More Stories

Informist, Tuesday, May 12, 2026

 

MUMBAI – Government bond prices and overnight indexed swap rates are likely to track the overnight movement of US Treasury yields after US CPI inflation for April, released after Indian market hours, was higher than expected, dealers said. 

 

Headline inflation in the world's largest economy rose 3.8% on year last month, slightly higher than a Wall Street Journal poll estimate of a 3.7% rise. Core CPI was up 2.8% on year. The yield on the 10-year US Treasury note inched higher after the release.

 

India's CPI inflation data for April, released during market hours Tuesday, was lower than expected, briefly alleviating fears of a rise in inflation due to a surge in crude oil prices. However, traders expect a larger rise in wholesale prices, since commercial energy prices have been raised in India while retail prices have not. Moreover, traders 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 in West Asia.

 

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.

 

Traders will also track Brent crude oil prices. Any sign of an end to the West Asia war could pull crude oil prices to near $90 a barrel, which may prompt the 10-year benchmark gilt yield to fall to 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. Most traders expect liquidity to shrink going ahead, as has been the trend since the new financial year began April, dealers said. The Reserve Bank of India held a three-day variable rate repo auction Tuesday for INR 500 billion, of which only INR 71.90 billion was subscribed at a cut-off of 5.26%.

 

Wednesday, the one-day interbank call money rate is likely to open above the RBI's repo rate of 5.25% on early demand for funds from primary dealerships and some banks. Liquidity conditions in the banking system are not comfortable enough for banks to lend funds below the repo rate in early trade, dealers said. Dealers expect that inflows from the three-day VRR auction will not have much of an impact on liquidity as it was poorly subscribed.

 

GOVERNMENT BONDS

On Wednesday, traders will track developments relating to the war in West Asia 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 Tuesday. Traders will also track the movement of overnight indexed swap rates and the rupee, they said. If the rupee extends its fall, bond prices are also expected to fall, dealers said. The yield on the 6.48%, 2035 bond is seen in the 6.98-7.07% range Wednesday. On Tuesday, the 10-year benchmark gilt ended at INR 96.15 or 7.0458% yield. 

 

OIS RATES

Swap rates will also track crude oil prices and developments in the US-Iran peace negotiations, dealers said. The movement of US Treasury yields, the rupee, and overnight money market rates will also affect swaps. The 10-year US Treasury yield inched higher after Indian market hours as US CPI inflation for April rose to 3.8% on year, the highest level since May 2023. Wednesday, 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 6.05% Tuesday and the five-year OIS rate closed at 6.68%.

 

CALL

Wednesday, the one-day interbank call money rate is likely to open above the RBI's repo rate of 5.25% on early demand for funds from primary dealerships and some banks. Liquidity conditions in the banking system are not comfortable enough for banks to lend funds below the repo rate in early trade, dealers said. Dealers do not expect inflows from the three-day VRR auction to have much of an impact on liquidity as it was poorly subscribed. 

 

The one-day call money rate is seen in the 4.80-5.30% range Wednesday 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 5.00-5.10?nd, dealers said. On Tuesday, the one-day call rate ended at 4.75%. 

 

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 90.92 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 23.50 billion as coupon on state bonds

--INR 1.81 billion as coupon on 7.25%, 2028 green bond

--INR 25.62 billion as coupon on 7.32%, 2030 gilt

 

* Outflows

--INR 141.86 billion as payment on state bonds

 

End

 

US$1 = INR 95.6275

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

 

Reported by Cassandra Carvalho

Edited by Rajeev Pai

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.