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Informist, Thursday, Jun. 18, 2026

NEW DELHI – Government bond prices may take cues from the overnight movement in crude oil prices before traders prepare for the INR 320-billion weekly gilts auction at 1030-1130 IST Friday, dealers said. Traders widely expect demand for the fresh supply to be firm as crude oil prices have eased and risks of a rate hike have reduced. The government will sell INR 110 billion of the 6.03%, 2029 bond, INR 110 billion worth of the 6.68%, 2033 bond, INR 50 billion of the 7.24%, 2055 gilt, and INR 50 billion of the 7.50%, 2056 green bond at the auction. 

Traders may avoid aggressive bets on gilt prices and swap rates ahead of the scheduled release of the Reserve Bank of India's Monetary Policy Committee meeting minutes at 1700 IST Friday. The six-member panel had unanimously held the policy repo rate at 5.25% and retained its neutral stance in the Jun. 5 policy decision.

Traders do not expect a sharp change in their rate view after the minutes are released, but the conditions for hiking rates and protecting the rupee, given by the committee members, will be closely watched, dealers said. Currently, traders do not expect the committee to raise the policy rate at its next meeting in August, though rate hikes of 50-75 basis points from October onwards are priced in.

Bond market participants are also awaiting the decision of Bloomberg Index Services on the inclusion of India's government bonds in its flagship Global Aggregate Index. The inclusion is expected to be a significant positive for gilts and OIS rates. Bloomberg, which had deferred its decision on the inclusion of Indian bonds in January, had said it plans to provide the next update on the potential inclusion by mid-2026. The decision is expected this month, dealers said. The movement of the rupee could also lend cues for gilts.

Offshore cues will be closely tracked as crude oil prices continue to slump, which some traders were not expecting. High US Treasury yields may limit the recent run of purchases from foreign portfolio investors into gilts, dealers said.

The three-day call money rate Friday is expected to open above the RBI's repo rate of 5.25% on three-day borrowing from primary dealerships and some banks amid tight liquidity, dealers said. The call money rate is expected to move between 4.75% and 5.50%.

GOVERNMENT BONDS

On Friday, gilt prices will track overnight movement in crude oil prices, dealers said. Even with a US-Iran peace deal, many traders think Brent crude is unlikely to remain below $80 per barrel because of continuing supply disruptions. The 10-year benchmark gilt yield is also seen unlikely to fall below 6.80%.

Market sentiment is expected to remain positive, given the likelihood that FPI flows will be sustained for another week, dealers said. The FPI inflows are expected to increase the liquidity in the banking system, which is likely to support bond prices, they said. If the US-Iran peace deal holds, traders are likely to pare bets of a rate hike by the Monetary Policy Committee in 2026.

The 10-year benchmark 6.94%, 2036 bond is seen at 6.80-6.90% Friday. Thursday, it had ended at INR 100.71 or 6.8387% yield.

OIS RATES

Swap rates are seen opening steady Friday on caution ahead of the release of the minutes of the Monetary Policy Committee's June meeting. The impact of offshore cues may be limited during the day since a significant fall in crude prices is not expected after near-month Brent Crude futures remained below $80 per barrel for two days.

Swap rates may fall if there is an uptick in non-resident dollar-denominated bank deposits of three- to five-year tenors. This is likely to lead to demand for short-term bonds and banks may begin to unwind their paid fixed-rate positions that were hedging against a fall in the price of their bond holdings, dealers said. 

A likely liquidity boost due to the RBI's measures to shore up capital is seen adding to the fall in short-term rates, dealers said. Most traders now do not expect a repo rate hike in August, though concerns over deficient rainfall and higher food prices remain. The rate-setting panel may raise the repo rate in October, but a rate hike in the near term seems unlikely with the peace deal coming to fruition and May's CPI inflation lower than expected, they said.

The one-year swap rate is seen at 5.75-6.00% and the five-year at 6.20-6.42% Friday. Thursday, the one-year swap rate ended at 5.89% and the five-year rate ended at 6.32%.

CALL

The three-day call money rate Friday is expected to open above the RBI's repo rate of 5.25% on three-day borrowing from primary dealerships and some banks amid tight liquidity, dealers said. Goods and services tax payments are likely to begin Friday with an estimated outflow of INR 1.5 trillion to INR 1.8 trillion from the banking system by Monday.

Banks may also borrow in early trade before the RBI's variable rate repo auction at 0930-1000 IST. Banks are likely to roll over their borrowings at the auction, with two VRR auctions that have injected INR 723 billion of liquidity into the banking system to be reversed Friday, dealers said. Banks' need for funds is likely to remain high due to the GST outflows and credit disbursal uptick near the end of the June quarter, they said.

Dealers expect the call rate to be at 4.60–5.50% Friday. The tri-party repo rate is expected to be in the range of 4.90–5.30%. The weighted average call rate is expected to be around 5.25–5.35%, and that of the tri-party repo market is likely to be at 5.20-5.30%, dealers said. Thursday, the one-day rate ended at a two-week low of 4.80%.

LIQUIDITY

Total net inflows of INR 332.09 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 150.00 billion as coupon on 91-day T-bills

--INR 43.50 billion as coupon on 7.73%, 2034 gilt

--INR 57.46 billion as coupon on 7.41%, 2036 gilt

--INR 71.18 billion as coupon on 7.30%, 2053 gilt

--INR 9.95 billion as coupon on state bonds

* Outflows

--INR 723.00 billion as reversal of two variable rate repo auctions

End

US$1 = INR 94.33

Reported by Vaishali Tyagi and Aaryan Khanna

Edited by Rajeev Pai

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