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Informist, Thursday, Mar. 12, 2026

MUMBAI – On Friday, government bond prices are seen falling and overnight indexed swap rates are seen rising after Brent crude oil for May delivery rose back to $100 per barrel post Indian market hours Thursday as Iran's newly-chosen supreme leader Mojtaba Khamenei said the Strait of Hormuz would remain shut and all US military bases in the Gulf region should be immediately closed, else they would be attacked. Traders will also track US Treasury yields. Jobless claims in the US for the week ended Saturday fell by 1,000 to 213,000, against an estimate of 215,000 in a poll by The Wall Street Journal. 

However, any fall in bond prices may be offset amid speculation that the Reserve Bank of India has been purchasing gilts in the secondary market this week. Traders will also track the result of the INR-500-billion open market operation auction scheduled Friday. The 'Others' segment of bond market participants, which includes insurance companies, provident funds, and the RBI, has net purchased gilts worth INR 110.66 billion in the secondary gilt market so far this week, as per data from Clearing Corp. of India. Any rise in swap rates may also be limited as traders would prefer to receive fixed rate contracts in swaps at levels seen lucrative, while short-selling gilts, dealers said. 

The three-day call money rate is seen between the RBI's Standing Deposit Facility rate and repo rate Friday, nearing the end of the fortnight and as payments for advance tax on income tax and corporation tax exert upward pressure on rates. However, liquidity is still in a comfortable surplus, limiting a rise in rates, dealers said. Further, the RBI is seen purchasing gilts on-screen this week, which may also support liquidity, dealers said. Dealers see the call rate at 4.75-5.25% Friday. 

Dealers expect the RBI to announce measures to infuse liquidity in the banking system for next week, including a variable rate repo operation of a tenure that could extend into the new financial year starting April, dealers said. Dealers in the foreign exchange market expect the RBI to announce a $10-billion, dollar-rupee buy-sell swap auction, Informist reported Thursday.

GOVERNMENT BONDS

Bond prices are seen lower Friday, tracking the movement in crude oil prices, dealers said. Moreover, any significant movement in the rupee against the dollar and OIS rates will also lend cues to bond prices during the day, dealers said. Any fall may be offset if the RBI buys gilts onscreen, or sets cut-off prices sharply higher than expected at the OMO auction, dealers said. 

"If RBI was not buying gilts in the secondary market, we would have easily seen 6.80-6.82% (yield on the 10-year benchmark bond)," a dealer at a state-owned bank said. "We have already seen 6.75% (yield on the 10-year benchmark bond), the next crucial level is 6.78-6.80%."

Traders are not carrying heavy positions in gilts, as ongoing developments in the West Asia conflict keep them wary of crude oil prices rising further, they said. 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. The 10-year benchmark 6.48%, 2035 bond is seen in the 6.62-6.75% range. On Thursday, the bond ended at INR 98.69, or 6.67% yield.

OIS RATES

Swap rates are seen opening higher Friday tracking the rise in oil prices. 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 ease to as low as 6.15% as stop-losses will be triggered on paid fixed-rate bets, dealers said. Swap rates maturing in up to one year may also be volatile as traders bet on whether higher inflation or lower growth will tip the votes of Monetary Policy Committee members on further rate action. 

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. The RBI is seen providing ample liquidity to the banking system for transmission of easy monetary policy after the 125 bps of rate cuts in 2025. Significant movement in the rupee may also lend direction, dealers said. Thursday, the one-year swap rate ended at 5.74% and the five-year swap rate at 6.34%.

CALL

The three-day call money rate is seen between the Standing Deposit Facility rate and repo rate Friday, nearing the end of the fortnight and as payments for advance tax on income tax and corporation tax put upward pressure on rates. However, liquidity is still in a comfortable surplus, limiting a rise in rates, dealers said. Dealers see the call rate at 4.75-5.25% Friday. 

Dealers expect the RBI to announce measures to infuse liquidity in the banking system for next week, including a variable rate repo operation of a tenure that could extend into the new financial year starting April, dealers said. Dealers in the foreign exchange market expect the RBI to announce a $10-billion, dollar-rupee buy-sell swap auction, Informist reported Thursday. On Thursday, the one-day call rate closed at 4.70%.

RBI AUCTION

--RBI to buy INR 500 billion of seven gilts via open market operations auction 

LIQUIDITY

--Total net inflows of INR 36.90 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 35.90 billion as coupon on state bonds

--INR 1.00 billion as redemption of state bonds

* Outflows

--Nil

End

US$1 = INR 92.1900

Reported by Cassandra Carvalho

Edited by Avishek Dutta

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