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Informist, Monday, Jul. 27, 2026

MUMBAI – Prices of government bonds and overnight indexed swap rates are seen tracking the movement of Brent crude oil prices and US Treasury yields at open Tuesday, dealers said. Gilts will also track the result of the INR-200-billion gilt auction and INR-181-billion state bond auction. 

Continued inflows from foreign currency non-resident bank deposits may limit the negative impact if the West Asia conflict worsens and investors may also look to capture higher yields, dealers said. The central bank's schemes to attract foreign capital launched in early June had drawn inflows of $32 billion by Sunday since the concessional swap window for banks was rolled out on Jun. 8, Reserve Bank of India Governor Malhotra said Sunday.

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.

The pressure on the RBI to tighten monetary policy is seen mounting later in the year as the US Federal Open Market Committee is expected to raise policy rates in 2026, with a tightening interest rate differential seen pressuring the rupee. However, the US rate-setting panel is expected to stand pat on rates at its upcoming policy decision Wednesday, dealers said.

On Tuesday, the one-day interbank call money rate is seen opening near the RBI's repo rate of 5.25% with funds locked up in initial public offerings, dealers said. The portion reserved for qualified institutional buyers at the initial public offering of INDO-MIM Ltd. was subscribed over 204 times, with bids placed for 3.20 billion shares against 15.68 million shares on offer Monday.

GOVERNMENT BONDS

On Tuesday, gilt prices will take direction from the overnight movement in crude oil prices and US Treasury yields at the opening, dealers said. The state bond auction and gilt buyback auction, both at 1030-1130 IST, may lend further cues, they said. Dealers also remained 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 yield on the 10-year benchmark 6.94%, 2036 gilt is seen in a range of 6.70-6.83% Tuesday.  

Seven states will raise INR 181 billion through the sale of bonds Tuesday, lower than the indicated amount of INR 224 billion in the Jul-Sept. Demand for the fresh supply is expected to be firm, especially from banks looking to deploy FCNR(B) deposit inflows into higher-yielding state government securities, dealers said.

Meanwhile, traders had mixed views on the buyback auction, with several banks not having the securities on hand, dealers said. The government has offered to buy back INR 200 billion in total of the 7.33%, 2026 bond, the 5.74%, 2026 bond, the 8.15%, 2026 bond, and the 8.24%, 2027 bond. All four gilts are set to mature later in 2026-27 (Apr-Mar). The four bonds have a total outstanding of INR 1.79 trillion.

The 10-year benchmark 6.94%, 2036 bond ended at INR 101.16, or 6.7739% yield Monday.

OIS RATES

On Tuesday, swap rates are seen tracking near-month Brent crude oil prices and US Treasury yields, with swaps likely to open higher as Brent rose back above $90 per barrel post-market hours, dealers said. If Brent crude prices ease to about $80 per barrel or lower, the five-year swap rate could hit the key technical level of 6.25%, they said. Traders will also track the movement in government bond yields, especially the five-year bond, with close attention on its spread with the five-year swap rate. 

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 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.

The movement of the rupee and overnight borrowing rates will also lend cues. The one-year swap rate is seen in the range of 5.85-6.20% and the five-year at 6.25-6.60%. The one-year swap rate closed at 5.91%. The five-year swap rate ended at 6.36%. 

CALL

On Tuesday, the one-day interbank call money rate is seen opening near the RBI's repo rate of 5.25% with funds locked up in initial public offerings, dealers said. 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. 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 4.60–5.45% Tuesday. The tri-party repo rate is expected to be in the 4.60–5.25% 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 one-day call money rate ended at 5.28% Monday. The weighted average call rate was 5.26%.

RBI AUCTION

--Seven states to raise INR 181 billion via bond sale

--Govt to buy back four 2026-27 (Apr-Mar) gilts worth INR 200 billion via auction 

LIQUIDITY

Total net inflows of INR 21.83 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 21.83 billion as coupon on state bonds

* Outflows

--Nil

End

US$1 = INR 95.9100

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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