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Informist, Friday, Sept. 11, 2026

MUMBAI – Government bond prices and overnight indexed swap rates are seen opening lower Tuesday as the RBI announced, after market hours Friday, that it will sell INR 1 trillion of bonds through open market operations in three tranches, one of INR 500 billion and the remaining two of INR 250 billion each, dealers said. The money markets are shut Saturday and again for Ganesh Chaturthi Monday. Bonds and swap rates will also track Brent crude oil prices and any significant escalation in the war in West Asia over the long weekend. Traders will also monitor closely the movement of US Treasury yields after the release of US CPI inflation data Friday, dealers said.

These will be the RBI's first OMO sales since the simultaneous sales along with its last Government Securities Acquisition Programme 2.0 purchases on Sept. 30, 2021. The first tranche of the INR 1-trillion OMO auction will be conducted Thursday, when the central bank will sell six gilts worth INR 500 billion. The gilts that will be sold are the 7.59%, 2029 bond, the 6.79%, 2029 bond, the 7.61%, 2030 bond, the 5.77%, 2030 bond, the 6.68%, 2031 bond, and the 8.28%, 2032 bond.

Elevated US Treasury yields are likely to pull domestic bond yields and swap rates higher after US consumer prices rose 3.4% last month from a year earlier, prompting traders to raise the odds of a rate hike by the US Federal Reserve next week. The headline inflation figure was unchanged from the prior month and matched estimates from economists polled by The Wall Street Journal. Core CPI, which strips out volatile food and energy costs, rose 2.4%. Both readings reinforced the investor narrative that inflation is still too high for the Fed to keep interest rates on hold. Traders will also monitor the release of India's CPI inflation for August, which is seen at 4.8%, according to an Informist Poll of 12 economists. Market participants expect the CPI inflation between 4.9% and 5.1%.

The one-day call money rate is seen opening above the RBI's Standing Deposit Facility rate of 5.00% Tuesday on early demand for funds from primary dealers. Banks are likely to face outflows of up to INR 2 trillion on the day for advance tax payment for the September quarter, dealers said.

Overnight VRRR auctions are expected to continue next week despite the tax outflows and the INR 500-billion open market operations auction, dealers said. The central bank will conduct an overnight INR 5.00-trillion auction to drain liquidity at 0930-1000 IST Tuesday.

Surplus liquidity is seen stable over the weekend and may remain above INR 10 trillion due to banks swapping the last of their foreign currency non-resident (banks) deposits with the RBI at its concessional window that closed Friday. The maturity of the 10.18%, 2026 bond added INR 150 billion in liquidity to the banking system Friday, dealers said. However, the central bank's dollar-rupee sell-buy swap operations are likely to have drained liquidity Friday.

GOVERNMENT BONDS

Gilts are seen opening lower Tuesday after the RBI said, after market hours Friday, that it will sell INR 1 trillion of bonds through open-market operations in three tranches. Some traders expect the yield on the 10-year bond to rise to 7.10%-7.15% and hover near the historically significant 7.14% level until the Monetary Policy Committee meeting in October. Others, however, do not expect any significant impact on the yield of the 10-year benchmark bond. Instead, short-term bond yields are likely to come under pressure, dealers said, likely flattening the yield curve. Some traders expect the five-year benchmark bond yield to rise to 6.75% Tuesday.

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. Friday, the bond ended at INR 99.41, or 7.0233%.

OIS RATES

Tuesday, short-term swap rates are seen rising more than longer-term rates as the RBI said it would drain INR 1 trillion of systemic liquidity through OMO sales of gilts this month. Swaps will also track movements in US yields and oil prices. 

Tuesday, short-term swap rates are seen rising more than longer-term rates. Alongside liquidity-draining measures from the RBI such as OMO sales and variable rate reverse repo operations, traders expect the central bank to conduct dollar-rupee sell-buy swaps in both the primary and secondary markets.

Dealers also await the release of India's CPI data for August Monday. Retail inflation 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. This is likely to put pressure on the central bank to raise the repo rate.

As received bets linked to banks' inflows from foreign currency non-resident (banks) deposits have stopped this week, as Friday was of the deadline to swap dollars under the RBI's special foreign exchange swap scheme, OIS rates may no longer be capped, dealers said. After the OMO sales announcement, bets that flattening of the swap rate curve will take time have been wiped out as the RBI begins draining liquidity. The one-year swap rate is seen in the range of 5.95-6.15% Tuesday and the five-year at 6.40-6.70%. Friday, the one-year rate ended at 6.03% and the five-year rate at 6.57%.

CALL

The one-day call money rate is seen opening above the RBI's Standing Deposit Facility rate of 5.00% Tuesday on early demand for funds from primary dealers. Banks are likely to face outflows of up to INR 2 trillion for advance tax payments, dealers said. Overnight VRRR auctions are expected to continue next week despite these outflows and the RBI's INR 500-billion OMO auction Thursday, they said. The central bank has already said it will conduct an overnight INR 5.00-trillion auction to drain liquidity Tuesday.

Surplus liquidity is seen stable above INR 10 trillion over the weekend. The maturity of the 10.18%, 2026 bond added INR 150 billion in liquidity to the banking system Friday, dealers said. However, the central bank's dollar-rupee sell-buy swap operations are likely to have drained liquidity. Dealers expect the one-day call rate at 4.00–5.25% Tuesday. The one-day tri-party repo rate is expected to be in the 4.00–5.20% band.

RBI AUCTION

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

LIQUIDITY

Total net inflows of INR 33.67 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 20.24 billion as coupon on state bonds

--INR 59.60 billion as coupon on 7.36%, 2052 gilt

--INR 36.64 billion as coupon on state bonds

--INR 13.99 billion as coupon on state bonds

--INR 134.75 billion as redemption of state bonds

--INR 30.01 billion as coupon on state bonds

--INR 23.07 billion as coupon on on 7.62%, 2039 gilt

--INR 35.37 billion as coupon on on 7.19%, 2060 gilt

--INR 13.46 trillion as reversal of 15-day variable rate reverse repo tender

--INR 34.49 trillion as reversal of 4-day variable rate reverse repo tender

* Outflows

--INR 320 billion as payments for gilts

End

US$1 = INR 95.55

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

Reported by Janwee Prajapati

Edited by Rajeev Pai

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