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Informist, Wednesday, Mar. 4, 2026

MUMBAI – Government bond prices and overnight indexed swap rates are seen developments in the West Asia conflict Thursday and its impact on crude oil prices, dealers said. The overnight movement of US Treasury yields will also lend direction to bond prices and swap rates, dealers said. However, any fall in gilt prices if the conflict worsens, is seen limited on speculation that the Reserve Bank of India has purchased gilts onscreen so far this week, and may continue to do so Thursday, dealers said. The 'Others' segment of gilt market participants net purchased gilts worth INR 202.86 billion in the secondary market Wednesday, as per data from the NSE Cogencis WorkStation. So far this week, this segment has net purchased gilts worth INR 300.90 billion, and net purchased gilts worth INR 196.03 billion in the week ended Feb. 27. Dealers speculate that the central bank is purchasing gilts to prevent the yield on benchmark 10-year 6.48%, 2035 gilt from surging to 6.75% and above amid a surge in crude oil prices, while simultaneously infusing liquidity to offset its dollar sales in the foreign exchange spot market.

Brent crude oil futures are seen broadly above $80 per barrel for the rest of the week, as US officials continue to indicate further strikes on Iran. Iran's strikes on other countries which have US bases and oil refineries are disrupting oil supply along with the closure of the crucial Strait of Hormuz. India imports nearly 87% of its crude oil requirement and traders fear a rise in inflation due to the conflict offshore.

On the data front, ADP's National Employment report showed private sector jobs in the US rose by 63,000 in February, against consensus estimates of 48,000. 

Thursday, the one-day call is likely to open around 5.15%, below the RBI's repo rate of 5.25%, due to the liquidity surplus in the banking system following month-end inflows. Dealers expect the call money rate to move in a range of 4.50-5.20% Thursday, with the weighted average rate around 5.11%, similar to Wednesday, as no major outflows other than payment of INR 361 billion for the treasury bill auction are scheduled for the day.

GOVERNMENT BONDS

Thursday, bond prices will open tracking developments in West Asia and the overnight movement in US Treasury yields. However, speculation that purchases by the 'Others' segment of market participants Wednesday is the RBI, may limit any fall in prices, dealers said. Any significant movement in the rupee, the five-year overnight indexed swap rate, and crude oil prices will be watched.

The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 130 billion of the 6.90%, 2065 bond Friday. Some traders have placed short bets ahead of the auction to make space in their portfolio for the fresh supply. Some traders expect firm demand from insurers at the auction as it is the last auction for long-term gilts in the current financial year 2025-26 (Apr-Mar). However, some long-term investors could avoid bidding aggressively due to the geopolitical uncertainty, dealers said.

Some traders expect the yield on the 10-year benchmark bond to rise up to 6.78-6.80% if the geopolitical situation worsens. However, if the RBI continues to support gilt prices from falling through bond purchases, either in the secondary market or through open market operations auctions, then the yield on the 6.48%, 2035 bond could fall to 6.60-6.65%, dealers said. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.65-6.75% Thursday. On Wednesday, it ended at INR 98.64, or 6.67% yield. 

OIS RATES

On Thursday, OIS rates may track the movement of US Treasury yields and crude oil prices amid developments in the West Asia conflict. After hitting 6.13% Wednesday, the five-year swap rate could rise to 6.18% if geopolitical conditions worsen, as Brent crude is likely to remain above $80 per barrel in such a scenario, dealers said. Some speculate Brent crude could hit $90 per barrel or higher. On the downside, the five-year OIS rate could fall to 6.05% if the 10-year US yield falls near 4% or below and a ceasefire or deal between the US and Iran is announced, dealers said.

Swap rates maturing in up to one year may also rise in the near term as money market rates are expected to rise amid seasonally high demand for funds and credit growth nearing the end of the March quarter, dealers said. Significant movement in the rupee and Indian government bond yields may also lend cues, dealers said. The one-year swap rate is seen at 5.40-5.60% and the five-year at 5.95-6.20%. Wednesday, the one-year swap rate ended at 5.54% and the five-year swap rate at 6.09%.

CALL

Thursday, the one-day call is likely to open around 5.15%, below the RBI's repo rate of 5.25%, due to the liquidity surplus in the banking system following month-end inflows. Dealers expect the call money rate to move in a range of 4.50-5.20% Thursday, with the weighted average rate around 5.11%, similar to Wednesday, as no major outflows other than payment of INR 361 billion for the treasury bill auction are scheduled for the day. Wednesday, the one-day call rate closed at 4.85%.

RBI AUCTION

--Nil

LIQUIDITY

Total net inflows of INR 12.49 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 200.00 billion as redemption of 91-day Treasury bills

--INR 86.00 billion as redemption of 182-day T-bills

--INR 71.16 billion as redemption of 364-day T-bills

--INR 16.33 billion as coupon on state bonds

* Outflows

--INR 155.00 billion as payment for 91-day T-bills

--INR 126.00 billion as payment for 182-day T-bills

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

End

US$1 = INR 92.15

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

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

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