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Informist, Tuesday, Apr. 21, 2026

MUMBAI – On Wednesday, government bond prices and overnight indexed swap rates are seen tracking the movement of US Treasury yields after the ongoing confirmation hearing of Kevin Warsh--the US Federal Reserve's potential next chair--by the Senate. Dealers do not see gilts reacting if the hearing sails through, but expect a fall in prices if it doesn't, they said.

Larger focus will be on Brent crude oil prices for delivery in June, as has been since Feb. 28, and developments around expected peace talks between the US and Iran, dealers said. The two sides are expected to begin a second round of negotiations in Pakistan Wednesday and concrete takeaways from the meeting are likely to impact gilt prices through the day, dealers said. The reaction of crude oil prices from the headlines emerging from the meeting will likely lend cues to the domestic market, they said. In the longer run, traders also await economic data to assess the trajectory and impact of the rise in crude oil prices since the war began. Even if a peace deal is cemented, traders do not expect crude oil prices to cool off to pre-war levels immediately, and supply chains are likely to take months to return to normal, they said. 

Wednesday, traders will also track the minutes of the Reserve Bank of India's Monetary Policy Committee's April meeting. They expect the members to have opted for a cautious, neutral tone, with no dissenting opinion. Traders will also look for commentary on liquidity in the minutes. 

Later in the month, traders will await the US Federal Open Market Committee's interest rate decision, commentary by Fed Chair Jerome Powell, and clarity on his successor. Powell's term ends in May. Fed fund futures are pricing in a status quo in the federal funds rate next week as inflation in the world's largest economy remains sticky. 

After state assembly polls end in April, traders will also be on the watch to see if the Centre transmits the recent rise in crude oil prices to consumers by hiking energy prices. Once there is a concrete outcome to the West Asia crisis, traders are likely to refocus on tariffs and trade deals, they said. An Indian delegation led by India's chief negotiator Darpan Jain is currently in Washington to hold talks. Traders will also focus on the impact of El Nino on economic growth. The India Meteorological Department sees a 62% chance of El Nino emerging in Jul-Aug, and expects it to persist till the end of 2026.

On Wednesday, the one-day call money rate is likely to open at 5.10-5.20%. Dealers expect the call rate to be around 4.80–5.20% during the day, while the tri-party repo rate is expected to be in the range of 4.80–5.00% on the back of ample surplus liquidity in the banking system, despite demand for funds for goods and services tax payments. While rates could inch higher on Wednesday due to the scheduled outflow, it would not have any significant impact, dealers said. 

GOVERNMENT BONDS

Traders are optimistic about a peace deal between the US and Iran and may see gilt prices rise slightly on Wednesday as well. Traders expect the yield on the 10-year benchmark 6.48%, 2035 bond to fall to as low as 6.80% if there is a breakthrough in negotiations and Brent crude futures fall to $85 a barrel. However, traders are not positioned for a scenario in which negotiations fall through and the ceasefire is not extended beyond the deadline early Thursday Indian time, dealers said.

Traders may avoid short-term bonds this week to make room for fresh supply of a three-year and seven-year gilt at the weekly gilt auction Friday, dealers said. Regulation on banks' liquidity coverage ratio which took effect this financial year has reduced the needs for banks to pile on to gilts, they said. Some traders with appetite for risk are keen on purchasing gilts maturing within eight to 15 years due to the attractive spread over overnight funding rates, they said.

Gilt prices are likely to fall sharply if hostilities in West Asia resume. However, state-owned banks are likely to prevent the 10-year gilt yield from rising above 6.95%, with the market expecting a peace deal to be inevitable, even if delayed, dealers said. State-owned banks' appetite for gilts is likely to be firm after booking profit over the last two sessions and with three gilt redemptions so far in April, they said. On Tuesday, the 10-year benchmark 6.48%, 2035 gilt ended at INR 97.19 or 6.89% yield. 

OIS RATES

On Wednesday, traders will track developments relating to the likely peace talks between the US and Iran in Islamabad and their impact on crude oil prices.

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 Monetary Policy Committee will not raise the repo rate so much unless the West Asia conflict is extended and so they may receive fixed rates, dealers said.

On Wednesday, the one-year swap rate is seen at 5.50-6.00% and the five-year swap at 6.15-6.50%. On Tuesday, the one-year swap rate ended at 5.78%, while the five-year swap ended at 6.36%.

CALL

On Wednesday, the one-day call money rate is likely to open at 5.10-5.20%. Dealers expect the call rate to be around 4.80–5.20% during the day, while the tri-party repo rate is expected in the range of 4.80–5.00% on the back of ample surplus liquidity in the banking system, despite demand for funds for GST payments. While rates could inch higher on Wednesday due to the scheduled outflow, it would not have any significant impact, dealers said.

Outflow for GST payment of INR 1.8 trillion to INR 2 trillion began Monday and will conclude on Wednesday. Inflows for redemption and coupon payments on state bonds and coupon payment of the 7.34%, 2064 gilt totalling INR 110.5 billion are scheduled for Wednesday, while there are outflows of INR 169 billion scheduled for payment for state bonds. "Around 50% of the GST payment is yet to happen, most likely on Wednesday," a dealer at state-owned bank said. Tuesday, the one-day call rate ended at 5.17%.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 120 billion

--RBI to auction 182-day T-bills worth INR 60 billion

--RBI to auction 364-day T-bills worth INR 60 billion

LIQUIDITY

Total net outflows of INR 58.52 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 2.02 billion as coupon on state bonds

--INR 20.00 billion as redemption of state bonds

--INR 88.46 billion as coupon on 7.34%, 2064 gilt

* Outflows

--INR 169.00 billion as payment for state bonds

End

US$1 = INR 93.50

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

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

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