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Informist, Friday, Mar. 27, 2026

NEW DELHI – Government bond prices are seen opening higher Monday after the government announced post market hours Friday that it will borrow only INR 8.20 trillion through dated securities in Apr-Sept. This is 50.97% of the full year borrowing target of INR 16.09 trillion, cut from the INR 17.20 trillion in the Union Budget for 2026-27 (Apr-Mar) due to the switches conducted by the government after Feb. 1. Traders had expected first-half market borrowing at INR 8.50 trillion-INR 8.90 trillion.

Long-term bonds are likely to rise sharply as their share of borrowing has come down to less than 25% from 29.4% in Oct-Mar. On the other hand, bonds maturing in up to 15 years may underperform, as their share of issuance has increased compared with the previous half-year.

Overnight indexed swap rates are likely to open lower Monday as traders unwind their paid fixed rates positions taken this week to hedge their bond holdings. Developments in the conflict in West Asia over the weekend will also influence both markets, as well the movement in US Treasury yields and the rupee. Money markets are shut Saturday and Monday is the last trading day in the current financial year.

On Monday, the three-day call money rate is likely to open near the Reserve Bank of India's Marginal Standing Facility rate of 5.50% due to banks' demand for funds to meet quarter- and year-end requirements. The three-day call money rate is seen in the 5.40-5.80% range during the day. Money markets will remain closed on Tuesday for Mahavir Jayanti and on Wednesday for banks' annual closing of accounts for FY26.

GOVERNMENT BONDS

Gilt prices may rise sharply Monday after the Apr-Sept borrowing calendar was lighter than market estimates, dealers said. After market hours Friday, the government said it will borrow INR 8.20 trillion through the issuance of dated securities in Apr-Sept, lower than expectations of around INR 8.50 trillion to INR 8.90 trillion.

The gross Treasury bill issuance of INR 2.88 trillion is in line with market estimates, dealers said. Some banks may step up purchases of the 10-year benchmark gilt to improve its valuation in their portfolios near the quarter- and financial year-end on Tuesday. 

The rise in prices may be limited due to uncertainty over the war in West Asia, especially with high crude oil prices. Developments over the weekend may lend cues. Fiscal worries have added to rate hike fears after the government cut excise duty on petrol and diesel on Friday, though these may be allayed somewhat by the light borrowing calendar in the first half, dealers said.

The RBI's lack of secondary-market gilt purchases, following significant activity in the first half of March, has disappointed traders. Data released Friday showed the RBI bought only INR 100 million worth of gilts in the week to Mar. 20 after buying nearly INR 900 billion in the secondary market in the previous four weeks, in addition to INR 1 trillion from open market operation auctions. The central bank also refrained from announcing any durable measures to infuse liquidity through auction, which are seen as unlikely until at least mid-April, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.75-6.92% Monday. On Friday, the bond ended at INR 96.82, or 6.9419% yield. This was the highest closing level of the benchmark yield since Jul. 26, 2024.

OIS RATES

On Monday, swaps will track gilt yields and overnight borrowing rates, which are seen above the repo rate on the last trading day of the financial year ending Tuesday. Longer-tenure swaps will also track the movement of the 10-year US Treasury yield and Brent crude oil prices, dealers said. Traders await clarity on negotiations between US and Iran and the possibility of opening the Strait of Hormuz, the vital oil shipping route.

Traders may also track the movement of government bond yields after the Centre post market hours said it will borrow INR 8.20 trillion through gilt issuances in Apr-Sept, of which 25% will be through bonds maturing within 30 to 50 years, lower than market consensus of 30%.

If offshore funds continue paying fixed rates, the five-year OIS rate is on track to hitting 7.00%, dealers said. If crude oil drops to near $80 per barrel, the five-year swap could ease to 6.20% as a fall triggers stop-losses on paid fixed-rate positions. Some traders expect rates to remain above pre-war levels even if oil prices fall, dealers said.

The one-year swap rate is seen at 5.90-6.15% and the five-year at 6.40-7.00% on Monday. On Friday, the one-year swap rate ended at 6.04%, its highest closing level since Mar. 28, 2025. The five-year swap rate ended at 6.64%, its highest close since Nov. 1, 2023.

CALL

On Monday, the three-day call money rate is likely to open near the RBI's MSF rate of 5.50% due to banks' demand for funds to meet quarter- and year-end requirements. The three-day call money rate is seen in the 5.40-5.80% range during the day. Money markets will remain closed on Tuesday for Mahavir Jayanti and on Wednesday for banks' annual closing of accounts for FY26.

Dealers said systemic liquidity is expected to return to a comfortable surplus by mid-April. Government spending is expected to hit the banking system next week in the form of salaries and pensions. Settlement of the state government's securities for INR 399.92 billion is scheduled for Monday, which will drain liquidity.

RBI AUCTION

--RBI to conduct INR 500-billion, three-day variable rate repo auction 0930-1000 IST Monday

LIQUIDITY

--Total net outflows of INR 310.69 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 12.45 billion as coupon on state bonds Saturday

--INR 27.17 billion as coupon on state bonds Sunday

--INR 18.91 billion as coupon on state bonds Monday

--INR 30.16 billion as coupon on 9.20%, 2030 gilt Monday

* Outflows

--INR 399.92 billion as payment for state bond auction Monday

End

US$1 = INR 94.81

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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