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Informist, Thursday, Apr. 23, 2026

MUMBAI – On Friday, government bond prices and overnight indexed swap rates are seen tracking developments in West Asia and its impact on crude oil prices, dealers said. 

Traders will also track the movement of the rupee against the dollar and fresh headlines emerging from developments in the US-Iran peace talks. 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. 

Traders are on the watch for the likelihood of El Nino and its impact on monsoon this year, and the subsequent impact on growth and inflation, they said. 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.

Some traders also looked ahead to the rate decision and commentary from the US Federal Open Market Committee at next week's policy meeting, which may influence offshore activity in India's OIS market. Dealers expect the US rate-setting panel to hold interest rates steady. Fed fund futures are pricing in no change to the federal funds rate next week as inflation in the world's largest economy remains sticky, according to the CME FedWatch tool.

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. However, the Ministry of Petroleum and Natural Gas Thursday clarified that there is no proposal under consideration. Once there is a concrete outcome to the West Asia crisis, traders are likely to refocus on tariffs and trade deals, they said.

On Friday, the three-day call money rate is likely to open at 5.15-5.35%. Dealers expect the call rate to be around 4.75-5.30% during the day, while the tri-party repo rate is expected to be in the range of 4.80–5.20% on the back of ample surplus liquidity in the banking system. Dealers expect the weighted average call rate to be in the range of 5.20-5.25% for Friday, while the weighted average tri-party repo market rate is likely to be in the range of 5.10-5.15%.

GOVERNMENT BONDS

Government bond prices are seen opening lower Friday if Brent crude oil prices remain above $100 per barrel overnight. Additionally, traders may place short bets on gilts to make room for fresh supply, they said. The government will sell INR 110 billion of the 6.03%, 2029 bond, INR 110 billion of the 6.68%, 2033 bond, INR 50 billion of the 7.24%, 2055 bond and INR 50 billion of a new 30-year, 2056 green bond.

Demand for both the long-term gilts is seen robust from insurance companies and pension funds. These investors may purchase the green bond to fulfil their investment mandates in sustainable and infrastructure funding, dealers said. However, the coupon on the green bond is seen at least 4–5 basis points higher than a gilt of comparable maturity, instead of the "greenium" or lower yields investors are expected to pay for green financing. The average primary market greenium on Indian sovereign green bonds since 2023 has been 2 bps, as per a research report from CCIL. 

Demand for the short-term 2029 and 2033 bonds is seen to be more uncertain. State-owned banks are seen bidding for the bonds but at yields which are 3–4 bps higher than secondary market yields. The cut-off yield on the 2033 bond is seen close to that of the 10-year benchmark bond. Mutual funds, which have turned net sellers this week, may also not bid aggressively for short-term bonds, dealers said. 

Value-buying is likely to prevent the 10-year gilt yield from rising above 7.00%, with traders expecting the US-Iran peace deal to be inevitable, even if delayed, dealers said. The yield on the benchmark 10-year 6.48%, 2035 bond is seen in a range of 6.90-7.05%. On Thursday, the 10-year benchmark 6.48%, 2035 gilt ended at INR 96.78, or 6.9498% yield. 

OIS RATES

On Friday, traders will track developments in West Asia and their impact on crude oil prices, with no interest rate cues scheduled domestically, dealers said. The one-year swap rate already prices in three 25-bps repo rate hikes by April next year, which will bring the repo rate to 6.00%. Some traders were looking to receive fixed rates as they believed the MPC will not raise the repo rate that much unless the West Asia conflict drags on, dealers said.

On Friday, the one-year swap rate is seen at 5.60-6.00% and the five-year swap at 6.25-6.60%. On Thursday, the one-year swap rate ended at 5.90%, while the five-year swap ended at 6.49%.

CALL

On Friday, the three-day call money rate is likely to open at 5.15-5.35%. Dealers expect the call rate to be around 4.75-5.30% during the day, while the tri-party repo rate is expected to be in the range of 4.80–5.20% on the back of ample surplus liquidity in the banking system. Dealers expect the weighted average call rate to be in the range of 5.20-5.25% for Friday, while the weighted average tri-party repo market rate is likely to be in the range of 5.10-5.15%.

Most dealers do not expect the central bank to roll over the seven-day variable rate reverse repo auction it had conducted for INR 2 trillion Friday. There is less surplus liquidity in the system this week and the end of the fortnight approaches next week. Some dealers said the RBI could conduct a VRRR of INR 1.00 trillion to INR 1.50 trillion for the same tenure, as the Centre's expenditure for government salaries and pensions are expected to begin by the middle of next week. Thursday, the one-day call rate ended at 5.30%.

RBI AUCTION

--Govt to auction four gilts worth INR 320 billion

LIQUIDITY

Total net inflows of INR 93.84 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 85.01 billion as redemption of 182-day Treasury bills 

--INR 8.83 billion as coupon on state bonds

--INR 2.00 trillion as reversal of seven-day variable rate reverse repo operation

* Outflows

--Nil

End

US$1 = INR 94.1050

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

Reported by Meera Nair

Edited by Deepshikha Bhardwaj

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