More Stories

Informist, Thursday, Sept. 10, 2026

 

NEW DELHI – Government bond prices are seen opening sharply lower Friday as crude oil prices and US Treasury yields spiked after the close of Indian market hours Thursday. The 10-year US Treasury yield rose to 4.92% at 2025 IST after data showed producer prices rose 5.4% on year, slightly higher than a Dow Jones poll had estimated.

 

Brent crude for November delivery topped $107 per barrel after Indian market hours as the war in West Asia escalated and threatened the supply of the commodity. Overnight indexed swap rates are expected to rise at the open Friday as both offshore triggers raise concerns of a quicker or larger rate hike cycle by the Reserve Bank of India's Monetary Policy Committee, dealers said. 

 

The RBI's steps to drain liquidity from the banking system will also be closely watched. The central bank has been conducting near-daily variable rate reverse repo auctions for the past five weeks, but the weighted average call rate -- the operating target of monetary policy -- has been below the Standing Deposit Facility rate of 5.00% for the past week as the systemic liquidity surplus has topped INR 10 trillion. Foreign exchange dealers said the RBI had likely done dollar-rupee sell-buy swaps in the secondary market Wednesday and Thursday, an action that drains rupee liquidity.

 

A scheduled bank strike Friday may thin volumes across money markets, dealers said. The four-day call money rate is expected to open near the RBI's Standing Deposit Facility rate on low demand for funds from banks amid the hefty liquidity surplus, dealers said. Dealers expect the four-day call rate at 4.00–5.25% Friday.

 

Traders will also track participation at the central bank's 26-day variable rate reverse repo auction to be conducted at 0930-1030 IST. This is the second such auction the central bank is conducting this month with the option of premature reversal and the reversal date on Oct. 7, the day the RBI governor will announce the rate-setting panel's decision at the October meeting.

 

GOVERNMENT BONDS

Gilts are seen down Friday as Brent crude oil prices hit $107 per barrel after Indian market hours Thursday and the yield on the 10-year US Treasury note rose to just short of the key 5.00% level. Foreign portfolio investors are likely to continue selling gilts, as has been seen this week, as the interest rate differential between US yields and Indian gilt yields narrows, making the latter less appealing.

 

Traders will also track the result of the INR 320-billion gilts auction Friday, with demand across the three bonds being sold seen to be moderate.

Traders expect the central bank to introduce measures to drain durable liquidity this month, as high crude oil prices push up the outlook for inflation. The central bank likely increased the size of its dollar-rupee sell-buy swaps conducted in the foreign exchange market Thursday from about $2 billion conducted in one- and two-month tenures Wednesday, dealers said. Traders expect the yield on the 10-year benchmark bond to hit 7.10%, tracking global yields and as rate hikes are priced in, though this is seen to be unlikely in the near term amid flush liquidity.

 

Traders are also waiting for the release of the borrowing calendar for state and central government bond issuances for the next quarter and the second half of the current financial year, respectively. They want to see the proportion of different bond tenures in the calendar, dealers said. The RBI has held several meetings with market participants this week, the last 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 6.93% and 7.10%, dealers said. Thursday, the bond ended at INR 99.74 or 6.9762% yield.

 

OIS RATES

On Friday, swaps are expected to track overnight movements in crude oil and US Treasury yields as well as any fresh developments in the US-Iran war, dealers said. Dealers are also awaiting the release of India's CPI inflation data for August on Monday.

 

Retail inflation in India is likely to rise to a 20-month high of 4.8% in August from 4.45% in July, according to the median estimate in an Informist Poll of economists. Inflation rising above the RBI's 4% target may put pressure on the central bank to tighten monetary policy and raise the repo rate.

 

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, they said.

 

The one-year swap rate is seen in the range of 5.82-6.10% and the five-year at 6.35-6.65%. Thursday, the one-year rate ended at 6.00% and the five-year rate at 6.52%.

 

CALL

The four-day call money rate is expected to open near the RBI's Standing Deposit Facility rate owing to low demand for funds from banks amid a hefty liquidity surplus, dealers said. Subscription at the RBI's 26-day, INR 5.00-trillion auction will also be keenly watched. The money markets will be shut Monday for Ganesh Chaturthi. 

 

The measure's success may reduce the need for the RBI to drain liquidity through durable measures until its next policy review in early October, dealers said. At the same time, with overnight VRRRs expected to continue, banks are unlikely to park funds at the nearly four-week VRRR auction, they said.

 

Dealers expect the four-day call rate at 4.00–5.25% Friday. The four-day tri-party repo rate is expected to be in the 3.50–5.15?nd. 

 

RBI AUCTION

--RBI to conduct 26-day variable rate reverse repo auction for INR 5.00 trillion at 0930-1000 IST

--Govt to auction three gilts worth INR 320 billion at 1030-1130 IST

 

LIQUIDITY

Total net inflows of INR 190.30 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 32.66 billion as coupon on state bonds

--INR 3.97 trillion as reversal of overnight variable rate reverse repo tender

--INR 150.00 billion as maturity of 10.18%, 2026 gilt

--INR 7.64 billion as coupon on on 10.18%, 2026 gilt

 

* Outflows

--Nil

 

End

 

US$1 = INR 95.4400

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

 

Reported by Aaryan Khanna

Edited by Rajeev Pai

 

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.