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Informist, Wednesday, Jan. 21, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended near the day's high on speculation that the Reserve Bank of India again bought gilts on-screen, which resulted in short-sellers covering their positions. Traders were also optimistic about the central bank announcing further open market operations auctions to buy bonds amid tight liquidity conditions, dealers said.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.76, up from INR 98.63 Tuesday. The bond's yield ended at 6.65%, lower than 6.67% Tuesday. The rise in bond prices was capped after the rupee fell to a record low of 91.7425 against the dollar intraday, the worst single-day fall in two months, before closing at INR 91.6950 per dollar, a record closing low.

Bond prices had opened higher on speculation that the central bank was buying gilts in the secondary market after the "Others" segment of market participants, which includes the central bank, net purchased gilts worth nearly INR 50 billion between Monday and Tuesday, as per data from Clearing Corp. of India Ltd. Early activity and a sharp rise in prices around Tuesday's close suggested the central bank had bought the 6.48%, 2035 bond on Wednesday as well.

Bond prices were also supported by traders betting the RBI would this week announce another OMO auction to buy bonds amid tight liquidity conditions, dealers said. The last of the four scheduled OMO auctions announced Dec. 23, worth INR 500 billion, will be conducted Thursday. While some traders had expected such an announcement after Tuesday's session, most now expect the announcement after Thursday's auction. Traders expect the RBI to buy gilts worth up to INR 1.5 trillion before the next Monetary Policy Committee meeting in the first week of February.

"There is nothing much going on in the market right now, just that the RBI intervened at 6.70% levels (on 6.48%, 2035 bond) which gave some support to the bond prices," a dealer at a primary dealership said. "Rupee also appreciated a bit... I think 6.70% (on 6.48%, 2035 bond) is not that likely (to break) now because RBI is not comfortable with that level."

Dealers said the rise in overnight indexed swap rates would have weighed more on gilt prices if the RBI had not bought gilts on-screen. Traders speculated that the central bank has concentrated its purchases in the 6.48%, 2035 paper as it is traded the most, according to CCIL data. The data show INR 329.00 billion of trades with 3,222 trades in the bond out of 4,353 trades recorded.

Mutual funds probably kept selling gilts, keeping up the momentum from the past few days. Mutual funds have been top net sellers in the secondary market in four of the past five sessions, offloading INR 36.02 billion of gilts Tuesday, according to CCIL data. However, some dealers said mutual funds are likely to have bought Treasury bills at the auction Wednesday.

At the T-bill auction, the cut-off on the 91-day T-bill was the highest since Sept. 17. The cut-off yields on the 182-day and 364-day T-bills were the highest in eight months. The RBI set the 91-day T-bill cut-off yield at 5.48%, over 14 basis points above last week's auction and above the estimated yield of 5.44% as per the median in an Informist poll. Cutoff yields on the 182-day and 364-day T-bills were at 5.66% and 5.72%, up 7 bps and 9 bps, respectively, from the previous auction.

The rise in T-bill rates continued despite the RBI's infusion of INR 1.00 trillion of durable liquidity in January alone through OMO auctions as well as over INR 900 billion through a $10 billion, three-year dollar-rupee buy/sell swap auction. The benefits of these operations did not percolate into the banking system. Muted government spending in January did not help matters.

The government's cash balances have probably swelled following December's advance tax and goods and services tax inflows, dealers said. Moreover, the RBI's dollar sales to protect the rupee have consistently drained rupee liquidity as the domestic unit continues to fall to record lows against the dollar. However, traders expect the yields on T-bills to stabilise at current levels as the RBI is likely to infuse another INR 3 trillion of liquidity by March through bond purchases and dollar-rupee buy/sell swap auctions.

"...some banks also bought some T-bills at auction, likely for their asset liability management books," a dealer at a private-sector bank said. "Cut-offs were up because nobody's buying... there is no cue to buy. Also the durable liquidity is tight, transient liquidity also fell to some INR 700 billion. People are taking paper for trading only... currently four- and seven-year papers are what we are going for."

Turnover in the gilts market Wednesday was INR 522.20 billion, down from INR 547.70 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 eighth successive session.

OUTLOOK

Thursday, gilt prices will track the overnight movement in US Treasury yields amid rising geopolitical tensions between the US and Europe. The offshore trigger has led to volatility in OIS rates, which may continue to be reflected in gilt prices, dealers said. Later in the day, bond prices will take cues from the INR 500-billion OMO auction result. Some traders think the OMO auction by the RBI to buy bonds Thursday may lift prices while others believe any significant move in bond prices will only be seen after the auction result, dealers said. 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 the other hand, some traders expect bond yields to rise after Friday's weekly gilts auction and heading into the Union Budget on Feb. 1. Traders will focus on the government's gross borrowing aim in the Budget release. The borrowing for the financial year 2026-27 (Apr-Mar) is expected to be between INR 16 trillion and INR 17 trillion, compared with INR 14.72 trillion in FY26. A number higher than expected may 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 in crude oil prices may also lend cues, dealers said. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.62-6.72% Thursday.

India Gilts: Stay up even as 364-day T-bill cut-off yld at 8-mo high

MUMBAI--1554 IST--Prices of government bonds remained up on likely purchases from the Reserve Bank of India on-screen, dealers said. Bond prices were little changed after the cut-off yields at the INR-290-billion Treasury bill auction were much higher than expected. Gains were capped on likely sales from mutual funds and as the rupee plunged to record lows, dealers said. The rupee ended at a record closing low of 91.6950 per dollar. 

At the T-bill auction, the cut-off on the 91-day T-bill was the highest since Sept. 17, while the cut-off yields on the 182-day and 364-day T-bills were the highest in eight months. The RBI set a cut-off yield of 5.48% on the 91-day T-bill, 14 basis points higher than the cut-off at last week's auction, and higher than an Informist poll estimate of 5.44%. The cut-off yields on the 182-day and 364-day T-bill were 5.66% and 5.72% respectively, up 7 bps and 11 bps from last week's cut-off yields.

"People were expecting a higher cut-off (yields on T-bills) because overall yields are rising," a dealer at a private sector bank said. "Currently, the yields are holding because RBI is there in the market but people are not expecting any further easing in yields going ahead. Apart from RBI, there is only some trading activity, nothing else, if you see the levels, they have hardly moved from yesterday's (Tuesday) levels."

Bond prices remained up on optimism of an announcement of further OMO auctions amid tight liquidity conditions, dealers said. The expected quantum is anywhere between INR 1 trillion and INR 2 trillion. Some traders had expected such an announcement post market hours Tuesday itself, but most expect the notice after Thursday's OMO auction. 

Concern about rising yields persisted amid fears of heavy supply the next financial year, and traders also do not expect a rate cut by the RBI's Monetary Policy Committee at its upcoming February meeting. A rise in global bond yields also weighed on sentiment. 

At 1554 IST, the turnover in the gilt market was INR 384.65 billion, slightly lower than INR 447.15 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 6.62-6.70% for the rest of the day.  (Janwee Prajapati)

India Gilts: Up again on short-covering; RBI on-screen buys speculated

MUMBAI--1329 IST--Prices of government bonds were up again, after giving up gains earlier. Traders covered short bets and some dealers speculated that the Reserve Bank of India was purchasing gilts on-screen. Bonds were trading in a thin band earlier, as gains were wiped out when the rupee cruised past the 91.50 per dollar mark, dealers said.

In spite of a depreciating currency, bond prices were up, fuelling speculation of the RBI purchasing gilts on-screen. Most traders believe that the central bank is buying the 10-year benchmark 6.48%, 2035 gilt on-screen. A few speculated that the central bank was also buying the 6.68%, 2040 gilt. Traders covered short bets, after the 10-year benchmark gilt failed to sustain a rise to the psychologically crucial 6.70% yield--the highest yield for a 10-year benchmark so far this financial year. However, some traders doubted whether the RBI was buying gilts on-screen, since it was likely already intervening in the foreign exchange market to prevent a sharp fall in the rupee against the dollar, dealers said.

"On a day when rupee has fallen so much, we (gilt market) are still supported, seems like RBI intervention. With this sort of intervention, there's nothing worrisome in the bond market for now," a dealer at a private sector bank said.  

A fall in the rupee may lead to some foreign portfolio investors purchasing Indian assets Wednesday, dealers said. As of 1329 IST, FPIs net purchased gilts worth INR 598.30 billion through the fully accessible route Wednesday, according to data from Clearing Corp. of India. 

Some state-owned banks were also likely buying gilts on expectation of support from the central bank through the announcement of further open market operation auctions, dealers said. Traders expect at least INR 1.00 trillion more of OMO auctions to be conducted by the end of February, the announcement of which is expected Thursday or Friday. 

While traders do not expect a major fall in bond prices in the near term due to expected support from the RBI, tight liquidity conditions weighed. Banks are raising funds through certificates of deposit at rates significantly higher than the repo rate, which is likely to reflect in high Treasury bill cut-off yields, dealers said. The National Bank for Agriculture and Rural Development raised INR 100 billion through a one-year certificate of deposit at 7.22% Tuesday.  

"Nothing, no interest in T-bills at all," a dealer at another private sector bank said. "Banks will be there but 182-, 364-day T-bills the cut-offs (yields) could be higher, like 67 (5.67%). People are preferring CDs (certificates of deposit) right now over T-bills."

At 1329 IST, the turnover in the gilt market was INR 297.95 billion, lower than INR 347.80 billion at 1330 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 6.62-6.72% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Up on speculation of RBI on-screen gilt buys; rupee's fall weighs

MUMBAI--0935 IST--After opening steady, prices of government bonds were up Wednesday due to optimism about the Reserve Bank of India purchasing gilts on-screen. Traders also expect further announcements of open market operations from the central bank after the last scheduled auction takes place Thursday. However, a fall in the rupee to a record low against the dollar, and a rise in overnight indexed swap rates weighed on prices. Trades were concentrated in the benchmark 10-year 6.48%, 2035 gilt, after large purchases in the bond were conducted Tuesday. 

"All this buying is in anticipation of RBI buying, RBI is not pushing yields (downwards) to a level but it's protecting a level," a dealer at a state-owned bank said. "Because sentiment itself is negative, US yields have risen, rupee is at record low, so RBI is preventing that downtrend (in bond prices), and buying at some levels whenever we (10-year benchmark gilt yield) go near 6.70%."

The 'others' segment of market participants, which includes the central bank, has net purchased gilts worth nearly INR 50 billion in the past two trading session, as per data from Clearing Corp. of India. Most of these purchases were likely by the RBI, especially after trades worth INR 13.10 billion were conducted in the 10-year benchmark gilt Tuesday, dealers said. Traders expect the RBI to purchase gilts Wednesday as well, if bond prices fall later in the session.  

The rupee fell to a record low against the dollar in early trade. As the central bank intervenes in the foreign exchange spot market by selling dollars to prevent a further fall in the rupee, the subsequent drain in rupee liquidity is likely to make the central bank conduct more open market operation auctions in the March quarter itself, dealers said.

Additionally, the central bank is seen uncomfortable with the 10-year benchmark bond yield rising near or above the key 6.70% level--a level seen inevitable in the near term due to elevated global bond yields, depreciation of the rupee and concerns of heavy bond supply in the upcoming financial year, dealers said. Traders expect an announcement of at least INR 1.00 trillion worth of OMO auctions this week itself. Traders bet on bonds the RBI could choose to buy at further OMOs, and picked up bonds such as the erstwhile 10-year benchmark 6.33%, 2035 gilt and the 6.64%, 2035 gilt, they said. 

Cut-off yields at the INR-290-billion Treasury bill auction are seen higher than cut-offs set last week, amid tight liquidity and several mutual funds – which usually invest in T-bills – facing a cash crunch, dealers said. The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was INR 721.31 billion Tuesday, down from INR 818.62 billion Monday.

At 0935 IST, the turnover in the gilt market was INR 59.25 billion, higher than INR 18.15 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 6.62-6.72% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Seen largely steady; speculation of RBI on-screen buys to aid

MUMBAI – Prices of government bonds are seen opening largely steady Wednesday, dealers said. A few traders expect a rise in bond prices due to speculation of the Reserve Bank of India purchasing gilts on-screen, after the 'others' segment of market participants, which includes the central bank, was the largest net buyers of gilts Tuesday. As per data from Clearing Corp. of India, the 'others' segment net purchased gilts worth INR 35.45 billion Tuesday, after INR 14.32 billion worth of purchases Monday. However, elevated bond yields globally may weigh on prices, dealers said.  

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.64-6.72% after ending at INR 98.63, or 6.67% yield on Tuesday. The yield on the benchmark 10-year US Treasury note was 4.29% at 0800 IST, against 4.30% at 1700 IST Tuesday, hitting 4.32% overnight – the highest since late August. Global bond markets were in turmoil Tuesday, and a surge in long-term Japanese bond yields to record highs Tuesday aided the rise in US yields and impacted domestic overnight indexed swap rates, dealers said. The five-year OIS is seen in a range of 6.03-6.15% Wednesday, after hitting a fresh 11-month high the previous session. 

While geopolitical uncertainty and elevated global bond yields are likely to weigh on Indian bond prices Wednesday, optimism on support from the RBI and purchases at lucrative levels may offset losses, dealers said. The RBI is likely to have called a few market participants Tuesday to inquire about bonds that can be chosen for open market operations, dealers said, spurring speculation about the announcement of further OMO auctions after the last scheduled auction takes place Thursday.

Some traders expect an announcement of INR 1.00 trillion worth of OMO auctions this week itself, while others hope for such an announcement at the outcome of the RBI's Monetary Policy Committee meeting next month. Traders may also track the result of the Treasury bill auction, with some mutual funds – which are usually aggressive bidders for T-bills facing a cash crunch, dealers said. Significant movements in 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 Rajeev Pai

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