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Informist, Monday, Apr. 27, 2026

MUMBAI – On Tuesday, government bond prices and overnight indexed swap rates are seen tracking developments in West Asia war and the impact on crude oil prices, as has been the case for the past two months, dealers said. However, most traders are likely to avoid view-based positions due to uncertainty over the war and negotiations between the US and Iran on a peace deal, they said. With no interest rate cues scheduled domestically, traders will also track the movement in the rupee against the dollar.

Most dealers do not expect a breakthrough in negotiations overnight but see Brent crude futures to remain below $110 a barrel, betting that the US and Iran will not return to armed conflict and abide by the extended ceasefire since early April, even as the Strait of Hormuz remains closed.

There are no interest rate cues scheduled domestically other than the Index of Industrial Production for March at 1600 IST Tuesday and swap rates will be sensitive to global developments, dealers said. Growth in India's industrial output is likely to have eased to 2.6% in March, the slowest pace in five months, according to an Informist Poll of 10 economists.

Some traders are also looking ahead to the rate decision and commentary from the US Federal Open Market Committee on Wednesday, 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.

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.

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. Other than the West Asia crisis, traders are tracking tariffs and trade deals amid scheduled talks between the US and India this week, they said.

On Tuesday, the one-day call money rate is likely to open at 5.10-5.15%. Dealers expect the call rate to be around 5.15% during the day, while the tri-party repo rate is expected to be in the range of 4.90–5.10% on the back of ample surplus liquidity in the banking system. Dealers expect the weighted average call rate to be in the range of 5.10-5.15% for Tuesday, while the weighted average tri-party repo market rate is likely to be in the range of 4.95-5.05%.

GOVERNMENT BONDS

Tuesday, bond prices will track any development in the US-Iran peace talks and its impact on Brent crude oil prices. Traders will also track the movement of the rupee against the dollar and overnight indexed swap rates, they said.

The result of the INR-145-billion auction of state government securities Tuesday will also lend cues to bond prices, dealers said. The notified size of the state bond auction for Tuesday is lower than what traders had expected, which is likely to support demand, they said. Traders expect the auction to go through smoothly on firm demand by public-sector banks, insurers and mutual funds, they said. State-owned banks and mutual funds currently prefer state bonds over gilts of similar maturity, as yield spreads remain elevated, thereby offering higher returns than gilts, dealers said.  

Higher-than-viewed cut-off yields on state bonds at the auction Tuesday could push the yield on the 10-year benchmark up at 6.98%, dealers said. The yield on the benchmark 10-year 6.48%, 2035 bond is seen in a range of 6.92-7.00%. On Monday, the 10-year benchmark 6.48%, 2035 gilt ended at INR 96.84, or 6.9418% yield. 

OIS RATES

On Tuesday, traders will track developments in the West Asia war and their impact on crude oil prices, as has been the case in the past two months, dealers said.

The one-year swap rate already prices in three 25-bp repo rate hikes by April next year, which will bring the repo rate to 6.00%. Some traders are looking to receive fixed rates with the view that the Monetary Policy Committee will not raise the repo rate that much unless the West Asia conflict drags on for several months, dealers said. 

On Tuesday, the one-year swap rate is seen at 5.78-6.00% and the five-year swap at 6.30-6.60%. On Monday, the one-year swap rate ended at 5.88%, while the five-year swap ended at 6.49%.

CALL

On Tuesday, the one-day call money rate is likely to open at 5.10-5.15%. Dealers expect the call rate to be around 5.15% during the day, while the tri-party repo rate is expected to be in the range of 4.90–5.10% on the back of ample surplus liquidity in the banking system. Dealers expect the weighted average call rate to be in the range of 5.10-5.15% for Tuesday, while the weighted average tri-party repo market rate is likely to be in the range of 4.95-5.05%.

Dealers said the rates in the overnight market will not rise above the repo rate as demand for funds from banks for the next two sessions is unlikely. However, by Thursday, rates could inch higher due to the end of the reporting fortnight and to provide for funding requirements over the extended weekend. Indian financial markets are shut Friday for Maharashtra Day and Labour Day. 

The weighted average call rate will be around 5.10% and the weighted average rate in the tri-party repo market is likely to be in the band of 4.95-5.05% till Wednesday, dealers said. Despite the surplus liquidity after the government's month-end spending, most dealers do not expect any variable rate reverse repo auction for at least this week. Dealers expect the surplus liquidity to rise to around INR 4 trillion after the month-end spending from the government in the beginning of May. Monday, the one-day call rate ended at 5.15%.

RBI AUCTION

--Seven states to raise INR 145 billion via bond sale

LIQUIDITY

Total net inflows of INR 9.30 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 9.30 billion as coupon on state bonds

* Outflows 

--Nil

End 

US$1 = INR 94.19

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

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

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