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Informist, Monday, Sept. 7, 2026

 

MUMBAI – Gilts and swaps may take cues from movements in crude oil prices at Tuesday's opening, and from the change in US Treasury yields in Asian trade after a long weekend, dealers said. Given the expectations of an interest rate hike, some traders expect the Reserve Bank of India to announce additional measures to absorb excess liquidity from the banking system amid such a large surplus, dealers said. The surplus liquidity is seen warranting measures to drain durable liquidity beyond the variable-rate reverse repo operations the RBI is currently conducting, they said.

 

Closer focus is on the US Federal Open Market Committee's meeting mid-month, with expectations that if the Fed opts for an interest rate hike in September, the RBI's rate-setting panel will follow suit in October, dealers said. Before that, attention will also be on India's CPI-based inflation data for August, which is seen between 4.9% and 5.1%, rising further above the central bank's 4% target.

 

Tuesday, the one-day call rate is seen near the RBI's Standing Deposit Facility rate amid surplus liquidity. Borrowers are likely to prefer borrowing funds from the tri-party repo market, leading to poor volume in the call market.

 

GOVERNMENT BONDS

Gilts may take cues from movements in crude oil prices at Tuesday's opening, and from the change in US Treasury yields in Asian trade after a long weekend, dealers said. The impact of the RBI's measures to prop up overnight money market rates amid a record liquidity surplus is also being closely watched.

 

Focus will also be on the FOMC's mid-month rate decision, dealers said. The decision will be a key trigger for the RBI Monetary Policy Committee's repo rate decision in October, dealers said. Traders expect the yield on the 10-year benchmark bond to hit 7.10% in about a month. As September nears its end, focus will also be on the Centre's and states' borrowing plans from October onwards, with heavy supply expected from both.

 

Traders await the release of the borrowing calendar for state and central government bond issuances for the next quarter and for the second half of the current financial year, respectively. Traders will also focus on the proportion of different bond tenures in the calendar, dealers said. The RBI has begun meetings with market participants to discuss the Centre's borrowing calendar, they 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 6.90% and 7.05%, dealers said. The bond ended at INR 99.84 or 6.9607% yield Monday from INR 99.83 or 6.9625% yield Friday.

 

OIS RATES

Tuesday, swaps are seen tracking the overnight movement of crude oil prices and US Treasury yields, along with any fresh developments in the US-Iran war. Traders will also track the systemic liquidity in the banking system and look for indications of liquidity-draining measures from the RBI.

 

As received bets linked to banks' inflows from foreign currency non-resident (banks) deposits thin out closer to the end of the deadline Friday to swap dollars under this scheme, swap rates are likely to correct and be on an uptrend, dealers said. However, bets of the swap rate curve flattening will take time to play out as long as there is such a large surplus liquidity in the banking system. The one-year swap rate is seen in the range of 5.82-6.10% and the five-year at 6.35-6.65%. The one-year swap rate ended at 5.98% Monday from 5.99% Friday. The five-year swap rate ended at 6.46% from 6.47% Friday.

 

CALL

The liquidity in the banking system could rise to near INR 12 trillion this week as the window for swapping FCNR(B) deposits ends Friday, dealers said. Attention will be on the RBI's liquidity measures to bring the weighted average call rate back to the policy corridor. The central bank will conduct an overnight INR-5-trillion VRRR auction at 0930-1000 IST Tuesday. 

 

Outflows for advance tax and goods and services tax payments later this month will drain about INR 4.5 trillion. By the RBI's next policy meeting in October--which is the same day as the reversal of the 30-day VRRR--core systemic liquidity could top INR 10 trillion, which could merit permanent measures to drain the liquidity surplus, dealers said. Dealers expect the one-day call rate at 4.00–5.20% Tuesday. The one-day tri-party repo rate is expected to be in the 3.50–5.15?nd. The one-day call money rate ended at 5.05% Monday, up from 3.25% for two-day loans Saturday and 5.00% for three-day loans Friday.

 

RBI AUCTION

--RBI: 8 states to raise INR 169 bln via bond sale Tuesday

 

LIQUIDITY

Total net inflows of INR 15.66 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 15.66 billion as coupon on state bonds 

--INR 1.14 trillion as reversal of seven-day variable rate reverse repo tender 

--INR 3.53 trillion as reversal of overnight variable rate reverse repo tender

 

* Outflows

--nil

 

End

 

US$1 = INR 94.48

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

 

Reported by Kabir Sharma

Edited by Shubhayan Bhattacharya

 

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