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Informist, Saturday, Jun. 6, 2026

MUMBAI – Government bond prices Monday are likely to take cues from data released by Clearing Corp. of India which showed that foreign portfolio investments net bought gilts worth INR 32.22 billion Friday after the Reserve Bank of India and the government announced several steps in tandem to attract foreign capital. Gilt dealers will also take cues from developments in the West Asia war and its implications on crude oil prices and the US Treasury yields.     

Swap rates would take cues from movements in crude oil prices and developments in the US-Iran peace negotiations. Swaps could tumble if a peace deal between the US and Iran is announced over the weekend. However, there is uncertainty about when the Monetary Policy Committee will start raising the repo rate, given higher crude oil prices and increasing inflation.

The one-day call money rate Monday is likely to open above the central bank's repo rate of 5.25% due to outflows of INR 500 billion to INR 600 billion for excise duty payments scheduled over the weekend. Early demand for funds from primary dealerships and some banks is also likely to keep the call money rate above the repo rate, dealers said.

GOVERNMENT BONDS

On Monday, traders are likely to take fresh positions as they digest the slew of domestic developments for the bond market Friday. The gilt yield curve is seen steepening, as was evident by the price action Friday, especially due to the RBI's measures to shore up foreign capital, dealers said. 

However, focus will continue to be on the West Asia war and its impact on crude oil prices, inflation and growth, dealers said. Traders will assess activity from foreign investors after a bonanza of measures to attract inflows. Foreign Portfolio Investors net purchased gilts worth INR 32.22 billion Friday through the Fully Accessible Route as of 1900 IST, according to data from Clearing Corp. of India. Traders await Bloomberg Index Services' decision on the inclusion of Indian gilts in its flagship index.

The 6.48%, 2035 bond yield is seen in a range of 6.94-7.05% Monday, which is also the range for the bond in the near term. The movement in the rupee and US Treasury yields may also lend cues through the day, dealers said.

The 10-year benchmark 6.48%, 2035 bond ended at INR 96.62, or 6.9772%, Friday. The newer 6.94%, 2036 bond ended at INR 99.82, or 6.9651% yield. 

OIS RATES

On Monday, swap rates will take cues from movements in crude oil prices and developments in the US-Iran peace negotiations. Swaps could tumble if a peace deal between the US and Iran is announced over the weekend. There is uncertainty about when the rate-setting panel will begin raising the repo rate, given higher crude oil prices and rising inflation, they said. 

Traders will also track any development on the inclusion of Indian government bonds in Bloomberg Index Services' flagship Global Aggregate Index after the Reserve Bank of India and the Centre Friday unveiled a slew of measures to improve foreign inflows, dealers said. Bloomberg, which deferred its decision on the inclusion of Indian bonds in January, said it plans to provide the next update on the potential inclusion by mid-2026. Most traders expect the review this month.

The movement of crude oil prices and US Treasury yields could also lend cues. The one-year swap rate is seen at 5.90-6.10% and the five-year at 6.50-6.64%. The one-year swap rate ended at 6.04% Friday. The five-year OIS rate ended at 6.54%.

CALL

On Monday, the one-day call money rate is likely to open above the central bank's repo rate of 5.25% due to outflows of INR 500 billion to INR 600 billion for excise duty payments scheduled during the weekend. Early demand for funds from primary dealerships and some banks is also likely to keep the call money rate above the repo rate, dealers said.

The RBI will conduct a four-day variable rate repo auction for INR 750 billion between 0930 IST to 1000 IST. Bids at the auction will depend upon the overnight market rates during that time. If the tri-party repo rate remains below the RBI's repo of 5.25%, dealers expect the auction to be under-subscribed as seen earlier this week. However, if the liquidity surplus falls below INR 1 trillion in banking system post-excise duty outflows, then dealers expect a fairly decent subscription at the auction. 

Dealers expect the call rate to hover around 4.75–5.35% during the day, whereas the tri-party repo rate is expected to be in the range of 4.60–5.25% on the back of ample surplus liquidity in the banking system. Outflow of INR 340 billion for the payment on 6.94%, 2036 bond, which was auctioned Friday, is scheduled for Monday.

RBI AUCTION

--RBI to hold four-day VRR auction for INR 750 billion 0930-1000 IST

LIQUIDITY

Total net outflows of INR 332.50 billion Monday. 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 8.09 billion as coupon on state bonds Sunday

--INR 32.11 billion as coupon on floating-rate bond 2031 Sunday

--INR 52.28 billion as coupon on 8.33%, 2036 Sunday

--INR 7.50 billion as coupon on state bonds Monday

* Outflows

--INR 340 billion as payment for gilts Monday

End

US$1 = INR 94.9450

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

Reported by J. Navya Sruthi

Edited by Deepshikha Bhardwaj

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