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Informist, Thursday, Mar. 5, 2026

MUMBAI – Government bond prices are seen volatile Friday, ahead of INR 290 billion of fresh supply and a rise in US Treasury yields which may be offset by more speculation of the Reserve Bank of India purchasing gilts onscreen. The 'Others' segment of gilt market participants was the only net buyers of gilts Thursday, making a hefty net purchase of INR 172.55 billion, while other investor categories were net sellers. 'Others' have net bought gilts worth INR 473.45 billion so far this week. Dealers speculate that the central bank is purchasing gilts to prevent yields from surging, while simultaneously infusing liquidity to offset its dollar sales in the foreign exchange spot market. 

Bond prices and overnight indexed swap rates are also seen tracking developments in the West Asia conflict and its impact on crude oil prices, dealers said. The 10-year US Treasury yield rose past the key technical level of 4.13% to a high of 4.15% after Indian market hours. Weekly jobless claims for the week ended Saturday in the US were unchanged at 213,000, against a Wall Street Journal poll estimate of 215,000.  

Friday, the three-day call is likely to open near the RBI's repo rate of 5.25% on borrowing requirements for three days and due to outflows on account of excise duty and tax deducted at source payment that are due Saturday. However, the call rate is likely to fall during the day due to the liquidity surplus in the banking system. Dealers expect the call money rate to move in a range of 4.50-5.25%.

GOVERNMENT BONDS

Bond prices are likely to stay firm Friday since the 'Others' segment of market participants were the only net buyers of gilts Thursday, dealers said. However, some traders will likely place short bets ahead of the auction to make space in their portfolio for the fresh supply which will weigh on the bond prices, they said.

Later in the day, bond prices are likely to fall a bit because some dealers expect the RBI to set a cut-off yield of 7.09% on the 6.68%, 2040 bond, slightly higher than the bond's closing yield of 7.06%. Demand for the 15-year paper is expected to be strong, more so as this is the last auction for long-term gilts in the current financial year 2025-26 (Apr-Mar). There could be some profit sales after the auction results are known in the afternoon, but these are not expected to bring prices down significantly. The RBI will also sell the 6.90%, 2065 bond Friday. The total auction size for both the bonds is INR 290 billion.

As usual, bond traders will keenly watch developments in West Asia and the overnight movement in US Treasury yields. Some traders expect the yield on the 10-year benchmark bond to rise to up to 6.78-6.80% if the situation in West Asia worsens. However, if the RBI continues to support gilt prices through bond purchases, either in the secondary market or through open market operations, 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 6.60-6.70% Friday. On Thursday, it ended at INR 98.87, or 6.64% yield.

OIS RATES

On Friday, OIS rates may track the movement of Indian government bond yields after 'Others' were the only net buyers of gilts Thursday, according to data from the NSE Cogencis WorkStation. Swaps may also track US Treasury yields and crude oil prices amid developments in the West Asia conflict. The five-year swap rate could rise to 6.18% in the near term if crude oil prices sustain a rise above $85 per barrel. Some speculate Brent crude oil could hit $90 per barrel or higher. On the downside, the five-year OIS rate could fall to 6.05% if 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 by the end of this week amid seasonally high demand for funds due to large outflows for tax payments alongside credit growth nearing the end of the March quarter, dealers said. Significant movement in the rupee may also lend direction, dealers said. The one-year swap rate is seen at 5.43-5.62% and the five-year at 5.95-6.20%. Thursday, the one-year swap rate ended at 5.55% and the five-year swap rate at 6.10%.

CALL

Friday, the three-day call is likely to open near the RBI's repo rate of 5.25% on borrowing requirements for three days and due to outflows on account of excise duty and tax deducted at source payment that are due Saturday. However, the call rate is likely to fall during the day due to the liquidity surplus in the banking system. Dealers expect the call money rate to move in a range of 4.50-5.25% Friday. Thursday, the one-day call rate closed at 4.85%.

RBI AUCTION

--Govt to auction two gilts worth INR 290 billion

LIQUIDITY

Total net inflows of INR 60.59 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 22.20 billion as coupon on state bonds

--INR 18.39 billion as coupon on 6.97%, 2026 gilt 

--INR 20.00 billion as redemption of state bonds

* Outflows

--Nil

End

US$1 = INR 91.60

Reported by Cassandra Carvalho and Vaishali Tyagi

Edited by Ashish Shirke

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