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Informist, Monday, Jan. 19, 2026

By Janwee Prajapati

MUMBAI – Prices of government bonds ended lower Monday due to a rise in five-year overnight indexed swap rate to an 11-month high after the 10-year benchmark US Treasury note rose beyond key level of 4.20%, dealers said. However, public-sector banks' purchases near the key 6.70% yield on the 10-year benchmark 6.48%, 2035 bond limited losses. 

The 6.48%, 2035 gilt closed at INR 98.55, down from INR 98.60 Friday. The bond's yield ended at 6.68%, the same as on Friday. A fall in rupee also weighed on the bond prices as the domestic unit hit 90.9950 a dollar intraday, close to its record low of 91.0775 hit on Dec. 16, before recovering slightly by the close. The five-year OIS rate ended at 6.07% after rising to 6.08% intraday, both at the highest levels since Feb. 21. The yield on the 10-year US Treasury note settled at a four-month high of 4.23% Friday and was not traded Monday due to a US market holiday.

"It's UST (yields on US Treasury yields) that's weighing, the rise in overnight UST led to a rise in OIS due to likely some offshore paying," a dealer at a private sector bank said. "...rupee is also weighing to some extent...what impact can a lower (state bond) can have when the global yields are rising. Also, there is no certainty that the (state bond) quantum will not rise in subsequent weeks." 

At the state bond auction Tuesday, six states plan to raise INR 130 billion, significantly lower than the indicated amount of INR 386 billion in the state borrowing calendar for the March quarter. The reduction aided investor appetite to pick up gilts and kept the 10-year gilt yield under 6.70%, dealers said.

Some traders had been of the view that the 10- and 15-year bonds would be in favour Monday after Informist reported the Centre would no longer conduct gilt switch auctions in 2025-26 (Apr-Mar) after meeting its Budget aim. The lack of further switches would cap the supply of gilts in the "belly" of the yield curve, dealers said. The material reduction in expected supply also led to some traders picking up bonds. However, likely sales from mutual funds and foreign banks kept a downward pressure on bond prices through the day, with the offshore trigger outweighing the domestic positives.

Traders were also concerned about the state's borrowing quantum in the coming weeks as states usually announce larger borrowing quantum towards the end of the quarter, dealers said. If a rise is seen in the borrowing quantum, the yield on the 10-year bond is more likely to rise past 6.70%, dealers said.

"You are right that 6.70% is a good place to buy but if you see repo (rate) is at 5.25% right now but there is no guarantee it will stay at this level," a dealer at a state-owned bank said. "Anyway nobody is expecting a rate cut...once the rate hike cycle starts, we will soon be talking about 6.80-6.90% levels on the 10-year bond."  

Some traders speculated that it was the Reserve Bank of India's purchases in the secondary market which helped bond prices recover from lows. The RBI had bought gilts worth INR 41.55 billion in the secondary market on Dec. 23, when the 10-year gilt yield hit a high of 6.6995% before recovering sharply. On Monday, the 10-year yield hit 6.6950%. However, other traders said the price action did not suggest any central bank activity, given the continued weakness in gilt prices whenever they recovered. Most market participants looked to the Clearing Corp. of India data for secondary market activity, released after market hours, to gauge whether it was the central bank capping yields, dealers said. 
 

Turnover in the gilts market Monday was INR 392.85 billion, down from INR 465.45 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 for at least the sixth straight session Monday.

OUTLOOK

On Tuesday, gilt prices will track the movement in US Treasury yields in Asian market hours after the 10-year US yield ended a four-month high Friday. US markets are shut Monday for Martin Luther King Jr. Day. Later on Tuesday, the state bond auction result will likely lend cues to gilt prices, dealers said.

Data after market hours showed 'Others'--a category that includes the RBI--net purchased gilts worth INR 14.31 billion in the secondary market Monday. Some traders had speculated the central bank had bought gilts to prevent the 10-year yield topping the crucial 6.70% mark, but traders said the quantum was inconclusive to tell whether the RBI wanted to send a signal to keep bond yields in check.

Banks are likely to bid aggressively for state bonds at auction due to the lower-than-indicated supply, which will likely lead to narrowing of the spread of state bonds over gilts, dealers said.  The spread of 10-year state bonds over the 10-year benchmark gilt yield was 87-91 basis points at last week's auction. Six states will raise INR 130 billion on Tuesday, sharply lower than INR 386 billion indicated in the borrowing calendar for Jan-Mar. However, public sector banks might not add these bonds in their held-to-maturity books as they have nearly exhausted room for fresh supply, dealers said. 

Later this week, the INR-500-billion open market auction operation by the RBI to buy bonds on Thursday may lift prices. Thursday's auction will be the last scheduled OMO among the four announced on Dec. 23, but traders expect the RBI to announce another set of OMO purchases worth INR 1.00 trillion-INR 1.5 trillion until March.

On other hand, some traders expect bond yields to rise after Friday's weekly gilt auction and heading into the Union Budget on Feb. 1. Traders will focus on the government's gross borrowing aim in the budget release, which is expected to be between INR 16 trillion and INR 17 trillion for 2026-27 (Apr-Mar), compared with INR 14.72 trillion in the current fiscal. A number higher than expected might weigh on bond prices while an increase in funding through Treasury bills or small savings and a gross borrowing number below INR 16 trillion would boost bond prices, dealers said. Bets on rate cuts at the Monetary Policy Committee's February meeting remain muted.

Any development on the India-US trade deal may also influence bond prices. Significant movements in the five-year OIS rate, the rupee and crude oil prices may also lend cues, dealers said. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.64-6.72% Tuesday.

India Gilts: Fall again on rise in 5-year OIS, weak rupee; value buys aid

MUMBAI--1550 IST--Prices of government bonds fell again after the five-year overnight indexed swap rate hit a fresh intraday high of 6.08%, its highest since Feb. 21. A fall in the rupee to near its record low also weighed on gilt prices, though the fall in gilts could not be sustained due to value buys from state-owned banks ahead of a smaller-than-indicated state bond auction Tuesday, dealers said.

"Tomorrow's (Tuesday) state bond amount (auction supply) is significantly low... market was set for an upward movement," a dealer at a private sector bank said. "If the rupee had not fallen so much and there was not a subsequent fall in OIS (5-year OIS), the prices would have actually rallied 20-25 basis points in today's (Monday) session. Moreover, US markets are shut, so people are also waiting for the next cues."

At the state bond auction Tuesday, six states plan to raise INR 130 billion, significantly lower than the indicated amount of INR 386 billion in the state borrowing calendar for the March quarter. Banks, especially public sector banks, likely bought gilts as the yield on the 10-year benchmark 6.48%, 2035 gilt topped 6.68% and approached 6.70%, its highest level in the current financial year, which began in April. Bonds recovered nearly all losses earlier and losses remained limited due to consistent purchases from investors at yields considered lucrative, dealers said.

However, mutual funds and foreign banks were likely sellers, expecting prices to fall further. The rise in the five-year OIS rate past the crucial 6.05% level triggered fresh offshore paying pressure in the benchmark contract, dealers said. The rupee slipped to a low of 90.9950 a dollar intraday, which is close to its record low of 91.0775 a dollar hit on Dec. 16.

Some traders said that purchases by the central bank prevented the yield on the 10-year benchmark bond from topping 6.70%. The RBI had bought gilts worth INR 41.55 billion in the secondary market on Dec. 23, when the 10-year gilt yield hit a high of 6.6995% before recovering sharply. However, others said the price action did not suggest any central bank activity, given the continued weakness in gilt prices whenever they recovered.

At 1550 IST, the turnover in the gilt market was INR 346.10 billion, similar to INR 345.90 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 6.65-6.72% for the rest of the day. (Janwee Prajapati)

India Gilts: Recover most losses on value buys, lower state bond supply

MUMBAI--1235 IST--Prices of government bonds recovered most losses from earlier in the day on the back of purchases at lucrative levels as the 6.48%, 2035 gilt yield neared the psychologically crucial 6.70% level, the highest yield hit by a 10-year benchmark so far this financial year. The purchases were aided by lower-than-scheduled state borrowing this week, dealers said. Six states aim to raise INR 130 billion Tuesday, around 66% lower than the amount indicated in states' borrowing calendar for Jan-Mar. 

State-owned banks were buying gilts at current yield levels, dealers said. A few dealers speculated that a large institutional investor, or the Reserve Bank of India, was purchasing gilts on-screen. Depending on the result of the state bond auction, the 10-year bond yield could fall to 6.65% this week itself, dealers said, and traders could make a profit of around 3 to 5 basis points after buying gilts at current levels, they said. Traders have mixed views on the result of the state bond auction, with some expecting tepid demand in spite of the lower supply, as some traders have reached their internal limits for holding state bonds, and some may wait for auctions with heavier supply to bid at higher cut-off yields. Later in the week, the INR-500-billion open market operation auction Thursday could also push up demand for gilts, leading to higher prices. Thursday's auction will be the last scheduled OMO auction. Traders expect more OMO auctions to be announced for Jan-Mar, for at least INR 1.00 trillion. Some expect such an announcement this week itself. 

"People were expecting (INR) 4.5 trillion (state borrowing) calendar for Jan-Mar," a dealer at a private-sector bank said. "But (INR) 5 (trillion) came. But this month itself we've had one auction as per indicated, second one lower than indicated, and this week sharply down (from indicated). So if states continue this (in Jan-Mar), borrowed amount will be as per expectations. And this week, if SDL (state bond auction), and OMO go well then we'll already be at 6.63% (yield on the 10-year benchmark bond)."

However, elevated US Treasury yields, and a fall in the rupee against the dollar near the key 91.00 per dollar mark limited the recovery in bond prices, dealers said. Along with concerns of heavy gilt and state bond supply in the upcoming financial year, pressure on the local currency could push the 10-year benchmark bond yield past 6.70%, and then 6.75% in the near term, unless the central bank intervenes through gilt purchases, they said.

At 1235 IST, the turnover in the gilt market was INR 186.10 billion, higher than INR 164.15 billion at the same time 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 6.65-6.72% for the rest of the day. (Cassandra Carvalho)

India Gilts: Dn as 10-yr US yld rises; lower state bond supply limits losses

MUMBAI--0942 IST--Prices of government bonds were down Monday, tracking a rise in the benchmark 10-year US Treasury yield above the key level of 4.20%, dealers said. Losses were limited due to lower than estimated supply of state bonds this week, dealers said. Public sector banks likely purchased gilts as the yield on the 6.48%, 2035 bond rose to 6.6950%, a level seen lucrative since it is the upper end of the recent trading range. The 10-year benchmark gilt yield has hit the crucial 6.70% level only one other time this financial year, on Dec. 23. 

"We were hoping for a slightly higher (in price terms) opening due to lower SDL (state bond supply at auction Tuesday), but the global cues are weighing," a dealer at a state-owned bank said. "UST (yield on 10-year benchmark US Treasury note) have risen quite a bit which is weighing on prices currently. I think the yields (on the 6.48%, 2035 bond) will remain in the range of 6.69-6.70% unless there is any support from RBI (the Reserve Bank of India)...the lower supply of SDL suggests that RBI wants the yields to fall."   

At the state bond auction Tuesday, six states aim to raise INR 130 billion, significantly lower than an indicated amount of INR 386 billion in states' borrowing calendar for the March quarter. Due to the lower supply, demand at the auction is seen robust. Traders will bid for these securities to replenish their books after selling bonds to the RBI at open market operation auctions since December, dealers said. 

The 10-year US Treasury yield rose above the key 4.20% level over the weekend, after more than a month of trading in a thin range. US yields rose after US President Donald Trump told his top economic adviser Kevin Hassett that he prefers Hassett at his current post instead of appointing him as the next US Federal Reserve Chair, which indicated lower chances of further easing in US interest rates in the near term. US markets are shut on Monday for Martin Luther King Jr. Day.

At 0942 IST, the turnover in the gilt market was INR 38.30 billion, higher than INR 14.00 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 6.65-6.72% for the rest of the day. (Janwee Prajapati)

India Gilts: Seen dn at open, fall may be limited on lower state bond supply

MUMBAI – Prices of government bonds are seen opening lower on Monday, tracking a rise in the 10-year US Treasury yield above the key 4.20% level. However, losses may be limited due to lower than estimated state bond supply this week. Several traders have placed short bets on gilts in the secondary gilt market and may cover these bets, dealers said. 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.64-6.70% after ending at INR 98.60, or 6.68% yield on Friday, the highest closing yield level since Mar. 17. The yield on the benchmark 10-year US Treasury note rose to 4.23% at 0800 IST from 4.18% at 1700 IST Friday, after US President Donald Trump told his top economic adviser Kevin Hassett that he prefers Hassett at his current post instead of appointing him as the next US Federal Reserve chair, suggesting lower chances of low interest rates in the near term. US markets are shut on Monday for Martin Luther King Jr. Day. US Treasury price futures inched higher amid demand for safe haven assets due to rising trade tensions between the US and the European Union over Trump's wish to purchase Greenland. 

Indian government bond traders were not actively tracking the movement of US yields as the 10-year US yield traded in a thin range for nearly five weeks. However, the rise in the 10-year US yield above the key 4.20% level may weigh on bond prices at open, dealers said. The impact of a rise in US yields is seen more pronounced in overnight indexed swap rates, which will subsequently weigh on bond prices, they said. The five-year OIS rate ended at its highest level in nearly 11 months Friday, and is seen rising to 6.04% Monday.  

The fall in bond prices may be limited due to lower-than-scheduled state bond supply this week. Post market hours Friday, the Reserve Bank of India said that six states will raise INR 130 billion through the sale of bonds on Tuesday. The indicative calendar for state borrowing for Jan-Mar showed states would borrow INR 386 billion. Losses in bonds maturing between 10 to 15 years may be further limited on optimism of less supply in these papers in the rest of the financial year. Informist reported Saturday, citing a senior finance ministry official, that the Centre will not conduct any further auctions to switch government bonds as it has met its target for switches and buybacks in the current financial year that began in April. State-owned banks are seen purchasing gilts after the 10-year benchmark yield neared the key 6.70% level Friday. Traders are also seen covering short bets at these yield levels. Any weakness in the rupee against the dollar may weigh on bond prices, dealers said. (Cassandra Carvalho)

End

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

Edited by Akul Nishant Akhoury

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