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Informist, Tuesday, Sept. 22, 2026

MUMBAI – Government bond prices are seen lower and overnight indexed swap rates higher Wednesday as crude oil prices recovered from the day's fall post market hours and the yield on the 10-year US Treasury note rose back near 5.0%. The yield on the 10-year benchmark gilt is unlikely to fall below 7.00% at least until the outcome of the Reserve Bank of India's Monetary Policy Committee meeting next month. Traders expect the MPC to hike the repo rate by 25 basis points and the RBI to announce more measures to drain durable liquidity, including expectations of more open market operation sales of INR 250 billion or INR 500 billion. Dealers expect the RBI's rate-setting panel to follow the US Federal Reserve with a 25-bps repo rate hike in October. Traders will focus on the comments from the RBI Governor Sanjay Malhotra, dealers said. 

Traders will continue to assess the impact of the central bank's latest circular released Monday on market risk, with some viewing the move as a measure to boost available capital.

GILTS

On Wednesday, gilt prices will track movements in US yields and crude oil prices at open. Traders do not expect the 10-year benchmark bond yield to fall below 7.00% until the Reserve Bank of India's Monetary Policy Committee meeting next month, while it is not seen rising above 7.10% as a 25-bps rate-hike is priced in. Crude oil prices recovered the day's fall post market hours, which is likely to weigh on bond prices Wednesday. Some traders find current yields attractive for buying bonds, since the 10-year bond is unlikely to sustain a rise above its May high of 7.14%, they said. Foreign and private-sector banks' asset and liability managers are active in both the primary and secondary gilt markets, dealers said, as they deploy inflows from foreign currency non-resident (bank) deposits. 

Traders also await 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. The borrowing plan announcement is expected this week. Traders expect the Centre's gross borrowing in Oct-Mar at about INR 7.9 trillion, based on the Centre's Budget estimate for gross borrowing for the entire year, given that it is on track to borrow INR 8.14 trillion in Apr-Sept, against its target of INR 8.20 trillion. The proportion of different bond tenures in the calendar will provide cues on the shape of the gilt yield curve, dealers said. The RBI has held several meetings with market participants this month to discuss the Centre's borrowing calendar, they said. Some expect more supply of seven-year bonds, while others expect more 15-year bond supply, and still others expect more supply of three- to five-year bonds. 

Any significant movement in the rupee and swap rates will also lend cues, dealers said. The yield on the 10-year benchmark 6.94%, 2036 bond is expected to move between 7.00% and 7.10%, dealers said. The 10-year benchmark 6.94%, 2036 gilt ended at INR 99.50, or 7.0106% yield. 

SWAP RATES

On Wednesday, swap rates are seen tracking overnight movements in crude oil prices and US Treasury yields, dealers said. Some traders expect oil prices to move downward in the near term if there is no escalation in the war in West Asia. Swaps will also track movement in US Treasury yields, with the US yield curve flattening after the FOMC hiked the Fed funds target rate for the first time since 2023. The one-year swap rate is seen in the range of 5.95–6.15% and the five-year at 6.40–6.70%. The one-year swap rate ended at 6.06%, while the five-year OIS rate ended at 6.51%.

CALL

On Wednesday, the one-day call money rate is expected to open near the RBI's repo rate of 5.25%, as banks borrow for credit disbursement and internal operations near quarter-end. Outflows to settle the central bank's intervention in the foreign exchange market are likely to continue draining liquidity, dealers said. Traders also await a fall in overseas borrowing rates, to step up fundraising offshore, which could reduce upward pressure on domestic borrowing rates. 

The RBI will conduct an overnight VRRR of INR 750 billion Wednesday. Some market participants expect the RBI to conduct more open-market operations auctions to sell gilts next month after announcing INR 1 trillion worth of such sales in September. Dealers expect the one-day call rate to be at 4.50–5.40% Wednesday, while the one-day tri-party repo rate is seen at 4.50-5.30%. On Tuesday, the one-day call rate ended at 4.90%.

RBI AUCTION

--RBI to auction 91-day T-bills worth INR 90 billion 

--RBI to auction 182-day T-bills worth INR 80 billion 

--RBI to auction 364-day T-bills worth INR 70 billion

--RBI to hold overnight VRRR auction for INR 750 billion 

LIQUIDITY

Total net outflows of INR 135.67 billion. The calculation does not account for redemptions of the Standing Deposit Facility and scheduled variable rate repo and variable rate reverse repo operations.

* Inflows

--INR 31.83 billion as coupon on state bonds 

--INR 719.71 billion as redemption of overnight variable rate reverse repo tender 

* Outflows

--INR 167.50 billion as payment for state bonds

End

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

Reported by Cassandra Carvalho

Edited by Deepshikha Bhardwaj

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