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Informist, Monday, May 11, 2026

 

MUMBAI – Government bond prices and overnight indexed swap rates are likely to track India's CPI inflation data for April, due at 1600 IST Tuesday. The CPI inflation print is seen rising to a 15-month high of 3.8% in April from 3.4% in March, as per an Informist poll of 13 economists. Some traders expect the inflation print to come in at 4%. However, if the print breaches the 4% level and rises substantially to near 4.5% or above, it might bring down bond prices and push up swaps, dealers said. 

 

Traders will also track Brent crude oil prices. Any major sign of an end to the West Asia war could pull Brent crude oil prices to near $90 a barrel, which may prompt the 10-year benchmark gilt yield to fall to 6.85%. Further fall in the bond 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. However, any sign of escalation in the West Asia war could push the 10-year bond yield back above 7.00%, dealers said.

 

Traders have opposing views on liquidity, with some expecting it to improve next month or so after the RBI announces its transfer of surplus to the Centre--which is expected by the end of May. Most traders expect liquidity to shrink going ahead, as has been the trend since the new financial year began April, dealers said. If inflation is significantly higher than expected, rates will shoot up despite comfortable liquidity, they said.

 

Traders also expect the government to raise petrol and diesel prices to support oil marketing companies, which are losing money on retail sales after crude oil prices shot up because of the war. If pump prices go up, CPI inflation could climb towards the top of the RBI's 2-6% tolerance band later in the financial year 2026-27 (Apr-Mar), dealers said. Swap rates have already factored in multiple repo rate hikes in India in FY27 and beyond and are largely pricing in a hike in retail energy prices. Dealers are just unsure of when such a price hike would happen. They expect it this month. 

 

On Tuesday, the one-day interbank call money rate is likely to open at the RBI's repo rate of 5.25% due to early demand for funds from primary dealerships and some banks. Liquidity conditions remain comfortable, but not enough for banks to lend funds below the repo rate in early trade, dealers said.

 

GOVERNMENT BONDS

On Tuesday, traders will track developments in the West Asia war and Brent crude oil prices, dealers said. The absence of a peace deal between the US and Iran kept Brent crude oil prices above $100 per barrel Monday. Any overnight development in the West Asia war could push bond yields higher, dealers said. Traders will also track the movement of overnight indexed swap rates and the rupee, they said. The yield on the 6.48%, 2035 bond is seen in a range of 6.95-7.05% Tuesday.

 

Traders see the 6.94%, 2036 bond at 6.90-6.99% on Tuesday if there are no new developments in the West Asia war. However, any signs of de-escalation would pull down the yield on the new 10-year bond to 6.90%, dealers said. Any escalation in the US-Iran war could push the yield to 6.99% levels, they said. On Monday, the 10-year benchmark gilt ended at INR 96.24 or 7.0317% yield. 

 

OIS RATES

As has been the case since the war in West Asia began, swap rates Tuesday will track crude oil prices and developments in the US-Iran peace negotiations, dealers said. Traders will also gauge the CPI inflation data scheduled for release at 1600 IST.

 

The movement in US Treasury yields, the rupee, and overnight money market rates will also affect swaps. On Tuesday, 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 rate ended 5.97% Monday and the five-year OIS rate closed at 6.62%.

 

CALL

On Tuesday, the one-day interbank call money rate is likely to open at the RBI's repo rate of 5.25% due to early demand for funds from primary dealerships and some banks. Liquidity conditions remain comfortable, but not enough for banks to lend funds below the repo rate in early trade, dealers said.

 

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%, dealers said. The weighted average call rate will be in the range of 5.25-5.30% and that in the tri-party repo market is likely to be in the band of 5.00-5.10% on Tuesday, dealers said. There are no major inflows and outflows scheduled on Tuesday, and hence, the rate is expected to trade at a similar level. On Monday, the one-day call rate ended at 4.75%. 

 

RBI AUCTION

--11 states to raise INR 145 billion via bond sale on Tuesday

--RBI to hold 3-day VRR auction for INR 500 bln 0930-1000 IST Tue 

 

LIQUIDITY

Total net inflows of INR 16.28 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 11.28 billion as coupon on state bonds

--INR 5.00 billion as redemption of state bonds

 

* Outflows

--Nil

 

End

 

US$1 = INR 95.31

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

 

Reported by Cassandra Carvalho

Edited by Avishek Dutta

 

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