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Informist, Monday, Jan. 12, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended sharply higher Monday after CPI inflation for December was lower than expected, dealers said. Bond prices gave up some gains after the open market operation auction result disappointed but recovered and hit the day's highs after the CPI data was released.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 99.10, up from INR 98.85 Friday. The bond's yield ended at 6.61%, down from 6.64% Friday. Traders booked profits after the yield fell below 6.60% close to the end of the session.

India's December CPI inflation came in at 1.33%, below the Informist poll forecast of 1.70%. Traders had not expected a reading below the consensus estimate. Though some traders stepped up bets on a rate cut in February or April, for most traders the reading barely shifted the outlook that the Monetary Policy Committee will maintain status quo on rates in the near-term. Core CPI rose to 4.6%--the highest in 28 months--but most traders brushed it off, linking the rise to a worldwide surge in prices of precious metals. 

At the OMO auction, a single public sector bank tendered bonds aggressively and the Reserve Bank of India set the cut-off prices on bonds maturing up to 2031 sharply lower than expected, dealers said. Contrary to expectations that most offers will be accepted for the 7.10%, 2034 bond, the largest quantum was accepted for the 6.64%, 2035 bond at the auction. Even with the RBI buying INR 148.62 billion of the 2035 bond, its cut-off price was INR 99.53, which was in line with a poll by Informist.

"CPI was lower, that should've supported market, but OMO cut-off yields were higher than expected," a dealer at a state-owned bank said. "The 7.04%, 2029 bond and the 6.79%, 2031 bond, these cut-off yields are 4-5 basis points higher. For 34 (7.10%, 2034), 37 (7.18%, 2037) papers cut-off and size also fine but these other bonds were bad. We didn't get to sell."

Before the OMO auction result, foreign and private-sector banks were speculated to have been buying gilts. Intraday, comments from newly-appointed US Ambassador to India Sergio Gor and India's Commerce Minister Piyush Goyal suggested the next round of talks on the India-US Bilateral Trade Agreement were imminent. The announcement of a trade deal will give a boost to India's economic growth, which may outperform RBI estimates and reduce the need for policy easing while also reducing the need for the RBI's dollar sales in the secondary market and subsequently its gilt purchases through OMO to infuse rupee liquidity. This would be negative for gilts over the medium-term. However, a trade thaw between Washington and New Delhi and appreciation in the local currency is seen driving foreign portfolio investor inflows in the near term, dealers said.

Moreover, some traders were frontrunning the expected announcement of India's inclusion in Bloomberg's Global Aggregate Index, its flagship index for sovereign bonds. The announcement is expected as early as Wednesday. Though there are no fresh cues on the inclusion, traders are optimistic that Bloomberg would include one of Asia's largest and highest-yielding debt markets after reports in November indicated FPIs were in favour of the inclusion. The inclusion is expected to draw between $10 billion and $25 billion in FPI investment into fully accessible route gilts in 2026.

As of 1950 IST, foreign portfolio investors net purchased gilts worth INR 17.49 billion through the fully accessible route Monday, according to data from Clearing Corp. of India. If the inclusion is announced, the yield on the 10-year benchmark 6.48%, 2035 bond will likely go to 6.46-6.47% whereas a negative announcement could push up the yield to 6.70%, dealers said.

The day opened with an erroneous trade of INR 50 million in the 6.48%, 2035 gilt at 0901 IST at INR 99.87, against Friday's close of INR 98.85. Another trade was conducted at INR 99.34 in the same bond. The trades were at levels sharply higher than the market. As a result, both the erroneous trades were recommended for reversal by the Clearing Corp. of India's Dispute Resolution Committee after holding meetings during the day, dealers said.

Meanwhile, traders lent a positive impetus to prices after the state bond supply this week was lower than indicated. After market hours on Friday, the RBI said eleven states would auction INR 268.15 billion of bonds, below the INR 361.90 billion indicated in the Jan-Mar borrowing calendar.

"Prices are holding at these levels as there is no negative trigger currently," a dealer at a state-owned bank said. "...SDL (state bond auction) was also lower than indicated (in the indicative calendar for Jan-Mar quarter), there is no VRR (variable rate repo auction) also which means RBI is considering liquidity is sufficient...I am hoping yield (on the 6.48%, 2035 bond) to soften in upcoming weeks...But might see some pressure (on bond yields) near MPC (meeting) as I do not expect a further rate cut," the dealer said.

Further, some traders speculated that the RBI bought gilts on screen both last week and on Monday to replace the maturing 7.59%, 2026 gilt on its portfolio. The central bank had bought INR 273 billion of gilts in the secondary market in November around the maturity of the 5.15%, 2025 gilt. Between Wednesday and Friday, the 'others' segment of market participants, which includes insurance companies, provident funds and the central bank, has net bought gilts worth INR 85.73 billion. Of this figure, some purchases could be attributed to insurance companies and pension funds, and thus the only confirmation of the central bank's purchases would be from weekly statistical data from the RBI for last week which is due Friday, dealers said.

Turnover in the gilts market Monday was INR 587.25 billion, up from INR 409.05 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 Monday, the same as Friday.

OUTLOOK

On Tuesday, gilt prices will track the results of the state bond auction where 11 states are in line to raise INR 268.15 billion, lower than INR 361.90 billion as per the indicative calendar for the Jan-Mar quarter. At the state bond auction, public-sector banks will likely bid aggressively as they would want to add these bonds to their held-to-maturity books, citing the lucrative yield between state bonds and gilts, dealers said.

Some of the banks will also likely buy state bonds to fill up their held-to-maturity books after they sold gilts from their investment books to the RBI at the OMO auction Monday, dealers said. Traders will likely remain on the sidelines as they expect the spread of state bonds and gilts to widen in coming weeks due to the announced INR 5-trillion state bond supply in the March quarter. Further, as state bonds are less liquid compared to gilts, it is difficult for traders to book profit on these holdings in the secondary market, dealers said.

Later in the day, traders may refrain from placing aggressive bets as they will likely watch out for the US CPI data for December, scheduled to be released at 1900 IST Tuesday. The data comes ahead of the FOMC meeting scheduled for Jan. 27-28. Gilts may also track overnight movement in US Treasury yields at market 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.

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 this week. Some traders are also eyeing the US apex court's ruling on the legality of the tariffs levied by US President Donald Trump, a decision which is likely to be made Wednesday.

The rupee's movement against the dollar in early trade will also provide cues to bond prices, as will movement of 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 a range of 6.57-6.65% Tuesday.

Informist, Monday, Jan. 12, 2026

India Gilts: Lower-than-view CPI largely offsets slight fall after OMO result

MUMBAI--1605 IST--Prices of government bonds remained sharply up after India's CPI inflation for December was lower than most expectations. Just before the data were released, bond prices had given up some gains after cut-off prices at the INR 500-billion open market operation auction were poorer than anticipated, dealers said.

India's CPI inflation for December was 1.33%, lower than an Informist poll estimate of 1.70%. However, dealers' views on further domestic rate cuts changed little after the CPI print. Core CPI inflation was 4.6% in December, highest in 28 months. Most traders dismissed the rise in core inflation, attributing it to a global rise in prices of precious metals.

While the rate view was unchanged, the soft inflation print buoyed gilt prices, limiting a fall after the OMO auction result disappointed most traders, dealers said. The RBI set cut-off prices largely at or below indicative prices at the auction, indicating that a few state-owned banks tendered bonds aggressively to take profits, dealers said. Most participants had tendered bonds at prices higher than those indicated by Financial Benchmarks India Pvt. Ltd. Friday, and did not get to sell much stock to the RBI, dealers said. The RBI set a cut-off price of INR 102.90 on the 7.04%, 2029 gilt, lower than its indicative price of INR 103.01.

"Market is down now because cut-off (prices) at OMO is almost FBIL (indicative) levels," a dealer at a state-owned bank said. "We are happy with what we have sold. Actually most participants had offered above FBIL, we had offered at FBIL and below FBIL also."

At 1605 IST, the turnover in the gilts market was INR 486.05 billion, up from INR 372.55 billion at 1630 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 6.55-6.63% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Remain up as fresh comments on US-India talks spur bets of deal

MUMBAI--1518 IST--Prices of government bonds were sharply up on likely purchases by private sector banks and foreign banks on hopes of a trade deal being reached between the US and India. Fresh comments from US and Indian government officials have sparked speculation that a bilateral trade deal between the two countries could be sealed in the near term, dealers said. Traders also noted the likelihood of a trade deal between India and Europe.

The next call on the India-US Bilateral Trade Agreement is likely on Tuesday, newly-appointed US Ambassador to India Sergio Gor said in his inaugural address on Monday. Shortly after, media reports of Indian Commerce Minister Piyush Goyal's comments on ongoing talks between India and the US also aided bond prices, dealers said. 

While the rupee did not react significantly to the comments, bond prices rose on hopes that a US-India bilateral trade deal would cause some appreciation in the local currency, and subsequently bring foreign inflows into gilts and reduce the Reserve Bank of India's need to defend the rupee--an operation which drains rupee liquidity, dealers said. 

"There was some flash (newsflash) that in a couple of days, something (trade deal) will come. Some people are expecting that if a deal is signed, it might turn the rupee positive (to appreciate)," a trader at a primary dealership said. "The rupee is under some severe pressure. If it continues to go for a toss, then even forwards will rise, and bonds can't perform (see a price rise) in such situations."

The recent fall in the rupee below the 91-per-dollar mark has led to a surge in dollar-rupee forward premiums and drained rupee liquidity, as the central bank has intervened in the foreign exchange spot market to prevent further depreciation against the dollar. India's foreign exchange reserves posted the biggest weekly fall in over a year to $686.80 billion for the week ended Jan. 2, according to data released by the central bank Friday.

Foreign and private-sector banks were likely positioning on hopes of a US-India trade deal, dealers said. As of 1518 IST, foreign portfolio investors net purchased gilts worth INR 1.77 billion via the fully accessible route, according to data from Clearing Corp. of India. State-owned banks likely turned sellers, capping gains, as the yield on the benchmark 10-year 6.48%, 2035 gilt fell to 6.60%, a level from which the 10-year gilt yield has not sustained a fall below so far this month. As of Friday, state-owned banks had net purchased gilts worth INR 149.13 billion so far this month, according to data from Clearing Corp. of India.

Traders await the results of Monday's INR-500-billion open market operation auction, along with India's CPI inflation for December, for further triggers on the movement of bond prices. At 1518 IST, the turnover in the gilt market was INR 391.75 billion, slightly higher than INR 339.05 billion at 1530 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 6.58-6.64% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Up more on bets of higher than expected cut-off prices at OMO

MUMBAI--1309 IST--Prices of government bonds rose further on expectations that cut-off prices at the open market operation auction Monday would be higher than initially expected, dealers said. Some traders expect bond prices to rise as traders are hopeful of the inclusion of India's fully accessible route bonds in Bloomberg's Global Aggregate Index, the announcement of which is expected this week. Traders await CPI inflation data for December to be released at 1600 IST, though bond prices are unlikely to move significantly post the release, dealers said.  

"I think the OMO cut-off (price) will be slightly better," a dealer at a private sector bank said. "It will definitely be better than last 2-3 auctions...some of that expectation is already there in the market as we are seeing a better level (bond price)." 

At the open market operation auction of INR 500 billion conducted earlier in the day, traders expect cut-off prices on most bonds to be higher than levels indicated by Financial Benchmarks India Pvt. Ltd. Friday, and more than initially estimated, as traders look to make some profit on their holdings by offering bonds to the RBI at a premium to the market level. While public sector banks are likely to have offered bonds in the largest quantums from their held-to-maturity books, traders across market segments had stock of the bonds and aimed to tender them at a profit, dealers said.

The cut-off price on the 7.10%, 2034 bond, however, is expected to be set at a level lower than indicated since this paper has not been selected by the RBI at its recent OMO auctions since last month. Banks have large holdings of this paper in their investment books and most of it is highly profitable, dealers said. Mutual funds also likely sold gilts at the auction in sizeable quantums, and they will likely replenish their books by purchasing bonds in the secondary market after the auction result, dealers said.

On Tuesday, 11 states will raise INR 268.15 billion, lower than the indicated size of INR 361.90 billion as per states' borrowing calendar for Jan-Mar. Public sector banks are likely to have robust appetite for these bonds at the auction Tuesday as they look to replenish their held-to-maturity books after selling bonds to the RBI at the OMO auction Monday, dealers said. Some favour state bonds over gilts due to the lucrative spread of the former over the gilts of similar tenures, they said. 

At 1309 IST, the turnover in the gilt market was INR 147.90 billion, higher than INR 110.25 billion at 1235 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 6.58-6.64% for the rest of the day.  (Janwee Prajapati)

India Gilts: Up on lower state bond auction size, replacement demand amid OMO

MUMBAI--0922 IST--Prices of government bonds were up, as traders were front-running purchases to replenish their books ahead of sales to the Reserve Bank of India at the INR-500-billion open market operation auction at 0930-1030 IST, dealers said. Lower-than-indicated state bond supply this week also aided the rise in bond prices, dealers said. 

"Because of the OMO replacement (demand), market will be here in this range only, until (OMO) cut-off (prices) are out," a dealer at a state-owned bank said. "Replacement demand has been there since previous OMOs. And also, SDL (state bond) supply is less. Earlier, scheduled amount was higher but now in the notification published, it is lesser." Eleven states aim to raise INR 268.15 billion on Tuesday, lower than INR 361.90 billion indicated in states' borrowing calendar for Jan-Mar.

At the OMO auction, tendering is seen robust, especially by state-owned banks, which own large quantums of the bonds chosen by the RBI. However, unlike last week's OMO auction, traders across market segments are expected to tender bonds at the auction. Some bonds, such as the 7.10%, 2034 gilt, which have not been frequently selected by the RBI at recent auctions, may see cut-off prices sharply lower than indicated by Financial Benchmarks India Pvt. Ltd. as traders look to book profits in the paper, dealers said.

A likely erroneous trade was conducted for INR 50 million in the 6.48%, 2035 gilt at 0901 IST at INR 99.87, dealers said. When bidding, a dealer is likely to have accidentally entered the wrong big figure of INR 99 instead of INR 98 for the bond, which subsequently led to other bids being set at the same level, dealers said. "Someone placed an offer 1 rupee and 1 paise higher than the bid, or someone hit that way, and all (quotes) across the ladder (bidding portal) got hit," a dealer at a private sector bank said. "It was an error but will it be reverse? Not sure."

At 0922 IST, the turnover in the gilt market was INR 21.90 billion, higher than INR 4.60 billion at 0930 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 6.59-6.65% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Seen tad up on lower state bond size; OMO tendering seen robust

MUMBAI – Prices of government bonds are seen opening slightly higher Monday, ahead of the Reserve Bank of India's INR-500-billion open market operation auction, dealers said. The central bank will buy seven gilts – 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 gilt. Lower-than-indicated state bond supply may support prices, dealers said. Eleven states aim to raise INR 268.15 billion Tuesday, lower than INR 361.90 billion indicated in states' borrowing calendar for Jan-Mar. 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.59-6.67% after ending at INR 98.85, or 6.64% yield Friday. The 10-year benchmark US Treasury yield was little changed after the US employment report for December left expectations of additional rate cuts in the US intact, but bolstered expectations of status quo on rates by the US Federal Open Market Committee this month. There was no cash trading of US Treasuries in early Asian trade since Japanese financial markets are shut Monday for a holiday.

Tendering at the OMO auction is seen robust, especially by state-owned banks. 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. Replacement demand after the OMO auction may buoy prices, dealers said. State-owned banks have net purchased gilts worth INR 149.13 billion so far this month, as profit sales at OMOs have made space in their books. 

Traders may refrain from aggressive bets ahead of data in India's CPI inflation in December, scheduled for 1600 IST Monday. CPI inflation in India is likely to have risen to a four-month high of 1.7% last month due to the statistical effect of an unfavourable base and higher prices of food items and gold, according to an Informist poll of 12 economists. However, positioning before the data was light, dealers said.

Traders are likely to be cautious, as any announcement of the possible inclusion of India's fully accessible route bonds in Bloomberg's flagship Global Aggregate Index is expected later this week. Bond prices will also track the movement of the rupee against the dollar.  (Cassandra Carvalho)  End

US$1 = INR 90.15

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

Edited by Ashish Shirke

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