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Informist, Thursday, Jan. 29, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended tad up Thursday after the Reserve Bank of India set better-than-expected cut-off prices at the INR-500-billion open market operation auction, dealers said. Traders bought gilts to replenish their books after selling them to the RBI at the auction. 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.45, up from INR 98.42 Wednesday. The bond's yield ended at 6.70%, the same as Wednesday. The 15-year benchmark 6.68%, 2040 gilt ended at INR 96.31, up 23 paise from the previous close. The 15-year benchmark bond outperformed bonds of similar tenures and the 10-year benchmark bond, as traders picked up the 15-year benchmark gilt at levels seen as lucrative to replace bonds sold to the RBI at the OMO auction.

At the open market operation auction, the RBI bought INR 500 billion of gilts with the quantum accepted for the 7.26%, 2033 and 7.17%, 2030 bonds constituting more than 50% of the total notified amount. The cut-off price for the 7.30%, 2053 bond was at INR 99.28, sharply higher than an Informist poll estimate of INR 99.05.

"Since morning, it (bond prices) was in a range, it recovered after the OMO cut off was better than view," a dealer at a primary dealership said. "Especially if you see the cut off (price) on the 2053 and 2035 bonds. They (traders) sold from their HTM (held-to-maturity), so they are buying 10-15 (year) papers for replacement." 

Private sector banks are likely to have picked up the 15-year paper as they considered the yield on the bond lucrative to add to their held-to-maturity books, dealers said. The yield spread between the 15-year and 10-year benchmark bonds is around 40 basis points. Mutual funds likely turned buyers Thursday, after net selling gilts worth INR 338.64 billion in January till Wednesday, dealers said. Foreign portfolio investors are also likely to have picked up gilts, dealers said. As of 1800 IST, FPIs net purchased gilts worth INR 12.84 billion through the fully accessible route, according to data from Clearing Corp. of India, taking their total gilts holdings through this route to the highest since Dec. 3.

Some traders bought bonds maturing in up to 15-years on expectations that the Centre will announce a lower-than-estimated borrowing number in the Union Budget for 2026-27 (Apr-Mar), dealers said. Some traders also expect the government to reduce the supply of dated securities by increasing the issuance of short-term securities such as Treasury bills, dealers said. Traders largely expect the Centre's gross borrowing quantum to be INR 16 trillion to INR 17 trillion in FY27. Around INR 1 trillion worth of borrowing is expected to be through T-bills, dealers said. 

Speculation that the RBI is conducting a switch of government bonds with the Centre this week also spurred purchases, dealers said, as such a move could reduce the Centre's gross borrowing for FY27. 

Earlier in the day, bond prices were down on short sales ahead of the weekly gilt auction Friday, as traders made space in their portfolios for the fresh supply. Demand at the auction is likely to be firm as traders cover their short bets and others look to replenish their books after sales to the RBI at OMO auctions. The government will sell INR 320 billion of the 6.48%, 2035 bond at the auction Friday. A rise in crude oil prices also weighed on prices. Brent crude oil futures for March rose above the psychologically crucial $70 a barrel mark on concerns that possible military action by the US against Iran could lead to supply disruptions. 

"Now, because of geopolitics, all commodity prices are rising. Crude is up. This month, inflation will be up just because of gold and silver prices, so rates will continue to be under (upward) pressure," a dealer at a private sector bank said. "But for now, everyone just wants to get through the events (auction and Budget). It's the calm before the storm."

Turnover in the gilt market Thursday was INR 447.75 billion, up from INR 382.40 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the RBI's wholesale e-rupee pilot for at least the fourteenth successive session.

OUTLOOK

On Friday, bond prices may track the overnight movement in US Treasury yields at open. Prices will likely trade in a thin band ahead of the gilt auction, dealers said. Later in the day, the result of the INR-320-billion auction will lend cues. However, traders will likely refrain from placing aggressive bets ahead of the Union Budget for FY27.  

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 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. 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.

Traders will also look out for confirmation of the speculated gilt switch between the RBI and the Centre, on hopes that it will reduce the Centre's gross borrowing for FY27.

Any development on the India-US trade deal may also influence bond prices. Significant movements 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: Reverse losses on better-than-view OMO cut-offs, value-buying

MUMBAI--1543 IST--Prices of government bonds reversed losses after the cut-off prices set by the Reserve Bank of India at the INR-500-billion open market operation auction were better than expected, dealers said. Traders, especially from private sector banks, were purchasing gilts at lucrative levels, and favoured the 15-year benchmark 6.68%, 2040 gilt, they said. Some traders bought gilts to replenish their books after sales to the central bank, they said. 

The RBI largely set cut-off prices at levels indicated by Financial Benchmarks India Pvt. Ltd. at the open market operation, with some cut-off prices higher. As expected, the RBI bought the largest quantum of the 7.26%, 2033 gilt. The cut-off prices on the 6.22%, 2035 gilt, the 7.18%, 2037 gilt and the 7.30%, 2053 gilt were higher than indicated. Traders were expecting cut-off prices to be at indicated levels or higher, since most of the papers were not "in the money" or profitable in banks' held-to-maturity books.

Other than the OMO result, traders said the scope for further short sales ahead of the weekly gilt auction were limited, and current prices were lucrative to buy gilts. Some traders preferred replenishing their held-to-maturity books with the 6.68%, 2040 gilt, due to its lucrative yield spread of around 40 basis points over the benchmark 10-year 6.68%, 2040 gilt, dealers said. Some traders speculated that the RBI was purchasing gilts on-screen, even as recent data has not shown any on-screen purchases by the central bank. 

"6.70% (yield on the benchmark 6.48%, 2035 bond) looks lucrative--its the highest (yield) level we've seen this financial year, so it makes sense to buy before some positive cue comes," a dealer at a private sector bank said. "Before Budget, people can build some positions at this level, and if borrowing number comes lower, it (10-year yield) can fall to 6.60%."

At 1543 IST, the turnover in the gilt market was INR 231.65 billion, lower than INR 278.00 billion at 1530 IST Wednesday, 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 6.67-6.73% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Remain dn on short bets before bond sale, OMO cut-off prices eyed

MUMBAI--1343 IST--Government bond prices remained down as traders placed short bets ahead of the weekly gilt auction to make space in their portfolios for the fresh supply, dealers said. Traders refrained from placing aggressive bets ahead of the INR-500-billion open market operation auction and uncertainty ahead of the Union Budget for 2026-27 (Apr-Mar), which will be presented Sunday.

"Everyone is keeping their positions to a minimum...nobody wants to go too risky into the Budget," a dealer at a state-owned bank said. "If the borrowing number in the Budget is around INR 16–17 trillion, then there won't be much change in (bond price) levels...but if the borrowing is managed through some INR 1 trillion in T-bill then it could be good for long-term bonds."  

At the OMO auction, traders expect the cut-off prices to be around prices indicated by Financial Benchmarks India Pvt. Ltd. Wednesday. Since banks do not possess the notified papers in large quantums, and at profitable levels, they likely offered bonds to the Reserve Bank of India at indicative prices or 5-10 paise above indicated prices in an attempt to make a profit, dealers said. Most of the papers selected by the RBI are illiquid, dealers said. The cut-off prices on the 7.26%, 2033 gilt and erstwhile five-year benchmark 6.75%, 2029 bonds could be lower than indicated levels, dealers said. According to the median of an Informist poll, traders expect the cut-off price on the 7.26%, 2033 paper at INR 102.79, against an indicated price of INR 102.81, while the cut-off on the 6.75%, 2029 bond is expected to be at the indicated price. 

Traders do not expect a rise in bond prices Thursday, even after the OMO auction result, as they expect demand for bonds to replenish books after sales to the RBI only after Friday's weekly gilt auction, dealers said. The government will sell INR 320 billion of the 6.48%, 2035 bond Friday. Traders will likely cover short bets at the auction.

In the secondary market, foreign portfolio investors likely bought gilts Thursday. On Wednesday, FPIs net bought gilts worth INR 6.77 billion through the fully accessible route, as per data from Clearing Corp. of India. Mutual funds were likely selling gilts, dealers said. So far in January, mutual funds have net sold gilts worth INR 338.64 billion till Wednesday, as they face a liquidity crunch amid redemption pressure and low inflows.

Trade volume remained muted ahead of the OMO auction result. At 1343 IST, the turnover in the gilt market was INR 134.50 billion, lower than INR 189.45 billion at 1330 IST Wednesday, 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: Down on short sales before auction Fri; enthusiasm for OMO low

NEW DELHI--1010 IST--Government bond prices fell as traders short sold bonds to make room for fresh supply of the 6.48%, 2035 gilt at auction Friday, pushing up the 10-year benchmark yield to a fresh 11-month high. Dealers are also of the view that investor demand would be lacklustre due to lack of the Reserve Bank of India's purchases of heavily traded securities and caution before the Union Budget for 2026-27 (Apr-Mar) Sunday.

The RBI had Tuesday advanced its open market operation auctions announced on Friday by a week to Thursday and Feb. 5. However, the bonds it had announced for purchase at the auction were not held by most banks at a profit, with some traders terming the selections "haphazard". The central bank 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 at auction Thursday. Market participants have increasingly urged the central bank to buy on-the-run gilts or erstwhile benchmarks as banks have sold heavily from their held-to-maturity portfolios already, dealers said.

State Bank of India's research team also batted for more OMOs in liquid gilts, including the erstwhile 10-year benchmark 6.33%, 2035 gilt in a report Wednesday. With such a purchase not seen forthcoming, private sector banks that had covered their short bets Wednesday were once again trimming their portfolios before Friday's debt sale, dealers said. Some traders picked up the benchmark bond as its yield rose above 6.72% for the first time in FY26.

"The momentum could not sustain by end of day yesterday (Wednesday) and it (the 10-year benchmark 6.48%, 2035 gilt) closed above 6.70% yield," a dealer at a state-owned bank said. "The market seems to be rejecting the RBI's current practice of bringing OMOs in such bonds, plus other triggers are weak. Rupee has fallen and crude is also up."

Meanwhile, the rupee weakened to a record low of 91.9925 a dollar from 91.7825 a dollar at 1530 IST Wednesday, with only RBI intervention in the spot and offshore non-deliverable forward markets preventing a fall below 92 a dollar, dealers said. Near-month Brent crude futures rose to a four-month high of $69.47 a barrel at 1009 IST Thursday due to geopolitical tensions between the US and Iran. Both these factors increased concerns about higher imported inflation, weighing on gilt prices, dealers said. 

The result of the OMO auction may lend cues later in the day, with offers not seen aggressive. At 1015 IST, the turnover in the gilt market was INR 45.35 billion, lower than INR 89.70 billion at 1030 IST Wednesday, 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.  (Aaryan Khanna)

India Gilts: Seen steady before OMO; short sales before Fri auction to weigh

NEW DELHI – Government bond prices are likely to open steady before the Reserve Bank of India's open market operation auction to buy INR 500 billion of seven bonds at 0930-1030 IST. However, traders are likely to short sell gilts to make room for the INR 320 billion of supply of the 10-year benchmark 6.48%, 2035 gilt at Friday's weekly gilt auction, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.67-6.74% after ending at INR 98.42, or 6.70% yield Wednesday. The benchmark gilt failed to close below the key 6.70% mark despite the RBI advancing its bond purchases by a week. This was seen as a sign that traders would avoid buying gilts on caution before the Union Budget for 2026-27 (Apr-Mar) on Sunday, dealers said. 

Traders were also disappointed by the bonds the RBI had offered to buy at Thursday's auction. The central bank 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. Dealers said the RBI should accept offers for the bonds near indicative levels published by Financial Benchmarks India Ltd. Wednesday to stabilise the market, as well as buy more gilts in the secondary market.

The RBI had advanced its OMO auctions by a week to Thursday and Feb. 5, from Feb. 5 and Feb. 12 earlier, after the 10-year benchmark yield touched an near-11-month high of 6.72% Tuesday. The central bank should include more liquid papers to make a meaningful impact on yields and must innovate in its OMOs as a better signalling device for transmission to the bond market, State Bank of India said in a research report Wednesday.

Most traders see only modest demand at the weekly gilt auction Friday and are confident of being able to cover their short sales at lower prices, dealers said. Banks are wary of adding heavily to their gilt portfolios before the Budget announcement and will not replace the securities they are selling to the RBI Thursday, they said. 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. 

Meanwhile, the US Federal Open Market Committee's decision to hold rates in a 10-2 vote early Thursday is not expected to impact gilt prices as the move was widely expected and there was no significant reaction in US Treasury yields, dealers said. The movement in the rupee during the day may lend direction to gilt prices as the domestic unit remains near a record low against the dollar, while crude oil prices have risen.  (Aaryan Khanna)

End

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

Edited by Saji George Titus

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