More Stories

Informist, Friday, Aug. 21, 2026

 

NEW DELHI – Government bond prices and overnight indexed swap rates will take direction from the movement of US Treasury yields and crude oil prices over the weekend when the markets open Monday, dealers said. Developments related to peace talks between the US and Iran to end the West Asia war will be key after Iran President Masoud Pezeshkian's statement favouring a quick end, they said. India's money markets will be shut Saturday.

 

Expectations of rate hikes in 2026 have increased after the Reserve Bank of India's Monetary Policy Committee deliberated the need for such a step at its latest meeting. Traders will watch foreign inflows and their impact on systemic liquidity, and whether these flows are deployed into gilts. Foreign currency non-resident (bank) deposits are expected to fetch around $15 billion until the end of August, when the RBI's special scheme for such deposits will end. 

 

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. Dealers expect the one-day call rate at 4.60–5.30% Monday.

 

GOVERNMENT BONDS

On Monday, gilts will track developments in the West Asia war after the Iranian president expressed interest in ending the conflict, dealers said. There are no major triggers scheduled on the domestic front, though Tuesday's state bond auction is slightly lower than indicated. States will raise INR 201 billion at the auction, down from INR 233 billion indicated in the Jul-Sept calendar.  

 

If near-month Brent crude oil futures rise above $95 per barrel, they could hit $100, according to technical charts, dealers said. The 10-year benchmark bond yield would hit 6.90% in such an instance, but a rise could be tempered by banks deploying foreign inflows into gilts, dealers said, especially in short-term bonds. Gilts will also track the movement of US Treasury yields, which are pricing in heavy supply along with inflation fears, dealers said. 

 

Any significant movement in the rupee and swap rates will also lend cues, they said. The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.82% and 6.92%, dealers said. On Friday, the bond ended at INR 100.62 or 6.8495% yield.

 

OIS RATES

On Monday, swap rates are expected take cues from US Treasury yields and crude oil prices. Developments in peace talks between the US and Iran will be key after Iran President Pezeshkian's statement favouring a quick end to the war, dealers said.

 

India's swap rates are pricing in over 75 bps of repo rate increase over the next 12 months starting October. This is an extreme interpretation and not a widespread base case among traders, who largely expect an increase of 50-75 bps, dealers said. However, with inflation risks tilted to the upside, offshore traders may also pay fixed rates if the market does not price in at least 75 bps of rate hikes by the MPC, they said.

 

High crude oil prices remain a concern for traders as they may prompt the RBI's Monetary Policy Committee to raise 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 on 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.

 

On Monday, 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 Friday, the one-year rate ended at 6.90% and the five-year rate at 6.42%. 

 

CALL

On Monday, 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 liquidity drain from GST outflows since Thursday may limit lending appetite and reduce subscription at the VRRR auction Monday, dealers said. On Friday, the three-day call money rate ended at 5.20%. 

 

The RBI will conduct a seven-day VRRR auction for INR 2.50 trillion at 0930-1000 IST Monday. While banks may go into the auction with limited liquidity, subscription may be significant as traders expect significant inflows into banking system liquidity in the last week of August, dealers said. FCNR(B) deposit accretion is set to surge before the RBI's special scheme for these deposits ends on Aug. 31, and government spending will also add to the cash with banks, they said.

 

Dealers expect the one-day call rate at 4.60–5.30% Monday. The one-day tri-party repo rate is expected to be in the 4.50–5.25?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 4.90-5.20%, dealers said.

 

RBI AUCTION

--RBI to hold seven-day variable rate reverse repo auction for INR 2.50 trillion 0930-1000 IST

 

LIQUIDITY

Total net outflows of INR 129.62 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 45.29 billion as coupon on state bonds

--INR 53.72 billion as coupon on 7.26%, 2032 gilt Saturday

--INR 50.37 billion as coupon on 6.76%, 2061 gilt Saturday

--INR 1.00 billion as redemption of state bonds Sunday

--INR 989.45 billion as reversal of seven-day variable rate reverse repo Monday

--INR 959.70 billion as reversal of seven-day variable rate reverse repo Monday

 

* Outflows

--INR 280.00 billion as payment for gilt auction Monday

 

End

 

US$1 = INR 95.70

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

 

Reported by Aaryan Khanna

Edited by Avishek Dutta

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.