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Informist, Thursday, Apr. 16, 2026

MUMBAI – Government bond prices and overnight indexed swap rates will continue to track the movement of crude oil prices and any significant developments in West Asia conflict Friday, dealers said. Any significant movement in US Treasury yields overnight will also lend cues to both bonds and swap rates. Later in the day, weekly gilt auction's result will lend cues to bond prices.

Traders are also looking forward to the second round of peace talks between the US and Iran, which is expected but not confirmed. The extension of the closure of the Strait of Hormuz and the oil, gas, and other commodities stuck in the crucial waterway will help traders bet on domestic monetary policy, dealers said. US President Donald Trump said the war with Iran would soon be over, with reports indicating both sides were close to extending the ceasefire that ends Apr. 22.

With surplus liquidity and low overnight rates, the RBI will hold a seven-day variable rate reverse repo auction on Friday for INR 2 trillion. This is the second VRRR auction this month which is likely to pressure bond prices. Also on Friday, INR 527 billion in maturity, redemption, and coupon payments will flow in, adding to the system's liquidity. The INR-2-trillion three-day VRRR from last week is set to reverse on Friday as well.

Friday, the three-day call money rate is likely to open at 5.10-5.15% on early demand for funds from primary dealerships and some banks, dealers said. Dealers expect the rate to be in the range of 4.60–5.15% during the day on the back of ample surplus liquidity in the banking system. The weighted average call rate is expected to be 5.05–5.15%, while the weighted average tri-party repo rate may be 4.80–4.90%, dealers said.

GOVERNMENT BONDS

On Friday, provided there is no change in the West Asia situation, bond prices will likely open steady ahead of the weekly gilt auction, and will take cues from the result, dealers said. Bond prices will also take cues from overnight movement in Brent crude oil prices.

The government will sell INR 320 billion of gilts at the weekly auction Friday. Demand is likely to be firm, dealers said. Later in the day, the result will lend direction to the bond prices, dealers said. At the auction, insurers, provident funds and mutual funds are likely to bid for the 6.90%, 2065 bond while primary dealerships, banks and mutual funds will likely pick up the 6.36%, 2031 bond at the auction Friday, dealers said. 

On Monday, the government will switch INR-300-billion of nine source securities with eight destination securities. If the RBI accepts tenders at prices which are significantly different from market expectations, then market participants will likely perceive it as a rate signal, dealers said. Following the switch auction, traders expect the spread between the erstwhile benchmark 6.33%, 2035 bond and 6.48%, 2035 bond to compress by 4-5 basis points, dealers said.  

Traders expect the US-Iran ceasefire to hold, keeping the 10-year benchmark bond yield from climbing above 7.00%. That makes current levels attractive for bond buying. Traders are also watching US Treasury yields after President Donald Trump said he would have to fire Federal Reserve Chair Jerome Powell if Powell does not step down when his term ends next month.

Traders are divided on short-term, rate-sensitive bonds. Some favour them for their attractive yield spreads over overnight rates. Others are wary after RBI announced INR 2 trillion of seven-day variable rate reverse repo auction, Thursday after market hours which will drain liquidity from the system, dealers said. The auction will be held on Friday. 

The movement in overnight indexed swap rates and the rupee may also influence gilts. The yield on the 10-year benchmark 6.48%, 2035 gilt is seen at 6.80-7.00%. On Thursday, the bond ended at INR 97.19, or 6.89% yield.

OIS RATES

OIS rates are expected to trade in a narrow band Friday due to a lack of significant cues on domestic interest rates, dealers said. The movement in Brent crude prices and US Treasury yields overnight may lend direction. Traders may not react to a small move in the US yields and oil prices as they await fresh developments in the West Asia conflict. US President Donald Trump said the war with Iran would soon be over, with reports indicating both sides were close to extending the ceasefire that ends Apr. 22. 

The one-year swap rate is already pricing in three repo rate hikes of 25 basis points each to 6.00% by April 2027. Some traders are of the view that the RBI's Monetary Policy Committee will not hike the repo rate so much unless the West Asia conflict extends and may receive fixed rates, dealers said. Even after the RBI conducts the seven-day variable rate reverse repo operation Friday for INR 2 trillion, liquidity is still seen ample, and overnight rates are likely to be below this month, dealers said.

On Friday, the one-year swap rate is seen at 5.70-6.00% and the five-year swap at 6.22-6.50%. On Thursday, the one-year swap rate ended at 5.80% and the five-year swap rate ended at 6.37%.

CALL

Friday, the three-day call money rate is likely to open at 5.10-5.15% on early demand for funds from primary dealerships and some banks, dealers said. Dealers expect the rate to be in the range of 4.60–5.15% during the day on the back of ample surplus liquidity in the banking system. The weighted average call rate is expected to be 5.05–5.15%, while the weighted average tri-party repo rate may be 4.80–4.90%, dealers said.

Due to surplus liquidity and low rates in overnight markets, the RBI will conduct a second seven-day VRRR Friday for INR 2 trillion this month. On Friday, inflows of INR 527 billion for maturity, redemption and coupon payments are scheduled, which are likely to flush the surplus liquidity in the banking system. Reversal of INR 2 trillion for the three-day VRRR conducted last week is also scheduled for Friday. On Thursday, the one-day call money rate ended at 5.10%.  

RBI AUCTION

--Govt to sell INR 210 billion of 6.36%, 2031 gilt and INR 210 billion of 6.90%, 2065 gilt at 1030-1130 IST.

LIQUIDITY

--Total net inflows of INR 526.86 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 127.40 billion as redemption of 91-day T-bills

--INR 347.91 billion as redemption of 6.99%, 2026 bond

--INR 2.46 billion as coupon on state bonds

--INR 12.16 billion as coupon on 6.99%, 2026 bond

--INR 36.93 billion as coupon on 7.17%, 2030 bond

* Outflows

--Nil

End

US$1 = INR 93.1950

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

Reported by Janwee Prajapati

Edited by Deepshikha Bhardwaj

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