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Informist, Wednesday, Mar. 18, 2026

NEW DELHI – Government bond prices and overnight indexed swaps may Friday take direction from US Treasury yields after the US Federal Open Market Committee's rate decision at 2330 IST. In addition to the policy outcome, traders also await the US Federal Reserve's commentary on the economic impact of the war in West Asia, as well its Summary of Economic Projections for guidance on US interest rates.

Money markets are shut Thursday for Gudi Padwa and will not be able to immediately react to overnight developments. The US rate-setting panel is widely expected to keep the policy rate steady at 3.50-3.75% for the second straight meeting. The median forecast on interest rates at the last quarterly release was only 25-basis-point cut in 2026.

Traders have pared back bets on two rate cuts in the world's largest economy by the end of the year due to high energy prices caused by the West Asia conflict. Brent crude futures for May delivery neared the $110 a barrel level for the first time since Mar. 9 after the US and Israel attacked two natural gas production facilities in Iran, with Tehran threatening retaliation on oil and gas production sites in Saudi Arabia, the United Arab Emirates and Qatar, allies of the US.

Overseas cues will be in focus amid lack of domestic triggers, though the Reserve Bank of India's intervention in the foreign exchange and fixed income markets will be closely watched. The central bank is expected to buy gilts while selling dollars in the spot market, with some participants expecting further measures to bolster liquidity conditions near the end of the financial year on Mar. 31, dealers said.

On Friday, the three-day call money rate is likely to open above the RBI's repo rate of 5.25% as outflows for goods and services tax payments begin. The call money rate is seen in a range of 4.75-5.50% through the day.

GOVERNMENT BONDS

On Friday, gilt prices may take cues from the US FOMC's rate decision and associated commentary on growth and inflation in the world's largest economy, dealers said. In addition to the rate decision, which is largely discounted as a pause, the US Federal Reserve will also release the quarterly Summary of Economic Projections. The movement of Brent crude oil prices amid the escalating war in West Asia will also be closely watched.

Traders expect the RBI to purchase gilts in the secondary market, effectively capping yields, if the geopolitical situation worsens. The central bank has bought gilts worth over INR 1.5 trillion over the past two weeks but there have been no signs of any purchases from the RBI this week, dealers said. 

Any significant movement in US Treasury yields, the rupee against the dollar, and overnight indexed swap rates will also lend cues to bond prices during the day. Traders did not expect the RBI to conduct any further auctions to infuse durable liquidity in March but said this view may change if the central bank's dollar sales to protect the rupee increase, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.65-6.78% Friday. On Wednesday, the bond ended at INR 98.24 or 6.7330% yield.

OIS RATES

Friday, 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 after the US Federal Open Market Committee decision later in the day. Significant movement in the rupee may also lend direction, dealers said.

Even after the RBI conducted an INR-1.50-trillion variable rate repo auction Tuesday, the overnight MIBOR was set above the repo rate at 5.32%. Traders do not expect MIBOR rate to ease below the repo rate in the current financial year ending Mar. 31, dealers said. Some traders also expect the RBI to announce liquidity infusion measures in the form of more variable rate repo auctions, dealers said.

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. 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.

The one-year swap rate is seen at 5.62-6.00% and the five-year at 6.15-6.62%. On Wednesday, the one-year swap rate ended at 5.82% and the five-year swap rate ended at 6.42%.

CALL

On Friday, the three-day call money rate is likely to open above the RBI's repo rate of 5.25% as outflows for goods and services tax payments begin. The call money rate is seen in a range of 4.75-5.50% through the day. On Wednesday, the two-day call money rate ended at 5.40%.

More liquidity infusion measures are expected to ease money market rates near the quarter- and financial year-end in March, dealers said. The RBI will conduct an INR-750-billion, three-day VRR auction at 0930-1000 IST Friday. The announcement eased traders' concern that money markets would be shut Friday as well, for Ramzan Id.

RBI AUCTION

--RBI to conduct INR 750-billion, 3-day variable rate repo auction 0930-1000 IST Fri

LIQUIDITY

--Total net inflows of INR 257.17 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 276.91 billion as redemption of 91-day Treasury bills Thu

--INR 60.00 billion as redemption of 182-day T-bills Thu

--INR 71.94 billion as redemption of 364-day T-bills Thu

--INR 20.74 billion as coupon on state bonds Thu

--INR 50.71 billion as coupon on 7.88%, 2030 gilt Thu

--INR 58.72 billion as coupon on 7.40%, 2062 gilt Thu

--INR 22.20 billion as coupon on state bonds Fri

--INR 7.00 billion as redemption of state bonds Fri

--INR 41.28 billion as coupon on 7.59%, 2029 gilt Fri

--INR 36.77 billion as coupon on 7.16%, 2050 gilt Fri

* Outflows

--INR 150.00 billion as payment for 91-day T-bills

--INR 159.10 billion as payment for 182-day T-bills

--INR 80.00 billion as payment for 364-day T-bills

End

US$1 = INR 92.63

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

Reported by Aaryan Khanna

Edited by Akul Nishant Akhoury

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