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Informist, Monday, Aug. 24, 2026

NEW DELHI – Government bond prices and overnight indexed swap rates are seen taking cues from the overnight movement in crude oil prices and US Treasury yields at the open on Tuesday, dealers said. Comments from US Treasury Secretary Scott Bessent to lay out the economic "D-Day" promised by US President Donald Trump on Iran will be closely watched for direction amid a lack of significant domestic cues, they said. 

Expectations of a "sell-off" in bond prices are increasing amid lack of a resolution to the war, dealers said. The yield on 6.94%, 2036 bond is seen hitting 6.90% this week, especially with the weekly gilt auction featuring INR 340 billion of fresh supply in the 10-year benchmark gilt.

Money markets are shut Wednesday for Id-e-Milad. On Tuesday, the two-day call money rate is expected to open near the Reserve Bank of India'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% Tuesday.

GOVERNMENT BONDS

Tuesday, gilts will track developments in the war in West Asia and near-month Brent crude oil futures, with expectations of a "sell-off" in bond prices increasing amid lack of a resolution to the war. The 10-year benchmark bond yield is seen hitting 6.90% this week, especially due to INR 340 billion of its supply, dealers said.

A rise in yields could be tempered by banks deploying foreign inflows into gilts, dealers said, especially in short-term bonds this week, with expectations of some purchases from foreign banks. Once the RBI's swap window for foreign currency non-resident (banks) deposits closes, however, the bond yield curve is seen flattening as the focus shifts to the likelihood of rate hikes. Gilts will also track the movement of US Treasury yields, which are pricing in heavy supply along with inflation fears, dealers said.

Next week, traders will also track India's GDP release for the June quarter. According to the median of a Informist Poll of 14 economists, Indian economic growth is expected to moderate to a one-year low of 7.2% in the June quarter. Expectations of rate hikes in 2026 are seen increasing after the RBI's rate-setting panel focused on the potential for the same at its meeting earlier in the month.

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 6.85% and 6.92%, dealers said. On Monday, the bond ended at INR 100.47, or 6.8708% yield.

OIS RATES

On Tuesday, swap rates are expected to take cues from US Treasury yields and crude oil prices as traders await further developments in the West Asia war, dealers said. US President Donald Trump's statement declaring tighter sanctions on Iran than ever before is seen pushing the two sides apart at the negotiating table, which may keep US yields and crude prices high, they said.

India's swap rates are pricing in over 75 bps of repo rate increase over the next 12 months starting in 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.

Global cues and rising domestic inflation may prompt the RBI's Monetary Policy Committee to raise interest rates in its coming meeting. Rainfall remains in a deficit and may push up food inflation in the coming months, dealers said. 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.

On Tuesday, the one-year swap rate is seen in the range of 5.70-6.00% and the five-year at 6.30-6.52%. Monday, the one-year OIS rate ended at 5.92% and the five-year rate ended at 6.45%.

CALL

On Tuesday, the two-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 a two-day VRRR auction for INR 1.75 trillion at 0930-1000 IST Tuesday. The auction may be poorly subscribed as banks have cash stuck in subscriptions for equity initial public offerings, dealers said. On Monday, the one-day call rate ended at 5.20%. 

Dealers expect the two-day call rate at 4.60–5.30% Tuesday. The two-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 two-day variable rate reverse repo auction for INR 1.75 trillion 0930-1000 IST

--Seven states to raise INR 201 billion via bond sale 1030-1130 IST

LIQUIDITY

Total net outflows of INR 23.89 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 23.89 billion as coupon on state bonds

--INR 492.06 billion as reversal of overnight variable rate reverse repo

* Outflows

--Nil

End

US$1 = INR 95.75

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

Reported by Aaryan Khanna

Edited by Deepshikha Bhardwaj

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