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Informist, Tuesday, Dec. 23, 2025

By Janwee Prajapati

MUMBAI – Government bond prices ended sharply higher Tuesday as traders covered short bets after the yield on the 10-year benchmark gilt hit 6.70%, the highest since Mar. 10. Bond prices also surged after hefty state bond supply sailed through at cut-off yields in line with expectations, dealers said.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.90, up from INR 98.65 Monday. The closing yield was 6.6328%, down from 6.6678% Monday. "Bond prices rose because the yield (on the 6.48%, 2035 gilt) had hit 6.70%," a dealer at a state-owned bank said. "These levels are very good for buying and these are technically important levels."

The price on the 6.48%, 2035 bond also rose as traders speculated that the Reserve Bank of India was either buying gilts on-screen or would announce an open market operations auction to buy them, dealers said. Post-market hours, the central bank said it will buy INR 2 trillion of government bonds through open market auctions in four tranches in December and January. 

Public sector banks likely bought the 10-year gilt around 6.65%-6.70% yield, a psychologically crucial level, which helped the rise in bond prices, dealers said. Some traders also picked up the gilt, citing the lucrative spread of almost 145 basis points between the 10-year benchmark bond yield and the repo rate of 5.25%. The 6.33% 2035 bond rose on expectations that the RBI will purchase the bonds if it announces an open market operations auction, dealers said.

Traders likely preferred shorter-tenure gilts over the longer-tenure gilts as they remained unsure about further rate cuts by the RBI's Monetary Policy Committee, dealers said. Some dealers said the rise in the 6.01%, 2030 bond price was due to buying momentum from traders who were paying in the 5-year overnight indexed swap rate. The 6.01%, 2030 bond prices ended at INR 94.45, up 13 paise from the previous close. The five-year OIS rate ended at 5.96%.

Bond prices rose as traders covered short bets on 6.48%, 2035, as the bond's yield rose to 6.70%. Traders had placed short bets on the gilt, expecting a steep rise in bond yields as the Reserve Bank of India had not announced an open market operations auction on Monday, dealers said. Some traders hit stop-losses at the 6.70% level, which added to the price rise, dealers said. Later in the day, speculation that the RBI was intervening in the secondary market through on-screen purchases of gilts to lower yields boosted the bond prices.  The 'others' segment of gilt market participants — which includes the central bank, insurance companies and provident funds – net purchased gilts worth INR 47.40 billion Tuesday, according to data from Clearing Corp. of India.  

Earlier in the day, bond prices fell amid weak risk appetite, following the sharp decline since Friday. Earlier in the day, the 10-year benchmark 6.48% 2035 bond price fell nearly 90 paise from Friday's high, with the yield rising 13 basis points to levels last seen in March. 

At Tuesday's state bond auction, demand from pension funds was firm for some states, resulting in better-than-expected cutoffs. Whereas, the cut-off yields on 10-year bonds of some states were worse than the last auction. Banks likely picked up state bonds up to 15 years of maturity for their held-to-maturity books as they had enough space after selling bonds to RBI at the INR-1-trillion OMO auction, dealers said. Some traders also sold gilts to buy state bonds as the yield on the latter was lucrative. Traders were also cautious about the state borrowing calendar for the March quarter as they expect the quantum to rise further.

"We bought at auction for our investor books... the cut-off was also good, we were expecting even higher cut-offs," a dealer at a state-owned bank said. "For our trading books we are preferring the 6.01%, 2030 bond beacuse of its liquidity and volume, as a trader I hold bonds only for 15-20 mins, if the bond is not liquid enough I won't be able to sell it."

Some traders said the Bank of India's INR 100 billion 10-year infrastructure bond issuance also likely drove investors away from state bonds, especially after the frequency of such issuances by state-owned banks has been subdued so far in 2025-26 (Apr-Mar). However, others said that long-term investors' limits on the bank's bond issuance would differ from its investment limits on state bonds.

Turnover in the gilts market was INR 405.80 billion Tuesday, higher than INR 263.65 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the RBI's wholesale e-rupee pilot Tuesday, the same as Monday.

OUTLOOK

On Wednesday, gilts are expected to open higher following the announcement of the open market operations auction on Tuesday, after the market close. Traders expect the yield on the 6.48%, 2035 bond to fall to 6.55%-6.56% Wednesday. However, the rise in bond prices is likely to be limited by an overnight increase in US Treasury yields after US GDP data showed stronger-than-expected growth in the third quarter. The US economy grew at an annual rate of 4.3% in the July to September quarter, above the 3.2% forecast by economists.  

The Reserve Bank of India will buy INR 500 billion of 7 gilts via OMO auction on Monday. The RBI will purchase the 6.67%, 2035 gilt, the 7.18%, 2037 gilt, the 7.26%, 2033 gilt, the 6.79%, 2034 gilt, the 6.79%, 2029 gilt, the 7.61%, 2030 gilt, and the 7.30%, 2053 bond at auction. The RBI will buy a total of INR 2 trillion worth of government bonds through open market operation auctions in four tranches across December and January, it said in a release Tuesday. It will buy gilts worth INR 500 billion each on Monday, Jan. 5, Jan. 12, and Jan. 22. 

The central bank will also conduct a three-year, dollar-rupee buy-sell swap auction on Jan. 13 for $10 billion. This will likely lead to an appreciation in the rupee against the dollar, which will aid bond prices.

The RBI will sell INR 70 billion of 91-Day T-bill, INR 60 billion of 182-Day T-bill, and INR 60 billion of 364-Day T-bill through a multiple-price method auction from 1030 IST to 1130 IST on Wednesday. 

Traders will monitor developments on the India-US trade deal and will keep an eye on crude oil prices. Some traders are also hopeful that the likely inclusion of Indian government bonds in Bloomberg's Global Aggregate Index in January will pull up bond prices, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.55-6.65%.

India Gilts: Surge after hefty state bond supply sails through

MUMBAI--1630 IST--Government bond prices surged after hefty state bond supply sailed through at cut-off yields in line with expectations, dealers said. Traders covered short sales after the auction result, which saw the market absorb INR 337.20 billion of state bonds. Some traders also speculated the Reserve Bank of India was buying bonds in the secondary market or would announce an open market operation auction to buy gilts after the 10-year benchmark gilt yield hit 6.70% earlier in the day, its highest since Mar. 10.

State bonds maturing up to 10 years were seen offering lucrative spreads over gilts of similar maturities. The 10-year benchmark 6.48%, 2035 gilt outpaced other benchmarks through the day as traders covered short sales in the bond taken earlier in the day and over the last few days, dealers said.

While the five-year benchmark 6.01%, 2030 gilt and 15-year benchmark 6.68%, 2040 gilt were off lows before the auction result, they rose more and reversed losses after the result. Long-term bonds were well bid and cut-off yields were a tad lower than traders had expected, indicating firm demand from long-term investors such as life insurers and pension funds, dealers said. 

"PSUs (public sector banks) were there at the auction but I don't think they bought much," a dealer at a private sector bank said. "They had limited space as they had already bought (gilts) in the secondary market after the yield on the 6.48%, 2035 paper hit 6.70%." 

At 1629 IST, the turnover in the gilt market was INR 367.60 billion, higher than INR 226.35 billion at 1630 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.62-6.74% for the rest of the day. (Janwee Prajapati)

India Gilts: Recover all losses on short covering after PSU banks' buys

NEW DELHI--1225 IST--Government bond prices recovered all losses across tenures, with the 10-year benchmark 6.48%, 2035 gilt rising as traders covered their short bets in the bond, dealers said. State-owned banks stepped up purchases of the gilt as the 10-year benchmark yield rose to new nine-month high of 6.70%, which was considered lucrative as it offered spread of nearly 150 basis points over the policy repo rate of 5.25%. 

Persistent buys from investors at the psychologically crucial level suggested that this would be the top of the new trading range for the 10-year yield, after it had broken its previous high of 6.66% in 2025-26 (Apr-Mar), dealers said. With the heavy build-up of short sales in the past few days and prices having slid sharply since Friday, traders preferred to cover their short sales at a profit. Traders who had expected such a bounce in prices booked profit on the 6.48%, 2035 bond near INR 98.80, dealers said.

"With the action now (banks buying 6.48%, 2035 gilt at 6.70% yield), it looks like the 6.70-6.75% should have strong buying interest from investors because the yield is becoming very attractive against the repo (rate of 5.25%)," a dealer at a primary dealership said. "But follow-through buying will depend on whether we see good cut-offs or not at the (state bond) auction."

Fifteen states had offered to sell INR 332.20 billion worth of bonds at the auction at 1030-1130 IST. The cut-off yield on 10-year state bonds is seen 7.40-7.45%, according to the median of an Informist poll. However, estimates for states such as Punjab and Bihar, which are out of favour with investors, were upwards of 7.60%. Demand from long-term investors was seen firm though cut-off may still be higher than last week due to the heavy supply, dealers said. 

"The market is giving estimates based on past performance instead of current demand-supply situation," a dealer at a state-owned bank said. "The supply is very heavy and traders don't have any appetite, so the cut-offs could really burst out today (Tuesday) and that is going to put the market back in the red."

Some traders said the Bank of India's 10-year infrastructure bond issuance of INR 100 billion at 1200 IST would also drive investors away from state bonds, especially with a paucity of such issuances from state-owned banks so far in 2025-26 (Apr-Mar). However, others said that long-term investors' limits for the bank's bond issuance would be different from its investment limits for states' bond, having little impact on the auction.

At 1225 IST, the turnover in the gilt market was INR 222.00 billion, higher than INR 67.10 billion at 1235 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.62-6.74% for the rest of the day. (Aaryan Khanna)

India Gilts: Fall on poor risk appetite; investors await state bond auction

NEW DELHI--0945 IST--Government bond prices fell due to poor risk appetite after the sharp fall in prices since Friday and upcoming state bond supply, dealers said. Bonds had opened steady due to lack of fresh domestic or global cues but trading momentum and fresh short sales weighed on gilt prices.

The 10-year benchmark 6.48%, 2035 bond's price has fallen nearly 90 paise from Friday's high, with the benchmark yield rising 13 basis points in that span to levels last seen in March. Poor demand for the five-year benchmark 6.01%, 2030 bond at Friday's auction and lack of action by the Reserve Bank of India to cap gilt yields, either through verbal intervention or announcing an open market operation auction to buy gilts, also dented market sentiment, dealers said.

"What's the point of buying today if I'm constantly just facing an MTM (mark-to-market) losses," a dealer at a private sector bank said. "Since the RBI doesn't seem worried about yields, then market will also keep asking for higher (yield) levels."

State-owned banks also preferred to stay on the sidelines in the secondary market ahead of the INR-332.20-billion auction of state bonds at 1030-1130 IST. They were looking to add gilts maturing in up to 10 years to their held-to-maturity portfolios as these offered attractive spreads, which dented demand for gilts as well, dealers said.

With most benchmark yields now at multi-month highs, traders said there was uncertainty around a trading range developing due to the lack of investor demand. A drop in activity by foreign banks at the year-end was also adding to the volatility. The next technical resistance levels for the 10-year benchmark yield were at 6.72% and 6.96%. There is potential that a stop-loss hit at 6.70% Tuesday may drive the 6.48%, 2035 bond's yield jumping to the first support already.

"I can't buy, how can I buy in such a situation where I am facing a 10-basis (point) loss in a week's time? There is no sanctity in this market," a dealer at a state-owned bank said.

At 0930 IST, the turnover in the gilt market was INR 20.70 billion, higher than INR 3.70 billion at the same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.62-6.74% for the rest of the day. (Aaryan Khanna)

India Gilts: Seen opening steady amid lack of cues; state bond auction eyed 

NEW DELHI – Government bond prices may open steady Tuesday amid a lack of significant cues. The result of the INR 332.20 billion state bond auction may lend direction to the market in the second half of trade, dealers said. The movement in the rupee against the dollar may also lend cues to gilts.

The 6.48%, 2035 bond is seen in the range of 6.63-6.70% yield after ending at INR 98.65, or 6.67% yield Monday, with the 10-year benchmark yield closing at its highest level since Mar. 18. Trading volumes may remain thin near the end of the year, with foreign banks avoiding aggressive bets as they close their accounts for 2025 and with several traders being on leave near Christmas and the New Year.

Some traders believe bonds are oversold after prices slid on Monday and they may pick up gilts in the secondary market at levels they consider lucrative. The five-year benchmark 6.01%, 2030 gilt is particularly attractive above 6.40% yield as it offers a healthy "carry", or return, over the current 5.25% repo rate at a time when rate hikes are not seen immediate, dealers said. 

However, a spurt of fresh buying from investors is unlikely. State-owned banks are angling to pick up stock of bonds maturing up to 10 years at the auction, dealers said. Long-term investors such as life insurers and pension funds will also find yields attractive on bonds maturing in over 20 years. Considering the heavy supply, which is higher than the INR-268.55-billion for the indicative calendar in Oct-Dec, the cut-off yields on bonds maturing in 10-20 years may spike and some states may reject bids, dealers said. 

Meanwhile, foreign portfolio investors may continue to sell bonds amid global volatility and uncertainty on further monetary easing in both India and developed economies, dealers said. FPIs sold INR 17 billion worth of fully accessible route gilts Monday, Clearing Corp. of India data showed. The 10-year US Treasury yield was little changed overnight, trading at 4.16% at 0835 IST.  (Aaryan Khanna)

End

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

Edited by Saji George Titus

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