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Informist, Thursday, Jul. 23, 2026

 

MUMBAI – Government bond prices and swap rates are likely to track Brent crude oil prices and yields on US Treasury notes on Friday, traders said. Brent crude futures for September delivery crossed $100 per barrel mark after Indian market hours. 

 

However, inflows due to foreign currency non-resident bank deposits may limit the negative impact if the geopolitical situation worsens, traders said. Some dealers expect stop-losses to be triggered on the 10-year 6.94%, 2036 gilt if it rises above 6.85% yield. 

 

Data released by the RBI showed that its schemes to attract foreign capital launched in early June had drawn inflows of $20.72 billion by Jul. 17. FCNR(B) deposits alone brought in $17.41 billion since the concessional swap window for banks was rolled out on Jun. 8, the RBI said. Short-term bonds are expected to remain in favour with the pace of these inflows seen increasing in the coming days, even if longer-term bonds are more sensitive to global triggers, dealers said. The yield on the 10-year benchmark 6.94%, 2036 gilt is seen in a range of 6.77-6.90% Friday. 

 

The depreciation of the rupee against the dollar is a concern for some traders, as the fall comes despite the RBI deploying various measures to prevent it. Traders will also track the progress of the monsoon as deficient southwest monsoon rainfall will contribute to higher inflation, they said. However, domestic inflation is largely in check as of now, dealers said, barring the imported inflation from a rise in crude oil prices. Traders now look to gauge whether the RBI's Monetary Policy Committee will raise the repo rate in October to curb inflation.

 

GOVERNMENT BONDS

On Friday, bond prices are likely to take cues from the movement in crude oil prices and US Treasury yields, with the developments in West Asia again taking a centrestage, dealers said. The volatility may be limited before the weekly gilt auction at 1030-1130 IST.

 

Continued inflows due to FCNR(B) deposits may limit the negative impact if the global situation worsens but investors may also look to capture higher yields. Brent crude for September delivery touched $100 per barrel after Indian market hours, while the 10-year US Treasury yield was up at 4.72%, its highest since January.

 

Data released by the RBI showed that its schemes to attract foreign capital launched in early June had drawn inflows of $20.72 billion by Jul. 17. FCNR(B) deposits alone brought in $17.41 billion since the concessional swap window for banks was rolled out on Jun. 8, the RBI said. Short-term bonds are expected to remain in favour with the pace of these inflows seen increasing in the coming days, even if longer-term bonds are more sensitive to global triggers, dealers said. The yield on the 10-year benchmark 6.94%, 2036 gilt is seen in a range of 6.77-6.90% Friday. 

 

Demand for bonds maturing in under three years is not seen robust, as the foreign exchange inflows have come in without a corresponding rise in rupee liquidity with banks, despite their conversion of the funds using the concessional swap windows provided by the RBI. The total inflow number under the schemes suggests an increase in banking system rupee liquidity by nearly INR 2.0 trillion, while the frictional liquidity was near neutral Wednesday. Dealers also remain expectant of further flows on the view that Bloomberg will announce the inclusion of Indian sovereign bonds in its flagship Global Aggregate Index soon.

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 100.68 or 6.8413% yield.

 

OIS RATES

Friday, swap rates are seen rising as, after market hours, near-month Brent crude oil prices rose above $100 per barrel. Subsequently, the yield on the 10-year US Treasury note hit 4.71%. Offshore traders are seen paying fixed rate contracts as the interest rate differential between safe-haven debt such as US Treasuries and emerging market rates such as Indian swap rates narrows, making the latter less appealing. Domestic traders may continue to pay fixed-rate contracts to hedge their bond purchases as bets of India's inclusion in Bloomberg's Global Aggregate bond index are likely to limit a rise in bond yields. Swaps will also track gilt yields.  

 

Receiving by foreign banks getting FCNR(B) deposits and traders conducting reverse bond swaps may cap any rise in swap rates. Traders expect received flows from domestic banks' asset and liability management desks to step up if the five-year OIS rises to around 6.70%. The one-year swap rate is roughly pricing in more than three repo rate hikes within 12 months. Traders have mixed views on the trajectory of the swap rate curve, with some expecting the curve to steepen--wherein longer-term swap rates rise faster than short-term ones--as foreign inflows received through the various schemes are robust and keep short-term rates anchored due to the liquidity boost. Traders expect flows totalling around $40 billion by the first week of August. However, current liquidity tightness is adding to upward pressure on rates, dealers said. The overnight Mumbai Interbank Outright Rate has not been set below the repo rate since May 18.

 

Such a sharp overnight rise in crude oil prices could exert upward pressure on short-term rates as well, as rate hikes by the RBI's Monetary Policy Committee become more imminent. Traders are also closely tracking the movement of the rupee, with the currency depreciating sharply amid the rise in crude oil price. The currency depreciation could also erode expectations of foreign inflows. The one-year swap rate is seen in the range of 5.90-6.20% and the five-year at 6.35-6.66%.

 

The one-year swap rate closed at 6.04% and the five-year swap rate ended at 6.53%.

 

CALL

On Friday, the three-day interbank call money rate is seen opening near the RBI's repo rate of 5.25% on early funding requirements from banks and primary dealerships amid tight liquidity after outflows for goods and service tax payments this week, dealers said. However, later in the day, the rates may fall as most banks have adequate funds with no major outflow for the next few sessions. Traders will also assess the drain on rupee liquidity due to the RBI's dollar sales in the foreign exchange spot market, which is likely to take systemic liquidity into deficit after becoming neutral this week.

 

Some traders expect the RBI to continue to hold VRRs until the Centre's month-end expenditure begins, though others differ due to poor subscription at previous operations recently. Two VRRs totalling INR 414.90 billion reverse Friday, due to which some traders expect the RBI to conduct a VRR for INR 500 billion or lesser. Traders do not expect the RBI to conduct any measures to infuse durable liquidity amid inflows from foreign non-currency resident bank deposits. Dealers expect the call rate at 4.60–5.40% Friday. The tri-party repo rate is expected to be in the 4.60–5.25?nd. The weighted average call rate is expected to be in the 5.25–5.35?nd, and that in the tri-party repo market is likely to be in the 5.10–5.25?nd, they said.

 

The one-day call money rate ended at 5.28%. 

 

RBI AUCTION

--Govt to auction two gilts worth INR 280 billion on Friday

 

LIQUIDITY

Total net inflows of INR 81.51 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 19.77 billion as coupon on state bonds

--INR 61.75 billion as coupon on 7.18%, 2037 gilt

 

 

* Outflows

--INR 342.91 billion as reversal of three-day variable rate repo

--INR 72.00 billion as reversal of two-day variable rate repo

 

End

 

US$1 = INR 96.5725

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

 

Reported by Nandini Sinha

Edited by Akul Nishant Akhoury

 

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