IST Friday. In Jul-Sept, GDP growth was 8.2% in the old series with FY12 as the base year.

Traders are positioning for a reading around 8%, which may stoke concern about a quicker rate hike if inflation rises past the RBI's 4% target in the second half of 2026, dealers said. If GDP growth for the December quarter is in line with or slightly lower than the median economist estimate of 7.5%, bond prices may rise and swap rates may fall.

Traders may also track any geopolitical developments between Iran and the US, with crucial nuclear talks scheduled later Thursday, dealers said. Significant movement in US Treasury yields, the rupee and crude oil prices may also lend cues to gilts and swaps Friday.

The three-day call may open below the RBI's repo rate of 5.25% owing to 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%.

GOVERNMENT BONDS

Government bond prices are seen opening lower Friday after the state bond auction release after market hours. This may weigh on demand at the large gilt auction at 1030-1130 IST, especially with traders cautious before the release of GDP data, 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 FY26. 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.

The auction result may lend direction to prices but traders are likely to wait for the release of GDP data at 1600 IST before placing large bets. Traders are positioning for a reading around 8%, which may stoke concern about a quicker rate hike if inflation rises past the RBI's 4% target in the second half of 2026, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.64-6.75% Friday. On Thursday, it ended at INR 98.49, or 6.69% yield.

OIS RATES

On Friday, OIS rates may track bond yields in India and the US. The volatility may be limited and traders may avoid large bets before the release of India's GDP data at 1600 IST, dealers said.

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. If GDP growth for the December quarter is in line with or slightly lower than the Informist poll median of 7.5%, swap rates across tenures are likely to fall.

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. Dealers 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,

The one-year swap rate is seen at 5.40-5.60% and the five-year at 5.95-6.15%. Thursday, the one-year swap rate ended at 5.50% and the five-year swap rate at 6.06%.

CALL

On Friday, the three-day call may open below the RBI's repo rate of 5.25% owing 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 Friday, with the government's spending expected to add to banking system liquidity, dealers said. This is likely to keep money market rates benign even if banks' demand for funds increases ahead of the end of the reporting fortnight Saturday.

RBI AUCTION

--Govt to sell INR 320 billion of 6.48%, 2035 bond 1030-1130 IST

LIQUIDITY

Total net inflow of INR 172.85 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 78.00 billion as redemption of 182-day T-bills

--INR 72.27 billion as redemption of 364-day T-bills

--INR 22.58 billion as coupon on 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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