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Informist, Wednesday, Sept. 23, 2026

 

MUMBAI – Government bond prices are seen lower and overnight indexed swap rates higher Thursday 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 to over 5%. Traders widely expect the Reserve Bank of India's Monetary Policy Committee to hike the repo rate by 25 basis points next month and the RBI to announce more measures to drain durable liquidity, including expectations of more open market operation sales. Traders will also focus on comments by RBI Governor Sanjay Malhotra, dealers said. The 10-year benchmark bond yield is unlikely to rise above 7.10% as a 25 bps rate hike is already priced in, some dealers said, while others expect it to rise to 7.14%, a historically crucial level.

 

Traders also await 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 proportion of different bond tenures in the calendar will provide cues on the shape of the gilt yield curve, dealers 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. 

 

On Thursday, 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 near the quarter-end. Outflows on account of the central bank's intervention in the foreign exchange market are likely to continue draining liquidity, dealers said.

 

GILTS

On Thursday, gilt prices will track movement in US yields and crude oil prices at the open. Later in the day, bond prices are likely to fall as traders trim holdings to make room for fresh supply of the 10-year 6.94%, 2036 bond at Friday's weekly auction. In addition, Brent crude oil prices rose to over $100 per barrel after Indian market hours, which will weigh on bond prices. 

 

Traders also await 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 proportion of different bond tenures in the calendar will provide cues to 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 6.95% and 7.14%, dealers said. On Wednesday, the 10-year benchmark 6.94%, 2036 gilt ended at INR 99.27, or 7.0447% yield. 

 

SWAP RATES

On Thursday, swap rates are likely to continue tracking overnight movements in crude oil prices and US Treasury yields, dealers said. As the US Fed began its rate hike cycle, the RBI's rate-setting panel is seen following suit with a 25-bps repo rate hike in October, dealers said. Traders will focus on comments by RBI Governor Sanjay Malhotra, dealers said. 

 

Traders also expect the RBI to introduce more measures to drain systemic liquidity, beyond the government bond sales it is conducting this month and variable rate reverse repo operations, they said. Some expect more OMO sales of INR 500 billion or INR 1 trillion. The Centre's borrowing plan for Oct-Mar is also awaited, with the proportion of bond maturities in the plan likely to be an indication of the rate hike cycle and of how the RBI prefers the yield curve to move. Traders expect the announcement on Friday. Traders will also assess the outcome of meetings the central bank is conducting this week on feedback from market participants ahead of the policy decision. The one-year swap rate is seen in the range of 5.95–6.15% and the five-year at 6.40–6.70%. On Wednesday, the one-year swap rate ended at 6.10%, while the five-year OIS rate ended at 6.55%.

 

CALL

On Thursday, 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 near the quarter-end. Outflows on account of the central bank's intervention in the foreign exchange market are likely to continue draining liquidity, dealers said.

 

The RBI will conduct an overnight VRRR of INR 1.25 trillion Thursday, which may not be fully subscribed, dealers said. Banks are likely to get an influx of liquidity by early next week from the government's month-end spending, they said.

 

Some market participants expect the RBI to conduct more open-market operation 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% on Thursday, while the one-day tri-party repo rate is seen at 4.50–5.30%. On Wednesday, the one-day call rate ended at 4.90%.

 

RBI AUCTION

--RBI to hold overnight VRRR auction for INR 1.25 trillion 

 

LIQUIDITY

Total net outflows of INR 55.767 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 131.00 billion as redemption of 91-day Treasury bills 

--INR 60.97 billion as redemption of 364-day Treasury bills 

--INR 23.26 billion as coupon on state bonds 

--INR 750.26 billion as redemption of overnight variable rate reverse repo tender 

 

* Outflows

--INR 109.00 billion as payment for 91-day Treasury bills

--INR 86.00 billion as payment for 182-day Treasury bills

--INR 76.00 billion as payment for 364-day Treasury bills

 

End

 

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

 

Reported by Janwee Prajapati

Edited by Avishek Dutta

 

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