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Informist, Friday, Jul. 24, 2026

MUMBAI – Government bond prices and swap rates are likely to track Brent crude oil prices and yields on US Treasury notes on Monday, traders said. Indian money markets are shut Saturday. Traders will track inflows from foreign currency non-resident bank deposits, with some expecting the Reserve Bank of India to publish data on the same Monday after it did so this week, while others expect the data after a longer span of time. Traders speculated $5 billion of inflows were captured by banks this week. Hefty inflows may limit the negative impact of an oil price rise if the West Asia war 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. Some offshore investors may limit the size of their bets in India's bond and swaps market ahead of the US Federal Open Market Committee's rate decision Wednesday, they said. 

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 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. 

On Monday, the one-day interbank call money rate is seen opening near the RBI's repo rate of 5.25% on early funding requirements from primary dealerships on payment of INR 280 billion for gilts purchased at the weekly auction Friday. However, the rate may fall below repo rate later in the day amid inflows through foreign currency non-resident bank deposits with no major outflow for the next few sessions.

GOVERNMENT BONDS

Gilts are not traded Saturdays. On Monday, bond prices are likely to take cues from movements in crude oil prices and US Treasury yields over the weekend, with developments in West Asia again in focus, dealers said. The yield on the 10-year benchmark 6.94%, 2036 gilt is seen in a range of 6.77-6.98% Monday.  

Short-term bonds are expected to be in favour with the pace of foreign inflows seen increasing in the coming days, even if longer-term bonds are more sensitive to global triggers, dealers said. 

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 100.80, or 6.8253% yield Friday.

OIS RATES

Swaps are not traded on Saturdays. On Monday, swap rates are seen tracking near-month Brent crude oil prices and US Treasury yields ahead of the meeting of the US FOMC next week. Traders will also track the movement in government bond yields, especially the five-year bond, after the spread between its yield and the 5-year OIS inverted briefly this week. 

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.

Receiving by foreign and private sector banks hedging 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. Liquidity conditions eased Friday, with the overnight Mumbai Interbank Outright Rate set below the repo rate for the first time since May 18.

A sharp 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 prices. The currency depreciation could also erode expectations of foreign inflows. The one-year swap rate is seen in the range of 5.85-6.20% and the five-year at 6.35-6.66%. The one-year swap rate closed at 5.98%. The five-year swap rate ended at 6.49%.

CALL

Indian money markets are shut Saturday. On Monday, the one-day interbank call money rate is seen opening near the RBI's repo rate of 5.25% on early funding requirements from primary dealerships on payment of INR 280 billion for gilts purchased at the weekly auction Friday. However, the rate may fall below repo rate later in the day amid inflows through foreign currency non-resident bank deposits with no major outflow for the next few sessions.

Some traders were expecting the RBI to conduct a variable-rate repo auction Monday due to the reversal of a seven-day repo of INR 720.51 billion. Post market hours, the central bank said it would conduct a three-day VRR for INR 750 billion Monday. Traders had expected VRRs until the Centre's major expenditure, in the form of salaries and pension payouts, begin by the end of the month. Traders will also assess the drain on rupee liquidity due to the RBI's dollar sales in the foreign exchange spot market. 

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 4.60–5.25% Monday. The tri-party repo rate is expected to be in the 4.60–5.20% band. The weighted average call rate is expected to be in the 5.10–5.25% band, and that in the tri-party repo market is likely to be in the 5.00–5.25% band, they said. The three-day call money rate ended at 5.12% Friday. The weighted average call rate was 5.12%. 

RBI AUCTION

--RBI to hold 3-day variable rate repo auction for INR 750 billion Monday 

LIQUIDITY

Total net outflows of INR 109.54 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 27.41 billion as coupon on state bonds on Saturday

--INR 115.15 million as coupon on 2035 floating rate bond on Saturday

--INR 12.88 billion as coupon on state bonds on Sunday

--INR 21.04 billion as coupon on state bonds on Monday

--INR 83.50 billion as redemption of state bonds on Monday

--INR 2.84 billion as coupon on 7.10%, 2028 green bond on Monday

--INR 8.74 billion as coupon on 6.03%, 2029 gilt on Monday

--INR 2.92 billion as coupon on 7.29%, 2033 green bond on Monday

--INR 11.02 billion as coupon on 6.68%, 2033 gilt on Monday

* Outflows

--INR 280.00 billion as payment for gilts on Monday

--INR 720.51 billion as reversal of seven-day variable rate repo tender on Monday

End

US$1 = INR 96.5625

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

Reported by Cassandra Carvalho

Edited by Akul Nishant Akhoury

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