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Informist, Thursday, Jul. 30, 2026

MUMBAI – Government bond prices and overnight indexed swap rates will Friday track movements in Brent crude futures and US Treasury yields. Focus will also be on the INR-340-billion auction of 10-year benchmark gilt Friday, dealers said.

Continued inflows from foreign currency non-resident bank deposits are likely to limit the negative impact of the war in West Asia, dealers said. Traders also expect further flows on the view that Bloomberg will soon announce the inclusion of Indian sovereign bonds in its flagship Global Aggregate Index. However, this week, foreign portfolio investors have turned net sellers of gilts amid the renewed conflict in West Asia, which may continue unless Bloomberg announces an inclusion, dealers said. 

On Friday, the three-day interbank call money rate is seen above the Reserve Bank of India's repo rate of 5.25% on the last day of the month for credit disbursements and the reporting fortnight, dealers said, especially if the RBI does not conduct a variable rate repo auction. 

GOVERNMENT BONDS

Friday, gilt prices may take cues from overnight movements in Brent crude oil prices and US Treasury yields at open, dealers said. Focus will then shift to the INR-340-billion weekly gilt auction at 1030-1130 IST, they said. Demand for the 6.94%, 2036 gilt at auction is seen firm. Some FPIs may pick up the bond at auction after offloading it in the secondary market this week, they said. The 10-year benchmark gilt's yield is seen in the range of 6.75-6.88% Friday. 

The 10-year gilt may outperform other benchmarks as traders turn cautious ahead of the Monetary Policy Committee's rate decision on Wednesday. Traders and economists almost universally expect the rate-setting panel to retain the policy repo rate at 5.25%, with June data showing retail inflation remained well within the RBI's 2-6% target band. The policy stance is also seen being retained at 'neutral'.

The pressure on the RBI to tighten monetary policy is expected to mount later in the year, as the US Federal Reserve is expected to increase policy rates in 2026, with a tightening interest rate differential pressuring the rupee. The CME FedWatch tool showed an 83% probability that the Fed funds target rate would be hiked by December, with around 60% expecting the increases to come as early as the next meeting in September.

Traders will also track monsoon progress, as deficient rainfall will contribute to higher inflation, they said. However, domestic inflation is largely in check as of now, dealers said, barring imported inflation from rising crude oil prices. Traders are now gauging whether the RBI's MPC will raise the repo rate in October to curb inflation. The 10-year 2036 bond ended at INR 100.88 Thursday, or a 6.8132% yield.

OIS RATES

Friday, swap rates are seen tracking Brent crude oil prices and US Treasury yields, dealers said. Traders will also track the movement in government bond yields. Traders now await the decision of the RBI's Monetary Policy Committee meeting next week, with most expecting a status quo on the repo rate, though commentary could tilt towards prioritising inflation control with economic growth still seen to be strong. The RBI is unlikely to alter its forecasts on growth and inflation, with the central bank likely to flag uncertainty on the geopolitical and crop harvest fronts, dealers said.

Receiving by foreign and private-sector banks hedging foreign currency non-resident (bank) deposits may cap any rise in swap rates. The movement of the rupee and overnight borrowing rates will also lend cues. The one-year swap rate is seen in the range of 5.80-6.10% and the five-year at 6.20-6.50%. The one-year swap rate closed at 5.92% and the five-year swap rate ended at 6.42%. 

CALL

On Friday, the three-day interbank call money rate is seen above the RBI's repo rate of 5.25% on the last day of the month for credit disbursements and the RBI-mandated reporting fortnight, dealers said, especially if the RBI does not conduct a variable rate repo auction. However, surplus liquidity may increase due to inflows from the Centre's expenditure and foreign currency non-resident bank deposits, dealers said. Traders will also assess the drain on rupee liquidity due to the RBI's dollar sales in the foreign exchange spot market.

Dealers expect the call rate at 4.60–5.45% Friday. The tri-party repo rate is expected to be in the 4.60–5.30% band. The weighted average call rate is expected to be in the 5.25–5.40% band, and that in the tri-party repo market is likely to be in the 5.10–5.30% band, they said. The one-day call money rate ended at 5.29% Thursday, with the weighted average call rate at 5.29%.

RBI AUCTION

--Govt to auction the 6.94%, 2036 gilt worth INR 340 billion

LIQUIDITY

Total net inflows of INR 31.43 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 31.43 billion as coupon on state bonds

* Outflows

--Nil

End

US$1 = INR 95.6800

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

Reported by Cassandra Carvalho

Edited by Saji George Titus

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