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Informist, Monday, Mar. 23, 2026

NEW DELHI – Government bond prices are seen opening higher Tuesday after US President Donald Trump's comments that the US and Iran are negotiating an end to the war in West Asia. Overnight indexed swap rates may fall as Brent crude oil futures for May delivery remained near the $100-per-barrel mark from as high as $114 a barrel Monday.

In a social media post at 1635 IST, Trump ordered a five-day halt to US strikes on Iran's energy infrastructure citing fruitful progress in talks with Iran over the past two days. After Indian market hours Monday, he made several comments to media outlets that US envoys had made contact with Iran and were working out a deal with Tehran, including opening the Strait of Hormuz through which a fifth of the world's oil traffic flows. The strait has been effectively shut in March after the US and Israel bombed Iran and killed its top leader on Feb. 28.

The movement in US Treasury yields may also influence both markets. The activity of foreign investors and movement of the rupee will also give direction, after the domestic currency ended at a record closing low of 93.9750 a dollar Monday.

On Tuesday, the one-day call money rate is likely to open above the Reserve Bank of India's repo rate of 5.25% due to the liquidity deficit in the banking system after outflows for goods and services tax payments. The call money rate is seen in a range of 4.65-5.45% through the day.

GOVERNMENT BONDS

On Tuesday, gilt prices may rise tracking the fall in crude oil prices. Bond traders will take cues from further developments in the war between the US-Israeli alliance and Iran, dealers said. US President Trump's comments on a five-day halt in strikes on Iran's energy infrastructure eased crude prices Monday, but officials from Tehran rebuffed his claim that the two sides were negotiating.

The result of the state bond auction may lend direction to gilt prices, though several investors are seen preferring state bonds and avoiding gilts, dealers said. The RBI Saturday said 22 states would raise INR 574.08 billion through the sale of bonds, nearly INR 95 billion more than INR 479.85 billion indicated in states' borrowing calendar for Jan-Mar.

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. Currently, most traders do not expect a rate hike in the next three meetings or six months but fear a lengthening of the West Asia conflict bringing forward those hikes, dealers said. 

The RBI's apparent lack of secondary market gilt purchases, after significant activity in the first half of March, may disappoint some traders. The central bank 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 Tuesday. This is seen as reducing the chances of open market operations to buy bonds, 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 downward 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 do not expect the RBI to purchase gilts in the secondary market even 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 in the first half of March, but there have been no signs of any purchases from the RBI over the past week, dealers said. 

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.72-6.90% Tuesday. On Monday, it ended at INR 97.52 or 6.8379% yield, its highest since Jan. 13, 2025.

OIS RATES

Tuesday, swap rates will likely open lower if there is no escalation in West Asian war overnight, following a halt in planned US strikes in Iran, dealers said. Swap rates will also 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 of the rupee may also lend direction, 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.

The one-year swap rate is seen at 5.62-6.10% and the five-year at 6.30-6.65% on Tuesday. On Monday, the one-year swap rate ended at 5.97%, its highest in nearly a year. The five-year swap rate ended at 6.52%, its highest since May 2024.

CALL

On Tuesday, the one-day call money rate is likely to open above the RBI's repo rate of 5.25% due to liquidity deficit in the banking system after payments for goods and services tax. The one-day call money rate is seen in a range of 4.65-5.45% throughout the day. Monday, the one-day call money rate ended at 5.25%.

Traders expect more liquidity infusion measures from the RBI to support credit growth and banks' demand for funds near the quarter- and financial year-end next week, dealers said. Traders had expected an overnight variable rate repo auction of around INR 500 billion to INR 750 billion this week to ease money market rates. After market hours, the RBI announced a three-day VRR auction worth INR 1 trillion Tuesday. Monday's overnight VRR auction with INR 792.56 billion of accepted bids will reverse Tuesday. 

RBI AUCTION

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

--22 states to raise INR 574.08 billion via bond sale at 1030-1130 IST

LIQUIDITY

--Total net inflows of INR 22.35 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 22.35 billion as coupon on state bonds

* Outflows

--INR 480.14 billion as reversal of seven-day variable rate repo auction

--INR 792.56 billion as reversal of overnight variable rate repo auction

End

US$1 = INR 93.98

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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