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Informist, Tuesday, Mar. 10, 2026

MUMBAI – On Wednesday, government bond prices and overnight indexed swap rates are seen tracking Brent crude oil futures for May delivery and the overnight movement in US Treasury yields amid developments in the military conflict in West Asia. Post Indian market hours, US Defense Secretary Pete ‌Hegseth said Tuesday would be the most "intense day" in the US' military campaign in Iran so far. 

Oil prices are seen volatile in the near term as conflicting statements by various political and defence personnel leave uncertainty about when the West Asia war will end. The chief executive officer of oil major Saudi Aramco Tuesday said there would be "catastrophic consequences for the world's oil markets" if there is a prolonged disruption of transport in the Strait of Hormuz, which carries a fifth of the world's oil supply. The Centre Tuesday directed natural gas producers, marketers, and pipeline operators to prioritise supply to four sectors amid disruptions faced by liquefied natural gas shipments due to the ongoing war in West Asia. Traders will also track indications of the Reserve Bank of India's intervention in the foreign exchange and gilt markets, dealers said.

The one-day call rate is likely to open below the RBI's repo rate on Wednesday, given ample liquidity in the banking system. It is expected to open higher than Tuesday's close, owing to early demand for funds from primary dealerships. Dealers see the call rate at 5.13-5.15% Wednesday. They expect the weighted average call rate to be at or below 5.09% due to lack of major outflows during the day.

GOVERNMENT BONDS

Traders expect bond prices to open steady Wednesday if there is no escalation in the military conflict in West Asia, dealers said. Traders will closely track the movement of crude oil prices. Any significant movement in the rupee against the dollar and OIS rates will also lend cues to bond prices during the day, dealers said.

Traders also await announcement of the bonds chosen for another INR-500-billion OMO auction scheduled for Friday. This is the second tranche of INR 1 trillion of OMO auctions announced last week. Some traders expected the announcement to come post market hours Tuesday. Others expect it after market hours Wednesday. The RBI has not published the notice yet Tuesday. If the RBI chooses a liquid paper for the OMO auction, bond prices will rise, they said. Traders largely expect the central bank to choose the 15-year benchmark 6.68%, 2040 bond to buy at the OMO auction Friday. Some expect the RBI to include the 10-year benchmark 6.48%, 2035 bond.

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, some traders do not expect the RBI to allow the 10-year benchmark bond yield to rise above the key level of 6.72%, dealers said. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.63-6.75%, with 6.63% likely only if there is continued support from the RBI or the situation in West Asia eases. On Tuesday, the bond ended at INR 98.64, or 6.67% yield.

OIS RATES

As has been the trend the past week, on Wednesday, traders will focus on offshore developments to determine the movement of OIS rates, especially the movement of crude oil prices and US Treasury yields. The five-year swap could rise to 6.55-6.62% if Brent crude oil once again rises to $120 per barrel and upwards. If crude oil futures fall back to around $80 a barrel, the five-year swap could fall to 6.15%, dealers said. 

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 by the RBI, both on-screen and via auction, dealers said. Swap rates maturing in up to one year may rise more than longer-term swaps as 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 5.62-5.90% and the five-year at 6.15-6.55%. Tuesday, the one-year swap rate ended at 5.72% and the five-year swap rate at 6.28%.

CALL

The one-day call rate is likely to open below the RBI's repo rate given ample liquidity in the banking system. It is expected to open higher than Tuesday's close, owing to early demand for funds from primary dealerships. Dealers see the call rate at 5.13-5.15% Wednesday. They expect the weighted average call rate to be at or below 5.09% due to the lack of major outflows during the day. On Tuesday, the one-day call rate closed at 4.75%.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 140 billion

--RBI to auction 182-day T-bills worth INR 120 billion

--RBI to auction 364-day T-bills worth INR 80 billion

LIQUIDITY

Total net outflows of INR 432.01 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 23.36 billion as coupon on state bonds

--INR 6.60 billion as redemption of state bonds

--INR 7.64 billion as coupon on 10.18%, 2026 gilt

* Outflows

--INR 469.60 billion as payment for state bonds 

End

US$1 = INR 91.8050

Reported by Cassandra Carvalho

Edited by Avishek Dutta

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