More Stories

Informist, Monday, Feb. 2, 2026

 

By Janwee Prajapati

 

MUMBAI – Government bond yields surged Monday after the Budget for 2026-27 (Apr-Mar) pegged the Centre's gross market borrowing at INR 17.20 trillion, sharply higher than the median expectation of INR 16.3 trillion in an Informist poll. Concerns about appetite for the record supply led traders to trim their bond portfolios, anticipating that supply would exceed market demand for a second year, dealers said.

 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 97.98, down sharply from INR 98.47 Friday. The bond's yield closed at 6.77%, up from 6.70% Friday. This was the highest closing level for the benchmark yield since Jan. 15, 2025, with the 7-basis-point rise marking the worst day for a 10-year gilt since August.

 

Traders headed into the Budget, presented Sunday, with light portfolios due to caution ahead of the event. Only a minority of participants – such as Kotak Mutual Fund – had bet on a positive surprise in the Budget, with a gross borrowing number for dated securities below INR 16 trillion. Regardless, traders from across the market sold bonds on the view that investors would demand higher yields to absorb the upcoming supply of gilts and state bonds both in the current financial year and in FY27. Short-term bond yields rose less than those of longer-term bonds, as traders preferred the former, where prices fall less when yields rise, dealers said.

 

At the same time, dealers do not expect consistent sales beyond the knee-jerk reaction seen Monday. The Reserve Bank of India is expected to continue buying bonds through auctions or on-screen purchases as part of its open market operations. Moreover, with the fresh supply still some time away and gilt supply for FY26 ending in four weeks, traders expect demand to remain intact for the next few months amid a slow uptick in yields. Towards the end of the day, short-sellers covered their positions at a profit, limiting losses. State-owned banks also bought the 10-year gilt when its yield rose to the day's high of 6.78%.

 

"I think the yields will now remain between 74-78 (6.74-6.78% yield on 6.48%, 2035 bond) as 6.78% is not sustaining," a dealer at a state-owned bank said. "A yield of 6.68% (on 6.48%, 2035 bond) or lower than 6.70% is possible only if the stance is changed (at Monetary Policy Committee meeting) or more support is seen from the RBI."  

 

According to RBI data, the central bank bought INR 126.55 billion worth of gilts in the secondary market and INR 500 billion in auction under open market operations in the week ended Jan. 23. Traders hope the RBI will signal its discomfort with rising bond yields through buying gilts in the secondary market on Monday.

 

Some losses were recovered as traders covered short positions after a sharp rise in yield on the 10-year benchmark 6.48%, 2035 bond. 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 77.11 billion in the 6.48%, 2035 gilt, down almost 52% from INR 159.51 billion Friday. Moreover, foreign portfolio investors are also likely to have bought gilts maturing in up to 5 years at levels seen as lucrative, dealers said. Some traders also speculated that the Reserve Bank of India bought gilts in the secondary market to prevent the yields from rising further. 

 

The erstwhile 10-year benchmark 6.33%, 2035 bond outperformed the 10-year benchmark bond Friday, after the RBI included the bond in the INR-500-billion auction Thursday. On the other hand, yields on long-term bonds rose more as traders looked to reduce the overall duration of their portfolio, dealers said. The yield on the 40-year benchmark 6.90%, 2065 bond ended at 7.50%, the highest since Dec. 11,  2023.

 

"I do not think we will see any significant movement before Friday," a dealer at a primary dealership said. "... We also have an OMO auction Thursday, but it won't impact as much. Today (Monday), people took their positions from tomorrow (Tuesday) till the MPC, we will not see such volumes, unless there is any big trigger."

 

Turnover in the gilt market Monday was INR 675.95 billion, up from INR 490.35 billion Friday, 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 over two weeks.

 

OUTLOOK 

On Tuesday, bond prices will likely open tracking overnight movements in yield on the 10-year US Treasury note and take cues from state bond auction results, dealers said. However, prices will likely remain down, continuing the slump on Monday after the Budget for FY27 pegged the government's gross market borrowing through dated securities at a record INR 17.20 trillion. Traders will refrain from placing aggressive bets ahead of the weekly state bond auction, dealers said.

 

Some traders expect the demand at the state bond auction Tuesday to remain firm from pension funds and provident funds, as most of the papers offered are long-term papers, dealers said. At the auction, the cut-off yield on the state bonds will rise, following a rise in gilt yields of similar maturity, dealers said. However, traders expect the spread between the 10-year benchmark 6.48%, 2035 bond and state bonds of similar maturity to remain steady. Public sector banks are likely to prefer adding state bonds to their held-to-maturity or available-for-sale books, dealers said. Fourteen states will raise INR 365 billion through bonds Tuesday, lower than the indicative calendar amount of INR 428 billion for this week but a large quantum for investors to absorb, dealers said.  

 

Some traders also expect the RBI to announce another OMO auction of INR 1 trillion to INR 1.5 trillion in February, with the number potentially rising to INR 2 trillion in the March quarter, dealers said. Such an announcement will likely come after the completion of the INR 500 billion OMO Thursday or at the MPC meeting Friday, dealers said. 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.

 

"... Only a surprise in the MPC can change the yields now," a dealer at a small finance bank said. "But it does not make sense to change the stance and do not cut rates... and the rate cut seems unlikely due to higher inflation figures."

 

Traders are also awaiting the Monetary Policy Committee outcome Friday. Some traders expect the RBI Governor Sanjay Malhotra to signal measures that might ease the rise in bond yields, dealers said. However, most traders do not expect a rate cut at this policy meeting as inflation is expected to rise in Jan-Mar.

 

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 6.72-6.82%.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	97.9800	6.7662%	98.4650	6.6963%
6.33%, 2035	97.1800	6.7426%	97.5150	6.6925%
6.01%, 2030	98.4900	6.4033%	98.6575	6.3591%
6.68%, 2040	95.4800	7.1876%	96.2900	7.0941%
6.90%, 2065	92.4000	7.5026%	93.5000	7.4100%

---

India Gilts: Sharply down on record gross borrowing FY27, rise in 5-year OIS

 

	1500 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	97.93	98.16	97.90	98.16	98.47
YTM (%)	6.7737	6.7402	6.7777	6.7402	6.6963

 

MUMBAI--1500 IST--Government bond prices remained sharply down after the Centre's gross borrowing for 2026-27 (Apr-Mar) was higher than expected at a record INR 17.20 trillion. Purchases by state-owned banks limited the fall and led to a slight recovery but bond prices fell to near the day's lows again after the five-year overnight indexed swap rate rose, dealers said. Selling pressure would remain for the rest of the day and even until the monetary policy outcome on Friday, they said.

 

"We are buying," a dealer at a state-owned bank said. "...Everyone is there in the market today, if you look at the volume, such volume suggests market wide participation...some are covering their shorts also...but today's close (closing yield on 6.48%, 2035) is important, it will guide tomorrow's auction...and the data post market hours to see if 'others' bought."

 

'Others' refers to a category that includes the Reserve Bank of India, provident funds and life insurers. Data for the week to Jan. 23, released Friday, showed the central bank bought gilts worth INR 126.55 billion in the secondary market while purchasing gilts worth INR 500 billion in an auction under its open market operations on Jan. 22. Traders are hoping the RBI signals its discomfort on bond yields by buying gilts in the secondary market on Monday as well, dealers said.

 

Traders preferred short-term bonds which offered attractive spreads over the repo rate and where the rise in yields will translate to smaller mark-to-market losses, dealers said. On the other hand, long-term bonds were the worst hit due to the supply pressure expected over the next financial year from both state and central government bonds. The yield on the 40-year benchmark 6.90%, 2065 gilt surged past 7.50% for the first time this fiscal year. Moreover, traders do not expect further rate cuts from the RBI's Monetary Policy Committee, with the panel's next action seen to be a hike in the March quarter of 2027.

 

At 1500 IST, the turnover in the gilt market was INR 525.30 billion, up from INR 159.65 billion at 1230 IST Friday, 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 6.72-6.82% for the rest of the day.  (Janwee Prajapati)

---

India Gilts: Slump as Budget pegs FY27 gross borrow at record INR 17.20 tln

 

	0955 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	97.98	98.16	97.90	98.16	98.47
YTM (%)	6.7662	6.7402	6.7777	6.7402	6.6963

 

NEW DELHI--0955 IST--Government bond prices slumped after the Union Budget for 2026-27 (Apr-Mar) pegged the government's gross market borrowing at a record INR 17.20 trillion, higher than traders had expected. Traders had positioned for a reading around INR 16.5 trillion and trimmed their portfolios after the announcement, dealers said.

 

The 10-year benchmark gilt yield rose to a high of 6.7777% during the day, its highest since Jan. 17, 2025. Purchases by state-owned banks near levels they said were lucrative limited losses, dealers said. Traders also expect the Reserve Bank of India to nudge the market to cap the 10-year yield near 6.80%, either by buying bonds in the secondary market or announcing further liquidity measures after the Monetary Policy Committee's meeting this week. Hopes of a rate cut remain subdued as inflation is expected to rise in Jan-Mar from the December quarter, while GDP growth remains steady and above 6.5%.

 

"The fall is on expected lines. I don't think most of the traders have gotten out yet, the volumes are still low," a dealer at a state-owned bank said. "It is not a bad level and PSU banks are buying but I expect selling pressure will continue throughout the day."

 

In addition to the Centre's borrowing announced for the next fiscal, dealers said the heavy state bond supply for this week and in the March quarter will keep any aggressive gilt purchases limited. Fourteen states will raise INR 365 billion through bonds Tuesday, lower than the indicative calendar amount of INR 428 billion for this week but a large quantum for investors to absorb, dealers said.

 

While the erstwhile 10-year benchmark 6.33%, 2035 bond was also sharply down, it outperformed peers after being selected by the RBI at its next round of OMO purchases Thursday. Short sellers were also covering their positions in the gilt and transferring their short bets to the 10-year benchmark 6.48%, 2035 gilt, with the on-the-run bond not expected to make an appearance in the RBI debt purchases. The RBI offered to buy 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 at its INR 500-billion OMO auction Thursday.

 

At 0955 IST, the turnover in the gilt market was INR 24.40 billion, similar to INR 20.60 billion at 0930 IST Friday, 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 6.72-6.82% for the rest of the day.  (Aaryan Khanna)

---

India Gilts: Seen sharply down on record gross borrowing FY27

 

NEW DELHI – Government bond prices are seen opening sharply lower Monday after the Union Budget for 2026-27 (Apr-Mar) presented on Sunday pegged the government's gross market borrowing through dated securities at a record INR 17.20 trillion, dealers said. The market borrowing number was expected at INR 16.30 trillion, according to the median of an Informist poll.

 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.70-6.82% Monday after ending at INR 98.47, or 6.70% yield Friday ahead of the Budget. The expected rise in the benchmark yield is likely to push it up to levels last seen in January 2025. The Centre will raise INR 14.61 trillion through bonds in the current fiscal year, completing its scheduled borrowing programme. It had cut its aim for gross issuance by INR 100 billion while presenting the Oct-Mar borrowing calendar from the budgeted INR 14.82 trillion and has since rejected all bids for INR 110 billion of a seven-year bond on Oct. 31.

 

The net market borrowing for 2026-27 is also slightly higher than expected, at INR 11.73 trillion against the Informist poll median of INR 11.6 trillion. Not only is the dated security issuance higher, the government also said it will issue Treasury bills worth INR 1.30 trillion on a net basis in FY27. This was higher than market estimates of a maximum of INR 1 trillion, against which traders had expected the dated security issuance to come down.

 

Losses may be limited at the 6.80% yield on the 10-year benchmark gilt as state-owned banks step up their purchases at levels seen lucrative. Moreover, weekly statistical data released post market hours showed that the RBI purchased gilts worth INR 126.55 billion outside open market operation auctions in the week ended Jan. 23. Also, fulfilling the hopes of traders, the RBI selected the erstwhile 10-year benchmark 6.33%, 2035 bond to buy at the INR-500-billion OMO auction Thursday. 

 

Post market hours, the RBI said it would 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. It may outperform all other gilts Monday due to a spurt of short covering, while the rest of the bonds fall, dealers said.  (Aaryan Khanna)

 

End

 

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

 

Edited by Saji George Titus

 

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

 

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

 

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

 

© Informist Media Pvt. Ltd. 2026. All rights reserved.