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Informist, Friday, Jan. 16, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended sharply down Friday as the five-year overnight indexed swap ended at its highest level in nearly 11 months, dealers said. The rupee's fall by 57 paise against the dollar Friday, its worst day in nearly two months, also weighed on bond prices. Public-sector banks likely bought gilts as the yield on the 10-year benchmark 6.48%, 2035 bond rose above the key level of 6.68% towards close of the session, which limited losses.

The 6.48%, 2035 gilt closed at INR 98.60, down from INR 98.79 Wednesday. The bond's yield ended at 6.68%, up from 6.65% Wednesday, marking its highest closing level since Mar. 17. Traders avoided picking up gilts despite the rise in yields this week on continued disappointment over Bloomberg Index Services' decision not to include fully accessible route bonds in its flagship Global Aggregate Index right now, dealers said. Money markets were shut Thursday for local body elections in Maharashtra.

The five-year OIS rate ended at 6.03% after rising to 6.04% intraday, both at the highest levels since Feb. 24. Swap rates ended higher after both domestic and offshore investors paid fixed rates across tenures on the view that there would be no further monetary policy easing in India, dealers said. The rise in the five-year swap rate past the psychologically crucial 6.00-6.01% level triggered stop-losses among traders, dealers said.

"We had expected the prices to recover as the auction result was better than expected," a dealer at a private-sector bank said. "...but there was a sudden fall in prices as the OIS fell further."

At the weekly gilts auction Friday, government sold INR 180 billion worth of 6.01%, 2030 bond and INR 130 billion worth of the new 2076 bond. Contrary to expectations, bidding for the 6.01%, 2030 bond was firm as both private-sector and public sector banks picked up the paper to match their liabilities, dealers said. Mutual funds also found the five-year bond yield attractive, while traders covered their short positions at the auction. The bid-cover ratio of three times the notified amount showed the firm demand, dealers said.

The long-term bond was mopped up in 16 of the total 134 bids received, which confirmed demand from long-term investors such as insurance companies and pension funds. However, provident funds likely did not bid for the bond aggressively, dealers said. The Reserve Bank of India set a coupon of 7.43% on the new 50-year bond, lower than the expected coupon of 7.45%.

"I had actually not expected such good demand," a fund manager at a life insurer said. "It looks like the big (insurance) guys have received some demand for guaranteed products, and even pension funds are doing better in January."

The auction result helped long-term bonds reverse losses and rise, while most other bonds also were off lows briefly. However, caution before the weekend and traders expressing their view that bond prices would fall led to a further fall in gilt prices in the second half of the day. Compounding the negative sentiment was the lack of aggression from state-owned bank in the secondary market despite the 10-year yield topping the psychologically crucial 6.65% yield early in the day. Traders also said the RBI's speculated on-screen purchases from earlier this week had come to an end, which allowed gilt prices to fall. 'Others' – a category that includes the central bank, insurance companies and provident funds – had net purchased gilts worth nearly INR 100 billion in the secondary market Mon-Wed, according to Clearing Corp. of India data.

"I don't think RBI is there today," a dealer at a state-owned bank said. "...And I don't think it (RBI) will come around 6.70% now, maybe it will come around 6.80% (yield on the 10-year benchmark gilt) as they are thinking probably that if it keeps supporting then people will keep bidding at tail (higher yield) at auction.

Some traders were unhappy with the paper selected for the open market operation as most of the papers were out-of-the money or illiquid paper, dealers said. Traders had anticipated that the RBI would purchase the 6.33% 2035 bond, which would have helped cap bond yields as it would have led to a "short-squeeze", or rush of short covering, in the paper. The RBI offered to buy 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 at its next OMO auction on Thursday, the last scheduled in the four it announced on Dec. 23. Traders are expecting a further announcement of OMO with a quantum between INR 1.0 trillion and INR 2.00 trillion, though they are divided on whether the announcement will come before Feb. 1 – capping gilt yields before the Union Budget – or after the Budget presentation, dealers said. 

Turnover in the gilts market Friday was INR 465.45 billion, up from INR 438.10 billion Wednesday, 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 straight session Friday.

OUTLOOK

Gilts are not traded Saturday. On Monday, gilt prices are likely to open higher due to the significantly lower quantum of state bond supply at the auction Tuesday. Six states will raise INR 130 billion on Tuesday, sharply lower than INR 386 billion indicated in the borrowing calendar for Jan-Mar.

Traders will likely focus on any significant movement in the five-year OIS rates. If the five-year OIS rates rises above key technical level of 6.05%, bond prices may see further fall and the 10-year gilt yields may rise to 6.70%, 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 near 6.70%, dealers said.

The movement in US Treasury yields may also lend cues. If the 10-year US yield is 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. Any development on the India-US trade deal may also influence bond prices.

The rupee's movement against the dollar will also provide cues to bond prices, as will movement of crude oil prices. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.62-6.70% Monday.

India Gilts: Fall to day's low as 5-year OIS rises to 10-month high

MUMBAI--1534 IST--Prices of government bonds fell sharply again to hit the day's low, after briefly recovering most losses, as the five-year overnight indexed swap hit 6.0275%, the highest since Mar. 5, 2025. A fall in the rupee to 90.86 per dollar weighed on bonds and pushed up swap rates, dealers said. The yield on the 10-year benchmark 6.48%, 2035 gilt rose above the key 6.68% level, on track to hit the psychologically crucial 6.70% level.  

Domestic traders were paying fixed-rate contracts in swaps and selling gilts, they said. Some traders chose to buy the five-year benchmark bond and pay fixed rates at the five-year swap rates, they said.

"6.02-6.05% is the crucial level. If this breaks, then there's no stopping, 5-year (OIS) can go to 6.10-6.12% also. If it does, then the 10-year (benchmark yield) will be at 6.70%," a dealer at a private sector bank said.

Bond prices recovered some losses after the INR-310-billion gilt auction result was announced, as the auction went through smoothly, dealers said. Banks, especially public sector banks, showed strong demand for the five-year benchmark 6.01%, 2030 bond at auction, and the Reserve Bank of India set a cut-off price of INR 98.21 on the gilt, against an Informist poll estimate of INR 98.22. However, traders were more focused on the result of the long-term bond auction. The RBI set a coupon rate of 7.43% on the new 2076 bond, below an Informist poll estimate of 7.45%. Insurance companies bid for the bond, dealers said. The RBI accepted 16 out of 134 bids for the bond. The bond was last traded at INR 101.50, or 7.32% yield. 

"Even if we make a 3 bps profit, we'll take it, and 6.68% (10-year benchmark yield) is a good level to buy," a dealer at a state-owned bank said.

Due to the strong auction result, some traders had expected the benchmark 10-year 6.48%, 2035 gilt yield to fall to 6.65% by the end of trade Friday and bought gilts. However, others found the post-auction price recovery "overstretched" because demand for the five-year gilt at auction was only slightly above expectations. Uncertainty persisted due to global geopolitical tensions and pressure on the rupee against the dollar, dealers said. A few traders speculated that the RBI was limiting further price fall by purchasing gilts at the 6.68% yield on the 10-year benchmark. 

A few traders speculated that after market hours, the RBI could announce measures, such as additional open market operations, to contain the rise in bond yields. Others said the RBI would announce OMO auctions only after the Budget is presented on Feb. 1. Traders await weekly RBI data on purchases made on-screen last week. 

At 1530 IST, turnover in the gilt market was INR 345.90 billion, tad higher than INR 325.15 billion at the same time Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the day, the yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.63-6.70%. (Cassandra Carvalho)

India Gilts: Remain down as OIS rise weighs; demand at auction seen mixed

MUMBAI--1234 IST--Government bond prices remained sharply down as a rise in the five-year overnight indexed swap rate past the key level of 6.00% weighed. A fall in the rupee against the dollar past the 90.50 per dollar mark also weighed, dealers said.

"The rise in OIS is definitely impacting bonds (prices)," a dealer at a state-owned bank said. "I think the 5-year OIS can go to 6.05%...the 5x5 swap (buy the 6.01%, 2030 gilt and pay the five-year swap) is unlikely because the yield on the 5-year bond will likely rise from here."

At the INR-310-billion gilt auction, public sector banks did not bid aggressively for the 6.01%, 2030 bond, despite it being a paper usually preferred for asset and liability management books, as these banks favoured state bonds over gilts due to lucrative yields, dealers said.

The new 2076 bond will see strong demand from long-term investors such as insurance companies and provident funds, most dealers said. Some dealers were unsure about aggressive bidding from long-term investors following the delay in the inclusion of India's fully accessible route bonds in Bloomberg's flagship Global Aggregate Index. The Reserve Bank of India is likely to set a coupon of 7.45% on the bond, as per an Informist poll of 16 estimates.

The 6.33%, 2035 paper underperformed gilts of similar maturity as the RBI did not select the bond for the upcoming open market operation auction on Jan. 22, dealers said. Traders had expected the RBI to buy the 6.33%, 2035 bond, which would deter a further rise in yields since such an inclusion would spur purchases, thus raising the bond's price to a profitable level, since the bond is currently held at much lower prices in banks' books, dealers said. The RBI has offered to buy 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. This is the fourth and final tranche of OMO auctions announced by the RBI on Dec. 23, when the central bank had said it would buy INR 2 trillion of gilts in equal tranches starting Dec. 29.

At 1234 IST, turnover in the gilt market was INR 169.85 billion, higher than INR 221.65 billion at 1235 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the day, the yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.62-6.70%. (Janwee Prajapati)

India Gilts: Dn; 10-yr benchmark yld hits 6.68%; 6.01%, 2030 demand seen poor

MUMBAI--0935 IST--Prices of government bonds were down as traders made room in their portfolios to accommodate fresh auction supply, dealers said. The yield on the 10-year benchmark 6.48%, 2035 bond hit 6.68%, the highest since Dec. 23. A rise in the five-year overnight indexed swap rate past the key 6.00% level to 6.01% also weighed on government bond prices.  

"Prices are down because people might be offloading for auction," a dealer at a state-owned bank said. "We will only see yields hardening from here...PSUs (public sector banks) are on the sidelines."

The government will sell INR 130 billion of the new 2076 bond and INR 180 billion of the five-year benchmark 6.01%, 2030 bond Friday. Demand for the five-year paper is likely to be muted at the auction due to heavy state bond supply in the March quarter, fears of heavy gilt supply in the upcoming financial year, along with persisting disappointment over Bloomberg Index Services deferring the inclusion of India's fully accessible route bonds in its flagship Global Aggregate Index, dealers said. The tepid demand comes even as the Reserve Bank of India has been buying hefty supply of short-term bonds at its open market operation auctions since last month. An Informist poll estimated primary dealerships' underwriting fee for the bond at 0.50 paisa, compared to 0.29 paisa set by the RBI at the bond's previous auction in December. Demand for the new 2076 bond is seen firm from long-term investors such as pension funds and insurers, similar to recent auctions of long-term bonds, wherein long-term papers were swept in single-digit bids.  

"Demand looks pretty bleak," a trader at a primary dealership said. "Traders will bid at higher levels only (yields). Even if they do not get it (the auction stock), it's fine for them...There should be some FRA (forward rate agreements) demand in the long-term (new 2076 bond) but let's see." 

Trade volume in the secondary market was muted amid uncertainty, dealers said. Later in the day, bond prices will track the result of the gilt auction. At 0935 IST, the turnover in the gilt market was INR 38.15 billion, higher than INR 16.75 billion at 0930 IST Wednesday, 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 6.62-6.70% for the rest of the day. (Janwee Prajapati)

India Gilts: Seen down before fresh supply; US yld rise, weak rupee to weigh

MUMBAI – Prices of government bonds are seen opening lower Friday as traders make room for a fresh supply of INR-310-billion bonds at the gilt auction. Gilts were also weighed down by a rise in US Treasury yields after data indicated strength in the US economy, dealers said. Bond prices may also track the movement of the rupee against the dollar, which is seen opening lower after the dollar index hit a six-week high Thursday.

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.60-6.67% after ending at INR 98.79, or 6.65% yield, Wednesday. Indian financial markets were shut Thursday for municipal corporation elections in Maharashtra. The yield on the benchmark 10-year US Treasury note was 4.17% at 0800 IST, from 4.16% at 1700 IST Wednesday, after government data released Thursday showed that jobless claims in the US unexpectedly fell in the week ended Saturday.

The government will sell INR 180 billion of the 6.01%, 2030 bond and INR 130 billion of a new 2076 bond. Demand for the long-term bond is seen firm from long-term investors such as pension funds and insurers, dealers said. Appetite for the five-year bond from traders is likely to be muted, as disappointment persists over Bloomberg Index Services' announcement to continue reviewing India's inclusion in its flagship Global Aggregate Index, dealers said. 

The 6.33%, 2035 gilt may underperform bonds of similar maturity Friday, after largely outperforming them earlier in the week, after the Reserve Bank of India chose not to buy the bond at its open market operations auction next week, dealers said. Post market hours Wednesday, the central bank said it would purchase seven gilts--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 at the OMO on Thursday. Traders also await announcements of further OMO auctions, though some expect such auctions to be announced only after the Union Budget for 2026-27 (Apr-Mar) is presented. 

Some traders speculate that the RBI is likely to buy gilts onscreen Friday, after the 'others' segment of gilt market participants--consisting of the central bank, insurance companies and provident funds--net bought gilts worth INR 17.56 billion Wednesday. Since Jan. 5, this segment has net purchased gilts worth INR 178.15 billion, according to data from Clearing Corp. of India. Traders await weekly statistical data from the RBI, due Friday, to confirm if the central bank bought gilts onscreen last week. 'Others' net bought gilts worth nearly INR 80 billion last week. While the RBI is likely buying gilts in the secondary market to replenish its book after a bond redemption, traders also speculate that the central bank is uncomfortable with the 10-year benchmark 6.48%, 2035 bond yield rising above the key 6.65% level. Earlier, traders believed that the central bank would intervene via gilt purchases at the 6.70% yield level. (Cassandra Carvalho)

End

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

Edited by Ashish Shirke

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