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Informist, Friday, Jul. 10, 2026

MUMBAI – Traders in the government bonds and overnight indexed swaps markets will track developments in the US-Iran ceasefire over the weekend and its impact on crude oil prices Monday, dealers said. Indian financial markets are shut Saturday. Some dealers are of the view that the optimism in the market on higher bond prices has toned down but not vanished, with many viewing the current rise in crude oil prices as short-lived. Largely, the rise in crude oil prices has also been contained, boding well for gilt prices in the longer run, they said.

Traders do not expect a rate hike in India in August or October, limiting a rise in rates, they said. Traders will also track movement in US Treasury yields and inflows from the Reserve Bank of India's measures announced last month to shore up capital, dealers said. Several bankers have said that inflows from foreign currency non-resident bank deposits so far have been below expectations. Systemic liquidity will also be in focus, with the RBI's dollar sales in the foreign exchange spot market likely to have drained rupee liquidity this week. 

The call market is shut on Saturday. On Monday, the one-day interbank call money rate is seen at or above the RBI's repo rate of 5.25% as funds are expected to remain tight amid a flurry of initial public offerings and high credit growth, dealers said. Data released by the RBI Friday showed that banks' credit growth hit a two-year high of 18.6% on year as of Jun. 30. Traders will continue to gauge the liquidity drain from intervention by the RBI in the spot rupee market. Traders expect the RBI to conduct a variable rate repo auction on Monday if the weighted average call rate nears the Marginal Standing Facility rate, dealers said. 

GOVERNMENT BONDS

Gilts are not traded on Saturdays. On Monday, traders will track Brent crude oil and US Treasury yields, dealers said. Any escalation in the West Asia war would pull down bond prices and push the yield on the 10-year benchmark bond to 6.80%, dealers said. Traders are also likely to remain cautious ahead of the release of India's inflation data for June at 1600 IST Monday, dealers said. The print is expected to be on the higher side, reflecting the rise in energy prices due to the West Asia war. India's CPI inflation is seen rising to 4.3% in June from 3.93% in May, according to the median of estimates in an Informist Poll of 11 economists. Traders expect a similar print of about 4.4%. Deficient southwest monsoon rainfall will also contribute to higher inflation in the coming months, they said.

The 10-year 2036 bond is seen moving between 6.68% and 6.78%, with 6.78% seen as the next crucial level for the gilt on the upside, with some dealers betting on a fall to 6.68% on the downside, dealers said.

Bond prices are likely to take cues from any news about the inclusion of Indian government bonds in Bloomberg's Global Aggregate Index. Most traders expect an inclusion, though some technical difficulties for foreign portfolio investors purchasing bonds persist, dealers said. Traders have pushed back the expected announcement date to the end of this month or even August or September, compared to prior expectations of next week, they said. The 10-year benchmark bond ended at INR 101.60 on Friday, up from INR 101.33 Thursday. The yield on the bond settled at 6.7139%, against 6.7517% at the end of the previous session. 

OIS RATES

Swap rates are not traded on Saturdays. On Monday, OIS rates will take cues from movements in crude oil prices and US Treasury yields, dealers said. Sustained escalation in the conflict may lead traders to reassess their view that the repo rate in India will not be hiked until December.

CPI inflation, the next crucial domestic rate trigger, is scheduled at 1600 IST on Monday. CPI inflation is projected to rise to 4.3% in June from 3.93% in May, according to the median of an Informist Poll. If inflation rises above 4%, it will be the first time in 17 months that retail inflation has topped the RBI's medium-term target. This is the last CPI reading scheduled before the MPC's next meeting in August. A softer-than-expected reading will reinforce bets on no rate hikes over the next three months, while a sharply higher number could revive fears of a rate hike in October at the latest.

Deficient rainfall and higher food prices may push up retail inflation in the coming months, while the RBI is likely to drain systemic liquidity ahead of a likely rate hike cycle, dealers said. This will limit a further fall in OIS rates, especially with the US Federal Open Market Committee expected to increase its policy rate in 2026.

Traders await Bloomberg's decision on the inclusion of Indian gilts in its flagship index, with most traders betting on a favourable decision. Traders also expect overnight rates to ease due to a liquidity boost from inflows into foreign-currency non-resident bank deposits. The Bloomberg announcement on the inclusion of Indian bonds is expected any time from next week to as late as September, dealers said. 

The movement of the rupee could also lend cues. The one-year swap rate is seen in the range of 5.70-5.95% and the five-year at 6.06-6.32%. The one-year swap rate closed at 5.77% on Friday, down from 5.81% Thursday. The five-year swap rate ended at 6.17%, down from 6.21% Thursday.

CALL

The call market is shut on Saturday. On Monday, the one-day interbank call money rate is seen at or above the RBI's repo rate of 5.25% as funds are expected to remain tight amid a flurry of initial public offerings and high credit growth, dealers said. Data released by the RBI Friday showed that banks' credit growth hit a two-year high of 18.6% on year as of Jun. 30. Traders will continue to gauge the liquidity drain from intervention by the RBI in the spot rupee market. Traders expect the RBI to conduct a VRR on Monday if the weighted average call rate nears the Marginal Standing Facility rate, dealers said. 

The outlook for expected inflows through the RBI's measures to shore up capital is hazy, with several banks yet to finalise their leveraging schemes for foreign currency non-resident bank deposits, and some fundraisers refraining from overseas borrowing due to high spreads amid large supply. Systemic liquidity is expected to improve if foreign-currency non-resident bank deposits pick up the pace. Banks hedging deposits under the central bank's concessional swap window will gain rupee liquidity, potentially easing money market rates, dealers said. 

Dealers expect the call rate to be at 4.60–5.40% Monday. The tri-party repo rate is expected to be in the 4.90–5.20% band. The weighted average call rate is expected to be in the 5.20–5.30% band, and that in the tri-party repo market is likely to be in the 5.10–5.20% band, they said. The three-day call money rate ended at 5.35% Friday, slightly higher than 5.34% for one-day loans Thursday. The weighted average call rate was 5.35%, up from 5.34% Thursday.

RBI AUCTION

--Nil

LIQUIDITY

Total net outflows of INR 104.09 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 13.16 billion as coupon on state bonds on Saturday

--INR 12.90 billion as coupon on state bonds on Sunday

--INR 46.47 billion as coupon on 6.10%, 2031 gilt Sunday

--INR 21.63 billion as coupon on state bonds Monday

--INR 121.75 billion as redemption of state bonds Monday

* Outflows

--INR 320.00 billion as payment for gilts Monday

--INR 500.15 billion as reversal of three-day variable rate repo tender Monday

End

US$1 = INR 95.3250

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

Reported by Cassandra Carvalho

Edited by Avishek Dutta

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