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Informist, Friday, Jun. 12, 2026

 

MUMBAI – Gilts and swap rates are likely to take cues from developments on the war in West Asia, with President Donald Trump indicating that a deal could be finalised over the weekend. A peace deal could pull down yields on government bonds and swap rates, dealers said.

 

Trump has criticised Iran's reported terms of a possible ceasefire agreement, calling them "weak and pathetic". Trump claimed that Iran has agreed not to develop or purchase nuclear weapons, and the Strait of Hormuz will reopen once the deal is signed. In a post on Truth Social on Friday, Trump said the published terms were "fake news" and had "NOTHING to do with the terms that were agreed to, in writing".

 

The one-day interbank call money rate on Monday is expected to open above the RBI's repo rate of 5.25% on demand for funds from primary dealerships and some banks in early trade, dealers said.

 

GOVERNMENT BONDS

Gilts are not traded on Saturdays. On Monday, gilt prices are seen tracking developments in the war in West Asia and its impact on Brent crude oil prices, dealers said. A peace deal over the weekend could pull down the yield on the 10-year benchmark 6.94%, 2036 bond to 6.85%, while an escalation could push the yield closer to 6.98%, dealers said. Traders will also track the result of the INR 300-billion gilt switch auction Monday, they said.

 

The government will switch eight bonds worth INR 300 billion that mature between 2027 and 2030 for six longer-term gilts on Monday, in the third switch auction of FY27. One of the destination securities includes the erstwhile 10-year benchmark 6.33%, 2035 gilt. Traders expect a partial switch with low participation, as few own the source securities announced at the auction, dealers said.

 

Market sentiment is expected to remain positive, given the likelihood that FPI flows will sustain for at least the next two weeks, dealers said. The inflows are expected to increase the liquidity in the banking system, which is likely to support the market, they said. Demand for short-term gilts in the secondary market is expected to rise as well, with more inflows, dealers added. 

 

Next week, traders will also track the outcome of the first US Federal Open Market Committee meeting under new chair Kevin Warsh. Commentary on inflation amid the war in West Asia will also be watched, dealers said. 

 

The 6.48%, 2035 bond ended at INR 97.20 or 6.8906%, Friday. The new 10-year benchmark 6.94%, 2036 bond ended at INR 100.31 or 6.8957%, Friday. 

 

OIS RATES

Many traders expect the US and Iran to seal a peace deal over the weekend, and if this materialises, swap rates could fall. However, swaps have largely priced in this possibility and are more likely to see a larger rise on Monday if the deal does not happen. 

 

Crude oil prices have not risen above $100 per barrel since May 26, despite the US and Iran resuming strikes in the Gulf, allaying some fears of a further rise, dealers said. A likely liquidity boost due to the RBI's measures to shore up capital could temper a rise in short-term rates, dealers said. Traders have differing views on rate hikes, with a few expecting one as early as August. However, the CPI print released Friday tempered some of those bets. 

 

Traders will also track the movement of US Treasury yields ahead of the outcome of the US Federal Open Market Committee's first meeting under newly appointed chair Kevin Warsh next week, where a status quo on interest rates is expected, but concerns about the central bank's independence persist.

 

The one-year swap rate ended at 5.97% Friday, the lowest since May 8. The five-year OIS rate ended at its lowest level since Apr. 15, at 6.34%.

 

CALL

The one-day interbank call money rate on Monday is expected to open above the RBI's repo rate of 5.25% on demand for funds from primary dealerships and some banks in early trade, dealers said. An outflow of INR 1 trillion to INR 1.5 trillion for advance tax payments is scheduled for Monday, which is expected to push systemic liquidity into a deficit, dealers said. This would be the first liquidity deficit since Mar. 22.

 

Dealers expect the call rate to be in the 4.70–5.45% range. The tri-party repo rate is expected to trade in a 4.90–5.30?nd. The weighted average call rate is expected to be around 5.25–5.30%, and the weighted average rate in the tri-party repo market is likely to be around 5.15-5.20%, they said. 

 

The three-day call rate ended at 5.20%, the same as Thursday's close for one-day loans. The weighted average call rate was 5.27%, unchanged from Thursday.

 

RBI AUCTION

--RBI to hold overnight variable rate repo auction for INR 750 billion 0930-1000 IST Monday

--Govt to switch 8 gilts worth INR 300 billion via auction on Monday

 

LIQUIDITY

Total net inflows of INR 44.75 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 8.90 billion as coupon on state bonds Saturday

--INR 22.02 billion as coupon on state bonds Sunday

--INR 10.86 billion as coupon on state bonds Monday

--INR 145.75 billion as redemption on state bonds Monday

--INR 56.75 billion as coupon on 6.67%, 2035 gilt Monday

--INR 32.63 billion as coupon on 7.72%, 2049 gilt Monday

--INR 51.85 billion as coupon on 6.99%, 2051 gilt Monday

--INR 35.99 billion as coupon on 6.80%, 2060 gilt Monday

 

* Outflows

--INR 320.00 billion as payment for gilts Monday

 

End

 

US$1 = INR 95.1100

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

 

Reported by Meera Nair 

Edited by Saji George Titus

 

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