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Informist, Tuesday, Jan. 6, 2026

 

By Janwee Prajapati and Cassandra Carvalho

 

MUMBAI – Prices of government bonds ended sharply higher Tuesday, on expectations that the Reserve Bank of India will buy profitable "on-the-run" gilts at the open market operation auction of INR 500 billion scheduled for Monday, dealers said. The auction announcement is expected post-market hours Tuesday, dealers said.  

 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 99.04, up from INR 98.90 Monday. The bond's yield ended at 6.61%, down from 6.63% Monday. The erstwhile 10-year benchmark 6.33%, 2035 gilt outperformed bonds of similar maturity, ending at INR 98.13, up 18 paise from Monday's close. The yield spread between the 6.33%, 2035 bond and the 10-year benchmark gilt has become inverted, as traders preferred the former, on hopes that the RBI will buy the bond at the OMO Monday. 

 

"The OMO securities for the next OMO could be released by evening. Traders are betting on which (bond) will come, which will not," a dealer at a state-owned bank said. "Chances of the 6.33%, 2035 bond (being chosen) are there. I'm just hoping that RBI will choose liquid papers, so the market (prices) can go better."  

 

State-owned banks likely purchased gilts in hefty amounts again Tuesday, after net purchasing gilts worth INR 92.55 billion Monday, dealers said.

 

So far this month, public sector banks have net bought gilts worth INR 109.41 billion in the secondary market, according to data from Clearing Corp. of India. Public sector banks purchased gilts to replenish their books after a spate of profit sales to the RBI at OMO auctions since December. The 6.61% yield on the 6.48%, 2035 bond was considered a psychologically crucial level, and sales at this level capped a further rise in bond prices, dealers said.

 

"Prices are up because public sector banks are buying... continuing from yesterday (Monday), and I think the result (state bond auction) was also good only," a dealer at a state-owned bank said. "Ten-year (Tamil Nadu's 10-year bond re-issue) was definitely better than expected, but also the long-term bonds were good."

 

Results in the state bond auction were mixed across tenors, dealers said. The cut-off yield on Tamil Nadu's 10-year bond re-issue was at 7.48%, lower than an Informist poll estimate of 7.50-7.55%. The cut-offs on 10-year state bonds ranged from 7.48% to 7.57%. On the long end, the central bank set a cut-off yield of 7.60% on West Bengal's 21-year bond, against expectations of 7.63%. Cut-off yields on bonds maturing in 15 years or less were higher as traders' appetite was muted, on expectations of continued heavy state bond supply in the rest of the March quarter.

 

Across the gilt yield curve, traders preferred the shorter end as they do not expect any major softening in yields going ahead, dealers said. The shorter end of the curve is steeper than the far end, mainly due to mixed demand across market segments, dealers said. Some dealers expect the yield curve to flatten going ahead.

 

The long end of the curve is likely to be broadly supported by demand from long-term investors such as insurance companies and pension funds, dealers said. Long-term investors have been active in the primary market, sweeping up fresh supplies of long-term gilts and long-term state bonds at auctions since last month. Tuesday, state bonds maturing in 20 years and 21 years were swept up in 1-2 bids. 

 

Public sector banks preferred to pick up bonds maturing in up to 7 years as they look to shed 'duration' or longer-term gilts from their portfolio amid uncertainty around further rate cuts by the RBI's Monetary Policy Committee, dealers said. Traders preferred short-term bonds also due to their attractive yield spread over the repo rate of 5.25%, dealers said. The five-year benchmark 6.01%, 2030 bond ended at a yield of 6.3439% Tuesday, a spread of 109 bps over the repo rate. Apart from gilts, banks were also keen to pick up state government bonds of similar maturity for their held-to-maturity portfolios, as they seek to maintain a high average yield on their investment portfolios. Moreover, yield spreads between state bonds and gilts are expected to widen in the rest of the March quarter. 

 

Earlier in the day, bond prices fell on short selling as traders made room in their portfolios ahead of the INR 301 billion state bond auction. 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 1700 IST showed trades worth INR 56.28 billion in the 6.48%, 2035 gilt, slightly up from INR 54.86 billion Monday. The yield on the benchmark 10-year US Treasury note rose to 4.19% at 1700 IST, from 4.17% at the same time on Monday, which also weighed on bond prices, dealers said.

 

OUTLOOK

Gilt prices are seen opening down Wednesday, after the RBI did not include the liquid, erstwhile 10-year benchmark 6.33%, 2035 bond in the list of gilts it offered to purchase at Monday's OMO auction. The RBI has offered to buy the 7.04%, 2029; the 6.79%, 2031; the 8.32%, 2032; the 7.10%, 2034; the 6.64%, 2035; the 7.18%, 2037; and the 7.30%, 2053 gilts Monday at the third tranche of the OMO auctions announced on Dec. 23. Traders were expecting the central bank to buy the 6.33%, 2035 bond at the OMO auction Monday, while some were expecting the 7.10%, 2034 bond, the 7.18%, 2033 bond or the 6.79%, 2034 gilt.

 

On the data front, traders await the release of the first advance estimate of GDP for 2025-26 (Apr-Mar) due at 1600 IST Wednesday. According to an Informist poll of 11 economists, India's GDP is expected to rise 7.5% in FY26. However, positioning before the data print was light for most traders, dealers said. Traders were more focused on supply concerns, and would likely only track the data for cues on the Centre's target for GDP growth in FY27, 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. 

 

Any developments on 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 6.57-6.67% Wednesday.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	99.0375	6.6137%	98.9000	6.6331%
6.33%, 2035	98.1250	6.6007%	97.9425	6.6275%
6.01%, 2030	98.6975	6.3439%	98.6100	6.3663%
6.68%, 2040	96.5825	7.0604%	96.5300	7.0663%
6.90%, 2065	93.8500	7.3807%	93.9000	7.3765%

 

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India Gilts: Remain up; little changed post mixed state bond auction result

 

	1545 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.95	98.99	98.84	98.91	98.90
YTM (%)	6.6261	6.6201	6.6417	6.6318	6.6331

 

MUMBAI--1545 IST--Prices of government bonds remained higher, after a mixed result of the hefty supply of INR 301 billion at the state bond auction, dealers said. Cut-off yields on short-term bonds were slightly higher than expectations, while cut-off yields on ultra long-term bonds were lower than expectations due to strong demand from insurance companies and pension funds, dealers said. 

 

The RBI set cut-off yields of 7.48%-7.57% on states' 10-year bonds at the auction, slightly wider than the 7.50-7.55% range estimated in an Informist poll. On the long end, the central bank set a cut-off yield of 7.60% on West Bengal's 21-year bond, against expectations of 7.63%. Cut-off yields on bonds maturing in 15 years or less were higher as traders' appetite was muted, on expectations of continued heavy state bond supply in the rest of the March quarter.

 

"We're seeing some resurgence of investor demand in the long-points of the (state bond yield) curve, so for now the pain in that segment seems to have abated, since even in today's (Tuesday's) auction, over 20 years of supply is only around three thousand to four thousand crores," a dealer at a private sector bank said. "However, the shorter-end yields are inching up, the papers which usually ALMs (asset and liability managers) buy."

 

Traders await the announcement of the open market operation auction scheduled on Jan. 12, which is expected to post-market hours Tuesday, dealers said. The 6.33%, 2035 bond outperformed the 10-year benchmark bond as traders expect the RBI to buy the former at the upcoming OMO, they said. Some traders also expect the RBI to buy the 7.18%, 2033 gilt, or the 6.79%, 2034 gilt or the 7.10%, 2034 gilt at the auction.  

 

State-owned banks likely continued to purchase gilts in the secondary market. Other traders had little interest in buying gilts, as supply is expected to rise in both state bonds and gilts in 2026-27 (Apr-Mar) due to heavy redemptions, dealers said. 

 

On the interest rate front, traders await the first advance estimate of GDP for FY26 due at 1600 IST Wednesday. According to an Informist poll of 11 economists, India's GDP is expected to grow 7.5% in FY26. However, positioning before the data print was light for most traders, dealers said. Traders were more focused on supply concerns, and would likely only track the data for cues on the Centre's target for GDP growth in FY27, dealers said. 

 

At 1545 IST, the turnover in the gilt market was INR 320.50 billion, lower than INR 403.10 billion at 1530 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 6.57-6.65% for the rest of the day. (Cassandra Carvalho)

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India Gilts: Reverse losses in choppy trade on likely firm demand at auction

 

MUMBAI--1313 IST--Government bond prices reversed losses from earlier in the session due to expectations of firm demand at the INR-301.00-billion state bond auction Tuesday, which will likely lead to a favorable auction result, dealers said. State-owned banks were likely purchasing bonds in the secondary market, dealers said. Trade volume remained thin as traders awaited the auction result for further cues. 

 

At the state bond auction, demand from public sector banks was seen robust as they looked to replenish their portfolio with high-yielding securities after aggressive profit sales to the central bank at open market operation auctions since December, dealers said. State-owned banks bid for state bonds maturing in up to five years for their trading books and picked up bonds maturing in up to seven years for their investment books, dealers said. Mutual funds also likely picked up state bonds at the auction after they net sold gilts worth almost INR 51 billion Monday, dealers said. However, demand from traders was muted since state bond yields are expected to rise further, dealers said.         

 

Long-term investors such as pension funds and insurance companies likely picked up bonds maturing in 11 years and beyond at the state bond auction, dealers said. Demand for long-term bonds is seen aggressive, similar to the last week's state bond auction wherein the Reserve Bank of India accepted only one bid out of 39 bids received for Madhya Pradesh's 21-year paper, dealers said. Non-banking financial companies may have also bid for long-term state bonds, dealers said. Traders expect the yield on the 6.48%, 2035 paper to fall till 6.59% if auction cut-off yields are along expected lines, whereas it can rise up to 6.65% if the auction result disappoints, dealers said.

 

"I feel the (yield) spreads (of state bonds) will rise by 5-7 bps (basis points over gilts compared to the last state bond auction)," a dealer at a state-owned bank said. "Nobody is in a hurry to buy at auctions now because everyone is expecting that the yields will go on widening...I think it might widen up to 15 basis (points) in this quarter from the December quarter." 

 

In the secondary gilt market, traders bought the erstwhile 10-year benchmark 6.33%, 2035 bond as some traders expect the RBI to select this bond for the next open market operation auction scheduled on Jan. 12. Traders expect the announcement of bonds selected for the next OMO auction to be released post market hours Tuesday. Some traders also said that if the RBI buys bonds on-screen, it will likely buy the 6.33%, 2035 paper. Public sector banks also likely bought gilts Tuesday, continuing the buying streak after net purchasing gilts worth a hefty INR 92.55 billion Monday, dealers said.

 

At 1313 IST, the turnover in the gilt market was INR 169.10 billion, lower than INR 267.35 billion at 1330 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 6.57-6.68% for the rest of the day.  (Janwee Prajapati)

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India Gilts: Steady in thin trade before state bond auction; result awaited

 

	0955 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.89	98.94	98.86	98.91	98.90
YTM (%)	6.6342	6.6275	6.6389	6.6318	6.6331

 

MUMBAI--0955 IST--Government bond prices were steady in thin trade on caution before the state bond auction at 1030-1130 IST, dealers said. Nine states will raise INR 301 billion at the auction, the first in the record INR 5-trillion state borrowing calendar for Jan-Mar. The result of the auction will lend direction to gilt prices in the second half of the day.

 

"The supply is large but it looks to have been priced in," a dealer at a private sector bank said. "There was a tremendous amount of support yesterday (Monday) from PSU (state-owned) banks, so it looks like that 6.66-6.68% range should be protected even if the auction doesn't go well."

 

Some traders are making room for the fresh supply by trimming their gilt portfolios but bond prices are expected to move in a narrow band before the auction, dealers said. Banks are keen to add state bonds maturing in up to 10 years and long-term investors, including life insurers, were looking to buy bonds maturing in over 18 years, they said. Traders may avoid picking up state bonds as spreads over gilts are expected to rise during the quarter as more and more supply is absorbed by investors.

 

Other than the immediate trigger, traders said there were no fresh cues for bond prices Tuesday, though a rise in the rupee to above 90 per dollar may aid. The 10-year gilt yield may trade in the 6.60-6.66?nd this week, dealers said. Some traders expect an uptick in prices if the Reserve Bank of India buys gilts in the secondary market to replace the maturing 7.59%, 2026 bond or if foreign banks step up bond purchases ahead of the inclusion announcement of India's bonds in Bloomberg's flagship Global Aggregate Index, expected next week.

 

"I don't think anything will derail the Bloomberg index inclusion at this juncture," a dealer at a primary dealership said. "The flows might not be large but the announcement will definitely come, there is no point in delaying it especially with the rating upgrade." S&P Global Ratings upped its long-term sovereign credit rating on India by a notch to 'BBB' in 2025. 

 

At 0955 IST, the turnover in the gilt market was INR 26.40 billion, lower than INR 55.80 billion at 0930 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 6.59-6.68% for the rest of the day.  (Aaryan Khanna)

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India Gilts:Seen opening steady, to take cues from state bond auction result

 

MUMBAI – Government bond prices are seen opening steady ahead of the INR 301-billion auction of state government securites at 1030-1130 IST. The demand for bonds and spreads sought by investors will be keenly watched for cues as states begin their record INR-5-trillion borrowing calendar for the March quarter Tuesday, dealers said.

 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.59-6.68?ter ending at INR 98.90, or 6.63% yield Monday post the announcement of the larger-than-expected state bond calendar. The 10-year yield is not seen rising above the psychologically crucial 6.65% mark before the result of the auction is out after state-owned banks bought INR 92.55 billion worth of gilts in the secondary market on Monday, according to Clearing Corp. of India data, signalling their strong appetite at the top of the current trading range for the 6.48%, 2035 bond, dealers said.

 

These banks are also keen to pick up state bonds maturing in up to 10 years to replace gilts sold to the Reserve Bank of India at its open market operation auctions, dealers said. The spread of the 10-year state bonds over the 10-year gilt yield may be set at around 90-100 basis points at the auction Tuesday, compared with 84-96 bps last week. Demand for bonds maturing in 11 to 16 years is seen modest, with spreads seen widening in that segment over last week. Long-term investors are likely to cap the cut-off yields on bonds maturing in 18-21 years, especially with limited supply of state bonds in that segment since October, dealers said. 

 

Traders avoided placing short bets because foreign banks and portfolio investors are likely to front-run the likely announcement of the inclusion of India bonds in the Bloomberg Global Aggregate Index, expected by next week. Traders also look to the government's first advance estimate of GDP for 2025-26 (Apr-Mar) on Wednesday for the next cue on domestic interest rates, dealers said. The intraday movement in the rupee may also lend cues, after it has weakened past 90 a dollar since Friday, they said. 

 

The RBI could also buy bonds in the secondary market this week, despite its INR 1.5-trillion bond purchases via auction scheduled in January, to replace its stock of the 7.59%, 2026 bond maturing Sunday, dealers said. The central bank holds between INR 350 billion and INR 500 billion of the maturing bond, according to market estimates. (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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