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Informist, Tuesday, Jan. 20, 2026

By Janwee Prajapati

MUMBAI – Government bond prices rose again towards the end of trade as traders speculated the Reserve Bank of India bought gilts in the secondary market, dealers said. An expectation of another announcement of an open market operation auction also aided gilt prices as traders covered some short sales before the close.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.63, up from INR 98.55 Monday. The bond's yield ended at 6.67%, lower than 6.68% Monday. Bond prices had erased sharp gains earlier after the five-year overnight indexed swap rate hit a fresh 11-month high tracking a sharp rise in the 10-year US Treasury yield.

Trades had speculated that either the RBI or some large domestic investor had picked up the 10-year gilt early in the day as its yield had approached 6.70% Monday, the highest hit so far in the current financial year begun April. Bond prices were sharply up early in the day. The 'others' category – which includes the RBI – net bought INR 14.31 billion of gilts Monday, according to Clearing Corp. of India data. A large net purchase from 'Others' Tuesday may add to the speculation Wednesday, though traders will only get confirmation of the central bank's purchases from RBI data scheduled for release Jan. 30. The purchases Monday may have come from provident funds or life insurers, the other two investors in the category, dealers said.

Some traders were also betting that the RBI may announce another round of open market operation auction of up to INR 1.5 trillion soon. Traders had speculated the central bank had sought feedback from state-owned banks on what bonds to select for such an auction, dealers said. However, most traders expect an announcement of further OMO auction only after the completion of the RBI's last scheduled bond purchase on Thursday, worth INR 500 billion. This is the last of four auctions the central bank had announced on Dec. 23, when the 10-year gilt yield had last hit 6.70%.

"RBI was likely there today as we saw 6.65% yield on the 10-year paper (6.48%, 2035). Rupee was also pulled up," a dealer at a state-owned bank said. "The yields rose again because of rise in UST (US Treasury yields) and rupee...also OIS was 6.10%." The rupee hit an intraday low of 91.0450 a dollar, close to its record low of 91.0775 a dollar, before recovering to above 91 a dollar at the close.

In addition to the RBI, state-owned banks were also seen buying the 10-year gilt near the crucial 6.68% yield, though the momentum subsided at the benchmark yield fell below 6.65%. The reported deals segment of the RBI's Negotiated Dealing System – Order Matching platform showed 11 trades worth INR 13.10 billion in the 6.48%, 2035 bond by 1100 IST, with scant volume in other bonds. The speculation led to a spurt of short covering after the flat opening, boosting gilt prices in the first half of the day. The intensity of the buying activity faded after that and traders took fresh short bets when OIS rates rose, dealers said.

The five-year OIS rate ended at 6.10%, the highest since Feb. 13, up from 6.07% Monday. The benchmark swap fell to as low as 6.05% early in the day, boosting gilt prices, before rebounding to a high of 6.11%. Offshore traders paid fixed rates after the 10-year US Treasury yield rose to a fresh four-month high of 4.30% by 1700 IST, the end of Indian market hours. Traders expect US yields to continue rising amid increasing tensions between US President Donald Trump and European allies over the possession of Greenland.

Foreign banks and mutual funds were likely sellers, continuing Monday's momentum, betting on a further fall in gilt prices. Mutual funds have been the top net sellers in the secondary market in three of the past four sessions, off-loading INR 20.84 billion of gilts on Monday, according to Clearing Corp. of India data. In addition to a positional view, mutual funds had also been trimming their bond books to generate cash amid a liquidity crunch in their portfolios, dealers said.

State bonds maturing between 20 and 30 years were swept in single-digit bids by life insurers and pension funds at auction, indicating robust demand similar to previous auctions. Only six states raised INR 130 billion at the auction, against INR 386 billion indicated for the week in the Jan-Mar calendar. Due to the small supply, the spread between the 10-year Odisha bond at auction and the 10-year benchmark gilt was 86 basis points, lower than a spread of 87-91 bps for 10-year state bonds over the 10-year gilt last week. The Odisha bond's cut-off yield of 7.49% Tuesday was in line with an Informist poll estimate of 7.50%.

"Auction sailed through smoothly, quantum was less anyway," a dealer at another state-owned bank said. "PSU banks were there in shorter duration, mostly up to six-year paper. They had some space, so added in their HTM (held-to-maturity) and AFS (available-for-sale) books also. The spread is good over G-sec."

Turnover in the gilts market Monday was INR 547.70 billion, up from INR 392.85 billion Monday, 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 seventh straight session Tuesday.

OUTLOOK

On Wednesday, gilt prices will track the overnight movement in US Treasury yields amid geopolitical tensions between the US and Europe. The offshore trigger has led to volatility in OIS rates, which may continue to reflect in gilt prices, dealers said. US President Donald Trump's scheduled remarks at the World Economic Forum in Davos after Indian market hours Wednesday will be closely watched and may keep some foreign investors on the sidelines.

Later on Wednesday, cut-off yields on treasury bills may influence prices of short-term bonds amid tight liquidity in the banking system, with investors looking to demand higher yields, dealers said. The government will sell INR 90 billion of 91-day T-bill, INR 120 billion of 182-day T-bill and INR 800 billion of 364-day T-bill at auction at 1030-1130 IST Wednesday.

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 up to INR 1.5 trillion for February.

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% Wednesday.

India Gilts: Erase all gains on rise in 5-year OIS to fresh 11-month high

MUMBAI--1550 IST--Government bond prices erased all gains as a sharp rise in five-year overnight indexed swap rate weighed on gilts, dealers said. The five-year OIS rate rose to 6.1050%, the highest level since Feb. 14, 2025. Expectations that the Reserve Bank of India would soon announce another round of open market operation auctions prevented a sharp fall in gilt prices, with state-owned banks likely buyers around the key 6.68% yield on the 10-year benchmark 6.48%, 2035 gilt.

"(State bond) auction cut-off was broadly in line with expectation, it's OIS that's weighing currently," a dealer at a private-sector bank said. "Looks like there is some paying from offshore as they are expecting further rise in UST (US Treasury yields)." The yield on the 10-year benchmark Treasury note rose to 4.29% at 1540 IST, the highest in four months.

Despite the sharp rise in OIS rates, prices of bonds maturing up to 15 years did not fall as traders said the RBI may soon announce a further OMO auction of INR 1.0 trillion to INR 1.5 trillion in order to infuse durable liquidity into the banking system. Thursday's INR 500-billion bond purchase auction is the last of the scheduled purchases announced in December. The central bank had last announced a calendar of OMO purchases on Dec. 23, when the 10-year gilt yield had risen to 6.70%, its highest in 2025-26 (Apr-Mar). Some traders said the RBI had called state-owned banks for feedback on which bonds to select at the OMO purchases, while others speculated the central bank had bought a large quantum of gilts in the secondary market early in the day to cap yields.  

On the other hand, foreign banks and mutual funds likely continued their selling momentum from Monday. Mutual funds have been top net sellers in the secondary market in three of the last four sessions and net sold INR 20.84 billion of gilts Monday, Clearing Corp. of India data showed.

At the state bond auction, the RBI set a cut-off yield of 7.49% on Odisha's 10-year paper, similar to the  expected cut-off of 7.50% in an Informist poll. The spread between the 10-year state bond at auction and the 10-year benchmark gilt was 86 basis points, lower than a spread of 87-91 bps at the last state bond auction. Once again, demand from long term investors such as insurance companies and pension funds was firm as the cut-off on Tamil Nadu's 30-year paper was 7.58% against the expected cut-off of 7.60%, likely due to small supply of bonds, dealers said. Six states raised INR 130 billion at the auction, much lower than the INR 386 billion indicated in the calendar for Jan-Mar. 

At 1540 IST, the turnover in the gilt market was INR 464.15 billion, higher than INR 326.30 billion at 1530 IST Monday, 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 6.64-6.70% for the rest of the day. (Janwee Prajapati)

India Gilts: Off highs; large buys in 6.48%, 2035 trigger short-covering

MUMBAI--1226 IST--Prices of government bonds eased from the day's highs on profit sales, and after the five-year overnight indexed swap rate reversed its earlier decline and edged higher. Bond prices were sharply up earlier in the day as purchases from a large investor in the 10-year benchmark 6.48%, 2035 bond triggered short-covering by traders, dealers said. Eleven trades totalling INR 13.10 billion were conducted in the 10-year benchmark 6.48%, 2035 gilt on the 'Reported Deals' segment of the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. This indicated purchases by a large investor, dealers said. A few traders speculated that the RBI was purchasing gilts on screen. 

Bond prices gave up some gains on profit-booking, as the yield on the 10-year benchmark gilt hit the day's low of 6.6465%, briefly falling below the key 6.65% level. A five-year overnight indexed swap rate also retraced its earlier fall from the day's low of 6.05%.

Bond prices were sharply up earlier in the day. Traders were uncertain of which large investor purchased the 10-year bond, with some speculating it was a large state-owned bank or a foreign bank, with a few speculating it to be the RBI. The timing of the trades also was unusual, some dealers said, since it was just before the state bond auction began. Nonetheless, the large purchases triggered short-covering by traders, which led to a sharp rise in bond prices, dealers said.   

"I think its just a technical thing, someone has bought, I don't know who, and because of that some shorts were covered," a dealer at a private sector bank said. 

Traders were largely expecting bond prices to rise after the 10-year benchmark bond yield failed to sustain a rise to the key 6.70% level, at which several traders would have hit stop-losses. Low state bond supply also supported the optimism that bond prices would rise, after three consecutive state bond auctions were on par with or lower than indicated sizes, dealers said. Traders await the INR-130-billion state bond auction result. Demand is seen firm at the auction, with various segments of market participants bidding, dealers said.  

"Bond prices are up because low state bond supply is there this week, that has made some space," a dealer at a state-owned bank said. "We're on the buying side right now, but speculation of RBI is also there."

Bond prices were largely unaffected by a fall in the rupee past the key 91 per dollar mark. Traders also dismissed the intraday rise in the 10-year US Treasury yield, dealers said. At 1225 IST, the turnover in the gilt market was INR 277.70 billion, higher than INR 175.05 billion at 1230 IST Monday, 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. (Cassandra Carvalho)

India Gilts: Up on purchases at lucrative levels, low state bond supply

MUMBAI--0931 IST--Prices of government bonds were up Tuesday, after opening steady, on purchases at levels seen lucrative after the yield on the 6.48%, 2035 gilt neared 6.70% Monday – the highest yield for a 10-year benchmark gilt so far this financial year, dealers said.

Traders largely dismissed a rise in US Treasury yields. The yield on the benchmark 10-year US Treasury note was 4.26% at 0931 IST, against 4.23% in thin trade at 1700 IST Monday. US markets were shut on Monday for Martin Luther King Jr. Day, and Indian bond traders were tracking US Treasury futures, which had indicated a fall in US Treasury prices, they said. 

"I think unless we hit (INR) 98.43 or 6.70% yield (on the 10-year benchmark gilt), at which there will be stop-losses, we will only see some buying here on," a dealer at a small finance bank said. "...Offshore was already quoting (10-year US Treasury yield) at 4.25-4.26% yesterday (Monday) so we had priced in the rise (in US yields)."

Traders await the INR-130-billion state bond auction. Lower-than-estimated supply of state bonds this week aided appetite for gilts, and traders speculated strong demand from long-term investors both in the primary and secondary markets, dealers said. Some traders also expect mutual funds to participate at the state bond auction, after largely being net sellers so far this month. As per data from Clearing Corp. of India available till Monday, mutual funds have net sold gilts worth nearly INR 150 billion so far in January.   

At 0931 IST, the turnover in the gilt market was INR 32.90 billion, higher than INR 25.65 billion at 0930 IST Monday, 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:Seen down as US ylds rise; firm demand likely at state bond sale

MUMBAI – Prices of government bonds are seen opening lower Tuesday tracking a rise in US Treasury yields. Later in the day, bond prices will take cues from the result of the INR-130-billion state bond auction. Demand at the auction is seen largely robust due to the small size of the auction and healthy appetite of long-term investors, dealers said. 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.64-6.72% after ending at INR 98.55, or 6.68% yield on Monday. The yield on the benchmark 10-year US Treasury note rose to 4.26% at 0800 IST in early Asian trade from 4.23% at 1700 IST Monday. US yields rose as US President Donald Trump's tariff threats over his wish to purchase Greenland reignited trade tensions. US markets were shut on Monday for Martin Luther King Jr. Day. 

Later in the day, traders will track the result of the weekly state bond auction. At the auction, six states aim to raise INR 130 billion Tuesday, around 66% lower than the amount of INR 386 billion indicated in states' borrowing calendar for Jan-Mar. Most traders expect the auction to sail through. Demand at the longer end of the state bond curve is seen especially robust as long-term investors such as insurers and pension funds have good inflows and have been sweeping up supply in single-digit bids recently. A few traders expect weak demand from state-owned banks 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, they said.

Data after market hours Monday showed that 'others' – a category that includes the Reserve Bank of India, insurers and pension funds – net purchased gilts worth INR 14.31 billion in the secondary market Monday. Most traders attribute the purchases to insurance companies and pension funds. A few speculate that the central bank bought gilts to prevent the 10-year yield from topping the crucial 6.70% mark, but others said the quantum was too small for the central bank to send a signal to keep bond yields in check.
 

Significant movements in the five-year overnight indexed swap rate and the rupee against the dollar will also lend cues, dealers said. (Cassandra Carvalho)

End

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

Edited by Deepshikha Bhardwaj

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