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Informist, Friday, Jan. 23, 2026

By Janwee Prajapati 

MUMBAI – Government bond prices ended sharply lower Friday after data showed the Reserve Bank of India did not buy gilts on-screen in the week ended Jan. 16, dealers said. The rise in the five-year overnight indexed swap rate past the key technical level of 6.11% and heavy supply of state bonds Tuesday also dragged gilt prices down.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.69, down from INR 98.89 Thursday. The bond's yield ended at 6.66%, against 6.64% Thursday. Bond prices had come off lows after the INR 330-billion weekly gilt auction sailed through and on expectations that the RBI would announce liquidity measures including an INR 1-trillion open market operation auction for February after market hours.

That expectation was fulfilled by the RBI but traders had also widely expected weekly statistical supplement data released during market hours to show purchases from the central bank settled in the Jan. 16 week. 'Others'--a category that includes the RBI--net purchased gilts worth over INR 92 billion in the secondary market in the week ended Jan. 16, according to Clearing Corp. of India data.

Meanwhile, offshore traders paid overnight indexed swap rates, driving them to multi-month highs, dealers said. The five-year OIS ended at 6.14% Friday, its highest closing level since Feb. 13 and up from 6.09% Thursday. Traders also trimmed their gilt holdings before the long weekend. India's financial markets are shut Monday for Republic Day. 

"There were only two things which kept the market holding, expectation of OMO and his (RBI) on-screen buys," a dealer at a state-owned bank said. "Now if he (RBI) did not buy and given the huge SDL (state bond supply at the auction Tuesday), I think the yields can easily go to 6.70%, at which stop losses will be triggered; then we can easily see 6.73-6.74% level (on the 6.48%, 2035 bond)." Fifteen states will raise INR 398 billion through bonds Tuesday.

Traders had expected states to borrow around INR 350 billion at the auction next week, despite the indicative calendar for Jan-Mar showing INR 473 billion of supply. Given the huge quantum of state borrowing, traders had expected the demand for long-term bonds to be lower at the weekly gilt auction on the view that investors would delay their purchases to Tuesday, dealers said.

However, long-term papers reversed their fall and were up for some time after life insurers, pension and provident funds were aggressive in mopping up the INR 130 billion of the 7.24%, 2055 bond at auction. The central bank set a cut-off price of INR 97.78 on the 2055 bond against the expectation of INR 97.73, according to the median of an Informist poll. The bonds gave up those gains as sentiment soured towards the end of trade.

Banks likely picked up the new three-year paper at the auction for their asset liability management books while they likely picked the new seven-year bond for their held-to-maturity books. The RBI set a coupon of 6.68% on the 2033 bond, which was higher than the yield on the 10-year benchmark 6.48%, 2035 gilt and considered lucrative, dealers said. The government sold INR 90 billion of the 2029 bond and INR 110 billion of the 2033 bond at the auction. Some traders had expected the seven-year gilt to be poorly bid and had floated the possibility of the RBI rejecting some bids in the paper, dealers said. The better demand was likely due to replacement of bonds sold to the RBI at the INR 500-billion OMO auction, they said.

With the bond supply sailing through, most bonds were off lows on the view the RBI would announce an OMO auction of at least INR 1 trillion after the market hours. The speculation was built after market participants asked for further RBI open market operations to buy bonds, either in the primary or secondary market, after the last OMO auction Thursday. Traders now expect the RBI to infuse INR 3 trillion of further liquidity until Mar. 31, the end of the current financial year, dealers said. The RBI, post market hours Friday, announced INR 1 trillion of OMO to be conducted in two tranches of INR 500 billion each on Feb. 5 and Feb. 12. Earlier in the day, foreign banks and traders likely covered some short positions as they did not expect the prices to fall further.

"I think the yield will remain in range of 6.57-6.70% (on 6.48%, 2035 bond) in current macroeconomic conditions," a dealer at a primary dealership said. "...only till budget of course budget will change everything. If the budget surprises with less borrowing then we can see 6.52-6.55% levels (on 6.48%, 2035 bond) while if it is higher than 17(INR 17 trillion) then the yield can go up to 6.70-6.75% also (on 6.48%, 2035 bond)."

Turnover in the gilts market Friday was INR 484.55 billion, up from INR 430.95 billion Thursday, 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 ninth successive session.

OUTLOOK

Gilts are not traded Saturday. Bond market is shut Monday on account of Republic Day. On Tuesday, gilt prices may open higher after the RBI's OMO announcement, ahead of the heavy supply of state bonds at auction, dealers said. The state bond auction result may lend cues.

The RBI, post market hours Thursday, announced that 15 states aim to raise a heavy INR 398.00 billion through bonds Tuesday. The indicative calendar for state borrowing for Jan-Mar showed states would borrow INR 473 billion on Tuesday. While the announced size is lower than indicated, the quantum is large for the bond market to absorb and is likely to impact traders' appetite for gilts, dealers said.

The RBI, post market hours Friday, announced INR 1 trillion of OMO to be conducted in two tranches of INR 500 billion each on Feb. 5 and Feb. 12. Traders had expected the quantum to be INR 1 trillion-INR 2 trillion in February.

Traders are also keenly tracking the Union Budget for 2026-27 (Apr-Mar), which will be presented on Feb. 1. The Centre's gross borrowing aim is expected to be between INR 16 trillion and INR 17 trillion, compared with INR 14.72 trillion for 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.

Gilts may also be influenced by the overnight movement in US Treasury yields. Any development on the India-US trade deal may also influence bond prices. Significant movement 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 6.62-6.70%.

India Gilts: Off lows on hope of OMO notice; fresh supply sails through

MUMBAI--1544 IST--Prices of government bonds were off lows as traders expect the Reserve Bank of India to announce an open market operation auction to buy bonds worth at least INR 1 trillion after market hours, dealers said. Bond prices rose after the INR-330-billion of fresh supply at the weekly gilt auction sailed through, with better-than-expected demand for the 30-year benchmark on offer.

"It is the expectation of OMO (announcement), people are expecting it today after market hours. They were expecting it yesterday (Thursday) itself but it did not come so it might come today," a dealer at a state-owned bank said. "...cut-off was also good only, the market was already expecting a lower cut-off so it is better than expected." 

Long-term papers reversed losses and were up after life insurers, pension funds and provident funds were aggressive in mopping up the INR 130 billion of the 7.24%, 2055 bond at auction. The central bank set a cut-off price of INR 97.78 on the 2055 against the expectation of INR 97.73, according to the median of Informist poll. Some traders had expected an even lower cut-off price after the heavy state bond supply of nearly INR 400 billion announced for next week. 

Banks likely picked up the new three-year paper at the auction for their asset liability management books while they likely picked the new seven-year bond for their held-to-maturity books. RBI set a coupon of 6.68% on the 2033 bond, which was higher than the yield on the 10-year benchmark 6.48%, 2035 gilt and considered lucrative, dealers said. The government sold INR 90 billion the 2029 bond and INR 110 billion of the 2033 bond at the auction. Some traders had expected the seven-year gilt to be poorly bid and floated the possibility of the RBI rejecting some bids in the paper, dealers said. 

Traders had expected the OMO announcement to come after market hours Thursday which did not materialise and weighed on bond prices. The rise in the five-year overnight indexed swap rate past the key technical level of 6.11%, to the day's high of 6.14%--the highest since Feb. 14 – kept prices of most bonds lower. 

At 1544 IST, the turnover in the gilt market was INR 388.65 billion, higher than INR 342.90 billion at 1530 IST Thursday, 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.  (Janwee Prajapati)

India Gilts: Down more on rise in 5-yr OIS; bond auction result eyed

MUMBAI--1304 IST--Prices of government bonds fell more, tracking a rise in the five-year overnight indexed swap rate past the key technical level of 6.11%, to the day's high of 6.14%--the highest since Feb. 13. The five-year OIS rate rose as offshore traders paid fixed rates, and some domestic traders hedged their purchases at the gilt auction, dealers said. Bond yields tracked the rise in swap rates, and the 10-year benchmark 6.48%, 2035 gilt yield rose to 6.67% after falling to as much as 6.63% Thursday, the lowest in over a week.

At the gilt auction, sale of the 7.24%, 2055 gilt is seen sailing through on demand from insurance companies and pension funds, dealers said. Demand for bond forward rate agreements is seen at around INR 10 billion to INR 15 billion. As for the new 2029 bond, demand is seen from both state-owned and private sector banks' asset and liability managers, albeit at a high coupon. The RBI is likely to set a coupon of 6.00% on the new 2029 bond. 

Some traders said they were concerned about the result of the new 2033 bond. An Informist poll estimated the coupon on the new seven-year 2033 bond at 6.67%, which is the last traded yield on the benchmark 10-year bond. While banks' asset and liability managers bid for the bond, they wanted higher yields, and were not aggressive in bidding, dealers said. Some hoped that the Reserve Bank of India would reject all bids for the bond. Bond prices could fall further if the coupon on the bond is set higher than 6.67%, dealers said. 

"Demand from ALM (asset and liability managers) is there for both bonds, but they want it at a level, there is no aggression," a dealer at a private sector bank said. 

Traders await the auction result for direction on the movement of bond prices. Later in the day, traders await weekly statistical data from the RBI to confirm whether the central bank bought gilts on-screen between Jan. 9 and Jan. 14. Some traders also await an announcement of further open market operation auctions. 

At 1304 IST, the turnover in the gilt market was INR 224.25 billion, higher than INR 158.45 billion at 1230 IST Thursday, 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: Sharply down on lack of OMO notice, heavy state bond supply Tue

MUMBAI--0952 IST--Prices of government bonds were sharply down Friday due to the lack of an announcement of further open market operation auctions by the Reserve Bank of India, post market hours Thursday. Bond prices had risen Thursday on hope of the announcement of at least INR 1 trillion of OMO auctions for Jan-Feb. Some traders now expect such a notice post market hours Friday. Heavy state bond supply next week also weighed, dealers said.  

The RBI, post market hours Thursday, said 15 states will raise INR 398 billion through bonds Tuesday. The indicative calendar for state borrowing for Jan-Mar showed states would borrow INR 473 billion on Tuesday. Even as the supply is lower than scheduled, the quantum was larger than what people expected, and a heavy sum for the bond market to absorb, dealers said. Some dealers said they expected a figure of INR 350 billion or lower, while others dismissed concerns of heavy supply since the notified size was still lower than indicated. Appetite for the 7.24%, 2055 bond at the weekly gilt auction reduced after the state bond auction notice, dealers said. Dealers estimate INR 10 billion to INR 20 billion of the gilt to be purchased for bond forward rate agreements. 

"I'm barely seeing any FRA (forward-rate agreement) demand because now there's (heavy) state bond supply also for long-term investors," a dealer at a private sector bank said. 

The government will sell INR 90 billion of a new three-year, 2029 bond, INR 110 billion of a new seven-year, 2033 bond and INR 130 billion of the 2055 bond at the weekly gilt auction. Demand for the three-year paper is seen firm from banks after they sold gilts of similar maturity to the RBI at the recent OMO auctions, dealers said. Appetite from long-term investors is also seen robust, even as heavy state bond supply dampened sentiment. However, traders expect tepid demand for the seven-year paper. 

At 0952 IST, the turnover in the gilt market was INR 64.05 billion, much higher than INR 19.05 billion at 0930 IST Thursday, 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 6.60-6.68% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Seen opening lower; caution before bond sale to limit losses

MUMBAI – Prices of government bonds are seen opening lower Friday after the Reserve Bank of India, post market hours Thursday, announced that states aim to raise a heavy INR 398.00 billion through bonds on Tuesday. The indicative calendar for state borrowing for Jan-Mar showed states would borrow INR 473 billion on Tuesday. While the size announced is lower than indicated, the quantum is still heavy for the bond market to absorb, dealers said.

Caution before the gilt auction may limit losses. Optimism of purchases by the RBI on-screen and through further open market operation auctions may also limit losses, dealers said. The 'Others' segment of bond market participants--which includes the central bank, insurance companies and provident funds--net purchased gilts worth INR 19.62 billion Thursday, a day when several traders were not expecting any purchases by the RBI. 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.60-6.68% after ending at INR 98.89, or 6.64% yield on Thursday. Bond prices ended higher for the third consecutive session Thursday on speculated on-screen gilt purchases by the RBI and optimism that the central bank would conduct more open market operation auctions, dealers said.

After the final tranche of the INR 2 trillion worth of OMO auctions announced on Dec. 23 was conducted Thursday, traders expect an announcement of at least INR 1 trillion more of OMOs for Jan-Feb post market hours Friday. Some traders may be disappointed that such an announcement was not made post market hours Thursday itself. 

Traders will also track the result of the weekly gilt auction. The government will sell INR 90 billion of a new three-year, 2029 bond, INR 110 billion of a new seven-year, 2033 bond and INR 130 billion of the 7.24%, 2055 bond. Some demand for bond forward rate agreements is expected in the 2055 bond, dealers said. 

Significant movements in the rupee against the dollar and the five-year overnight indexed swap rate will also lend cues, dealers said. The 10-year benchmark US Treasury yield was 4.25% at 0820 IST, against 4.26% at 1700 IST Thursday, little changed after a slew of economic data released in the US reinforced bets that the US Federal Open Market Committee will hold rates steady this month. (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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