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Informist, Wednesday, Aug. 19, 2026

NEW DELHI – Government bonds and overnight indexed swap rates may open on a mixed note Thursday. Gilt prices are seen lower and short-term OIS rates may rise because the minutes of the Reserve Bank of India's Monetary Policy Committee meeting released after market hours Wednesday were viewed as more "hawkish" or restrictive than RBI Governor Sanjay Malhotra's policy statement, dealers said. Bonds maturing in 10 years and above may rise tracking a fall in US Treasury yields, with the five-year OIS rate likely to be flat or fall, they said.

Expectations of rate hikes are seen increasing after the rate-setting panel focussed on the potential for the same to combat high inflation. Deputy Governor Poonam Gupta said "a case for a hike may emerge during the course of the year" due to headline inflation projected at 5.9% in the December quarter. However, several traders had priced in such a difference in commentary compared to the policy statement, and bets of a rate hike in October remain low, they said.

Long-term US yields fell sharply after the US Treasury announced it would double the size of its buyback operations of 10- to 30-year bonds to $4 billion per operation between September and November. The announcement was made shortly after the 30-year US Treasury yield hit a multi-decade high. Domestic traders believe that US Treasury Secretary Scott Bessent wanted to keep long-term bond yields in check. The 10-year US yield fell to 4.65% at 2130 IST from 4.69% at 1700 IST. 

Rate-sensitive gilts maturing in under five years are seen as the worst hit after the minutes. This may lead to a "bull flattening" of the government bond yield curve, where long-term gilt yields fall more than yields on short-term bonds. The spread of the five-year OIS rate over the one-year OIS rate may also narrow sharply from the 59 basis points at the market close on Wednesday, dealers said. Traders will also track the minutes of the US Federal Open Market Committee's recent meeting. 

Meanwhile, 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. During the day, the call money rate is seen at 4.60-5.30% Thursday.

GOVERNMENT BONDS

On Thursday, gilts may open on a mixed note. Bonds will also track the overnight movement in US Treasury yields and crude oil prices and fresh developments in the war in West Asia, dealers said. Any significant movement in the rupee and swap rates will also lend cues, they said.

Traders will be on watch for foreign inflows and their impact on systemic liquidity and whether these flows are deployed into gilts, with expectations of at least $15 billion of flows within this fortnight. The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.78% and 6.87%, dealers said. On Wednesday, the bond ended at INR 100.85 or 6.8170% yield. 

OIS RATES

Thursday, swap rates are expected to open on a mixed note due to the diverging local and global cues. Traders would bring forward their views on rate hikes in India, but the five-year OIS rate is seen capped by the fall in US Treasury yields, dealers said. 

"I believe on a headline level market may open flattish tomorrow, but OIS curve would flatten as shorter end would start worrying about rate hikes while longer end will look to US yields," a dealer at a foreign bank said. 

The minutes of the US Federal Open Market Committee's July meeting may also lend cues after they are released at 2330 IST. Thursday, 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 Wednesday, the one-year swap rate ended at 5.81% and the five-year rate at 6.40%.

Higher crude oil prices continue to remain a concern for traders as they may prompt the RBI's Monetary Policy Committee to hike interest rates. The movement of the rupee and overnight borrowing rates will also lend cues. With the central bank's special foreign currency non-resident (banks) deposit scheme now ending Aug. 31 rather than Sept. 30, dealers do not expect onshore entities to heavily receive fixed rates even when they rise, with increased focus on overseas triggers.

CALL

On Thursday, 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 1.00 trillion at 0930-1000 IST Thursday, which should be subscribed for around INR 600 billion as banks hold onto cash to meet goods and services tax outflows, dealers said. On Wednesday, the one-day call rate ended at 5.15%. 

A low subscription may elicit a second VRRR on Thursday, though it would be a smaller amount as the central bank would not want to push up overnight rates above the repo rate amid the outflows, dealers said. Traders have also begun watching for any drain in liquidity through currency in circulation ahead of the festival season.

Dealers expect the one-day call rate at 4.60–5.30% on Thursday. The one-day tri-party repo rate is expected to be in the 4.50–5.25% band. The weighted average call rate is expected to be in the 5.05–5.20% band, and the tri-party repo rate is likely to be 4.90-5.20%, dealers said.

RBI AUCTION

--RBI to hold overnight variable rate reverse repo auction for INR 1.00 trillion 0930-1000 IST

LIQUIDITY

Total net inflows of INR 31.11 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 17.06 billion as coupon on state bonds

--INR 171.12 billion as repayment of 91-day Treasury bills

--INR 120.00 billion as repayment of 182-day T-bills

--INR 77.76 billion as repayment of 364-day T-bills

--INR 1.26 trillion as reversal of overnight variable rate reverse repo

* Outflows

--INR 189.83 billion as payment for 91-day T-bills

--INR 95.00 billion as payment for 182-day T-bills

--INR 70.00 billion as payment for 364-day T-bills

End

US$1 = INR 95.75

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

Reported by Vaishali Tyagi and Aaryan Khanna

Edited by Deepshikha Bhardwaj

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