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Informist, Monday, Mar. 9, 2026

MUMBAI – Government bond prices are seen tracking Brent crude oil futures for May delivery and the result of the INR-459.60-billion state bond auction Tuesday, dealers said. Gilts and overnight indexed swap rates may also track the overnight movement in US Treasury yields and developments in the military conflict in West Asia. Traders will track the outcome of the Group of Seven countries' emergency meeting on surging oil prices. The Financial Times reported that the countries will discuss a joint release of petroleum from their reserves, co-ordinated by the International Energy Agency. US Senate Minority Leader Chuck Schumer has pushed for President Donald Trump to sell oil from the Strategic Petroleum Reserve. Traders will also track indications of the Reserve Bank of India's intervention in the foreign exchange and gilt markets, dealers said.

Tuesday, the one-day call money rate is likely to open at a level similar to Monday's opening because of ample liquidity in the banking system. Dealers see the call rate opening at 5.15-5.20% but expect it to fall below the RBI's standing deposit facility rate of 5.00% during the day on inflows of INR 500 billion from Monday's open market operations auction of gilts.

GOVERNMENT BONDS

Traders expect bond prices to open lower Tuesday on heavy supply of state bonds at the scheduled auction, dealers said. Seventeen states will raise INR 459.60 billion, 17% higher than the indicated amount of INR 392.70 billion in the borrowing calendar for the March quarter. Traders expect the auction supply to be absorbed, despite the huge quantum, on firm demand as they consider the yields lucrative, dealers said. Investors are likely to pick up state bonds at the auction after they sold gilts from their held-to-maturity portfolios at Monday's OMO auction, they said.

Traders await announcement of the bonds chosen for another INR-500-billion OMO auction scheduled for Friday. If the RBI chooses a liquid paper for the auction, bond prices will rise, they said. On Wednesday, the RBI will sell INR 140 billion of 91-day Treasury bills, INR 120 billion of 182-day T-bills, and INR 80 billion of 364-day T-bills. Traders expect the cut-off yields at the auction to rise significantly following the sharp rise in one-year overnight indexed swap rates and five-year OIS rates. A surge in T-bill cut-off yields is likely to result in a rise in bond yields, specifically for short-term bonds, dealers said.

Traders expect the yield on the 10-year benchmark 6.48%, 2035 bond to rise 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. If this happens, the yield on the 6.48%, 2035 bond is unlikely to rise above 6.70-6.72%, they said. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.65-6.78%, with 6.65% likely only if there is continued support from the RBI or the situation in West Asia eases. On Monday, the bond ended at INR 98.33, or 6.72% yield.

OIS RATES

Tuesday, OIS rates will track the movement of crude oil prices and geopolitical developments. The five-year swap could rise to 6.55-6.62% if Brent crude stays above $100 per barrel and surges past the technical level of $120 per barrel. If crude oil futures fall back to around $80 a barrel, then the five-year swap could fall to 6.15%, dealers said. However, several traders do not expect swaps to rise much further due to receiving at current levels.

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 conflict by purchases by the RBI, both on-screen and via auction. Swap rates maturing in up to one year may also rise in the near term as money market rates inch higher this month amid seasonally high demand and traders begin to advance their rate hike bets on fears of inflation rising.

On the domestic front, the RBI is seen providing ample liquidity to the banking system for transmission of its monetary policy. Significant movement in the rupee may also lend direction, dealers said. The one-year swap rate is seen at 5.70-5.90% and the five-year at 6.15-6.55%. Monday, the one-year swap rate ended at 5.84% and the five-year swap rate at 6.38%.

CALL

Tuesday, the one-day call money rate is likely to open similar to Monday on ample liquidity in the banking system. Dealers see the call rate at 5.15-5.20% Tuesday, and they expect it to fall below the RBI's standing deposit facility rate of 5.00% during the day on inflows of INR 500 billion from Monday's OMO auction. Monday, the one-day call rate closed at 5.07%.

RBI AUCTION

--17 states to raise INR 459.60 billion via bond sale

LIQUIDITY

Total net inflows of INR 518.52 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 18.52 billion as coupon on state bonds

--INR 500.00 billion as payment from RBI gilt purchases at OMO auction Monday

* Outflows

--Nil

End

US$1 = INR 92.3275

Reported by Cassandra Carvalho

Edited by Rajeev Pai

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