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Informist, Thursday, Aug. 27, 2026

NEW DELHI – Government bond prices and overnight indexed swap rates will take cues from developments in the war between the US and Iran and consequent movement in crude oil prices and US Treasury yields at the open on Friday, dealers said. The movement in gilt prices may be subdued on caution before the weekly auction at 1030-1130 IST, where the government will sell INR 340 billion of the 10-year benchmark 6.94%, 2036 gilt.  

Dealers are also looking ahead to US Federal Reserve Chair Kevin Warsh's remarks after market hours Friday at his first Jackson Hole Economic Policy Symposium as head of the US central bank. Both instruments remain sensitive to overseas triggers at a time of few interest rate cues domestically. Traders are also tracking how banks will deploy incoming foreign currency non-resident (banks) deposits before the Reserve Bank of India's special scheme on their mobilisation ends on Monday, dealers said.

The three-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 said. Dealers expect the one-day call rate at 4.60–5.35% Friday.

GOVERNMENT BONDS

Friday, gilts are likely to open tracking developments in the war in West Asia and Brent crude oil prices, dealers said. Later in the day, bond prices will take cues from the result of the weekly gilt auction, where the government will sell INR 340 billion worth of 6.94%, 2036 bond. 

Traders will also track India's GDP estimates for the June quarter, scheduled for release on Monday. According to the median of an Informist Poll of 14 economists, India's GDP 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 possibility of such hikes at its meeting earlier this 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 6.90%, dealers said. On Thursday, the benchmark bond ended at INR 100.34, or 6.8901%, closing at its highest level since Jun. 12.

OIS RATES

Friday, swaps will track any signs of a peace deal between the US and Iran and the movement in crude oil prices, dealers said. US Treasury yields will also provide direction ahead of the annual Jackson Hole Economic Policy Symposium, where US Federal Reserve Chair Kevin Warsh is scheduled to speak.

Dealers also said they will watch how banks deploy the last of inflows received through foreign currency non-resident bank deposits and the trajectory of systemic liquidity once the window to raise such deposits under the scheme shuts Monday. Most traders do not expect substantial receiving from domestic asset-liability managers after next week, dealers said. 

If Brent crude oil prices fall to around $85 per barrel, traders will begin to price out imminent rate hikes in both the US and India, even though 'hawkish' commentary from US and Indian central bank officials recently has kept up rate hike bets. The movement of the rupee and overnight borrowing rates will also lend cues.

Friday, the one-year swap rate is seen in the range of 5.70-6.00% and the five-year at 6.20-6.52%. Thursday, the one-year swap rate ended at 5.93% while the five-year swap rate closed at 6.44%.

CALL

On Friday, the three-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 said. On Thursday, the one-day call money rate ended at a two-week high of 5.25%.

Banks' demand for funds may also rise due to funding requirements for the weekend, cash tied up in initial public offerings, and ahead of the mammoth variable rate reverse repo auction Friday. The RBI will conduct a three-day VRRR auction for INR 3.00 trillion at 0930-1000 IST Friday. This is the largest VRRR auction the RBI has notified since July 2022. The auction may be half-subscribed, dealers said.

Dealers expect the three-day call rate at 4.60–5.35% Friday. The tri-party repo rate is expected to be in the 4.50–5.25% band. The weighted average rate in the call market is seen in the 5.10–5.25% band and in the tri-party repo rate is likely to be 4.90-5.20%, dealers said.

RBI AUCTION

--RBI to hold three-day variable rate reverse repo auction for INR 3.00 trillion 0930-1000 IST

--Govt to sell INR 340 billion of 6.94%, 2036 gilt at auction 1030-1130 IST 

LIQUIDITY

Total net outflows of INR 58.38 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 40.22 billion as coupon on state bonds

--INR 59.38 billion as coupon on 7.95%, 2032 gilt

--INR 33.00 billion as redemption of state bonds

--INR 1.43 trillion as reversal of overnight variable rate reverse repo

--INR 166.83 billion as redemption of 91-day T-bills

--INR 71.65 billion as redemption of 364-day T-bills

* Outflows

--INR 234.00 billion as payment for 91-day T-bills

--INR 125.46 billion as payment for 182-day T-bills

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

End

US$1 = INR 95.54

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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