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Informist, Tuesday, Mar. 17, 2026

NEW DELHI – Government bond prices are expected to move in a narrow band Wednesday due to lack of significant domestic cues. Traders may also be cautious in taking large bets ahead of the US Federal Open Market Committee's rate decision at 2330 IST Wednesday, dealers said.

The US rate-setting panel is widely expected to keep the policy rate steady at 3.50-3.75% for the second straight meeting. Activity from foreign banks and foreign portfolio investors is likely to be lacklustre Wednesday as traders await the US central bank's commentary on the West Asia war. US Federal Reserve members will release a summary of their economic projections, which will be closely watched for guidance on further rate cuts. The median forecast at the last such release was only a 25-basis-point rate cut in 2026.

Overnight indexed swap rates are expected to track the movement of Brent crude oil prices amid the ongoing war in West Asia, with US Treasury yields also lending cues. The movement of the rupee and the Reserve Bank of India's actions in the foreign exchange market may also lend direction to bonds and OIS rates.

On Wednesday, the two-day call money rate is likely to open near the RBI's repo rate of 5.25% as the liquidity surplus in the banking system has fallen after payments for advance tax. The call money rate is seen in a range of 4.75-5.40% during the day. Money markets are shut on Thursday for Gudi Padwa.

GOVERNMENT BONDS
Bond prices are expected to move in a narrow band Wednesday due to lack of significant domestic cues. Traders will also avoid large bets ahead of the US Federal Open Market Committee's rate decision at 2330 IST, dealers said.

Overnight movement in crude oil prices and US Treasury yields may also lend cues to gilts, with traders focussed on the developments in the West Asia war. Any significant movement in the rupee against the dollar and overnight indexed swap rates will also lend cues to bond prices during the day.

A fall in Brent crude price to below $100 a barrel may prompt a fall in the 10-year gilt yield to 6.68%, while a continued rise in the May futures contract could push the benchmark yield to 6.72%, dealers said. Losses are likely to be limited on expectations of RBI purchases in the secondary market to cap yields and add liquidity into the banking system. Trade activity in bonds is muted after the RBI bought over INR 1.5 trillion of gilts over the last two weeks, with the benchmark yield seen about 10 basis points below its fair market value, dealers said.

Traders do not expect the RBI to announce any further measures to infuse durable liquidity in March, though it may conduct more variable rate repo operations before the end of the month to help banks meet short-term cash mismatches at the year end, dealers said. The central bank got bids worth only INR 480.14 billion at the INR-1.50-trillion seven-day VRR auction. It accepted all bids at a cut-off yield of 5.26%.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.65-6.75% Wednesday. On Tuesday, the bond ended at INR 98.36 or 6.7143% yield.

OIS RATES

Wednesday, swap rates will track Brent crude oil prices for May delivery as the conflict in West Asia continues. Traders will also track US Treasury yields ahead of the US FOMC decision later in the day. They expect the FOMC to maintain status quo on rates. Swaps may also track overnight borrowing rates and any announcement of measures to infuse liquidity in the banking system by the RBI, dealers said. Even after the central bank conducted an INR-1.50-trillion variable rate repo auction Tuesday, the overnight Mumbai Interbank Outright Rate was set above the repo rate at 5.32%.

Depending on the movement of Brent crude oil prices, the five-year swap rate could rise to 6.55-6.62% if offshore funds continue to pay fixed rates, dealers said. While the spread between gilts and swaps is lucrative to receive fixed rates, any stop-losses hit may result in unwinding of these spread trades, dealers said. In the longer run, the inverted spread is expected to correct, especially as bond yields are seen rising with fresh supply coming in April. If crude oil futures fall back to around $80 a barrel, the five-year swap could ease to as low as 6.20% 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 the RBI's Monetary Policy Committee members on further rate action. Moreover, short-term swap rates will track the movement of overnight borrowing rates amid heavy outflows, dealers said. The RBI is seen providing ample liquidity to the banking system for transmission of its monetary policy after 125 bps of rate cuts in 2025.

CALL

On Wednesday, the two-day call money rate is likely to open near the RBI's repo rate of 5.25% as the liquidity surplus in the banking system has fallen after payments for advance tax. The call money rate is seen in a range of 4.75-5.40% through the day.

More liquidity infusion measures are expected to ease money market rates near the quarter- and financial year-end in March, dealers said. Traders expect another VRR auction after the poor subscription Tuesday. The central bank got bids worth only INR 480.14 billion at the INR-1.50-trillion, seven-day VRR auction earlier in the day.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 140 billion at 1030-1130 IST

--RBI to auction 182-day T-bills worth INR 120 billion at 1030-1130 IST

--RBI to auction 364-day T-bills worth INR 80 billion at 1030-1130 IST

LIQUIDITY

--Total net outflows of INR 565.90 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 9.35 billion as coupon on state bonds

* Outflows

--INR 575.25 billion as payment for state bonds

End

US$1 = INR 92.37

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Reported by Aaryan Khanna

Edited by Ashish Shirke

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