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Informist, Friday, Jan. 9, 2026

 

By Janwee Prajapati

 

MUMBAI – Government bond prices ended on a mixed note Friday. The 10-year benchmark 6.48%, 2035 bond fell late in the day on caution ahead of the weekend and the US non-farm payrolls data. However, bond prices ended off the day's lows after the INR 290-billion supply at auction sailed through.

 

The 10-year benchmark gilt closed at INR 98.85, down from INR 99.93 Thursday. The bond's yield ended at 6.64%, up from 6.63% Thursday. The bond had fallen to INR 98.78 during the day but the fall was limited by state-owned banks' purchases at the psychologically crucial 6.65% yield mark. The gilt price recovered completely before the late selling.

 

"We are down because nobody would want to go heavy ahead of the weekend," a dealer at a private-sector bank said. "Even the US yields are up and, if you see, there are events lined up in the next week. We have OMO (Reserve Bank of India's open market operation auction Monday) and Bloomberg inclusion too... if the news is positive then we might see some upward move, otherwise we might trade in range."

 

At 1700 IST, the yield on the 10-year US Treasury note rose to 4.18% from 4.15% Thursday. Traders are hopeful India's fully accessible route bonds will be included in Bloomberg's flagship Global Aggregate Index, but uncertainty about the inclusion has increased even as India and the US appear to drift apart geopolitically. The decision is expected next week.

 

Bond prices had fallen sharply as bidding at the auction ended with traders speculating about poor demand from investors. With the 6.68%, 2040 bond's cut-off price in line with initial expectations on robust short-covering at the auction, the 15-year benchmark ended little changed at INR 96.43 from INR 96.45 Thursday.

 

State-owned banks likely added the 6.68%, 2040 gilt to their held-to-maturity portfolios, attracted by the lucrative spread of 45 basis points over the 10-year benchmark bond. Some banks also replaced bonds sold to the RBI at the previous OMO auction Monday with the 15-year benchmark, dealers said.

 

According to dealers, traders were uncertain about the cut-off price for the 6.90%, 2065 bond. They had expected demand from long-term investors such as insurers and pension funds to be muted after they swept up the supply at previous auctions. Dealers said traders had thought the appetite of these investors had been sated. Besides, they did not expect further softening of yields. The price-to-yield ratio, which determines the sensitivity of a bond's price to changes in its yield, is high in the case of long-term bonds. Yet, INR 130 billion of supply in the 2065 bond went through at the auction with the RBI accepting 67 bids out of 184 placed for a bid-to-cover ratio of 2.4. Traders speculated that INR 20 billion of forward rate agreement in the long-term bond helped see it through. The 6.90%, 2065 paper closed at INR 93.35, down from INR 93.55 Thursday.

 

Bond prices recovered after the auction result as traders covered short bets placed ahead of the auction on these bonds. 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. Data at 1700 IST showed trades worth INR 63.60 billion in the 6.48%, 2035 gilt, down over INR 13 billion from Thursday.

 

Traders are now looking forward to the INR 500 billion OMO auction Monday, the result of which will lend cues for further movement in bond prices, dealers said. However, some traders expect further OMO auctions as the yield on the 10-year benchmark continues to hover near the top of the trading range. Traders suggest that inclusion on more liquid papers at the auctions could help lower yields.

 

"I think there will be an announcement of another OMO of INR 1 trillion," a dealer at a private-sector bank said. "But even that OMO cannot bring down bond yields... I do not think yields will soften unless there is support from RBI in the secondary market. Currently, traders are selling their bonds and not entering again, which is keeping yields up."

 

Market participants were also cautious ahead of the release of US nonfarm payrolls data and their impact on expectations of a rate cut in the world's largest economy. Currently, Fed fund futures imply an 86% chance of no change in rates at the outcome of the US Federal Open Market Committee's meeting Jan. 28, which suggests likely status quo at the RBI's Monetary Policy Committee meeting in February.

 

Turnover in the gilts market Friday was INR 409.05 billion, up from INR 328.40 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, against one trade worth INR 250 million in the 6.48%, 2035 gilt Thursday.

 

OUTLOOK

Gilts are not traded Saturdays. Monday, gilt prices will track the results of the OMO auction where the RBI has said it will purchase INR 500 billion worth of seven gilts. The gilts selected for auction are the 7.10%, 2029; 7.95%, 2032; 7.73%, 2034; 7.40%, 2035; 7.41%, 2036; 8.30%, 2040; and 7.09%, 2054 bonds. Traders were not too happy about these bonds being selected for the auction as most of them are fairly illiquid, dealers said. Some traders expect the bonds to be offered at prices lower than market levels as bondholders seek to get rid of them. Others, however, are of the view that traders would want to make some profit on their holdings and would bid at a premium to the market level.

 

Tuesday, 11 states are in line to raise INR 268.15 billion, lower than the amount of INR 361.90 billion in the indicative calendar for the Jan-Mar quarter. The lower quantum of borrowing is likely to lead to a rise in bond prices as fear of a large quantum had weighed on prices, dealers said.

 

Gilts may also track overnight movement in US Treasury yields at the open. However, bond prices are likely to react to US yield movements only if the 10-year US yield falls below 4.10% or rises above 4.20%, the current trading range, dealers said. Data released at 1900 IST showed US unemployment for December was at 4.4%, slightly below the consensus expectation of 4.5%. The data comes ahead of the FOMC meeting scheduled for Jan. 27-28.

 

Market participants also await the announcement of the possible inclusion of India's fully accessible route bonds in Bloomberg's flagship Global Aggregate Index. The announcement is expected next week.

 

The rupee's movement against the dollar in early trade will also provide cues for bond prices, as will movement in crude oil prices. Any development on the India-US trade deal may also influence bond prices. The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.58-6.65% Monday.

 

	FRIDAY		THURSDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	98.8525	6.6401%	98.9300	6.6290%
6.33%, 2035	97.9725	6.6234%	97.9125	6.6321%
6.01%, 2030	98.5900	6.3730%	98.6600	6.3541%
6.68%, 2040	96.4300	7.0778%	96.4500	7.0755%
6.90%, 2065	93.3500	7.4223%	93.5500	7.4056%

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India Gilts: Recover most losses after auction supply sails through

 

	1600 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.92	98.96	98.78	98.92	98.93
YTM (%)	6.6301	6.6248	6.6504	6.6305	6.6290

 

NEW DELHI--1600 IST--Government bond prices recovered most losses after the INR 290-billion supply at the weekly gilt auction sailed through Friday. Despite a sharp recovery from the lows, bond prices did not rise past Thursday's closing levels on caution before US labour market data post market hours and ahead of the weekend, dealers said.

 

The cut-off price on the 6.68%, 2035 bond was in line with expectations, which surprised some dealers who had bid poorly for the bond hoping to secure higher returns. State-owned banks bought the 2040 gilt in their held-to-maturity portfolios to replace bonds sold to the Reserve Bank of India at its open market operation auctions. While the 15-year benchmark did not align with tenors sold to the RBI, banks said they wanted to secure high yields and the 2040 bond's spread over the 10-year benchmark 6.48%, 2035 gilt at 45 basis points – was lucrative.

 

Traders also covered around INR 40 billion of short bets in the paper at auction, dealers said. The 6.68%, 2040 bond recovered all losses and was slightly higher in the secondary market after the auction result.

 

"If you see between 10-, 15- and 40-year bonds on the curve, the 15-year offers very good value in yield terms provided you can protect against prices falling," a dealer at a private-sector bank said.

 

At the same time, traders did not want to take capital risk on their trading portfolios and preferred to park the bond in the held-to-maturity portfolios, where a fall in the bond's price does not reflect in the bank's profit and loss account. Some banks also preferred to replenish their portfolios with gilts, despite the attractive spreads on offer on state bonds, after the share of the the latter in their portfolios had ballooned. RBI data as of September showed state bonds made up 41.5% of banks' held-to-maturity portfolios, up from 37.0% a year prior.

 

The 6.90%, 2065 bond's cut-off price was lower than the median expectation in an Informist poll. Some long-term investors had picked up but appetite was muted after they had picked up state bonds at auction on Tuesday. Some bond forward-rate agreements of up to INR 20 billion were struck for the auction stock between insurers and banks, dealers said. Most of the supply went to investors instead of traders and the poor cut-off did not have much impact on the prices of liquid bonds, they said. 

 

Traders now await the US non-farm payrolls data after market hours Friday and its impact on US rate cut expectations. US Fed funds futures are pricing in a 86.2% chance of a status quo at the US Federal Open Market Committee's Jan. 28 rate decision, according to CME's FedWatch tool. Dealers said that if the US stands pat on rates, a rate cut in India at the next monetary policy review in February is also unlikely. Traders also avoided large bets that piled on risk ahead of the weekend, especially with increased geopolitical uncertainty and with India's CPI data to be released Monday.

 

"We'll see if this buying momentum sustains into the closing, which I think is unlikely," a dealer at a state-owned bank said. 

 

At 1600 IST, the turnover in the gilt market was INR 358.10 billion, higher than INR 297.85 billion at 1630 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 6.60-6.65% for the rest of the day.  (Aaryan Khanna)

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India Gilts: Down more before auction result; bidding worse than expected

 

	1225 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.81	98.92	98.79	98.92	98.93
YTM (%)	6.6468	6.6305	6.6490	6.6305	6.6290

 

NEW DELHI--1225 IST--Government bond prices remained down after bidding for the INR-290-billion weekly gilt auction ended at 1130 IST, with traders expecting only modest demand for the bonds on sale. Purchases from state-owned banks, as the 10-year benchmark 6.48%, 2035 gilt's yield rose to 6.65%, limited losses, dealers said. The auction result would lend further cues to bond prices and the 10-year yield may rise past the psychologically crucial level if demand for the fresh supply is poor.

 

The government sold INR 160 billion of the 6.48%, 2035 bond and INR 130 billion of the 6.90%, 2065 gilt at the auction. Traders' interest in bonds of these tenures was limited as they expect yields to go up at a time with supply of state government securities worth INR 5 trillion announced for the March quarter, dealers said. Moreover, neither banks nor mutual funds were playing for large capital gains in the near future as the Reserve Bank of India Monetary Policy Committee's rate cut cycle is seen at or near its end, they said. The rate-setting panel has cut the policy repo rate by 125 basis points to 5.25?tween February and December.

 

"There is constantly state bond supply which is going to ensure our requirements are met and so appetite for gilts at auction will be limited to whatever demand we get for ultra-long products," a fund manager at a life insurance company said. "Unlike banks, we don't need to think about liquidity so much in the investment book, so in that sense we are more conscious of absolute yield levels."

 

Some long-term investors were keen to pick up the 40-year benchmark gilt as its yield topped 7.40%, near the top of its trading range in 2025-26 (Apr-Mar). Apart from the first half of December, the 40-year yield last topped 7.43% in January 2024. However, demand for bond forward-rate agreements from was muted, with several foreign banks reporting a lack of interest. Market estimates for bond forwards and forward-rate agreement generated demand is only up to INR 20 billion and with muted cash demand, some of the auction stock may come into traders' hands, dealers said.

 

Meanwhile, the 6.68%, 2040 gilt saw some demand from banks as its spread over the 10-year benchmark gilt yield, at 45 bps, was seen lucrative, dealers said. Short sellers were also keen to cover their bets at the auction as the expected cut-off price of INR 96.24 is 50 paise lower than the high price hit this week on Wednesday. Moreover, traders wanted to cover their short bets before the market's focus shifts to potential positives like the Reserve Bank of India's open market operation auction on Monday to buy bonds and the expected announcement to include India's fully accessible route gilts on Bloomberg's flagship Global Aggregate Index next week.

 

However, investor demand was muted and unexpectedly poor even as the 15-year benchmark yield rose to 7.10% at the auction, with traders trying to "catch the tail", or bid near the cut-off price, dealers said. The 6.68%, 2040 bond is also not expected to gain as much as peers from the bond index inclusion as it is not included under the fully accessible route. The bond has seen some demand from foreign portfolio investors in the past two days, with speculation a large foreign fund is trimming its stock of 2055 paper and buying the 15-year bond. With INR 160 billion on offer and no FPI purchases speculated so far, traders do not expect a positive surprise from the result, dealers said. 

 

"A lot of bad news is in the price but still demand looks very tricky today, especially for the long-end (6.90%, 2065 gilt)," a dealer at a foreign bank said. "Unless someone like an EPFO (Employees' Provident Fund Organisation) or LIC (Life Insurance Corp. of India) comes in looking at the levels above 7.40%, we are not hearing any demand from insurers and pension (funds)."

 

A slight fall in the rupee to 90.14 a dollar from 90.02 a dollar Thursday also weighed on gilt prices, though traders said the impact was limited as the market has got used to the pair at 90 a dollar mark. Volume was muted as traders await the auction result, with some private-sector and foreign banks likely to trim their holdings later in the day before US non-farm payrolls data after Indian market hours.

 

At 1225 IST, the turnover in the gilt market was INR 110.70 billion, lower than INR 143.20 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 6.60-6.68% for the rest of the day.  (Aaryan Khanna)

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India Gilts:Dn on short bets ahead of weekly gilt auction; demand seen muted

 

	1015 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.86	98.92	98.82	98.92	98.93
YTM (%)	6.6397	6.6305	6.6444	6.6305	6.6290

 

MUMBAI--1015 IST--Government bond prices were down ahead of the weekly gilt auction as traders readjusted their portfolio to make space for the fresh auction supply, dealers said. Traders await the auction result for further cues.

 

"Considering the expected cut-off for underwriting, demand doesn't seem as good," a dealer at a primary dealership said. "There is no reason for people to bid aggressively...there is no certainty of a fall in yield until the next year."  

 

Demand for the 6.68%, 2040 paper is seen muted as traders do not expect softening of yields due to lack of certainty on another rate easing from the Monetary Policy Committee, dealers said. Mutual funds also do not want to lengthen the maturity of their gilt holdings towards the end of a rate cut cycle. At the same time, some traders said the spread of the 15-year benchmark over the 10-year benchmark 6.48%, 2035 gilt was attractive.

 

Some traders will also cover short bets placed on the gilt ahead of the auction due to which the supply may sail through, dealers said. Short bets placed on the bond weighed on its price in the secondary market. A proxy for tracking short sales on 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 0934 IST showed trades worth INR 49.73 billion in the 6.68%, 2040 gilt, up over INR 10 billion from Thursday. 

 

The 6.90%, 2065 bond at auction may also see a lack of interest from long-term investors such as insurers and pension funds after they swept off the auction supply in previous auctions and their appetite may be fulfilled, dealers said. There is expected to be some demand from investors through bond forward-rate agreements. Traders also speculated firm demand from provident funds and a state-owned life insurer as the 40-year benchmark yield rose above 7.40%. Still, traders will look to bid for the stock lower than current market prices, dealers said.

 

Traders fear the 10-year benchmark yield will top the psychologically crucial 6.65% level if there is a poor cut-off at auction, though state-owned banks are expected to prop up the gilt near that level, dealers said. Most traders expect the current 6.60-6.66% trading range to hold after the fresh supply, especially with another INR 500-billion purchase of bonds coming up from the Reserve Bank of India Monday.

 

At 1015 IST, the turnover in the gilt market was INR 30.45 billion, lower than INR 48.55 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 6.60-6.67% for the rest of the day.  (Janwee Prajapati)

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India Gilts:Seen steady before INR 290-bln weekly auction; demand view mixed

 

NEW DELHI – Government bond prices are expected to open steady on caution before the INR 290-billion weekly gilt auction at 1030-1130 IST. The outlook on demand for the bonds is seen mixed and the result of the auction is likely to lend direction to gilt prices amid lack of fresh cues, dealers said. Later in the day, traders may again be tentative before the release of key US labour market data. 

 

At the auction, the government will sell INR 160 billion of the 6.68%, 2040 bond and INR 130 billion of the 6.90%, 2065 bond. The tender of the long-term gilt has increased in size from INR 120 billion earlier in the Oct-Mar calendar. Demand from foreign portfolio investors for the 2040 bond is seen robust after they have been speculated to be buying the bond in the secondary market over the past two days, through the general limit for foreign investment. The activity is independent of optimism around India's potential inclusion in Bloomberg's Global Aggregate Index and is likely because they had trimmed their stock of long-term bonds at the end of the rate-cut cycle in India, dealers said.

 

However, traders were uncertain about investors' interest in the 40-year benchmark gilt despite firm demand for long-term bonds earlier this week. Some primary dealers expect poor bids by life insurers and pension funds after these investors got a majority of the bonds maturing in over 15 years at the state bond auction Tuesday. Traders also said demand for bond forwards and forward-rate agreements has been scant in recent weeks, likely due to a rise of the five-year overnight indexed swap rate to near 6.00%.

 

While some traders speculated it was life insurers and provident funds buying gilts over the past two days, others said that the Reserve Bank of India might have been replacing its holdings of the 7.59%, 2026 bond maturing Sunday in the secondary market. 'Others' – a category that includes those two segments of investors and the central bank – have net bought INR 42.05 billion in the secondary market since Wednesday, according to Clearing Corp. of India data. The RBI is speculated to hold around INR 400 billion of the maturing bond – even with the two days of net purchases, dealers were not convinced the central bank would buy gilts at such a slow pace in the secondary market amid its weekly open market operation auctions.

 

Meanwhile, US non-farm payrolls data for December is scheduled for release after Indian market hours Friday, ahead of the US Federal Open Market Committee's meeting scheduled at the end of the month. The impact of the data on US rate expectations and US yields will influence domestic OIS rates but are unlikely to significantly impact bond yields as focus remains on bond supply, dealers said. Bond prices are likely to react to US yield movements only if the 10-year US yield falls below 4.10% or rises above 4.20%, the current trading range, dealers said. The 10-year US Treasury note was little changed overnight at 4.15% at 0835 IST.

 

The intraday movement in the rupee may also lend direction, dealers said. Traders are also tracking geopolitical developments but do not see an impact on India's bond market yet.  (Aaryan Khanna)

 

End

 

US$1 = INR 90.16

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

 

Edited by Rajeev Pai

 

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