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Informist, Friday, Mar. 6, 2026

NEW DELHI/MUMBAI – Saturday, the two-day call rate is seen below the Reserve Bank of India's repo rate--even as advance payments for tax and tax deducted at source are under way--due to comfortable liquidity in the banking system, dealers said. Volumes are likely to be thin, as is usually seen on Saturdays. Dealers expect the call money rate to move in a range of 4.50-5.15%.

On Monday, traders will track the liquidity figures amid outflows for tax payments. Around INR 4 trillion of outflows from the banking system for advance tax and goods and services tax payments are expected this month. Traders will also track participation and the result of the first tranche of the OMO auctions Monday, which could add up to INR 500 billion of durable liquidity to the banking system. The RBI Friday announced INR-1-trillion, two-tranche open market operation auctions for next week. The RBI has also been purchasing gilts on-screen, likely to offset the liquidity drain from its dollar sales in the foreign exchange spot market, dealers said.

Government bond yields and overnight indexed swap rates are not traded Saturdays.

GOVERNMENT BONDS

On Monday, traders will track movement in crude oil prices after it rose to over $90 per barrel at the end of trade in India Friday. If there is no escalation in the conflict in West Asia, bond prices are likely to open higher Monday, dealers said. The RBI announced INR 1 trillion of open-market operations auction. It will conduct the auctions in two tranches, the first on Monday and the second on Mar. 13, each worth INR 500 billion. Moreover, the bonds selected for the auction are relatively liquid compared to the bonds selected at previous OMO auctions, dealers said. 

"This OMO auction is a positive only, but we will track the geopolitical situation over the weekend," a dealer at another private sector bank said. "If everything remains the same in the Gulf, then we might see a 2-3 basis point recovery (fall of 2-3 basis points in 6.48%, 2035 bond yield)." 

On Monday, the government will also switch seven bonds maturing in 2026 and 2027 with bonds of five maturities ranging between five years and 35 years. However, dealers do not expect the switch results to impact bond prices significantly. "I think the switch auction results will be similar to the last auction because I do not think that RBI will accept higher yields," a dealer at a small finance bank said.

Apart from the military conflict, bond traders will track the movement in US Treasury yields. 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, dealers expect the RBI to buy bonds in the secondary market despite the OMO auctions and if this happens, the yield on the 6.48%, 2035 bond is unlikely to rise above 6.70-6.72%, dealers said. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.63-6.72% Monday, with 6.63% likely only if there is continued support from the Reserve Bank of India or the military conflict in West Asia eases. On Friday, it ended at INR 98.53, or 6.69% yield.

OIS RATES

On Monday, OIS rates may track the movement of crude oil prices after Brent crude for May delivery surged past $90 per barrel post Indian market hours. If the five-year swap rises above the 6.23% level, it could rise to 6.35%--which would be the highest since Jan. 2025. Any rise in swap rates may be partially offset as traders hedge their bond trades, and OIS levels become lucrative to receive. Indian government bond yields are seen largely cushioned from the impact of the West Asia conflict due to purchases from the central bank, both on-screen and via auction. 

The 10-year US Treasury yield rose to 4.17% after Indian market hours. Non-farm payrolls in the US unexpectedly fell by 92,000 in February, against a Wall Street Journal poll estimate of a 50,000 rise. Swap rates maturing in up to one year may also rise in the near term as money market rates having been inching higher this month due to seasonally high demand for funds due to large outflows for tax payments alongside credit growth nearing the end of the March quarter, dealers said. However, the rise may be limited as the RBI is seen providing ample liquidity to the banking system for transmission of monetary policy. The RBI Friday announced INR-1-trillion, two-tranche open market operation auctions for next week. Significant movement in the rupee may also lend direction, dealers said. The one-year swap rate is seen at 5.55-5.70% and the five-year at 6.03-6.35%. Friday, the one-year swap rate ended at 5.61% and the five-year swap rate at 6.22%.

RBI AUCTION

--Nil

LIQUIDITY

Total net inflows of INR 8.34 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 8.34 billion as coupon on state bonds

* Outflows

--Nil

End

US$1 = INR 91.74

Reported by Vaishali Tyagi and Cassandra Carvalho

Edited by Deepshikha Bhardwaj

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