More Stories

Informist, Wednesday, Dec. 31, 2025

By Janwee Prajapati

MUMBAI - Prices of government bonds ended on a mixed note Wednesday. The last hour of trade was volatile, punctuated by a sharp fall in the price of the 10-year benchmark 6.48%, 2035 gilt from highs, followed by a late recovery that helped it close below the key 6.60% yield mark. Most long-term bonds ended higher on optimism over demand-supply dynamics in the March quarter.

"It is almost certainly trading activity from a foreign bank or a mutual fund who wants to start the new year on a fresh note," a dealer at a private-sector bank said. "This will really ruin valuations for PSU (state-owned banks), who would not have done this. There wasn't a strong enough fundamental trigger for it."

The 10-year benchmark 6.48%, 2035 gilt closed at INR 99.22 or 6.59% yield Wednesday, against INR 99.29 or 6.58% yield Tuesday. The 10-year benchmark gilt yield fell only 17 basis points in 2025 despite 125 bps of repo rate cuts from the Reserve Bank of India's Monetary Policy Committee and the central bank's INR 7-trillion of bond purchases through open market operations through the year.

Bond prices recovered losses after public sector banks likely bought gilts as the yield on the 6.48%, 2035 bond hit 6.61% in the secondary market. State-owned banks also picked up bonds after liquidity increased, thanks to government inflows for pensions and salary. The settlement money from the INR-500-billion worth of gilt purchase by the RBI also added to the liquidity with banks. 

Before recovering, bond prices fell sharply as traders likely sold gilts at a profit, which triggered stop losses, dealers said. Stop losses were triggered after 6.48%, 2035 bond price fell to INR 99.15 following the release of government finances data, which showed fiscal deficit in November rose to INR 1.51 trillion from INR 958 billion a year ago. The government's fiscal deficit rose 15.4% on year to INR 9.767 trillion in Apr-Nov, data showed.

Some traders said the expectation of state borrowing calendar announcement for Jan-Mar post market hours also weighed on bond prices. Economists and market participants expect states to borrow around INR 4.5 trillion through bond issuances in the March quarter but some traders see slighlty lower issuances. 

"People are focused on the SDL calendar now," dealer at a private bank said. "Market is expecting around INR 4.0-4.5 trillion of state bonds supply in the Jan-Mar quarter but if the calendar is released today and the quantum is even slightly lower, thn the market will definitely see some positivity."

Private sector banks sold gilts, having bought INR 46.91 billion of gilts on a net basis since Monday, in order to make some space in their portfolio ahead of the weekly gilt auction Friday. Mutual funds, on the other hand, likely bought Treasury bills and state bonds up to one-year of maturity as they also received some flows near the start of the month, dealers said.

Some traders also said that foreign portfolio investors likely bought gilts through foreign banks. However, according to data from Clearing Corp. of India, released post market, showed that foreign banks net sold INR 27.83 billion of gilts Wednesday. As of 1700 IST, foreign portfolio investors net bought gilts worth INR 16.17 billion through the fully accessible route Wednesday, according to data from Clearing Corp. of India. Out of the total 16.17 billion foreign investor buys Wednesday, four billion was recorded in the 5.74%, 2026 gilt.   

Traders also placed short bets ahead of the INR-320-billion worth of weekly gilt auction Friday as they hope to cover their position at a cheaper price at auction which also weighed on the prices.

Turnover in the gilt market was INR 526.60 billion Wednesday, sharply higher than INR 287.55 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There was no trade using the RBI's wholesale e-rupee pilot Wednesday, the same as Tuesday.

OUTLOOK

On Thursday, at open, gilts will likely be steady amid lack of significant cues. Traders expect states' borrowing calendar for the March quarter between INR 4.5 trillion and INR 5.0 trillion. The announcement is expected Thursday. If the borrowing calendar surprises on the higher side, the yield on the 10-year benchmark 6.48%, 2035 gilt may rise to as high as 6.70%, dealers said.

The rupee's movement against the dollar in early trade will also provide cues for bond prices. 

Short sales ahead of the weekly gilt auction Friday, is likely to weigh on the bond prices, dealers said. The government will sell INR 320 billion of 6.48%, 2035 bond Friday. Demand for the 10-year benchmark 6.48%, 2035 bond at auction is expected to be adequate as risk appetite improves in the new year, with the return of foreign investors.

After market hours Tuesday, the RBI said it will purchase seven gilts worth INR 500 billion Monday. The 7.10%, 2029, the 7.95%, 2032, the 7.73%, 2034, the 7.40%, 2035, the 7.41%, 2036, the 8.30%, 2040, and the 7.09%, 2054 bonds are selected for the OMO auction. 

In January, traders expect bond prices to rise due to lower supply as the RBI has scheduled the remaining three tranches of open market operation auctions of INR 500 billion each. Expected foreign inflows due to the likely inclusion of Indian government bonds in Bloomberg's Global Aggregate Index in January will push bond prices higher, dealers said. The banking system liquidity will also likely be in a surplus by mid-January, dealers said.  

Traders will also monitor developments on the India-US trade deal and will keep an eye on crude oil prices. 

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.53-6.63%.

India Gilts: Recover all losses as traders upbeat on prices rising Jan

MUMBAI--1350 IST--Government bond prices recovered all losses as traders bought gilts on the view that bond prices would rise in early January once foreign banks and investors re-enter the market, dealers said. State-owned banks were also likely buying gilts after being the top net sellers for two straight days.

"I think public sector banks are buying at these levels after they were selling for some days," a dealer at a private sector bank said. "...on the upper side of the range, 6.60% (on the 6.48%, 2035 bond) is a key level and on the lower side, 6.58% seems a key level...it's holding pretty well too."

For the 10-year benchmark 6.48%, 2035 bond, trade volume in the secondary market was muted. Traders expect bond prices to trade in a thin band throughout the day as some traders remained absent from the market near the year-end. Some traders said prices might rise towards the end of the day, especially for illiquid bonds, as banks look to improve the valuation of their portfolios at the quarter-end.

While the 10-year benchmark 6.48%, 2035 gilt underperformed ahead of its fresh supply Friday, short- and long-term gilts were up more. Life insurers and other long-term investors have been deploying cash into bonds in December, sweeping long-term bonds in the primary market. Moreover, the Reserve Bank of India has bought around INR 77 billion worth of gilts maturing in 2050 or later through open market operation auctions in December. The positivity extended to benchmark gilts maturing in 15 years or more. Meanwhile, bonds maturing in up to seven years have been in favour with banks for asset-liability management as the five-year benchmark 6.01%, 2030 gilt still offers a spread of over 100 basis points over the policy repo rate of 5.25%, dealers said.

Bond prices had fallen earlier as traders were disappointed by the selection of bonds at the open market operation auction Monday, announced by the Reserve Bank of India, as most of them were illiquid paper in banks' held-to-maturity portfolios, dealers said. Most of the bonds were fairly illiquid and in heavy profit, which is likely to lead to cut-off prices near levels indicated by Financial Benchmarks India Ltd. for Friday. This is unlikely to boost the prices of liquid bonds in the secondary market as replacement demand from banks will likely be diverted to state government securities, dealers said.

Some traders placed short bets ahead of the weekly gilt auction in hope to cover their positions cheaper at the auction Friday, dealers said. Demand for the INR 320-billion supply of the 10-year benchmark 6.48%, 2035 bond is expected to be adequate as risk appetite improves in the new year, with the return of foreign investors. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1330 IST showed trades worth INR 95.63 billion in the 6.48%, 2035 gilt, up from INR 91.55 billion Tuesday.

At 1350 IST, the turnover in the gilt market was INR 230.90 billion, double the INR 105.95 billion at 1335 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 6.55-6.62% for the rest of the day.  (Janwee Prajapati)

India Gilts: Fall on lack of 6.33%, 2035 gilt in OMO, sales by PSU banks Tue

NEW DELHI--0950 IST--Government bond prices fell in early trade as traders were disappointed that the Reserve Bank of India did not include the erstwhile 10-year benchmark 6.33%, 2035 bond at next week's open market operation auction, dealers said. Sentiment was also punctured by public sector banks selling gilts in the secondary market for the second straight day on Tuesday, with the fall exacerbated by subdued trading volumes at the year-end, dealers said.

After market hours Tuesday, the RBI said it would purchase seven gilts worth INR 500 billion on Monday. The seven gilts are the 7.10%, 2029, the 7.95%, 2032, the 7.73%, 2034, the 7.40%, 2035, the 7.41%, 2036, the 8.30%, 2040, and the 7.09%, 2054 bonds. Some traders bought the 6.33%, 2035 gilt Tuesday on hope that the RBI would buy the gilt at its next auction and 10-year bonds including the benchmark 6.48%, 2035 bond were the biggest losers in early trade. Losses were limited as the 10-year benchmark yield rose to near 6.60%, with the key level not expected to break on Wednesday, dealers said.

"We are also a bit surprised by the reaction as we had expected a flat to bullish opening. I think the biggest reaction is because the 6.33% (2035) bond is not there at OMO," a dealer at a state-owned bank said. "As for public sector bank sales, that was largely due to profit booking before the quarter-end. From today (Wednesday) onwards, it should not happen as the trades will fall in the new quarter due to 'T+1' settlement."

State-owned banks have been the top net sellers in the secondary market for the last two days, according to Clearing Corp. of India data. They have sold INR 73 billion worth of gilts, of which INR 27.48 billion came on Tuesday. The purchases have been somewhat offset by large purchases by private sector banks.

"PSU banks have been selling for two days, which has been a negative surprise," a dealer at a primary dealership said. "Some of the selling pressure should continue as auction (in the 6.48%, 2035 bond) is coming up on Friday, so you'll see some short sales. We would prefer to buy in auction than in the secondary market." The government will sell INR 320 billion of the 10-year benchmark 6.48%, 2035 gilt at the auction Friday.

However, the outlook for bond prices remained upbeat as foreign banks and portfolio investors are expected to re-enter the market in the new year and buy bonds, dealers said. These entities will also be looking to front-run the inclusion of India's fully accessible route bonds on Bloomberg's Global Aggregate Index, which is expected to be announced in January. Moreover, with the RBI already having announced INR 1.50 trillion worth of OMO auctions to buy bonds in January, demand-supply dynamics would also be in favour of gilt prices rising, dealers said. 

At 0950 IST, the turnover in the gilt market was INR 80.70 billion, against INR 4.75 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 6.55-6.62% for the rest of the day.  (Aaryan Khanna)

India Gilts: Seen steady amid thin trade; OMO papers to be in favour

NEW DELHI – Government bond prices are seen opening steady on the last day of 2025 amid a lack of fresh cues. Though traders are cautious about placing aggressive bets, optimism on the trajectory of bond prices in the New Year and a positive reaction to bonds at the next open market operation purchase by the Reserve Bank of India may push up prices, dealers said.

The 10-year benchmark 6.48%, 2035 bond yield is seen in the range of 6.54-6.62% after ending at INR 99.29, or 6.58% yield Tuesday. Volumes are expected to be low with several traders on leave at the year-end and foreign banks and portfolio investors closing their accounts for 2025, dealers said. Prices may be volatile due to the thin market liquidity.

Sentiment had improved after the larger-than-expected INR 354.50-billion supply of state bonds sailed through on Tuesday. With foreign banks likely to re-enter the market next week and pick up bonds, gilt prices are expected to see an uptick in the coming days, especially as liquidity conditions also ease due to government spending, dealers said. Moreover, traders want to front-run the announcement of India's inclusion on Bloomberg's Global Aggregate Index, which is expected in January.

After market hours Tuesday, the RBI said it will purchase seven gilts worth INR 500 billion Monday. The 7.10%, 2029, the 7.95%, 2032, the 7.73%, 2034, the 7.40%, 2035, the 7.41%, 2036, the 8.30%, 2040, and the 7.09%, 2054 bonds are selected for the next OMO auction. The 6.33%, 2035 gilt price may fall Wednesday, since some traders bought the gilt Tuesday on hopes that the RBI would buy the gilt at its next auction. However, most of the bonds are heavily profitable in banks' held-to-maturity books and traders are upbeat they would be able to sell some longer-term bonds, after the RBI bought nearly half of the notified INR 500-billion quantum in gilts maturing in five years or less at the last OMO auction in December, dealers said.

At the same time, banks may avoid buying gilts to improve their quarter-end valuations until the last hour of trade. "Under the new accounting norms, it's not the closing price that is reflected at the quarter end, it is the weighted average of the trades in the last hour," a dealer at a primary dealership said. "So, the valuation buying does not make sense anymore and has not happened for the last few quarters."

Meanwhile, the minutes of the US Federal Open Market Committee's Dec. 9-10 meeting were on expected lines and didn't make a significant difference on the expected interest rate trajectory in the US, dealers said. The 10-year US Treasury yield was little changed at 4.13% at 0830 IST Wednesday. Fed funds futures were pricing in an 85.1% chance the US Federal Open Market Committee will hold rates at its next meeting in late January, according to CME's FedWatch tool.  (Aaryan Khanna)

End

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

Edited by Vandana Hingorani

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.