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Informist, Saturday, May 30, 2026

MUMBAI – Government bond prices and overnight indexed swap rates are likely to track the movement in Brent crude oil prices and developments in the West Asia conflict, dealers said. A peace agreement between the US and Iran could pull the yield on the 10-year benchmark bond closer to the 6.85% level, they said. Traders widely expect the benchmark yield to remain below 7.05% unless there is a major setback in the negotiations to end the conflict.

Traders expect the Reserve Bank of India's Monetary Policy Committee to opt for a "hawkish hold" on the repo rate next week. However, given the unsteady nature of progress in negotiations for a peace deal between the US and Iran, traders are unsure of how restrictive the committee's tone can get. They expect the RBI to cut its GDP growth forecast for the financial year 2026-27 (Apr-Mar) by 20-30 basis points while the CPI inflation forecast for FY27 could be raised to above 5% from 4.6% currently, dealers said. The one-month swap rate is pricing in less than 25 bps of a rate hike in June while the three-month swap rate is pricing in one rate hike of 25 bps, dealers said.

Monday, the one-day call money rate is likely to open near the RBI's repo rate of 5.25% on early demand for funds from primary dealerships and some banks, dealers said. The call rate is expected to move in the range of 4.80–5.35% during the day. The tri-party repo rate is expected to be in the range of 4.70–5.20%.

GOVERNMENT BONDS

Monday, government bond prices will track the movement in Brent crude oil price and developments related to the West Asia conflict, dealers said. The yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 6.95-7.05% range.

The 10-year benchmark bond ended at INR 96.44, or 7.0037%, Friday. The newer 10-year 6.94%, 2036 bond ended at INR 99.74, or 6.9759% yield.

Buying momentum is likely to remain muted next week ahead of the Monetary Policy Committee's decision on the repo rate on Friday and the expected supply of the 6.94%, 2036 bond. The government is scheduled to sell INR 340 billion of the 10-year bond next week at auction. It will also release GDP data for the March quarter Friday.

OIS RATES

Monday, swap rates will track crude oil prices and traders will assess developments over the weekend to take positions ahead of the Monetary Policy Committee's decision Friday, dealers said. Most traders are cautious ahead of the policy meeting, because of uncertainty on when the rate-setting panel will begin to raise the repo rate to counter the impact of the increase in crude oil prices, they said.

Dealers hope the central bank will announce measures to curb the rupee's depreciation, weakening the case for a repo rate hike. Some dealers expect more dollar-rupee buy-sell swap auctions to be conducted after the RBI held one Tuesday.

Friday, the one-year swap rate was at 6.10% and the five-year OIS rate ended at 6.61%. Movement in the rupee and overnight money market rates will also influence swaps. Monday, the one-year swap rate is seen at 5.90-6.40% and the five-year at 6.50-6.90%.

CALL

Monday, the one-day 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, dealers said. The call rate is expected to move in the range of 4.80–5.35% during the day, whereas the tri-party repo rate is expected to be in the range of 4.70–5.20%. 

The settlement of the RBI's dollar-rupee swap auction Friday and the government's month-end spending are expected to increase the liquidity surplus in the banking system next week. However, the call money rate may still remain above the policy repo rate of 5.25% Monday, dealers said.

RBI AUCTION

--NIL

LIQUIDITY

Total net outflow of INR 183.21 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 12.13 billion as coupon on state bonds Sunday

--INR 8.90 billion as coupon on state bonds Monday

--INR 35.34 billion as coupon on 5.85%, 2030 gilt Monday

--INR 40.42 billion as coupon on 8.17%, 2044 gilt Monday

* Outflows

--INR 280.00 billion as payment for gilts Monday

End

US$1 = INR 95.00

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

Reported by Meera Nair

Edited by Rajeev Pai

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