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Informist, Tuesday, Aug. 18, 2026

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices and overnight indexed swap rates are likely to take cues from movements in crude oil prices and US Treasury yields following developments relating to the war in West Asia overnight, dealers said. Brent crude for October delivery continued to trade above $91 per barrel at 2050 IST after US President Donald Trump posted a graphic on social media calling Oman and the Strait of Hormuz US territory. The 10-year US Treasury yield continued to hover near 19-month highs.

 

Traders are also focused on the minutes of the Monetary Policy Committee's meeting due on Wednesday. Traders will pay close attention to commentary on how the war in West Asia is affecting domestic inflation. The meeting's outcome was interpreted as unexpectedly "slightly dovish," or less restrictive than dealers had foreseen. However, dealers said the minutes could prove otherwise. Two rate hikes by the Monetary Policy Committee in the current financial year are still on the table, likely in December and February, dealers said.

 

The one-day call rate is expected to open near the RBI's repo rate of 5.25% Wednesday due to early demand for funds from primary dealers. The RBI will conduct an overnight VRRR auction for INR 1.50 trillion at 0930-1000 IST Wednesday, which should be subscribed for around INR 1.2 trillion as banks roll over two maturing tenders, dealers said.

 

GOVERNMENT BONDS

On Wednesday, gilts are expected to track overnight moves in US Treasury yields and crude oil prices, dealers said. Traders will also track the release of the Monetary Policy Committee's meeting minutes, due Wednesday. They will pay close attention to commentary on the war in West Asia and its impact on domestic inflation and interest rates.

 

Traders will also track the minutes of the US Federal Open Market Committee's recent meeting due Wednesday. Attention will be on the interest rate differential between India and the US as the 10-year benchmark US Treasury yield hit its highest since January 2025 Tuesday.

 

Traders will watch foreign inflows, their impact on systemic liquidity, and whether these flows are deployed into gilts. The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.76% and 6.90%, dealers said. Any significant movement in the rupee and swap rates will also lend cues, they said. On Tuesday, the benchmark bond ended at INR 100.78 or 6.8269% yield.

 

OIS RATES

Wednesday, swap rates are expected to take cues from movements in crude oil prices and US Treasury yields following developments relating to the war in West Asia overnight, dealers said. Higher crude oil prices and US Treasury yields are a concern for traders as they may prompt the RBI's Monetary Policy Committee to hike rates.

 

The rupee's movement and overnight borrowing rates will also lend cues. With the special foreign currency non-resident (banks) deposit scheme ending Aug. 31 instead of Sept. 30, dealers do not expect onshore entities to receive fixed rates heavily even when they rise, with increased focus on overseas triggers. Traders had expected foreign inflows to top $100 billion, with FCNR(B) deposits leading the inflows, and thus expected ample durable liquidity in the banking system. That expectation has been trimmed, dealers said. Several banks had plans in place to raise such deposits through leveraging in September.

 

Some traders are also looking ahead to the release of the minutes of the monetary policy decisions in the US and India. Bets on a hike in the US at the next policy meeting in September have faded over the past three weeks while traders continue to expect the RBI's rate-setting panel to remain sanguine on inflation. Both releases are due after market hours Wednesday.

 

Wednesday, the one-year swap rate is seen in the range of 5.70-6.00% and the five-year at 6.30-6.52%. On Tuesday, the one-year rate ended at 5.83% and the five-year rate ended at 6.42%.

 

CALL

On Wednesday, the one-day interbank call money rate is expected to open near the RBI's repo rate of 5.25% due to early demand for funds from primary dealers. The RBI will conduct an overnight VRRR auction for INR 1.50 trillion at 0930-1000 IST Wednesday, which should be subscribed for around INR 1.2 trillion as banks roll over two maturing tenders, dealers said. Tuesday, the one-day call rate ended at 4.90%.

 

Traders have begun watching for any drain in liquidity through currency in circulation ahead of the festival season. Monthly goods and services tax outflows are expected to drain around INR 1.8 trillion of liquidity starting Friday, which may reduce subscriptions at VRRR auctions and push up the weighted average call rate toward the repo rate, dealers said.

 

Dealers expect the one-day call rate at 4.60–5.30% on Wednesday. The one-day tri-party repo rate is expected to be in the 4.50–5.20?nd. The weighted average call rate is expected to be in the 5.05–5.20?nd, and the tri-party repo rate is likely to be 4.90-5.15%, dealers said.

 

RBI AUCTION

--RBI to hold overnight variable rate reverse repo auction for INR 1.50 trillion 0930-1000 IST

--RBI to auction 91-day T-bills worth INR 90 billion

--RBI to auction 182-day T-bills worth INR 80 billion

--RBI to auction 364-day T-bills worth INR 70 billion

 

LIQUIDITY

Total net outflows of INR 195.90 billion. The calculation does not take into account redemption of the Standing Deposit Facility and scheduled variable rate repo and variable rate reverse repo operations.

 

* Inflows

--INR 6.10 billion as coupon on state bonds

--INR 1.19 trillion as reversal of two overnight variable rate reverse repos

 

* Outflows

--INR 202.00 billion as payment for state bonds

 

End

 

US$1 = INR 95.68

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

 

Reported by Aaryan Khanna

Edited by Saji George Titus

 

 

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