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Informist, Tuesday, Sept. 8, 2026

 

NEW DELHI – Government bond prices and overnight indexed swap rates are likely to take cues from the overnight movement in crude oil prices and US Treasury yields when the markets open Wednesday, dealers said. At 2120 IST, Brent crude futures for November delivery inched down to around $97.50 a barrel, while the 10-year US Treasury yield was steady at 4.80%.

 

Demand for bonds from banks is likely to be robust as the Reserve Bank of India has so far announced no durable measures to absorb the surplus liquidity in the banking system, dealers said. After market hours Tuesday, the central bank announced an overnight variable-rate reverse repo auction for INR 5 trillion Wednesday, similar to an auction conducted Tuesday. 

 

With current overnight rates far below the RBI's repo rate, some traders expect the central bank to announce additional measures to absorb excess liquidity amid such a large surplus, dealers said. The surplus liquidity in the banking system is seen warranting measures to drain durable liquidity beyond the variable-rate reverse repo operations the RBI is currently conducting, they said.

 

The one-day interbank call money rate is seen near the RBI's Standing Deposit Facility rate amid surplus liquidity of around INR 10 trillion. Dealers expect the one-day call rate at 4.00–5.20% Wednesday.

 

GOVERNMENT BONDS

Wednesday, gilts may take cues from movements in crude oil prices and US Treasury yields, dealers said. The impact of the RBI's liquidity measures to prop up overnight money market rates amid a record surplus liquidity is also being closely watched.

 

Focus will also be on the US Federal Open Market Committee's mid-month rate decision, dealers said. The FOMC 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, though this is seen unlikely in the near term amid flush liquidity.

 

Traders also 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. They will also focus on the proportion of different bond tenures in the calendar, dealers said. The RBI has begun holding 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. Tuesday, the bond ended at INR 99.97 or 6.9431% yield.

 

OIS RATES

Wednesday, swaps are expected to track overnight movements in crude oil prices and US Treasury yields, as well as 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.

 

Closer focus is on the FOMC's meeting mid-month, with expectations that if the Fed opts for a 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 inflation data for August, which is seen nearing 5%, rising further above the central bank's 4% target.

 

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 may no longer be capped, dealers said. However, bets that the swap rate curve will flatten will take time to play out as long as there is such a large surplus of 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%. Tuesday, the one-year rate ended at 5.95% and the five-year rate at 6.43%.

 

CALL

Wednesday, the one-day call rate is seen near the RBI's Standing Deposit Facility rate amid hefty surplus liquidity. Market participants in need of cash are likely to prefer borrowing funds from the tri-party repo market, leading to poor volume in the call market, dealers said. Tuesday, the one-day call rate ended at 5.05%.

 

The banking system's liquidity 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 Wednesday. 

 

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 is likely to 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% Wednesday. The one-day tri-party repo rate is expected to be in the 3.50–5.15?nd. 

 

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 90 billion at 1030-1130 IST

--RBI to auction 182-day T-bills worth INR 80 billion at 1030-1130 IST

--RBI to auction 364-day T-bills worth INR 70 billion at 1030-1130 IST

--RBI to conduct overnight variable rate reverse repo auction for INR 5 trillion 0930-1000 IST 

 

LIQUIDITY

Total net outflows of INR 89.22 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 22.73 billion as coupon on state bonds

--INR 57.05 billion as coupon on 7.40%, 2035 gilt

--INR 4.18 trillion as reversal of overnight variable rate reverse repo tender 

 

* Outflows

--INR 169 billion as payment for state bond auction

 

End

 

US$1 = INR 94.81

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

 

Reported by Aaryan Khanna

Edited by Shubhayan Bhattacharya

 

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