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Informist, Saturday, Jun. 20, 2026

MUMBAI – Government bond prices and overnight indexed swap rates Monday are likely to track the price of Brent crude, dealers said. Despite the peace deal, oil prices are unlikely to fall further in the near term. Traders will also assess minutes of the Reserve Bank of India's Monetary Policy Committee meeting in June, which were released post market hours Friday. Traders in the bond market also await the decision of Bloomberg Index Services on the inclusion of India's government bonds in its flagship Global Aggregate Index. Bond yields and swaps are likely to fall if there is an uptick in non-resident dollar-denominated bank deposits of three- to five-year tenures. Bonds and swaps are not traded Saturdays. 

The one-day call money rate on Monday is likely to open above the central bank's repo rate of 5.25% on demand from market participants to meet funding requirements for GST outflows of around INR 1.8 trillion likely to take place till Tuesday, dealers said. Early demand from primary dealerships and some banks to fulfil requirements nearing the end of the reporting quarter is also likely to push the rise in the call rate above the repo, dealers said.

GOVERNMENT BONDS

On Monday, government bond prices will track movement in crude oil prices, dealers said. Even with a US-Iran peace deal, many traders think Brent crude is unlikely to remain around $80 per barrel due to continuing supply disruptions. The 10-year benchmark gilt yield is also seen as unlikely to fall below 6.80%. Some traders do not expect crude oil prices to fall to pre-war levels and, instead, expect prices to continue to hover near the $75-$85 per barrel mark, dealers said.

Market sentiment is expected to remain positive, given the likelihood that FPI flows will be sustained for at least two weeks, dealers said. FPI inflows are expected to increase 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 RBI's Monetary Policy Committee in 2026.

Traders also await the release of the state borrowing calendar for the September quarter, and a higher-than-expected size will pull bond prices down, dealers said. Traders are divided on the size of state borrowing in Jul-Sept. Some expect the quantum to be broadly in line with the borrowing quantum in the June quarter, dealers said. Others expect it to be slightly higher than the borrowing in the September quarter a year ago.

The 10-year benchmark 6.94%, 2036 bond is seen trading in a range of 6.80-6.90% Monday. On Friday, the bond ended at INR 100.61, or 6.8533% yield. 

OIS RATES

On Monday, swap rates are seen tracking Brent crude oil and any indication of the inclusion of gilts in Bloomberg's Global Aggregate Index, with several dealers expecting the review this month. Traders will also assess minutes of the Monetary Policy Committee's June meeting, released after market hours on Friday.

Swaps are seen rising in the medium term as domestic inflation is likely to increase due to a weak monsoon and crude oil supply disruptions, dealers said. 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 prices of their bond holdings, dealers said.

A likely liquidity boost from the RBI's measures to shore up capital is seen adding to the fall in short-term rates, but the RBI is also likely to drain this liquidity ahead of a rate-hike cycle, dealers said. Most traders no longer expect a repo rate hike in August, though concerns over deficient rainfall and higher food prices remain. The Monetary Policy Committee may raise the repo rate in October, especially if the US Fed begins raising rates, they said.

The movement of the rupee could also lend cues. The one-year swap rate is seen at 5.75-6.00% and the five-year at 6.20-6.42%. On Friday, the one-year swap rate ended at 5.90% and the five-year rate closed at 6.34%.

CALL

The one-day call money rate on Monday is likely to open above the central bank's repo rate of 5.25% on demand from market participants to meet funding requirements for GST outflows of around INR 1.8 trillion, likely to take place till Tuesday, dealers said. Early demand from primary dealerships and some banks to fulfil requirements nearing the end of the reporting quarter is also likely to push the rise in the call rate above the repo, dealers said.

The RBI will conduct an overnight variable rate repo auction for INR 1.25 trillion between 0930 IST to 1000 IST Monday. Subscription 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 poorly subscribed as seen earlier this week. 

Dealers expect the call rate to be in the 4.75–5.50% range during the day, whereas the tri-party repo rate is expected to be in the range of 4.80–5.40% amid tight liquidity in the banking system. Outflow of INR 320 billion for the payment of bonds purchased at the gilt auction Friday, is scheduled for Monday. On Saturday, the two-day call money rate ended at 4.85%, with the same weighted average rate.

RBI AUCTION

--RBI to hold overnight variable rate repo auction for INR 1.25 trillion 0930-1000 IST Monday 

LIQUIDITY

Total net outflows of INR 265.67 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 6.80 billion as coupon on state bonds Sunday
--INR 7.69 billion as coupon on state bonds Monday

--INR 39.84 billion as coupon on 8.13%, 2045 gilt Monday

* Outflows

--INR 320.00 billion as payments for gilts Monday
--INR 167.50 billion as reversal of three-day variable rate repo auction Monday

End

US$1 = INR 94.32 as of 1530 IST Friday

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

Reported by Durgesh Nandan

Edited by Avishek Dutta

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