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Informist, Wednesday, Jan. 28, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended higher Wednesday as traders covered some short bets after the Reserve Bank of India advanced the dates for INR 1 trillion worth of open market operation auctions to Thursday and Feb. 5, from Feb. 5 and Feb. 12 earlier, dealers said.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.42, up from INR 98.30 Tuesday. The bond's yield ended at 6.7026% against 6.7194% Tuesday. The five-year 6.01%, 2030 bond ended at INR 98.41, up 7 paise from the previous close, while the 15-year benchmark 6.68%, 2040 gilt ended at INR 96.08, up 22 paise. 

The RBI rescheduled the OMO auctions, with the first tranche of INR 500 billion to be held Thursday, after the 10-year benchmark bond yield ended at 6.7194% Tuesday--the highest closing yield level for a 10-year benchmark gilt since Mar. 4, dealers said. Some traders viewed this advancement in OMO dates as a signal from the RBI that it is not comfortable with the rise in the 10-year bond yield past 6.70% and that bond yields should be lower, dealers said.

Some traders refrained from placing aggressive bets due to caution ahead of the Union Budget for 2026-27 (Apr-Mar). Others placed short bets to make space in their portfolio for fresh supply of the 10-year benchmark gilt Friday, as they wish to cover these bets at the auction at lower prices. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1700 IST showed trades worth INR 113.23 billion in the 6.48%, 2035 gilt, down from INR 118.97 billion Tuesday.   

"I think we have seen the lowest (price level on the 6.48%, 2035 bond) and there won't be a further fall from here," a dealer at a private sector bank said. "...Instead, we can see a 1-2 basis points rally (fall in yield on the 6.48%, 2035 bond) because the RBI shifted the OMO date also, may be because he wants the yields to be lower."

In the secondary market Wednesday, public sector banks likely bought gilts as they considered the yield on the 10-year benchmark 6.48%, 2035 bond lucrative, as it hovered around the psychologically crucial level of 6.70% throughout the day. On the other hand, foreign portfolio investors and primary dealerships were likely net sellers, continuing their selling momentum from Tuesday. Tuesday, FPIs turned net sellers after six consecutive sessions of purchases, net selling gilts worth INR 6.14 billion through the fully accessible route, as per data from Clearing Corp. of India. Primary dealerships likely sold gilts to make room for Friday's auction supply.

Across the bond yield curve, some traders preferred bonds maturing in up to 4-5 years as they refrained from adding "duration"--or the risk of longer-term bonds--in their portfolios due to uncertainty ahead of the release of the Union Budget for 2026-27 (Apr-Mar) on Feb. 1. Others preferred bonds maturing in up to 10-15 years due to improved risk appetite as they do not expect any further fall in bond prices, saying that bond prices have already factored-in a higher borrowing number in the Union Budget FY27. Traders are expecting Centre's gross borrowing to be between INR 16 trillion and INR 17 trillion, compared with INR 14.72 trillion for FY26.

At the INR-290-billion Treasury bill auction, the cut-off yields were slightly higher than expected. The RBI set a cut-off yield of 5.50% on the 91-day T-bill, the highest since Sept. 10, reflecting a system-wide crunch in liquidity despite the RBI's measures to infuse liquidity. The cut-off yields on the 182-day T-bill and the 364-day T-bill were the highest since May 21 and May 14, respectively. Bond prices were little changed despite the high cut-off yields.  

"T-bills need investments, OIS doesn't need investments," a dealer at a private sector bank said. "If we actually see liquidity flowing in then T-bill yields will fall, but if we only have the visibility that there will be some liquidity infusion, then OIS is the place to be."  

Turnover in the gilt market Wednesday was INR 382.40 billion, similar to INR 381.20 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 twelfth successive session.

OUTLOOK

On Thursday, bond prices may track the overnight movement in US Treasury yields after the outcome of the US Federal Open Market Committee's meeting, even though the policy decision is seen as a "non-event", dealers said. At 1800 IST, the CME FedWatch tool showed that Fed fund futures reflected a 97.2% probability of a status quo on rates early Thursday. Traders await remarks from US Federal Reserve Chair Jerome Powell and other Fed officials for guidance on the future path of interest rates. 

Traders will likely refrain from placing aggressive bets ahead of the INR-500-billion OMO auction, dealers said. Most of the bonds selected by the RBI for the OMO are in banks' held-to-maturity books, dealers said. Some traders said that most of the bonds are in-the-money or profitable for banks, especially bonds maturing in up to seven years will be in focus, dealers said.

"I think the bond prices will likely open higher tomorrow (Thursday) since the closing today was around 6.70% (yield on the 6.48%, 2035 paper)," a dealer at a state-owned bank said. "Prices should have recovered today itself but it did not...those who did not cover (short bets) today will cover tomorrow...later in the day OMO cut-off will lend cues to bond prices." 

The RBI has chosen to buy the 6.75%, 2029; the 7.17%, 2030; the 7.95%, 2032; the 7.26%, 2033; the 6.22%, 2035; the 7.18%, 2037; and the 7.30%, 2053 gilts at Thursday's auction. 

After the OMO auction Thursday, traders will likely continue to place short bets to make space in their portfolio for the large supply of INR 320 billion of 6.48%, 2035 bond at the weekly gilt auction Friday. The 10-year benchmark saw a turnover of INR 227.25 billion out of a market-wide turnover of INR 382.40 billion in Wednesday's session.   

Traders are keenly tracking the Union Budget for FY27. 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. If the actual amount is significantly higher than INR 17 trillion, the yield on the 10-year benchmark bond will likely rise till 6.80%, dealers said.

Any development on the India-US trade deal may also influence bond prices. Significant movement in the five-year overnight indexed swap 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 6.65-6.75%.

India Gilts: At day's high; short-term bonds up on expected liquidity boost

MUMBAI--1547 IST--Prices of government bonds were at the day's high on short-covering and some value-buying as the yield on the 10-year benchmark 6.48%, 2035 bond is not seen sustaining a rise above the 6.70% level, dealers said. Short-term bonds were up on expectations of a boost in liquidity after the Reserve Bank of India advanced the dates of the two open-market auctions scheduled for February. The central bank also provided a prepayment option for the 90-day variable rate repo auction it will conduct Friday. 

Traders also did not see much scope for short-selling gilts, as the central bank is expected to intervene with measures if the 10-year benchmark gilt yield crosses 6.72-6.73%. However, until the Union Budget for 2026-27 (Apr-Mar) is presented on Sunday, traders do not expect the RBI to announce any further measures to propel bond prices upwards. Any such announcement could be made only at the RBI's Monetary Policy Committee meeting outcome next week, dealers said. 

Several traders preferred short-term bonds after the RBI advanced the OMO auctions to Thursday and Feb. 5. The 6.01%, 2030 bond was the third-most-traded paper on the RBI's Negotiated Dealing System-Order Matching platform. Foreign banks were likely purchasing short-term gilts and trimming stock of longer-duration bonds, dealers said. Short-term bond yields also had a lucrative spread over the repo rate of 5.25%, dealers said. 

"I have gotten queries for the short-term papers today (Wednesday), like 2029, and they've all been from foreign players," a dealer at a state-owned bank said.     

Some selling pressure in the 10-year benchmark 6.48%, 2035 gilt persisted ahead of its fresh supply Friday. Traders preferred either short-term gilts or longer-term papers such as the 15-year 6.68%, 2040 bond. Some traders favoured the 15-year paper on bets of yield curve flattening and its higher per-basis-point price value. Healthy demand for long-term bonds from investors has also aided traders' interest in long-term gilts, even as risk appetite remains low. Long-term gilts such as the 6.90%, 2065 gilt were sharply up.

At 1547 IST, the turnover in the gilt market was INR 306.05 billion, slightly higher than INR 291.25 billion at 1535 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 6.65-6.72% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Give up most gains as 5-year OIS inches up, short sales weigh

MUMBAI--1331 IST--Government bond prices gave up most gains as the five-year overnight indexed swap rate recovered from its early fall. The five-year overnight indexed swap rate rose to 6.17% from a day's low of 6.14%. However, bond prices remained up as traders covered short bets after the Reserve Bank of India advanced its open market operations by a week to Thursday and Feb. 5, dealers said. However, some traders continued to place short bets to make room for fresh supply of the 6.48%, 2035 gilt Friday.  

"...People are just buying after they sold so much yesterday (Tuesday) and OMO is also preponed (advanced)," a dealer at a private sector bank said. "I don't think the prices (yield on 6.48%, 2035 bond) will break the range of 68-71 (6.68-6.71%), there is no clue to move the prices significantly."

Bond prices are likely to remain up as traders wish for higher indicative prices Wednesday, to offer bonds at a higher price to the RBI at the OMO auction Thursday, dealers said. Some traders are likely to offer bonds to RBI at prices indicated by Financial Benchmarks India Pvt. Ltd. or slightly higher as they seek to make a profit on these papers. At Thursday's OMO auction, the RBI will buy the 6.75%, 2029; the 7.17%, 2030; the 7.95%, 2032; the 7.26%, 2033; the 6.22%, 2035; the 7.18%, 2037; and the 7.30%, 2053 gilts. These bonds are mostly in banks' held-to-maturity portfolios, dealers said. 

"I don't think PSU banks have much of these papers...especially the papers (maturing in) around 4-5 years," a dealer at a state-owned bank said. "The longer-term 53 paper (7.30%, 2053) bond will likely see a tail as only some insurer might have it, let's see."  

Traders refrained from placing aggressive bets as they remain cautious ahead of the INR-320-billion weekly gilt auction and the Union Budget for 2026-27 (Apr-Mar). Foreign portfolio investors and primary dealerships likely sold gilts, which capped gains. Tuesday, FPIs turned net sellers after six consecutive sessions of purchases, net selling gilts worth INR 6.14 billion through the fully accessible route, as per data from Clearing Corp. of India. 

On the other hand, public sector banks likely bought gilts as they considered the yield on the 10-year benchmark 6.48%, 2035 bond lucrative, as it hovered around the psychologically crucial level of 6.70%, dealers said.

Bond prices were little changed after the cut-off yields at the INR 290-billion Treasury bill auction were slightly higher than expected. The RBI set a cut-off yield of 5.50% on the 91-day T-bill, the highest since Sept. 10. The cut-off yields on the 182-day T-bill and the 364-day T-bill were the highest since May 21 and May 14, respectively. 

At 1331 IST, the turnover in the gilt market was INR 192.20 billion, similar to INR 190.80 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 6.68-6.75% for the rest of the day.  (Janwee Prajapati)

India Gilts: Up as traders cover short bets after RBI advances OMO auctions

NEW DELHI--0940 IST--Government bond prices rose after the Reserve Bank of India advanced its open market operations by a week to Thursday and Feb. 5, from Feb. 5 and Feb. 12, dealers said. However, the rise was limited as traders retained a bulk of their short bets, hoping to cover them at the weekly gilt auction Friday.

Traders had aggressively short sold bonds Tuesday as they saw lack of positives before the auction and the Union Budget for 2026-27 (Apr-Mar). By advancing the OMO auction and buying INR 500 billion of gilts Thursday, the RBI had introduced a risk for short sellers, who were covering some of those positions, dealers said.

At the same time, some traders who had bought the 10-year benchmark 6.48%, 2035 gilt when its yield rose above 6.70% for the first time in 2025-26 (Apr-Mar) were likely selling the bond below the key level. Moreover, traders were worried that banks that would sell bonds to the RBI at the OMO auction Thursday would not replace them in the secondary market or at auction before the weekend, hoping to limit the risk on their portfolios before the announcement of the Union Budget. 

"6.70% (yield on the 10-year benchmark 6.48%, 2035 bond) is the key level," a dealer at a primary dealership said. "If it closes below that today (Wednesday) then we can see some positivity for the rest of the week, but if we are not even able to hold 6.70% it shows the market has really devalued the impact of OMOs." A continued rise in in the price of the 10-year gilt may trigger an aggressive wave of short covering during the day as traders reassess demand and expected cut-offs at the 6.48%, 2035 bond's auction Friday, dealers said.

At Thursday's OMO auction, the RBI will buy the 6.75%, 2029; the 7.17%, 2030; the 7.95%, 2032; the 7.26%, 2033; the 6.22%, 2035; the 7.18%, 2037; and the 7.30%, 2053 gilts. The bonds will likely be sold from banks' held-to-maturity portfolios and are likely to have a limited impact on prices of liquid bonds in the secondary market, dealers said. A fall in the five-year overnight indexed swap rate to 6.15% from 6.18% aided gilt prices, as did the rupee's slight rise due to a slump in the dollar index. 

At 0940 IST, the turnover in the gilt market was INR 66.30 billion, against INR 35.70 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 6.64-6.74% for the rest of the day.  (Aaryan Khanna)

India Gilts: Seen up as RBI advances OMO auctions, to hold first on Thu

NEW DELHI – Government bond prices may open higher Wednesday after the Reserve Bank of India advanced by a week the dates of two open market operation auctions it had announced Friday. In a release after market hours Tuesday, the RBI said it would hold two OMO auctions of INR 500 billion each Thursday and Feb. 5, instead of Feb. 5 and Feb. 12.

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.65-6.74% after ending at INR 98.30, or 6.72% yield Tuesday. This was the highest closing yield level for the bond since Mar. 5 and came despite the announcement of the INR 1 trillion of OMO purchases, which likely led to the RBI advancing the auctions, dealers said.

Traders had hoped for an OMO auction this week, but the RBI had originally scheduled both OMO auctions for next month, disappointing the market and leading to a rise in the 10-year gilt yield past the key 6.70% mark Tuesday. The RBI's reaction is seen leading to some short covering from traders, who had build up short positions on the view that there were no positives coming before the Union Budget for 2026-27 (Apr-Mar). While some traders were of the view that the 10-year yield would now be capped around 6.70% before the Budget on Sunday, others said short covering would not be aggressive before the weekly gilt auction.

The government will sell INR 320 billion of the 6.48%, 2035 gilt at the gilt auction Friday. Most traders plan to cover their short bets at the debt sales rather than in the secondary market. Moreover, replacement demand from banks selling gilts to the RBI at Thursday's OMO auction is not seen robust before the Budget, which may prevent a sharp rise in prices despite the RBI's move, dealers said. The central bank has offered to buy the 6.75%, 2029; the 7.17%, 2030; the 7.95%, 2032; the 7.26%, 2033; the 6.22%, 2035; the 7.18%, 2037; and the 7.30%, 2053 gilts at Thursday's OMO auction.

Focus continues to be on the government's borrowing programme for FY27, to be announced Sunday. The Centre's gross borrowing target 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.

The provision of a prepayment option for any amount borrowed at the 90-day variable rate repo auction to be held Friday is expected to aid demand for short-term gilts. Some traders had feared that the RBI's notice of a 90-day auction was a signal that the Monetary Policy Committee had ended its rate-cutting cycle. The tenure of the liquidity injection crosses the February policy meeting and is likely to also go past the first MPC meet of FY27. However, post market hours Tuesday, the RBI said that traders participating at the 90-day VRR auction would have the option of prepaying the entire amount they have borrowed, indicating that borrowers will be able to take advantage of a rate change.  (Aaryan Khanna)

End

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

Edited by Deepshikha Bhardwaj

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