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Informist, Wednesday, Jan. 14, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended lower as traders made space in their portfolio ahead of the weekly gilt auction Friday, with Thursday being a holiday. The lack of India's inclusion in Bloomberg's Global Aggregate Index also weighed on prices for the second straight day. Speculated on-screen bond purchases from the Reserve Bank of India for the sixth straight session limited losses.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.79, down from INR 98.94 Tuesday. The bond's yield ended at 6.65%, up from 6.63% Tuesday. The benchmark yield rose above the 6.65% level intraday but purchases from state-owned banks and the RBI capped the yield around the psychologically crucial mark, dealers said.

The selling momentum from Tuesday continued after Bloomberg Index Services Ltd. said its review on India's inclusion in its flagship Global Aggregate Index was ongoing, disappointing traders who had expected the announcement for inclusion this week, dealers said. Traders do not expect any major foreign inflows in 2026 after the index service provider said any further update on the potential inclusion will be made only by mid-2026. The 6.48%, 2035 bond price ended 37 paise lower than the day's high on Tuesday and fell to as low as INR 98.73 Wednesday.

However, short sales ahead of the auction dominated trading volume towards the end of the day, dealers said. Money markets are shut Thursday due to local body polls in Maharashtra. The government will sell INR 180 billion of the 6.01%, 2030 gilt and INR 130 billion of a new 50-year, 2076 gilt at auction Friday. 

"It's difficult to say if RBI is there now", a dealer at a public-sector bank said. "...When RBI buys you can see 10 paise moves easily, prices were holding in the morning so might have been there then. Currently, I think its traders placing shorts (short sales) before the weekly gilt auction as they need some space for auction."

Demand is seen muted at the auction after the disappointment of the Bloomberg index inclusion announcement. The five-year benchmark 6.01%, 2030 bond fell Wednesday despite offering a spread of over 115 basis points over the policy repo rate of 5.25%. However, the long-term bond may attract pension funds and insurance companies near 7.40% yield. Investors are unlikely to be aggressive with fears of higher supply in 2026-27 (Apr-Mar) and a lack of optimism around rate cuts. Moreover, long-term investors are preferring to add state bonds maturing in over 20 years to their portfolios, which yield over 20 bps more than the 50-year benchmark gilt.

The five-year bond may still find buyers due to replacement demand from banks and healthy interest from asset-liability managers, who prefer short-term bonds over gilts maturing in 10 years or more, dealers said. Dealers are also optimistic the central bank would announce another set of open market operation auctions after the last tranche of the operations announced on Dec. 23 is conducted on Jan. 22. 

Traders expect the central bank to infuse more liquidity into the banking system because the systemic liquidity surplus, as measured by the RBI's net liquidity absorbed, has remained paltry even in the face of INR 2.5 trillion infused through OMO auctions since December. Even on Tuesday, when the net liquidity absorbed rose to a one-month high of INR 1.01 trillion, it was only around 0.4% of banks' net demand and time liabilities.

"I think the announcement of another OMO will only depend on the liquidity conditions going ahead," a dealer at a private bank said. "...Currently, we have mildly (liquidity) surplus but the call rates are still on the higher side...I do not think RBI will be comfortable with the higher rates so it might announce another OMO (open market operation auction) of roughly around INR 1.5 trillion." 

Bond yields are also expected to rise after the Jan. 22 auction and heading into the Union Budget on Feb. 1, with traders divided on whether the RBI's further buys would come before or after the key announcement. Estimates for further gilt buys, after primary market purchases of INR 3 trillion in Dec-Jan and speculated secondary market buys as well, range between INR 1.0 trillion and INR 2.0 trillion until March.

The RBI's likely on-screen purchases to replace its holding of the 7.59%, 2026 bond that matured Sunday helped bond prices through the day and pushed traders to also pick up the 10-year benchmark gilt near 6.65% yield, dealers said. Traders speculated the RBI's purchases were likely concentrated in the 6.48%, 2035 gilt and the 15-year benchmark 6.68%, 2040 bond. Mutual funds also likely picked up the 2035 bond after they net sold INR 28.68 billion of gilts Tuesday, dealers said.

Clearing Corp. of India data showed that the "Others" segment — which includes the RBI— net bought INR 33.04 billion of gilts on Tuesday, bringing the total secondary market purchases since Jan. 7 to INR 165.76 billion. The RBI has likely bought over INR 120 billion of that amount, dealers said, against its holding of INR 350 billion to INR 400 billion of the 2026 bond that matured, according to dealers' estimates.

Turnover in the gilts market Wednesday was INR 438.10 billion, down from INR 522.20 billion Tuesday, 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-straight session Wednesday.

OUTLOOK

Money markets are shut Thursday due to municipal corporation elections in Maharashtra. Settlements due Thursday have been shifted to Friday. 

Gilt prices may open steady Friday due to a lack of firm domestic cues but prices may fall as traders will likely make space in their portfolio for the fresh supply of gilts at the weekly auction Friday. The government will sell INR 180 billion of the 6.01%, 2030 bond and INR 130 billion of a new 2076 bond at 1030-1130 IST.

Later in the day, bond prices will take cues from the auction result, dealers said. The disappointment over Bloomberg Index Services' announcement to still review India's inclusion in its flagship Global Aggregate Index may weigh on prices through the day, though traders expect the RBI to continue buying gilts on-screen, which may limit losses. The 10-year benchmark 6.48%, 2035 gilt may see firm demand from state-owned banks if its yield rises to 6.68-6.70%, dealers said.

The 6.33%, 2035 bond's yield has remained below the current 10-year benchmark gilt for a few days, an unusual occurrence, led by expectations that the bond would be included in the RBI's OMO auction on Jan. 22. However, a release after market hours showed the central bank would not buy the erstwhile 10-year gilt at its last scheduled OMO auction on Jan. 22. The RBI has offered to buy INR 500 billion of the 7.10%, 2029; the 6.10%, 2031; the 7.57%, 2033; the 6.19%, 2034; the 6.67%, 2035; the 7.54%, 2036; and the 7.09%, 2054 gilts next week.

The movement in US Treasury yields may also lend cues Friday. The 10-year US yield in the 4.10-4.20% range it has stuck to since early December, the overseas trigger may have a limited impact on gilt prices. Some traders are also eyeing the US Supreme 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 will also provide cues to bond prices, as will movement of crude oil prices. Movement in overnight indexed swap will also be in focus. 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 6.60-6.70% Friday.

India Gilts: Remain sharply down on short sales before gilt auction Fri

MUMBAI--1521 IST--Prices of government bonds remained down as traders made room for fresh supply of gilts Friday, since the gilt market is shut Thursday. Losses were limited on speculated purchases by the Reserve Bank of India at the psychologically crucial yield of 6.65% on the 10-year benchmark 6.48%, 2035 bond, dealers said. Dealers speculated that the central bank also purchased the 15-year 6.68%, 2040 bond. Some traders also purchased gilts at the 6.65% yield on the 10-year benchmark, they said. Some traders now speculate that the central bank is uncomfortable with the 10-year benchmark yield of 6.65% itself, revising their expectations that the RBI would intervene at the 6.70% yield. 

"Some PSUs (public sector banks) are also buying as 6.65% (yield on 10-year benchmark gilt) is a good level," a dealer at a primary dealership said. "...And then there is RBI also to support the levels. I think we have hit the bottom (bond prices)...we can see some recovery from here...already some kind of short (sales) trades are made so I don't think there is any more scope of further shorts."

While bond prices in the secondary market were little changed after the result of the INR-290-billion Treasury bill auction, cut-off yields were higher than expected. A sharp fall in bond prices around the time of auction likely led to traders placing bids at higher yields, dealers said. Some dealers said they bid at higher yields due to elevated rates on banks' certificates of deposits of similar tenures. Some traders have been unable to sell Treasury bill stock from last week's auction, since mutual funds did not bid aggressively at the time, they said. The RBI set a cut-off yield of 5.63% on the 364-day T-bill, against an Informist poll estimate of 5.58%. The cut-off yield on the 182-day T-bill was also 5 bps higher than expected, while that on the 91-day T-bill was 1 bp higher.

At the weekly gilt auction, the government will sell INR 180 billion of the 6.01%, 2030 bond and INR 130 billion of a new 2076 bond Friday. Demand for the new 2076 bond is seen firm from long-term investors, though some traders said that insurers and pension funds prefer long-term state bonds. The coupon on the bond is seen at around 7.43-7.47%. The 7.09%, 2074 bond last traded at INR 95.50, or 7.43% yield.

Traders are less confident of demand for the five-year paper, due to lack of investor demand in this segment and poor appetite for gilts from traders. Some traders expect higher cut-off yields at the weekly gilt auction Friday, after the deferred inclusion of India's fully accessible route bonds in Bloomberg's flagship Global Aggregate Index as traders will likely refrain from placing aggressive bids at the auction, dealers said. 

At 1521 IST, the turnover in the gilts market was INR 325.25 billion, lower than INR 438.80 billion at 1530 IST Tuesday, 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)

India Gilts: Off lows on likely RBI buys; sharply dn earlier on rise in OIS 

MUMBAI--1228 IST--Prices of government bonds were off lows on likely purchases in the 10-year benchmark 6.48%, 2035 gilt by the Reserve Bank of India, dealers said. Earlier, bond prices were sharply down across tenures, and the 10-year benchmark 6.48%, 2035 bond yield rose above the psychologically crucial 6.65% level tracking a rise in the five-year overnight indexed swap rate to the key 6.00% mark.

Traders placed short sales on gilts to make room for fresh supply at the INR-310-billion gilt auction Friday, since the gilt market is shut Thursday, dealers said. The RBI notified Thursday as a holiday under the Negotiable Instruments Act due to municipal corporation elections in Maharashtra.

When the five-year overnight indexed swap rate hit the key 6.00% mark, foreign and private sector banks likely sold gilts, while paying fixed rate contracts in swaps, dealers said. Some traders hit stop losses when the 10-year benchmark yield rose above 6.63% and then 6.65%, triggering a further fall in bond prices, they said. 

"In the morning RBI wasn't there. That's why anyone could hit the market and pull prices down to 75-79 paisa (INR 98.75 on the 6.48%, 2035 gilt)," a dealer at a state-owned bank said. "But at 6.66%-6.67% (10-year benchmark) yield the buyer seems to be RBI only. At 80 levels (INR 98.80 on the 6.48%, 2035 gilt) looks like RBI is supporting. Now if you see, the bid side is more than 1,000, while offers are not even 800. This is typically what happens when RBI is buying." 

Traders speculated that the central bank was purchasing the 10-year benchmark gilt at the key 6.65-6.66% yield level, limiting a further fall in bond prices, dealers said. If not for the central bank's purchases, the 10-year benchmark gilt yield would have hit the next technical level of 6.70% Wednesday itself, dealers said. Traders continued to sell gilts amid disappointment after Bloomberg Tuesday delayed inclusion of India's fully accessible route bonds in its flagship Global Aggregate Index, dealers said.

Since the central bank is seen intervening through gilt purchases if the 10-year benchmark yield nears the 6.70% level, traders could not aggressively place short bets even as appetite for gilts is poor, they said. Other than the central bank, most traders refrained from aggressive purchases, even as levels are seen as lucrative to buy gilts, they said. Most traders, especially state-owned banks are waiting for the key 6.70% yield to further accumulate positions. Traders have bought gilts at current levels, and do not want to buy more at this price, and on the other hand, are unable to sell at a profit, they said.  
 

At 1228 IST, the turnover in the gilt market was INR 225.15 billion, lower than INR 333.45 billion at 1230 IST Tuesday, 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. (Cassandra Carvalho)

India Gilts:Down on delayed index inclusion, losses limited on PSU bks' buys

MUMBAI--0943 IST--Prices of government bonds were down Wednesday after opening steady, as traders continued to sell gilts after Bloomberg Tuesday delayed the inclusion of India's fully accessible route bonds in its flagship Global Aggregate Index, dealers said. Losses were limited as public sector banks likely picked up bonds at the psychologically crucial yield level of 6.63% on the benchmark 10-year 6.48%, 2035 gilt. 

"I think PSUs (public sector banks) are holding the levels," a dealer at a state-owned bank said. "They are buying around 6.62-6.64% levels (yield on the 6.48%, 2035 bond)."

Bond prices had ended sharply lower Tuesday after Bloomberg Index Services deferred the inclusion of India's fully accessible route bonds to its flagship Global Aggregate Index. Traders had been counting on a confirmation of inclusion this week, expecting the move to trigger foreign inflows of roughly $20 billion–$25 billion into gilts, dealers noted.

Some of the selling pressure was offset by speculation of the Reserve Bank of India purchasing gilts on-screen. The 'others' category of bond market participants, which consists of the central bank, insurance companies and provident funds, was the largest net buyers of gilts for the fifth consecutive session Tuesday. Since Jan. 5, this segment has net purchased gilts worth INR 160.59 billion, according to data from Clearing Corp. of India. Such purchases could continue for the rest of this week as the RBI is likely replenishing its book after redemption of the 7.59%, 2026 bond, dealers said. The central bank owned around INR 350 billion to INR 400 billion of the bond, according to market participants.

The government will sell INR 180 billion of the 6.01%, 2030 bond and INR 130 billion of a new 2076 bond Friday. Fresh supply of the five-year benchmark 6.01%, 2030 bond Friday weighed on the bond's price Wednesday, dealers said. Traders are likely to place short bets ahead of the weekly gilt auction Wednesday itself since the gilt market is shut Thursday due to Municipal corporation elections in Maharashtra. 

At 0943 IST, the turnover in the gilt market was INR 50.15 billion, lower than INR 89.55 billion at 0930 IST Tuesday, 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 6.58-6.65% for the rest of the day. (Janwee Prajapati)

India Gilts: Seen steady; likely RBI buys may offset lack of index inclusion

MUMBAI – Prices of government bonds are seen opening largely steady Wednesday, dealers said. Traders have little interest in buying gilts as optimism on the 10-year benchmark 6.48%, 2035 bond yield falling below 6.55% due to foreign inflows faded, after Bloomberg Index Services Tuesday delayed the inclusion of India's fully accessible route bonds in its flagship Global Aggregate Index. However, any purchases by the 'others' segment of bond market participants, seen especially in the benchmark 10-year gilt, may push prices higher, dealers said. Traders speculate that the Reserve Bank of India is purchasing gilts on-screen to replenish its book after redemption of the 7.59%, 2026 gilt Sunday.

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.58-6.65% after ending at INR 98.94, or 6.63% yield Tuesday. The yield on the benchmark 10-year US Treasury note was 4.18% at 0815 IST, a tad lower than 4.20% at 1700 IST Tuesday. Data released post Indian market hours Tuesday showed that core CPI inflation in the US rose 0.2% on month and 2.6% on year in December, lower than expectations of 0.3% and 2.7%, respectively.

The 'others' category of bond market participants, which consists of the Reserve Bank of India, insurance companies and provident funds, was the largest net buyers of gilts for the fifth consecutive session Tuesday, with net purchases worth INR 33.04 billion. Since Jan. 5, this segment has net purchased gilts worth INR 160.59 billion, according to data from Clearing Corp. of India. Traders speculate that this is RBI purchasing gilts on-screen, and any such buys Wednesday are likely to limit losses in bond prices. Such purchases could continue for the rest of this week, dealers said.

Traders expect the benchmark 10-year gilt yield to hit 6.70% in the near term due to concerns about heavy state bond supply and likely heavy supply of gilts in the next financial year as well. The lack of inclusion of fully accessible route bonds in a global investment grade debt index will also weigh on bond prices, dealers said. However, at the key 6.70% level, the RBI is likely to intervene, by announcing further open market operation auctions, buying gilts onscreen, or introducing other such measures, dealers said. (Cassandra Carvalho)

End

US$1 = INR 90.30

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

Edited by Deepshikha Bhardwaj

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