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Informist, Wednesday, Sept. 30, 2026

 

MUMBAI – Government bond prices and overnight indexed swap rates are likely to take cues from developments in the West Asia conflict and their impact on crude oil prices and US Treasury yields on Thursday. Traders are expected to stay cautious ahead of the Reserve Bank of India's Monetary Policy Committee meeting next week, dealers said.

 

The official US September employment report from the Bureau of Labor Statistics is scheduled to be released on Friday. With yields on long-dated Treasury notes and bonds at levels not seen in two decades, the economic data could determine whether US rates will rise even further. Any rise in US yields will also affect domestic bond yields, dealers said.

 

Traders expect the RBI to announce an open market operation to sell bonds to absorb liquidity from the banking system. The announcement is likely towards the end of this week, ahead of the MPC meeting next week, which is expected to keep traders cautious, dealers said. 

 

As the US Federal Reserve hiked interest rates in September, the RBI's rate-setting panel is seen following suit with a 25-bps repo rate hike next week, dealers said. Inflation readings are rising, while growth indicators show resilience, strengthening the case for repo rate increases, they said. A 25-bps repo rate increase is already factored into OIS rates.

 

On Thursday, the four-day call money rate is expected to open near the RBI's repo rate of 5.25% due to early demand for funds from primary dealers, dealers said. Government spending is likely to infuse more liquidity into the banking system over the next few sessions, which may drag overnight money market rates, they said. Money markets are shut on Friday for Gandhi Jayanti.

 

GOVERNMENT BONDS

On Thursday, bond prices may take cues from developments in the war in West Asia and their impact on crude oil prices and US Treasury yields. Any escalation in the war will significantly impact bond prices, dealers said. Traders are expected to stay on the sidelines ahead of the RBI's Monetary Policy Committee meeting next week, dealers said. Some traders are likely to make space for the fresh supply of gilts at the weekly gilt auction Thursday. The auction result is likely to lend cues to the bond prices, dealers said.

 

The government said it will sell INR 90 billion of the 6.20%, 2029 bond, INR 120 billion of the 6.57%, 2033 bond, INR 90 billion of the 7.63%, 2056 bond and INR 30 billion of the 7.50%, 2056 sovereign green bond. Some traders said the cut-off could be near secondary market levels, though the movement in crude oil prices will be critical. 

 

US private sector job creation picked up in September after a brief slowdown, indicating further stabilisation in the labour market, according to an ADP report on Wednesday. The payroll processing firm said company payrolls rose by 90,000 during the month, higher than the downwardly revised 36,000 in August and above the Dow Jones consensus estimate of 68,000.

 

The official US September employment report will be released on Friday. With yields on long-dated Treasury notes and bonds at levels not seen in two decades, the economic data could determine whether US rates rise even further. Any rise in US yields will also affect yields on domestic bonds, dealers said.

 

Traders also expect the release of the state borrowing calendar for the December quarter on Friday, with borrowing quantum likely to be between INR 2.7 trillion and INR 3.3 trillion, dealers said. Traders also expect the RBI to announce an open market operation to sell bonds and absorb liquidity from the banking system. Such an announcement is expected towards the end of this week, ahead of the RBI's MPC meeting next week, which will likely keep traders cautious, 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 7.10% and 7.25%, dealers said.

 

On Wednesday, the benchmark bond ended at INR 98.29, down from INR 98.46 Tuesday. Its yield rose to 7.1879% from 7.1628% at the end of the previous session. 

 

OIS RATES

On Thursday, 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 Federal Reserve hiked interest rates in September, the RBI's rate-setting panel is seen following suit with a 25-bps repo rate hike next week, dealers said. Rising inflation readings and resilient growth indicators are strengthening the case for repo rate increases, they said. A 25-bps repo rate increase is already factored into OIS rates.

 

For direction, traders will focus on comments by RBI Governor Sanjay Malhotra after the monetary policy meeting. 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 up to INR 1 trillion in October, while others expect a hike in banks' cash reserve ratio. 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 Wednesday, the one-year swap rate ended at 6.21%, up from 6.19% Tuesday, and the five-year swap rate closed at 6.65%, the same as Tuesday.

 

CALL

On Thursday, the four-day call money rate is expected to open near the RBI's repo rate of 5.25% due to early demand for funds from primary dealers, dealers said. Government spending is likely to infuse more liquidity into the banking system over the next few sessions, which may drag overnight money market rates, they said. India's financial markets will be shut Friday for Gandhi Jayanti.

 

The RBI will conduct a four-day VRRR auction of INR 2.00 trillion at 0930-1000 IST Thursday. Traders expect around 70% subscription at the beginning of a new quarter and reporting fortnight. Dealers expect the four-day call rate to be at 4.50–5.30% Thursday, while the four-day tri-party repo rate is seen at 4.50-5.25%.

 

The one-day call rate ended at 4.85% Wednesday, down from 5.15% at the open and at close on Tuesday.

 

RBI AUCTION

--RBI to hold four-day VRRR auction for INR 2 trillion 0930-1000 IST

--Govt to auction four gilts worth INR 330 billion Friday

 

LIQUIDITY

Total net outflows of INR 142.23 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 99.00 billion as redemption of 91-day Treasury bills 

--INR 12.77 billion as coupon on state bond

--INR 854.24 trillion as reversal of overnight variable rate reverse repo

 

* Outflows

--INR 95.00 billion as payment for 91-day Treasury bills 

--INR 85.00 billion as payment for 182-day Treasury bills

--INR 74.00 billion as payment for 364-day Treasury bills

 

End

 

Reported by Janwee Prajapati

Edited by Saji George Titus

 

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