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Informist, Friday, Jan. 30, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended mixed Friday. The 10-year benchmark gilt ended steady after swinging between gains and losses amid caution ahead of the Budget for 2026-27 (Apr-Mar) Sunday. The INR-320-billion weekly gilt auction sailed through despite the large supply, on robust demand across market participants. Bond prices rose after the auction result was broadly in line with expectations, but did not sustain in the 10-year benchmark due to sales by primary dealers and trimming of positions by traders ahead of the Budget, dealers said. 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.47, marginally up from INR 98.45 Thursday. The bond's yield ended at 6.70%, the same as Thursday. The five-year benchmark 6.01%, 2030, which hit a day's high of INR 98.76, closed at INR 98.66, up 14 paise from Thursday's close. Short-term bonds were sharply up after the Reserve Bank of India conducted a second 90-day variable rate repo for INR 2 trillion Friday. Several traders preferred short-term bonds on the view that the central bank would continue to infuse liquidity into the banking system, keeping the shorter end of the yield curve on the lower side.

At the gilt auction, the RBI set a cut of INR 98.28 or 6.72% yield on the 6.48%, 2035 gilt, against an expected cut-off price of INR 98.27 according to the median of an Informist poll. Some traders said the cut-off was broadly in line with expectations, while others who had expected the cut-off price to be around INR 98.25 considered the result slightly better than expected, dealers said. The weighted average price was set at INR 98.30, above expectations, and aided bond prices in the secondary market, dealers said.

However, gains in the 10-year benchmark after the auction result were erased as primary dealers offloaded their auction stock in the secondary market, dealers said. Some traders also booked profits after they bought the bond at a lower price at auction.        

"It is very difficult to say anything right now. There are a lot of variables regarding the Budget," a dealer at a small finance bank said. "... Especially gross borrowing, say if it's above (INR) 17 trillion, then we could see a fall in prices, but if it is lower than INR 15 trillion, then prices may rise." An Informist poll of 30 economists, fund managers, and treasury heads estimated the Centre's gross market borrowing at INR 16.3 trillion in FY27. Estimates for net Treasury bill issuance range from nil, the same as the last two financial years, to INR 1 trillion.

Some traders expect the central government to raise around INR 1 trillion through T-bills, to reduce its gross borrowing through dated securities. A larger borrowing through T-bills and a lesser gross borrowing figure will likely lead to a rise in prices of bonds maturing between 10 and 15 years, dealers said.

"Overall market sentiment is negative, so people are expecting something positive from the Budget," a dealer at a private sector bank said. "Levels (yield level on 6.48%, 2035 bond) can go till 6.73-6.74% due to sell-off if the Budget surprises in the negative direction. So, I think then there will be an announcement of another (INR) 1 trillion to (INR) 2 trillion of OMO (open market operation auctions) in the Feb-Mar period itself, which might support the levels (bond prices)."    

Some traders expect the announcement of another OMO auction of INR 1.00 trillion after the second tranche of the scheduled OMO auction Thursday. Others expect such an announcement at the RBI's Monetary Policy Committee meeting outcome on Feb. 6.   

Earlier in the day, bond prices were down as traders had placed short bets ahead of the weekly gilt auction, hoping to cover those positions at the auction, dealers said. 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 159.51 billion in the 6.48%, 2035 gilt, up from INR 113.23 billion Thursday.   

Weekly statistical data released post market hours showed that the RBI purchased gilts worth INR 126.55 billion on-screen in the week ended Jan. 23. The RBI bought these gilts apart from the INR-500-billion bonds purchased through the OMO auction on Jan. 22. The "Others" segment of bond market participants, which includes the RBI, provident funds and life insurers, net purchased gilts worth INR 93.29 billion from Jan. 16 to Jan. 22, as per data from Clearing Corp. of India.  

Turnover in the gilt market Friday was INR 490.35 billion, up from INR 447.75 billion Thursday, 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 fifteenth successive session.

OUTLOOK 

Government bonds are not traded on Saturday and Sunday. On Monday, bond prices will take cues from the Centre's market borrowing figures, which will be presented in the Union Budget for FY27 on Sunday, dealers said. However, bond prices may rise at open after weekly statistical data released post-market hours showed that the RBI purchased gilts worth INR 126.55 billion outside OMO auctions in the week ended Jan. 23. Moreover, fulfilling the hopes of traders, the RBI selected the erstwhile 10-year benchmark 6.33%, 2035 bond to buy, along with six other gilts, at the INR-500-billion OMO auction Thursday. 

Post market hours, the RBI said it will buy seven gilts for INR 500 billion at the OMO auction Thursday; namely the 6.75%, 2029; the 6.28%, 2032; the 7.18%, 2033; the 6.79%, 2034; the 6.33%, 2035; the 6.92%, 2039; and the 7.09%, 2054 gilts. The erstwhile 10-year benchmark 6.33%, 2035 bond outperformed the 10-year benchmark bond Friday, even as its trade volume was low, as traders had expected its inclusion in the INR-500-billion auction Thursday. Some market participants had also speculated that the RBI would buy the 7.18%, 2033 bond at the auction. 

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 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 6.60-6.77%.

India Gilts: Give up some gains on profit sales, caution before FY27 Budget

MUMBAI--1530 IST--Government bonds gave up some gains due to profit-booking, and likely sales by primary dealerships as they offloaded auction stock, dealers said. Moreover, traders did not want to purchase gilts aggressively on the last trading session before the Union Budget for 2026-27 (Apr-Mar) is presented on Sunday. The 10-year benchmark 6.48%, 2035 gilt yield failed to sustain a fall below the key 6.68% level, dealers said. 

"A small sell-off because PDs are offloading the auction paper, but selling and buying both in not much quantity before the Budget," a dealer at a state-owned bank said. "Mostly everyone will keep a balance in their portfolios, or go slightly short (on bonds) before Budget."

Traders re-aligned their portfolios to trim any excess positions or cover excess short sales before the Budget, dealers said. Most traders are "squaring-off" their books or going slightly light in positioning before the key event, they said. An Informist poll of 30 economists, fund managers, and treasury heads estimated the Centre's gross market borrowing in the new fiscal year starting April at INR 16.3 trillion. Traders who purchased gilts were likely buying bonds for their investment books at lucrative levels, after sales to the Reserve Bank of India at open market operations, they said. Dealers speculated that the RBI, which is estimated to hold around INR 800 billion of bonds maturing in FY27, could switch around INR 500 billion of these gilts with the Centre, thereby reducing the Centre's gross borrowing figure for FY27, they said. 

Post market hours, traders expect the notice detailing the bonds the RBI will choose to buy at the open market operation auction scheduled Thursday. While trade volumes in the bond have fallen, the 6.33%, 2035 bond outperformed bonds of similar maturity as some traders continued to bet on the RBI choosing to buy the liquid, erstwhile 10-year benchmark bond. Some traders picked up the 6.33%, 2035 bond due to lack of cover in the benchmark 6.48%, 2035 gilt, dealers said. Some traders speculated that the RBI could choose to buy the 7.18%, 2033 bond. 

Traders also await weekly statistical data from the RBI for confirmation of whether the central bank purchased gilts on-screen in the week ended Jan. 23. Traders do not expect the data to show any purchases after data for the previous two weeks did not show any such purchases, contrary to traders' expectations. Since the RBI accounts for its on-screen gilt trades based on the day of settlement, traders expect any purchases made by the central bank on Jan. 16 to show up in data for the week ended Jan. 23. A few traders expect the data to show purchases of INR 30 billion to INR 40 billion. In the same period, the 'Others' segment of bond market participants—which includes the RBI—net purchased gilts worth INR 93.29 billion from Jan. 16 to Jan. 22, as per data from Clearing Corp. of India.

At 1530 IST, the turnover in the gilt market was INR 376.35 billion, against INR 231.65 billion at 1540 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 6.65-6.72% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Reverse losses as bond sale sails through; 2nd VRR notice aids

MUMBAI--1400 IST--Government bond prices reversed earlier losses after the weekly gilt auction sailed through and the result was along expected lines, dealers said. Earlier, bond prices had recovered most losses after the Reserve Bank of India announced a second 90-day variable rate repo auction of a large notified size of INR 2.00 trillion Friday, dealers said. However, caution before the Union Budget for 2026-27 (Apr-Mar), which will be presented Sunday, capped the gains.

At the weekly gilt auction, demand was firm for the 10-year benchmark 6.48%, 2035 gilt as traders, including primary dealers and foreign banks, covered short bets, dealers said. State-owned banks likely bid for around INR 100 billion worth of the bond at the auction for their investment books, dealers said. State-owned banks also picked up bonds for their asset and liability management, dealers said. The RBI set a cut-off price of INR 98.28 on the 6.48%, 2035 gilt, against an Informist poll estimate of INR 98.27. The government sold INR 320 billion of the bond Friday. 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. At 1400 IST, data showed trades worth INR 159.51 billion in the 6.48%, 2035 gilt, up from INR 113.23 billion Thursday. Traders expect around INR 100 billion worth of these short sales to have been covered at the auction, dealers said.

"Auction result was as expected, at around 27-28 (INR 98.27- INR 98.28), I don't think it is impacting the prices," a dealer at a state-owned bank said. "The rise in prices could be because 72 (6.72% yield on the 10-year benchmark) is a resistance level and people might be positioning before Budget."

Bond prices recovered most losses after the announcement of the second 90-day variable rate repo auction Friday for INR 2 trillion. Short-term bonds were sharply up on the announcement of the liquidity-infusing measure, and rates on certificates of deposit fell. At the first 90-day, INR-250-billion VRR auction conducted Friday, the RBI accepted bids worth INR 250.04 billion, while it received bids worth INR 950.62 billion. The cut-off rate was set at 5.34%, with a weighted average rate of 5.40%. After the RBI introduced a prepayment option for the 90-day VRR, demand at auctions of this tenure is seen robust amid a liquidity crunch in the banking system and elevated rates on certificates of deposit.

Some traders also speculated that the RBI is buying gilts on-screen to support bond prices, even as other traders did not feel so, since recent data from the central bank has not confirmed such purchases.

"Currently, I think it's RBI. May be it is supporting the (prices) levels," a dealer at a public sector bank said. "But earlier the rise was across tenures, so it was because of VRR. Specially if you see, the short-term papers rose."

The gilt market is shut Saturday and Sunday. Traders will focus Sunday on the Centre's gross borrowing number for FY27. An Informist poll of 30 economists, fund managers, and treasury heads estimated the Centre's gross market borrowing at INR 16.3 trillion in the new fiscal year starting April. Estimates for net T-bill issuance range from nil, the same as the last two financial years, to INR 1 trillion. Moreover, traders anticipate an announcement of further OMO auctions of at least INR 1.00 trillion after the Budget, after the RBI announced a two-tranche, INR-1.00-trillion OMO on Jan. 23. Some traders expect the next OMO announcement after the second tranche of the INR-1-trillion OMO scheduled for Thursday. Others expect such an announcement at the upcoming Monetary Policy Committee meeting outcome on Feb. 6, dealers said.

Trade volume picked up after the auction result, though uncertainty ahead of the Union Budget for FY27 persisted. At 1400 IST, the turnover in the gilt market was INR 316.70 billion, more than double from INR 125.95 billion at 1330 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 6.65-6.72% for the rest of the day.  (Janwee Prajapati)

India Gilts: Down on short sales before INR 320-bln supply of 10-yr benchmark

NEW DELHI--0955 IST--Government bond prices fell as traders made room for the INR 320 billion of fresh supply of the 10-year benchmark 6.48%, 2035 gilt at the weekly gilt auction at 1030-1130 IST. Traders short sold bonds while investors avoided fresh purchases and trade volumes were thin before the debt sale, dealers said.

"My sense is that market will test the 6.72% yield (on the 10-year) immediately. There is going to be short covering but not any real demand from traders before the Budget," a dealer at a primary dealership said. "If it meaningfully breaks 6.72%, which is a technical resistance (for the 10-year yield), then the next level is 6.98%."

The 6.48%, 2035 bond's yield had hit 6.7264% Thursday, its highest in nearly 11 months. Some private banks and primary dealerships had covered their short bets after the benchmark bond unexpectedly recovered and its price ended higher on Thursday. Traders speculated a large investor – potentially even the RBI – had been buying bonds at the multi-month high levels across tenures, dealers said. Some banks were also keen to replace the bonds sold to the RBI at current levels, they said. 

"After the auction, everyone will head quietly into the Budget based on their own strategies," a dealer at another primary dealership said. "Even though we are at a crucial level, it doesn't make sense for it to break before the market gets the new information for FY27."

Traders expect the Centre to announce a gross borrowing target between INR 16 trillion and INR 17 trillion in the Union Budget. Some traders expect the government to increase its borrowing through Treasury bills and from the National Small Savings Fund in FY27 to reduce net gilt issuance, especially with a mammoth INR 5.5 trillion of redemptions scheduled in the next fiscal year. Others said the gross borrowing is likely to exceed INR 17 trillion due to the redemptions.

The previous record gross borrowing programme was in FY24, when the Centre had issued INR 15.43 trillion of gilts. With increased state bond supply and reduced purchases from long-term investors, dealers said that supply would outstrip demand for gilts in FY27 even if the gross borrowing estimate is at the lower end of market expectations.

At 0955 IST, the turnover in the gilt market was INR 24.40 billion, similar to INR 20.60 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 6.65-6.75% for the rest of the day.  (Aaryan Khanna)

India Gilts: Seen steady before INR 320-bln weekly auction

NEW DELHI – Government bond prices are seen steady before the weekly gilt auction at 1030-1130 IST. Demand for INR 320 billion of the 6.48%, 2035 gilt at auction is seen firm as traders are likely to cover their short bets in the gilt due to caution before the Union Budget for 2026-27 (Apr-Mar) Sunday, dealers said.

At the same time, bidding is not seen aggressive. With prices recovering in the second half of trade Wednesday, some dealers said bidders would demand higher cut-off yields near 6.72%.

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.65-6.74% Friday after ending at INR 98.45, or 6.70% yield Thurdsay. The large net purchases from 'Others' on Thursday and rumours that the Reserve Bank of India and the government would conduct a bilateral switch of government bonds may lead to a rise in prices even before the auction, dealers said.

Some traders have taken bets that the RBI will switch bonds maturing in FY27 worth INR 500 billion with the government before the Budget is presented on Sunday. At nearly INR 5.5 trillion, the government's redemptions for FY27 are expected to push up gross market borrowing to a record above INR 16 trillion. A reduction in this amount will be a large positive for gilt prices, dealers said. However, the government was not planning to conduct any more gilt switches as it had met its target for FY26 through switches and buybacks worth INR 2.5 trillion, Informist had reported earlier, quoting a senior finance ministry official. 

Meanwhile, speculation of either a provident fund, life insurer or the Reserve Bank of India aggressively buying gilts in the secondary market may also support gilt prices before the auction, especially at the psychologically crucial 6.70% yield on the 10-year gilt. 'Others' – which contains the aforementioned investors – were the top net buyers in the secondary market Thursday, picking up INR 47.44 billion worth of gilts, according to Clearing Corp. of India data released after market hours. The movement in the rupee and US Treasury yields may also lend cues.  (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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