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Informist, Monday, Mar. 30, 2026

NEW DELHI – Government bond yields and overnight indexed swap rates may track the movement of Brent crude oil futures and developments in West Asia when they next open on Thursday. Money markets are shut Tuesday for Mahavir Jayanti and on Wednesday as banks will close their accounts for financial year 2025-26 (Apr-Mar).

Later in the day, bond traders will track the result of the INR 290-billion gilts auction. Thursday is the only trading session for the rest of the week for gilts and OIS, as financial markets are shut Friday for Good Friday. The movement in US Treasury yields and the rupee will also lend cues during the day.

Next week, traders will track the Reserve Bank of India Monetary Policy Committee's decision and commentary, especially remarks on the impact of the hostilities in West Asia. Traders expect a "hawkish" pause on the repo rate, with commentary likely to set the stage for rate hikes. The RBI is likely to raise its inflation forecast for FY27 by around 50 basis points, dealers said. According to an Informist Poll, in the worst-case scenario, where the military conflict in West Asia drags on for the rest of 2026, economists expect the Monetary Policy Committee to raise the repo rate by up to 50 bps from the current 5.25% in 2026. The one-year OIS rate is pricing in 100 bps of rate hikes over the next 12 months, dealers said.

Thursday, the four-day call money rate is likely to open near the RBI's Marginal Standing Facility rate of 5.50% as inflows from government spending are expected Monday and Tuesday. The four-day call money rate is seen in the 5.40-5.50% range during the day.

GOVERNMENT BONDS

Thursday, bond yields may track the movement of Brent crude oil futures and developments in West Asia. Gilt yields may also track US Treasury yields ahead of the release of jobs data in the world's largest economy. Later in the day, traders will track the result of the INR 290-billion gilts auction, they said.

Due to the conflict, and after the Centre published its borrowing calendar for Apr-Sept, traders expect the bond yield curve to "bear-flatten", they said. Some banks may avoid short-selling the 10-year benchmark bond due to its "shut-period" Thursday ahead of its interest payment. As traders unwind their long-dollar bets to meet regulatory requirements, traders expect the rupee to appreciate slightly and subsequently limit a rise in bond yields next week, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.95-7.15% Thursday. On Monday, the bond ended at INR 96.20 or 7.0345% yield, its highest closing level since June 2024. 

OIS RATES

Longer-tenure swap rates will track the movement of the 10-year US Treasury yield and Brent crude oil prices, dealers said. Traders await clarity on negotiations between the US and Iran and the possibility of opening the Strait of Hormuz, the vital oil shipping route, even as the war in West Asia continues to intensify. The movement in government bond yields may also lend direction after the 10-year benchmark gilt yield ended at a near-22-month high of 7.03% Monday. 

On Thursday, short-term swaps will track overnight borrowing rates, which are seen near the repo rate amid liquidity tightness and demand from banks due to the holiday-shortened week, dealers said.  

If offshore funds continue paying fixed rates, the five-year OIS rate is on track to test 7.00%, its highest level since October 2022, dealers said. If crude oil drops to near $80 per barrel, the five-year swap could ease to as low as 6.25% 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 5.90-6.35% and the five-year at 6.40-7.00% Thursday. On Monday, the one-year swap rate ended at 6.24% and the five-year OIS rate ended at 6.80%, both at their highest level in at least a year.

CALL

Thursday, the four-day call money rate is likely to open near the RBI's MSF rate of 5.50% as inflows from government spending are expected Monday and Tuesday. The four-day call money rate is seen in the 5.40-5.50% range during the day, as dealers expect ample liquidity will bring rates down. The three-day call money rate ended at 7.00% Monday, its highest closing level in a decade.

Thursday will be the first working day for FY27. Friday is a holiday for Good Friday. Dealers said systemic liquidity is expected to return to a comfortable surplus later in the week. Three of the RBI's variable-rate repos will be reversed Thursday, resulting in an outflow of INR 1.5 billion.

RBI AUCTION

--Govt to auction two gilts worth INR 290 billion at 1030-1130 IST Thursday

LIQUIDITY

--Total net inflows of INR 97.86 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 14.49 billion as coupon on state bonds Tuesday

--INR 20.00 billion as redemption of state bonds Tuesday

--INR 12.02 billion as coupon on state bonds Wednesday

--INR 51.35 billion as redemption of 364-day Treasury bill Thursday 

* Outflows

--INR 653.22 billion as reversal of six-day variable rate repo auction

--INR 500.01 billion as reversal of three-day variable rate repo auction

--INR 345.81 billion as reversal of three-day variable rate repo auction

End

US$1 = INR 94.83

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

Reported by Aaryan Khanna

Edited by Tanima Banerjee

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