More Stories

Informist, Monday, Jan. 5, 2026

By Janwee Prajapati

MUMBAI - Prices of government bonds ended sharply down Monday, as traders readjusted their books to make room for heavy state bond supply, after the Reserve Bank of India said states aim to borrow INR 5.00 trillion in the March quarter, the upper end of the INR 4.5 trillion-INR 5.00 trillion expectation, dealers said. Later in the day, the result of the INR 500 billion open-market operation auction weighed on bond prices, as cut-off prices were sharply below estimates. However, purchases from public sector banks at the psychologically crucial level of 6.65% on the 10-year benchmark 6.48%, 2035 bond limited losses. 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.90, down from INR 99.09 Friday. The bond's yield ended at 6.63%, up from 6.61% Friday. Some traders unwound their bond swap trades by selling the 6.01%, 2030 bond and receiving fixed-rate contracts in the five-year swap rate. This weighed on the price of the five-year benchmark 6.01%, 2030 bond, which closed at INR 98.61, down almost 14 paise from Friday's close.

RBI Friday said states will borrow INR 5 trillion through bonds in the March quarter, the highest borrowing by states in a single quarter.

Following the announcement of the indicative state borrowing calendar, some market participants sold gilts, expecting investors to prefer state government securities over gilts because state bond yields are more lucrative, dealers said. However, traders refrained from placing aggressive bets ahead of the weekly state bond auction Tuesday. States aim to raise INR 301 billion Tuesday. State bond yields are likely to rise at the auction, which will most likely percolate into gilt prices in the secondary market, dealers said. 

"Levels are definitely attractive to buy right now, but the question is what about further supply?" a dealer at a private sector bank said. "Maybe yields could go higher. (We have heavy) state supply and next month (in Budget for FY27) we have to see how much is the government (the Centre) borrowing." 

At the open market operation auction Monday, the RBI purchased gilts worth INR 500 billion. Traders who sold gilts to the RBI at the OMO auction are likely to replenish their portfolios by purchasing gilts maturing within 5-10 years in the secondary market, dealers said. The yield spread between the short-term bonds and the repo rate is lucrative for buying these gilts, some dealers said. The 6.01%, 2030 bond last traded at a spread of 112 basis points above the repo rate of 5.25% Monday. 

"The yield curve is steep at the shorter end, while it's flat on the longer end," a dealer at a private sector bank said. "It is steep for bonds up to 15 years, while for bonds beyond 30 years is almost flat... mostly because of the insurance companies who are keeping the bonds at 7.38-7.50% levels." Traders sold long-term gilts due to the heavy supply of state bonds expected in these tenures. Prices of bonds with maturities of 30 years or more are likely to remain under pressure even as investor demand is expected to pick up in the March quarter, dealers said.

Some traders said bond prices are likely to rise with the expected inclusion of Indian bonds in the Bloomberg Global Aggregate Index, with the announcement likely in mid-January. Other traders also considered the release of GDP and inflation data important cues for bond price movements, dealers said. The first advance estimate of GDP for FY26 is due Wednesday, while CPI inflation data for December will be released on Jan. 12.

Turnover in the gilts market was INR 514.20 billion Monday, up from INR 424.15 billion Friday, 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 fifth successive session.

OUTLOOK

Gilt prices are seen steady Tuesday ahead of the weekly state bond auction, the result of which will lend further cues, dealers said. Nine states aim to raise a heavy INR 301 billion through bonds, most of them maturing in 10-20 years, tenures that traders are not comfortable holding. 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 front-run the expected announcement of the inclusion of Indian bonds in the Bloomberg Global Aggregate Index in January. The government's first advance estimate of GDP for FY26, to be released on Wednesday, may also provide cues on interest rates, dealers said. However, traders are currently focused on supply in the bond market. 

Developments in the India-US trade deal negotiations may also influence bond prices. Some traders are also tracking developments in Venezuela and its impact on crude oil prices. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.58-6.70% Tuesday.

India Gilts: Stay down on disappointing OMO result; value-buys limit fall

MUMBAI--1538 IST--Prices of government bonds remained sharply down after the Reserve Bank of India's open market operation auction result. Bond prices changed little as the cut-off prices at the auction were below expectations. While the auction result was disappointing for traders, current yield levels were lucrative to buy gilts and several sections of market participants were on the buying side, dealers said. 

The RBI bought six gilts for the total notified amount of INR 500 billion at the auction, setting cut-off prices that were around 10-30 paise below those indicated by Financial Benchmarks India Pvt. Ltd. Friday. Not one bond had its cut-off price above the indicated level. Traders had expected prices closer to indicative prices, with some bidding above indicated prices, dealers said.

Several traders did not get to sell bonds to the RBI and speculated that a large state-owned bank took profits by offering large quantums of the 7.73%, 2034; 7.40%, 2035; and 7.41%, 2036 bonds at the auction. The central bank accepted the largest quantum of INR 188.97 billion in the 7.40%, 2035 gilt. The cut-off price on the 'on-the-run' profitable 7.09%, 2054 gilt was closer to estimates, dealers said. The RBI set a cut-off of INR 97.77 on the bond, against an Informist poll estimate of INR 97.86.

Current yields in the secondary market offered lucrative spreads over the repo rate, and purchases at these levels limited losses from the disappointing OMO auction result, dealers said. "We've seen that 6.55-6.58% (yield on the 6.48%, 2035 bond) are constant levels," a dealer at a state-owned bank said. "If I buy at these levels of 6.64-6.65%, then I'm easily getting a 7 bps advantage at least. The outlook is largely positive on index inclusion, and OMOs." The RBI has scheduled two more OMO auctions of INR 500 billion each in January. Alongside, traders expect an announcement this month, confirming the inclusion of Indian government bonds in the Bloomberg Global Aggregate Index. 

As traders readjusted their portfolios to accommodate heavy state bond supply in the Jan-Mar quarter, bonds maturing in 15 years or more were down the most. The 15-year 6.68%, 2040 gilt traded at INR 96.47, down 51 paise from Friday's close. The 6.90%, 2065 bond was also down over 50 paise at INR 93.95.

At 1535 IST, the turnover in the gilts market was INR 403.10 billion, up from INR 321.00 billion at the same time Friday, 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 6.59-6.68% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Remain down on heavy state bond calendar; PSU bk buys limit losses

MUMBAI--1351 IST--Government bond prices remained sharply down due to larger-than-expected state borrowing calendar for the Jan-Mar quarter, dealers said. Some state-owned banks likely stepped up purchases as the 10-year benchmark yield approached the psychologically crucial 6.65% mark, which helped the 6.48%, 2035 gilt recover from the day's low.

"It's just a 10 paise move here and there, mostly intraday volatility," a dealer at a primary dealership said. "I expect the levels to hold at 6.66% (on the 6.48%, 2035 bond) levels as everybody will pick up bonds at this levels, but if it breaks 6.66% then it can go till 6.70%."

States announced an indicative borrowing calendar of INR 5 trillion for Jan-Mar after market hours Friday. The quantum was higher than the market's estimate of INR 4.5 trillion. Some sections of the market had expected an even lower number and sold gilts after the notice as they expected investor demand would be concentrated in state government securities, dealers said.  

Bond prices fell more ahead of the result of the Reserve Bank of India's INR-500-billion open market operation as traders likely expected the cut-off to be lower than Financial Benchmarks India Pvt. Ltd. levels. State-owned banks were looking to book profits on bonds maturing in 4-10 years and may be aggressive in tendering the bonds, dealers said. While gilts maturing in 2036 and 2040 may also see competitive bidding, traders will try to sell the 7.09%, 2054 bond to the RBI at a higher price than indicated Friday. The RBI has offered to 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 2054 gilt at auction.

Traders avoided placing fresh short bets as the 10-year gilt yield was seen near the upper end of its trading range. Moreover, some traders expect the RBI to buy gilts in the secondary market this week to replenish its stock of gilts around the maturity of the 7.59%, 2026 bond this week. Market estimates of the central bank's holdings of the 2026 bond were between INR 350 billion and INR 500 billion. In addition to potential RBI purchases, replacement demand for banks may also keep bonds maturing in four-to-seven years in favour as they offered a lucrative "carry", or return", over the policy repo rate of 5.25%.

"In the week, the yields can go up to 6.70-6.80%...I think RBI will intervene around 6.70% levels, but even if it (RBI) intervenes it can't do much, the levels will hold for a few days and we (bond prices) will go back," a dealer at a private-sector bank said. 

At 1351 IST, the turnover in the gilt market was INR 290.15 billion, double the INR 146.80 billion at 1230 IST Friday, 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 6.59-6.68% for the rest of the day.  (Janwee Prajapati)

India Gilts: Sharply down on larger-than-expected Q4 state bond calendar

NEW DELHI--0935 IST--Government bond prices fell sharply after states announced an indicative borrowing calendar of INR 5 trillion for Jan-Mar, according to a Reserve Bank of India release after market hours Friday. This was higher than the market's estimate of a near INR 4.5-trillion announcement, with some sections of the market expecting an even lower number and selling gilts after the notice, dealers said.

The appetite of investors such as banks to buy benchmark gilts would be limited in the face of the heavy supply of higher-yielding state government securities, dealers said. Moreover, the RBI's decision to pick up gilts at Monday's open market operation auction which are in banks' held-to-maturity portfolios rather than trading books would also boost demand for the spread assets rather than on-the-run gilts.

The RBI has offered to 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 gilts. Banks are likely to bid aggressively to sell the bonds to the RBI as most gilts are at a profit for state-owned banks, dealers said. Losses were limited before the OMO auction at 0930-1030 IST.

Some state-owned banks also stepped up purchases as the 10-year benchmark yield approached the psychologically crucial 6.65% mark, which limited losses. Even as traders continue to trim their holdings, the 6.48%, 2035 gilt is expected to stabilise around 6.65% yield during the day. As the benchmark yield heads towards 6.70% – the highest level hit so far in the current financial year started April – traders expect RBI intervention to cap yields, including potential bond purchases in the secondary market, dealers said.

Traders were not keen to short sell bonds even with the negative trigger after data on Friday showed the RBI bought gilts worth INR 41.55 billion in the secondary market on Dec. 23, the day that the 10-year gilt yield rose to 6.70%. Some traders expect the purchases to re-appear in early January as the RBI is estimated to hold between INR 350 billion and INR 500 billion of the 7.59%, 2026 bond and may replace it around its maturity Sunday. 

"It's all driven by the state bond calendar, but these levels are being bought into," a dealer at a private sector bank said. "There is also the hope that calendar is always higher and actual borrowing could undershoot, which will bring some positivity back to the market on a weekly basis."

At 0935 IST, the turnover in the gilt market was INR 60.45 billion, double the INR 31.50 billion at 0945 IST Friday, 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 6.59-6.68% for the rest of the day.  (Aaryan Khanna)

India Gilts: Seen down on record state borrowing calendar for Jan-Mar

NEW DELHI – Government bond prices are seen opening sharply lower due to state borrowing of INR 5.00 trillion scheduled in the March quarter, the highest borrowing by states announced for a single quarter. Traders are likely to hit stop-losses as the 10-year benchmark yield rises past psychologically crucial levels, dealers said. Actions from the Reserve Bank of India may limit the fall.

The 6.48%, 2035 bond is seen in the range of 6.59-6.68% after ending at INR 99.09, or 6.61% yield Friday post modest demand for the gilt at auction. Trade volumes are expected to revive this week with the return of several foreign banks and offshore traders from the New Year holidays, dealers said.

Traders had expected states to announce a calendar of around INR 4.5 trillion and the scheduled borrowing was at the top end of market expectations. If states borrow the entire indicated amount, their gross borrowing in 2025-26 (Apr-Mar) will rise to INR 12.5 trillion, also a record. The weekly issuance is also set to surge from the December quarter, when states borrowed only INR 2.5 trillion through bonds. Nine states aim to raise INR 301 billion through bonds Tuesday, most of them maturing in 10-20 years, where demand is not seen robust. 

Traders expect the 10-year benchmark yield to open around 3 basis points higher and approach 6.70% this week – the highest yield so far in the financial year – depending on demand for state bonds. However, the central bank may signal its discomfort with that level, either by asking state-owned banks to step up their purchases or by buying gilts in the secondary market, dealers said. Data released after market hours Friday showed the RBI bought gilts worth INR 41.55 billion on Dec. 23, when the 10-year benchmark gilt yield had risen to 6.70%. That same day, it announced liquidity infusion measures after market hours, including buying INR 2 trillion worth of gilts through open market operation auctions between Dec. 29 and Jan. 22.

The sell-off will also be limited in the face of the second tranche of those purchases at auction 0930-1030 IST Monday, dealers said. 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. Most bonds are illiquid and were not seen in favour by traders but could create space on banks' held-to-maturity portfolios to absorb the state bond supply, dealers said. 

Foreign banks and portfolio investors are likely to front-run the likely announcement of India bonds' inclusion in the Bloomberg Global Aggregate Index in January. Traders also look to the government's first advance estimate of GDP for FY26 on Wednesday for the next cue on domestic interest rates, dealers said.

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. The US has captured Venezuelan President Nicolas Maduro and his wife after a series of strikes against the country's oil tankers. US President Donald Trump has signalled his intention to hand over Venezuelan crude assets to American firms.  (Aaryan Khanna)  

End

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

Edited by Saji George Titus

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. 2026. All rights reserved.