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Informist, Friday, Jan. 2, 2026

 

By Cassandra Carvalho

 

MUMBAI – Prices of government bonds ended sharply down after the cut-off price on the 10-year benchmark 6.48%, 2035 gilt at auction was lower than expectations, dealers said. Prices also fell on account of a rise in overnight indexed swap rates nearing the end of trade, they said. Traders refrained from placing aggressive bets on caution ahead of the release of states' borrowing calendar for the March quarter. The calendar is expected to be announced after market hours Friday.

 

The 6.48%, 2035 gilt closed at INR 99.09, or 6.61% yield, Friday, against INR 99.26, or 6.58%, Thursday. The five-year overnight indexed swap rate ended at 5.96%, from 5.93% Thursday, hitting the crucial level of 5.97% intraday.

 

"Auction cut-off was bad but still market rallied, but now again there is selling," a trader at a primary dealership said. "Some short-covering was not completed, so that's why there was a 10 paise move, looks like. But overall people are a little cautious because of the SDL (state bonds) calendar which is due today (Friday). No big positions are going to be built today."

 

Traders expected a state borrowing calendar of between INR 4.50 trillion and INR 5.00 trillion for the March quarter, with some speculating that the figure could be below consensus estimates. Dealers said that if the calendar were to be near INR 5 trillion or higher, the 10-year benchmark bond yield could hit 6.70%. Hence traders trimmed the risk ahead of the expected release.

 

At the auction, the Reserve Bank of India set a cut-off price of INR 99.03 for the 6.48%, 2035 gilt, below the Informist poll estimate of INR 99.09. The weighted average price for the gilt was slightly higher but still below estimates at INR 99.07. Some traders were comfortable with the weighted average price, as they were expecting a cut-off of INR 99.05.

 

"The weighted average (price) at the auction (was) fine only. It was (INR) 99.07, plus minus 5 paisa is okay," a dealer at a private-sector bank said. "I thought 'nat' banks (state-owned banks) would be there because of OMO (replacement of gilts sold at the RBI's open market operation auction) but doesn't look like."

 

The tepid demand from state-owned banks worried some traders. The auction result was expected to hinge on demand from state-owned banks after their profit sales in the secondary market and to the RBI at last month's OMO auctions made space in their books. However, state-owned banks were not interested in picking up the bond at prices so close to current market levels and wanted a higher discount, they said. State-owned banks likely bought around INR 60 billion of the INR 320 billion supply, according to dealers. 

 

Demand from mutual funds resulted in the auction sailing through, dealers said. Mutual funds were querying for the 6.48%, 2035 paper in the secondary market Thursday and Friday, and likely picked up INR 80 billion to INR 90 billion of the bond at the auction, dealers said. Mutual funds net bought gilts worth INR 51.93 billion in the secondary market Thursday, according to data from Clearing Corp. of India.

 

Bond prices recovered somewhat after the auction result as some traders were unable to cover their short bets at the auction and bought gilts in the secondary market. Banks also had more liquidity to invest in gilts since it is the start of the March quarter, dealers said. Foreign portfolio investors were net buyers in the gilts market for the third session in a row, with net purchases of INR 13.26 billion Friday as of 1900 IST, according to Clearing Corp. data.

 

Nearing the end of trade, swap rates rose in thin trade and bond prices went down again. Traders speculated that offshore traders were paying fixed rate contracts.
 

Turnover in the gilts market was INR 424.15 billion Friday, up from INR 369.15 billion Thursday, 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 for at least the fourth successive session.

 

OUTLOOK

Gilts are not traded Saturdays. Gilt prices are seen plunging Monday after the RBI, after market hours Friday, said states plan to raise INR 5 trillion through bonds in Jan-Mar, the higher end of traders' expectations. Traders had expected the 10-year benchmark yield to hit 6.70%--the highest yield so far in the financial year ending March--if the state borrowing figure was near or above INR 5 trillion, a level that dealers expect the central bank to be uncomfortable with. The fall in prices may be offset, however, after RBI data showed the central bank bought gilts worth INR 41.55 billion onscreen Dec. 23, the day the 10-year benchmark yield rose to 6.70%.

 

Nine states aim to raise a heavy INR 301 billion through bonds Tuesday, most of them maturing in 10-20 years, tenures traders are not comfortable holding. This may further weigh on government bond prices.

 

Traders will also track the result of the INR 500-billion OMO auction Monday. The central bank will buy 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 at the auction. Traders do not favour these bonds much.

 

The rupee's movement against the dollar in early trade will also provide cues for bond prices, as will the movement in US Treasury yields and crude oil prices. Foreign banks are likely to frontrun the likely announcement of India bonds' inclusion in the Bloomberg Global Aggregate Index in January. The government's first advance estimate of GDP for FY26 on Wednesday may also lend cues on interest rates next week, dealers said.

 

Developments in the India-US trade deal negotiations may also influence bond prices. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.57-6.70% Monday.

 

	FRIDAY		THURSDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	99.0900	6.6062%	99.2625	6.5818%
6.33%, 2035	98.0250	6.6153%	98.1500	6.5968%
6.01%, 2030	98.7450	6.3311%	98.8125	6.3130%
6.68%, 2040	96.9800	7.0151%	97.1800	6.9922%
6.90%, 2065	94.5000	7.3272%	94.5500	7.3231%

 

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India Gilts: Recover some losses as large auction supply sails through

 

	1516 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	99.12	99.21	98.97	99.21	99.26
YTM (%)	6.6027	6.5892	6.6232	6.5892	6.5818

 

MUMBAI--1516 IST--Prices of government bonds remained down as the cut-off price on the 10-year benchmark 6.48%, 2035 gilt at the gilt auction was lower than expected. However, prices recovered some losses in the secondary market because several traders had already expected a low cut-off, and the bond's weighted average price was higher. Caution ahead of the release of the states' borrowing calendar for Jan-Mar, expected post-market hours, deterred traders from placing any aggressive bets, dealers said.  

 

At the weekly gilt auction, demand from public sector banks was muted, as they preferred to bid at prices well below secondary market levels, dealers said. However, the INR 320 billion supply sailed through as traders covered some short sales placed before the auction and on mutual fund demand, dealers said. Public sector banks likely bought INR 80-90 billion of the 6.48%, 2035 gilt at auction, while mutual funds likely bid for around INR 60 billion, a dealer at a state-owned bank said. The Reserve Bank of India set a cut-off price of INR 99.03 for the 6.48 35 gilt, below the Informist poll estimate of INR 99.09. The weighted average price for the gilt was slightly higher but still below estimates at INR 99.07. The central bank accepted 225 bids out of the 395 bids received, indicating that traders did not bid aggressively.       

 

Traders refrained from placing fresh bets on caution ahead of the expected release of the states' borrowing calendar for Jan-Mar, as they expect a higher borrowing quantum during the quarter. Some traders speculated that the borrowing calendar would be below the consensus estimate of INR 4.50 trillion, which helped in price recovery. Some traders also expect Indian bonds to be included in Bloomberg's Global Aggregate Index, with the announcement expected this month. Such an announcement will likely prevent a sharp fall in bond prices even if the quantum of states' borrowing for the Jan-Mar calendar surprises on the higher side, dealers said. Some traders expect bond prices to rise toward the end of trading, on optimism about lower-than-expected state borrowing, and as appetite for bonds has increased at the beginning of the March quarter, dealers said. 

 

"I think it (yield on 6.48%, 2035 bond) will remain rangebound between 58-61 (6.58-6.61%)," a dealer at a state-owned bank said. "There are two key aspects now, one we are on the verge of SDL (state bond) auction calendar (for Jan-Mar quarter) and next is the Bloomberg index inclusion which a positive. So the supply of SDL is crucial. Iit is higher then, it will be bad."

 

At 1516 IST, the turnover in the gilt market was INR 308.35 billion, slightly higher than INR 294.95 billion at 1535 IST Thursday, 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 6.57-6.65% for the rest of the day.  (Janwee Prajapati)

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India Gilts: Fall more as rupee below 90/$1; demand at auction seen mixed

 

	1230 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	99.06	99.21	99.04	99.21	99.26
YTM (%)	6.6104	6.5892	6.6133	6.5892	6.5818

 

MUMBAI--1230 IST--Prices of government bonds fell more after the rupee fell past the psychological 90 per dollar mark intraday, dealers said. Traders await the result of the INR-320-billion auction of the 10-year benchmark 6.48%, 2035 gilt. Demand at the auction is seen mixed, as traders are likely to cover short sales at the auction but uncertainty deterred any aggressive bids.

 

The rupee fell to the day's low of 90.1675 per dollar Friday, cruising past the crucial 90 mark, which triggered a further fall in bond prices, dealers said. This was the first time the rupee tumbled below 90 a dollar since Dec. 19, and bond traders were not pricing in a fall below the 90 mark, they said. Bond prices had already fallen earlier in the day as traders made room for fresh supply at the INR-320-billion auction. 

 

"After bidding, there is a change in USD/INR. The big figure has changed, so this will be a big pain if it falls more," a dealer at a primary dealership said. "If not for the currency, then maybe market would've risen, or at least been stable."

 

At the auction, several traders did not bid aggressively for the 10-year benchmark bond. An Informist poll estimated the cut-off price on the 6.48%, 2035 gilt at INR 99.09. Some traders said the cut-off could be lower at INR 99.02-99.05. Lack of certainty on states' borrowing calendar for the March quarter weighed on appetite, they said. Traders were expecting the announcement earlier this week, and hope for the release post market hours Friday. Traders expect a calendar of INR 4.50 trillion to INR 5.00 trillion. The 10-year benchmark bond yield could rise to 6.65-6.70% if the calendar is at or above INR 5.00 trillion, dealers said. 

 

However, due to a large number of short sales placed on the benchmark gilt and on the erstwhile 10-year benchmark 6.33%, 2035 gilt in the run up to the auction, some dealers said the cut-off price at auction is unlikely to be sharply below expectations. 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 1230 IST showed trades worth INR 137.86 billion in the 6.33%, 2035 gilt and INR 111.68 billion in the 10-year benchmark gilt.

At 1230 IST, the turnover in the gilt market was INR 146.80 billion, almost similar to INR 150.70 billion at 1235 IST Thursday, 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 6.57-6.66% for the rest of the day.  (Cassandra Carvalho)

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India Gilts: Dn; traders make room for INR 320-bln supply of 6.48%, 2035 bond

 

	1035 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	99.14	99.21	99.13	99.21	99.26
YTM (%)	6.5991	6.5892	6.6002	6.5892	6.5818

 

MUMBAI--1035 IST--Prices of government bonds were down ahead of the weekly gilt auction Friday as traders made space for the INR 320-billion supply of the 6.48%, 2035 gilt, dealers said. Traders refrained from placing aggressive bets ahead of the auction result.

Demand may be widespread but traders are angling to bid at lower prices than the secondary market levels due to the large quantum on offer, dealers said. Some public-sector banks will likely buy the 6.48%, 2035 paper after they sold heavy quantum of gilts to the Reserve Bank of India through open market operations auction. However, such replacement demand is seen limited as public sector banks prefer papers having maturity up to 7-8 years and will likely opt for the 10-year benchmark bond for their trading books, dealers said. Some traders are also switching their holdings of the erstwhile 10-year benchmark 6.33%, 2035 gilt with the newer 6.48%, 2035 bond.

 

"I am expecting 60-61 (6.60-6.61% yield on 6.48%, 2035 bond) which is around 5-10 paise (INR 99.05-INR 99.10) as the size is 320 (INR-320-billion) so it's on the higher side," a dealer at a state-owned bank said. "Demand depends on the size of the auction also and given the volumes in the secondary market I don't think anybody will be aggressive."

 

Losses were limited in the secondary market as traders stepped up purchases near the key 6.60% yield, which has seen firm demand from both banks and mutual funds in the last two days, dealers said. The auction result will lend cues for bond prices in the second half of the day.

 

Even with a positive auction result, traders may avoid large bets before states' indicative borrowing calendar for Jan-Mar is released, expected after market hours Friday. Some market participants are hoping for a borrowing number between INR 4 trillion and INR 4.5 trillion, while others are concerned that the indicated amount in the calendar could be lower than the actual borrowing, dealers said.

 

"I think the borrowing calendar will be on the higher side, like above 4.5 (INR 4.5 trillion)," a dealer at a primary dealership said. "It is because of all the schemes that are introduced, I think states will have to borrow more."

 

At 1035 IST, the turnover in the gilt market was INR 61.10 billion, slightly lower than INR 67.05 billion at 1030 IST Thursday, 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 6.55-6.64% for the rest of the day.  (Janwee Prajapati)

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India Gilts: Seen steady before INR 320-bln auction; demand seen firm

 

NEW DELHI – Government bond prices are expected to open steady before the INR 320-billion auction of the 6.48%, 2035 bond. Demand at the auction for the 10-year benchmark bond is seen firm, with traders also optimistic that bond prices will rise next week after the Reserve Bank of India's next open market operation auction and a return of foreign banks and portfolio investors, dealers said. 

 

The 6.48%, 2035 bond yield is seen in the range of 6.54-6.65?ter ending at INR 99.26, or 6.58% yield Thursday. Demand for the bond from state-owned banks was firm when its yield rose above the 6.60% mark earlier this week, which is seen a positive for bidding at the auction, dealer said. However, short sales before the auction at 1030-1130 IST may weigh on bond prices in early trade.

 

Investor demand for gilts has already shown signs of improving after banks aggressively bid for state bonds earlier this week. However, traders may be cautious in stocking up their portfolios before the indicative state borrowing calendar for the March quarter is announced. Market expectations for the calendar are in a range of INR 4.25 trillion to INR 4.75 trillion.

 

The announcement was expected earlier this week and may finally come on Friday, along with the notification for next week's state bond auction, dealers said. 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%, the highest so far in the current financial year started April, dealers said.

 

The RBI's weekly bond purchases through open market operation auctions until Jan. 22 will limit the impact of fresh supply this month before yields rise, dealers said. The central bank will buy 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 at Monday's OMO auction, it said in a release Tuesday.

 

Even with sentiment upbeat and India's expected inclusion in Bloomberg flagship debt Global Aggregate Index in January, traders are also looking forward to further interest rate cues. The government will release the advance estimate of GDP growth in 2025-26 (Apr-Mar) on Wednesday, and a reading above 7.5% is likely to wipe out any hope of further rate cuts. Moreover, traders are keen to take profits if the 10-year benchmark yield falls to 6.55%, which may cap gains even from a positive auction result, dealers said.  (Aaryan Khanna)

 

End

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

 

Edited by Rajeev Pai

 

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