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Informist, Friday, Mar. 20, 2026

NEW DELHI – Government bond prices and overnight indexed swap rates are expected to track the movement in Brent crude oil prices as the war in West Asia enters its fourth week Saturday. Consistently high Brent crude oil prices, above $100 a barrel, are seen increasing domestic inflation and increasing the possibility of a rate hike in India in 2026-27 (Apr-Mar). 

Gilts and OIS rates are not traded Saturday. The movement in US Treasury yields may also influence both markets, as will the intraday movement in the rupee, which fell to a record low of 93.7550 a dollar intraday Friday. The call money market is shut Saturday for Id-ul-Fitr.

On Monday, the one-day call money rate is likely to open above the Reserve Bank of India's repo rate of 5.25% as outflows for goods and services tax payments continue. The call money rate is seen in a range of 4.75-5.50% through the day.

GOVERNMENT BONDS

On Monday, bond traders will take cues from developments in the war between the US-Israeli alliance and Iran, and from their impact on Brent crude prices, dealers said. Traders have begun avoiding short-term bonds due to fears of domestic rate hikes in FY27 if inflation rises following the surge in global crude prices.

A larger-than-indicated state bond auction may weigh on gilt prices. After market hours, the RBI said 22 states will raise INR 556.88 billion through bonds on Tuesday. The indicative calendar for state borrowing for Jan-Mar showed states would borrow INR 479.85 billion on Tuesday. States have indicated they will raise another INR 120 billion at auction on Mar. 27. 

Some traders may be disappointed by data showing 'Others' – a category which includes the central bank, insurers and pension funds – were a non-factor in the secondary market, according to a Clearing Corp. of India release after market hours. The RBI also refrained from announcing any durable measures to infuse liquidity. The central bank will conduct an overnight variable rate repo operation for INR 1 trillion at 0930-1000 IST Monday. This is seen as reducing the chances of open market operations next week, dealers said.

Focus will be on the government's borrowing calendar for Apr-Sept, which is likely to be released by the end of next week, dealers said. The gross market borrowing for FY27 is likely to be revised down to around INR 16 trillion after the government conducted gilt switches with the RBI and in the market. These switches have all targeted bonds maturing in FY27, effectively reducing the repayment burden in the coming fiscal year and lowering gross market borrowing from the record INR 17.20 trillion announced in the Union Budget for FY27.

Traders expect the RBI to purchase gilts in the secondary market for the rest of March as the geopolitical situation pushes yields higher. The central bank had been aggressive in its intervention in the first half of March, capping gilt yields and limiting the rupee's fall. The central bank has bought gilts worth nearly INR 1.8 trillion over the past two weeks, but there have been no signs of any purchases from the RBI this week, dealers said. 

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.68-6.80% Monday. On Friday, the bond ended at INR 98.21 or 6.7369% yield.

OIS RATES

Monday, swap rates will track Brent crude oil prices for May delivery as the war in West Asia is set to enter its fourth week. Traders will also track the movement of US Treasury yields. Significant movement in the rupee may also lend direction, dealers said.

Swap rates will also track the movement of bond yields if the RBI purchases bonds in the secondary market, which will bring down bond yields, dealers said. A fall in bond yields will also soften swap rates, 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. However, on the technical front, 6.50% is seen as a lucrative level to receive, which could thereby limit a further rise. 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.

"Now the (five-year OIS) rates are in a zone of 6.35%-6.50%, and it all depends on the geopolitical situation," a dealer at a primary dealership said. 

The one-year swap rate is seen at 5.62-6.00% and the five-year at 6.30-6.62% on Monday. On Friday, the one-year swap rate ended at 5.85% and the five-year swap rate ended at 6.41%.

CALL

On Monday, the one-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 continue. The call money rate is seen in a range of 4.75-5.50% through the day. On Friday, the three-day call rate ended at 5.35%.

More liquidity infusion measures are expected to ease money market rates near the quarter- and financial year-end in March, dealers said. Traders had expected an overnight VRR auction of up to INR 750 billion Monday to ease money market rates. After market hours, the RBI announced it would conduct an overnight, INR 1.00-trillion VRR auction at 0930-1000 IST Monday.

RBI AUCTION

--RBI to conduct INR 1.00-trillion, overnight variable rate repo auction 0930-1000 IST Mon

LIQUIDITY

--Total net inflows of INR 204.30 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 4.55 billion as coupon on state bonds Sat

--INR 634.11 million as coupon on 8.33%, 2032 gilt Sat

--INR 35.06 billion as coupon on 8.28%, 2027 gilt Sat

--INR 14.62 billion as coupon on state bonds Sun

--INR 34.75 billion as coupon on Floating Rate Bond 2033 Sun

--INR 32.35 billion as coupon on state bonds Mon

--INR 81.80 billion as redemption of state bonds Mon

* Outflows

--INR 251.01 billion as reversal of 3-day variable rate repo auction Mon

End

US$1 = INR 93.71

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

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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