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Informist, Wednesday, May 6, 2026

MUMBAI – Government bond prices and OIS traders will track developments in the West Asia war and their impact on Brent crude oil prices, dealers said. After falling below $100 a barrel for the first time in two weeks, Brent crude futures climbed above that crucial level after Indian market hours on US President Donald Trump's comment about bombing Iran if a deal was not reached. 

Any sign that an end to the war is near could pull Brent crude for July delivery down to $90 a barrel, which may prompt the 10-year benchmark gilt yield to fall towards 6.85%. A further fall in the bond's yield is not expected as CPI inflation is likely to remain high through the year, which will prompt traders to take profits at that yield level, dealers said.

On the domestic front, traders are worried that the Centre might hike petrol and diesel prices to support oil marketing companies, which are losing money on retail sales after crude prices jumped because of the West Asia conflict. RBI's Monetary Policy Committee external member Ram Singh also said Tuesday that the government should hike retail fuel prices. If pump prices go up, CPI inflation could climb towards the top of the RBI's 2-6% tolerance band later in 2026-27 (Apr-Mar), dealers said. Swap rates have already factored in multiple repo rate hikes in India in 2026-27 (Apr-Mar) and beyond.

GOVERNMENT BONDS

Thursday, bond prices will track developments in the West Asia war and their impact on Brent crude oil prices, dealers said. After falling below $100 a barrel for the first time in two weeks, Brent Crude futures climbed past that crucial level after Indian market hours on US President Donald Trump's comment about bombing Iran if a deal was not reached. Reports that Tehran had made a website to administer the Strait of Hormuz also resulted in oil prices rising.

However, any sign of escalation in the West Asia war could push the 10-year bond yield back above 7.00%, dealers said. Traders will also track the movement of overnight indexed swap rates and the rupee, they said.

Lack of further cues on the domestic front and from the West Asia war would keep the market steady, they said. There are no scheduled domestic triggers on Thursday. The yield on the 6.48%, 2035 bond is seen in a range of 6.90-7.00% on the day. The 10-year benchmark 6.48%, 2035 government bond ended at INR 96.97, sharply higher than INR 96.33 Tuesday.

OIS

OIS traders will track crude oil prices and developments in the war in West Asia on Thursday, dealers said. After falling below $100 a barrel for the first time in two weeks, Brent crude futures climbed past that crucial level after Indian market hours on US President Donald Trump's comment about bombing Iran if a deal was not reached. Reports that Tehran had made a website to administer the Strait of Hormuz also resulted in oil prices rising.

The movement in US Treasury yields, the rupee, and overnight money market rates may lend cues to swaps. On Thursday, the one-year swap rate is seen at 5.75-6.15% and the five-year swap at 6.35-6.73%. The one-year swap rate fell to 5.90% Wednesday from 6.06% the previous day.

CALL

On Thursday, the one-day interbank call money rate is likely to open at 5.20-5.25% due to sufficient liquidity in the banking system. The one-day call money rate is seen in the 4.80-5.25% range during the day, whereas the tri-party repo rate is expected to be in the range of 4.90–5.10%. The weighted average call rate will be in the range of 5.16-5.20% and that in the tri-party repo market is likely to be in the band of 5.00-5.10% Thursday, dealers said. 

Outflows for excise duty payments due Thursday will drain out between INR 400 billion and INR 500 billion from banking system liquidity. However, the call and tri-party repo rates are unlikely to rise above the repo rate, given the comfortable liquidity in the system, dealers said. On Wednesday, the one-day call money rate ended at 5.10%, sharply higher than 4.75% Tuesday.

RBI AUCTION

--NIL

LIQUIDITY

Total net outflows of INR 63.57 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 7.832 billion as coupon on state bonds

--INR 82.97 billion for 364-day T-bill

--INR 114.40 billion for 91-day T-bill

* Outflows

--INR 148.77 billion as payment for 91-day T-bills

--INR 60 billion as payment for 182-day T-bills

--INR 60 billion as payment for 364-day T-bills

End

US$1 = INR 94.61

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

Reported by Meera Nair

Edited by Avishek Dutta

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