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Informist, Monday, Sept. 28, 2026

 

MUMBAI – Government bond prices and overnight indexed swap rates may take cues from developments in the West Asia war and their impact on crude oil prices and US Treasury yields. Any escalation in the war in West Asia will significantly impact bond prices, dealers said.

 

Later in the day, traders will also track the result of INR 222 billion worth of state government bond auctions on Tuesday. The quantum is higher than the INR 206.50 billion notified in the borrowing calendar for Jun-Sept.

 

In addition to expectations of a rate hike, traders will focus on comments by RBI Governor Sanjay Malhotra after the policy decision next week. Traders expect the central bank to introduce more measures to drain systemic liquidity, beyond the government bond sales it conducted this month and variable rate reverse repo operations, they said. Some expect more open-market operations sales of INR 500 billion or INR 1 trillion in October, while others expect a hike in banks' cash reserve ratio. 

 

GOVERNMENT BONDS

Traders will also watch the release of the US August personal consumption expenditure report and the September jobs report. With yields on long-dated Treasury notes and bonds at levels not seen in two decades, the economic data could determine whether rates rise even further. Any rise in US yields will also affect yields on domestic bonds, dealers said. 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 7.18%, dealers said.

 

On Monday, the benchmark bond ended at INR 98.31, down from INR 98.76 Friday. Its yield rose to 7.1848% from 7.1194% at the end of the previous session, ending at its highest level since April 2024. 

 

OIS RATES

On Tuesday, swap rates will take cues from movements in crude oil prices and US Treasury yields at the open and developments in the war in West Asia, dealers said. The next significant domestic rate trigger is the MPC's rate decision next week, they 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. Inflation readings are rising, while growth indicators show resilience, strengthening the case for repo rate increases, they said. The one-year swap rate is seen in the range of 5.95–6.32% and the five-year at 6.40–6.85%.

 

On Monday, the one-year swap rate ended at 6.24%, up from 6.16% Friday, and the five-year swap rate closed at 6.72%, up from 6.63% in the previous session. Both benchmark contracts closed at their highest levels since May 22.

 

CALL

On Tuesday, the one-day call money rate is expected to open near the RBI's repo rate of 5.25% due to early demand for funds from banks, dealers said. The large liquidity surplus in the banking system and inflows from the government's month-end spending may cap overnight rates.

 

"We are expecting more inflows in the next two-three days," a dealer at a state-owned bank said. "Another INR 2 trillion is expected to hit the system by Thursday due to state government spending." 

 

The RBI will conduct an overnight VRRR auction of INR 2.00 trillion at 0930-1000 IST Tuesday. Traders do not expect a large subscription at the auction because of banks' month-end and quarter-end funding needs, dealers said. Dealers expect the one-day call rate to be at 4.50–5.40% Tuesday, while the one-day tri-party repo rate is seen at 4.50-5.30%. The one-day call rate ended at 4.99% Monday, down from 5.15% at the open and 5.20% at close for three-day loans on Friday.

 

RBI AUCTION

--RBI to hold overnight VRRR auction for INR 2.00 trillion 0930-1000 IST Tuesday

--12 states to raise INR 222 bln via bond sale Tuesday 

 

LIQUIDITY

Total net outflows of INR 221.61 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 27.15 billion as coupon on state bonds

--INR 1.24 billion as redemption of state bonds

--INR 1.12 trillion as reversal of overnight variable rate reverse repo

 

* Outflows

--INR 250.00 billion as payment for OMO sale of gilts

 

End

 

Reported by Kabir Sharma

Edited by Avishek Dutta

 

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