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Informist, Wednesday, Dec. 24, 2025

By Janwee Prajapati

MUMBAI – Government bond prices ended sharply up on Wednesday after the Reserve Bank of India announced INR 2 trillion of open market operations auction after market hours Tuesday. Traders covered short bets which they had placed on view of prices falling amid poor risk sentiment at the year-end, which reversed after the announcement of the larger-than-expected OMO. Some traders bought the papers selected for the auction to push up the prices so that they can offer it to RBI at higher prices and book some profit, dealers said.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 99.56, up from INR 98.90 Tuesday. The closing yield was 6.5398%, down from 6.6328% Tuesday. The 10-year benchmark yield fell 9 basis points Wednesday, its steepest single-day fall since Apr. 2. However, as prices rose, traders ramped up sales to book profit as the 10-year benchmark 6.48%, 2035 bond fell below the psychologically crucial yield of 6.55%, which brought yields nearly back to 6.55%. 

"Currently it is the reaction to OMO," a dealer at a private sector bank said. "I think this level will hold till January at least as we have 3 tranches of OMOs in January. The yields might even rally upto 6.45%."

The RBI will buy gilts worth INR 500 billion each on Dec. 29, Jan. 5, Jan. 12, and Jan. 22, it said in a release after market hours Tuesday. In a separate release, the RBI offered to buy seven gilts--the 6.79%, 2029; the 7.61%, 2030; the 7.26%, 2033; the 6.79%, 2034; the 6.67%, 2035; the 7.18%, 2037, and the 7.30%, 2053 gilt--in the first tranche on Monday. Some traders said that most of the bonds are off-the-run papers and mostly stocked up in held-to-maturity books. Traders will likely offer these papers only at a premium over the market prices to the RBI, dealers said.   

Apart from the OMO auction, the RBI also announced a $10 billion, three-year dollar-rupee buy-sell swap auction scheduled to be conducted on Jan. 13. Traders had expected any dollar-rupee buy-sell swap operations, which were seen essential amid the surge in forward premia, to limit the size of OMOs.

"RBI's INR-2-trillion OMO bond purchase announcement with $10 billion buy-sell swap in January is directed to shock & awe market sentiment. I think traders have received the message," said Dhawal Dalal, president and chief investment officer-Fixed Income at Edelweiss Mutual Fund. "I feel the 10-year yield will most likely fall below 6.50% by March 31, 2026."

Traders bought the papers selected for the auction to push up the prices so that they can offer it to RBI at higher prices and book some profit, dealers said. The former 10-year 6.79%, 2034 gilt was up 75 paise and its yield was down 11 basis points after being chosen as one of the bonds at the OMO auction Monday. Traders now expect the rise in gilt prices to percolate into the weekly gilt auction cut off followed by a firm demand for such gilts at auction, dealers said. The government will sell INR 90 billion amount of 5.91%, 2028 gilts, INR 110 billion amount of 6.28%, 2032 gilts, and INR 120 billion worth of 7.24%, 2055 gilts at the weekly auction Friday.  

On other hand, some traders feared that a significant rise in India's CPI data will likely led to fall in bond prices while others said the RBI's ammunitions to keep gilt yields in check after January is limited and yields may rise again heading into or after the Union Budget for 2026-27 (Apr-Mar) on Feb. 1. As a result of these events, traders expect the yields to rise up to 6.60-6.65% level. Some traders are focused on the CPI prints January onwards with the RBI projecting retail inflation to average 2.9% in the March quarter. Other traders pointed out that an announcement of significantly heavier supply of state bonds in the subsequent quarters can also weigh on bond prices, dealers said.

Turnover in the gilts market was INR 594.05 billion Wednesday, higher than INR 405.80 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trade using the RBI's wholesale e-rupee pilot Wednesday, the same as Tuesday. 

OUTLOOK

Money markets are shut on Thursday for Christmas. On Friday, gilts will open higher continuing the sharp rise in prices Wednesday after the RBI Tuesday announced INR-2-trillion gilt buys across December and January. Prices may also track the movement in US Treasury yields. Movement in rupee in early trade will also lend cues to the bond prices. Later in the day, traders will focus on weekly auction result.

The government will sell INR 90 billion amount of 5.91%, 2028 gilts, INR 110 billion amount of 6.28%, 2032 gilts, and INR 120 billion worth of 7.24%, 2055 gilts at the weekly auction Friday. Deamnd at the auction is likley to be firm following the rise in bond prices Wednesday due to larger-than-expected OMo auction Monday, dealers said. 

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. 

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 push bond prices higher, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.53-6.60%.

India Gilts: Sharply up; traders book profits near 6.55% yield on 10-yr gilt

MUMBAI--1610 IST--Government bond prices remained sharply up as traders picked up gilts following the Reserve Bank of India's announcement that it would buy INR 2 trillion of bonds between Monday and Jan. 22. Profit booking continued as the yield on the 10-year benchmark 6.48%, 2035 gilt fell below the psychologically crucial 6.55% level and the two-way trade led to a spike in volumes, dealers said. 

Traders covered short bets which they had placed on the view that prices may fall amid poor risk sentiment at the year-end, which reversed after the larger-than-expected open market operation announcement. Traders bought the papers selected for the auction in order to push up the prices so that they can offer it to RBI at higher prices and book some profit, dealers said. The former 10-year 6.79%, 2034 gilt was up 78 paise and its yield was down 12 basis points after being chosen as one of the bonds at the OMO auction Monday.

The central bank has also offered to buy the 6.79%, 2029; the 7.61%, 2030; the 7.26%, 2033; the 6.67%, 2035; the 7.18%, 2037, and the 7.30%, 2053 gilts at the INR-500-billion OMO auction. Some traders were of the view that cut-off prices will be near market levels, which could push up secondary market prices after the auction. Others said that banks would likely be keen to book as much profit as possible by selling a larger quantum of gilts and tender bonds aggressively near the quarter-end, pulling down cut-off prices. 

"Mostly the papers are HTM (held-to-maturity) papers," a dealer at a private-sector bank said. "Only some papers are in the money...people will likely offer at market levels only. I am expecting the auction will be similar to last (OMO) auction." 

Trade volume in the secondary market rose following the announcement of OMO auction post market hours Tuesday. At 1610 IST, the turnover in the gilt market was INR 495.15 billion, almost 40% higher than INR 357.90 billion, at 1630 IST Tuesday, 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 6.53-6.60% for the rest of the day. Money markets are shut on Thursday for Christmas. (Janwee Prajapati)

India Gilts: Up more to day's high; 10-yr yld on track for best day since Apr

NEW DELHI--1225 IST--Government bond prices rose more to the day's high amid persistent demand for bonds after the Reserve Bank of India's announcement that it would buy INR 2 trillion of bonds between Monday and Jan. 22. The 10-year benchmark yield has fallen more than 8 basis points Wednesday and is on track for its steepest single-day fall since Apr. 2, the first trading day of the current financial year.

Traders had expected around INR 2.5 trillion of open market operation auctions from the RBI between December and March, with some having a view of an even lower number due to durable liquidity infusion from other sources including dollar-rupee buy-sell swap auctions. The market has moved sharply because the central bank has already conducted OMO auctions to buy bonds worth INR 1 trillion and frontloaded its purchases to total INR 3 trillion by Jan. 22, dealers said.

As prices surged, traders ramped up sales to book profits as the 10-year benchmark 6.48%, 2035 bond neared and then fell below the psychologically crucial 6.55% yield level. A fall below that yield level is unlikely to be sustained Wednesday ahead of the holiday on Thursday and before the first tranche of the RBI's scheduled purchases on Monday, dealers said. Money markets are shut on Thursday for Christmas. Other than short covering, foreign banks were also not making any large view-based purchases near the end of the year, when they close their accounts, dealers said.

"I don't think there is any new reason for the last 10-12 paise move, there is just constant buying coming from traders," a dealer at a primary dealership said. "It may remain range-bound at these levels, around 6.53-6.55%, but I think it will test 6.50% in January once foreign banks come back into the market."

In addition to the announcement of larger-than-expected OMO purchases, the central bank may have also bought gilts in the secondary maket Tuesday to cap bond yields after the 10-year benchmark yield hit a nine-month high of 6.70%, dealers said. This was seen as a signal by traders of the central bank's discomfort with high yields and may entail state-owned banks also buying gilts should the yield on the 6.48%, 2035 bond rise to 6.60%.

On the other hand, with the front-loading of OMO purchases, traders said the RBI's ammunition to keep gilt yields in check after January was limited and yields may rise again heading into or after the Union Budget for 2026-27 (Apr-Mar) on Feb. 1. Therefore, some banks were only looking to gradually replace the bonds they would sell to the RBI at the OMO purchases, as well as replenish stock in their held-to-maturity portfolios using state government securities, dealers said. 

At 1225 IST, the turnover in the gilt market was INR 301.60 billion, higher than INR 220.25 billion at 1230 IST Tuesday, 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 6.53-6.60% for the rest of the day. (Aaryan Khanna)

India Gilts: Jump on RBI's larger-than-expected INR-2-tln OMO buy notice

NEW DELHI--0945 IST--Government bond prices jumped after the Reserve Bank of India announced it would buy INR 2 trillion worth of gilts through open market operation auctions between Dec. 29 and Jan. 22. The size of the announcement was larger than traders were expecting for January alone and they rushed to cover their short bets, dealers said. 

Moreover, the RBI announced a $10-billion, three-year dollar-rupee buy-sell swap auction for Jan. 13. Traders had expected any dollar-rupee buy-sell swap operations, which were seen essential amid the surge in forward premia, to limit the size of OMOs. With the RBI deciding to announce large quantums for both operations, traders expect banking system liquidity to swing back to a surplus of near 1% of banks' net demand and time liabilities in January, after being in a deficit since Dec. 16.

"It's a bigger jump than I thought it would be, but then the size that they are doing is also huge. He (RBI) is buying 2 lakh crore (INR 2 trillion) in a month!," a dealer at a primary dealership said. "So, we should see some selling at 6.55% today (Wednesday), but what he has done is a gamechanger." Intraday, the 10-year gilt yield hit its lowest since Dec. 9. 

After the knee-jerk reaction to the announcement, dealers said sustained buying would come in from state-owned banks as they look to replenish the stock sold to the RBI at the INR-1-trillion OMO purchases in December, with prices expected to rise more once near-weekly purchases from the central bank begin. Moreover, the bonds that the RBI had selected for the first tranche of these operations on Monday were also in line with market recommendations and would see heavy offers, dealers said. The RBI has offered to buy INR 500 billion of the 6.79%, 2029; the 7.61%, 2030; the 7.26%, 2033; the 6.79%, 2034; the 6.67%, 2035; the 7.18%, 2037, and the 7.30%, 2053 gilts Monday.

At 0945 IST, the turnover in the gilt market was INR 116.00 billion, higher than INR 20.70 billion at 0930 IST Tuesday, 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 6.53-6.60% for the rest of the day. (Aaryan Khanna)

India Gilts: Seen opening up on RBI's INR-2-tln OMO notice for Dec-Jan

NEW DELHI – Government bond prices are seen opening higher Wednesday after the Reserve Bank of India announced it would buy INR 2 trillion worth of gilts in four auctions across December and January. Speculation of such measures and the central bank's buying of gilts in the secondary market Tuesday had led to a surge in prices, helping the 10-year benchmark gilt yield ease after hitting an over nine-month high of 6.70%.

The 6.48%, 2035 bond is seen in the range of 6.55-6.65% yield after ending at INR 98.90, or 6.63% yield Tuesday. On Tuesday, the 10-year benchmark yield hit 6.70% intraday, its highest level since Mar. 11.

The RBI will buy gilts worth INR 500 billion each on Dec. 29, Jan. 5, Jan. 12 and Jan. 22, it said in a release after market hours Tuesday. In a separate release, the RBI offered to buy seven gilts – the 6.79%, 2029; the 7.61%, 2030; the 7.26%, 2033; the 6.79%, 2034; the 6.67%, 2035; the 7.18%, 2037 and the 7.30%, 2053 gilt – in the first tranche on Monday.

The frontloading of the liquidity infusion will likely lead to banks stepping up their replacement demand and traders will cover their short sales, dealers said. Traders had estimated INR 2 trillion of further OMO purchases over the March quarter, not only in January as the RBI has announced. The central bank has already bought INR 1 trillion of gilts at auction in December and INR 6.5 trillion in calendar year 2025.

Moreover, some traders speculated the central bank also bought gilts in the secondary market Tuesday in order to cap yields, despite comments from RBI Governor Sanjay Malhotra on Dec. 5 that OMOs are primarily a measure to manage liquidity and not a yield signal. 'Others' – a category that includes the central bank – net bought INR 47.40 billion of gilts in the secondary market Tuesday, data from the Clearing Corp. of India showed. This is likely to increase traders' risk appetite and may bring down the 10-year benchmark yield to as low as 6.50% in January, dealers said. 

"When there is certainty that the RBI is committing to buy INR 2 trillion in a month, then banks will also start replacing now," a dealer at a private-sector bank said. "They were relying on the supply overhang to fill up their portfolios at higher yield levels, that's now gets delayed because of the RBI."

Meanwhile, the 10-year US Treasury yield was at 4.16% at 0835 IST, marginally higher from the level at 1700 IST Tuesday, but failed to break the crucial 4.20% mark despite quicker-than-expected GDP growth in the US. US GDP grew 4.3% on year in Jul-Sept against 3.2% expected in a Dow Jones poll, weakening the case for the US Federal Open Market Committee to cut rates further.  (Aaryan Khanna)

End

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

Edited by Akul Nishant Akhoury

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