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Informist, Tuesday, Feb. 3, 2026

 

By Cassandra Carvalho

 

MUMBAI – Prices of government bonds surged Tuesday as traders covered short bets, tracking a rise in the rupee and a fall in overnight indexed swap rates as traders across Indian asset classes cheered the announcement of a trade deal between the US and India. Comfortable liquidity in the banking system aided the rise, with short-term gilts outperforming other tenures.

 

Prices of bonds maturing in 10 years and above did not fully recover from their slump Monday, as traders await details of the trade deal and its impact on growth and inflation, amid concerns of heavy bond supply in the upcoming financial year, dealers said. Some traders expect the Centre to lower its gross borrowing for 2026-27 (Apr-Mar) after the trade deal, as some government officials have suggested.

 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.27, sharply up from INR 97.98 Monday. The bond's yield closed at 6.72%, down from 6.77% the previous day. On Monday, the yield on the 10-year benchmark had closed at its highest level since Jan. 15, 2025. The bond yield fell 4 basis points Tuesday, the most since Dec. 24, after surging 7 bps Monday. The five-year benchmark 6.01%, 2030 bond ended at INR 98.82, or 6.32% yield, marking a single-day fall of 9 bps, the most since Dec. 24. The rupee rose 1.4% against the dollar Tuesday, to end at 90.2650. 

 

"Shorts (short sales) had built up too much, so there's covering," a dealer at a state-owned bank said. "I feel we'll fall to 6.70% (yield on the 10-year benchmark gilt) and then sellers will take over and the buying will fizzle out. There's also this (speculation) going around that (gross) borrowing (by the Centre) won't be (needed) that much now to support growth." 

 

In an interview with Informist, Economic Affairs Secretary Anuradha Thakur said the government could end 2026–27 (Apr–Mar) in a stronger fiscal position than projected in the Budget. The Budget for the next financial year has pencilled in fiscal consolidation of 10 basis points to bring the fiscal deficit to 4.3% of GDP in FY27, along with a 50-bps reduction in the debt-to-GDP ratio to 55.6%. Irrespective of US tariffs easing to 18%, the current pace of economic activity could result in government revenues exceeding Budget estimates, Thakur said. The government has projected total receipts of INR 36.52 trillion in FY27, up 7.2% from the revised estimates for FY26.

 

Earlier in the day, a finance ministry official said that following a "base correction" in FY27, tax buoyancy will improve in subsequent financial years, which traders interpreted as a sign of lower supply for the bond market due to strong revenue. The Ministry of Statistics and Programme Implementation is due to revise the base year for GDP to FY23 from FY12. The ministry will release the GDP growth estimate based on the new series on Feb. 27. Bond prices had slumped Monday after the Budget estimated the Centre's gross borrowing at INR 17.20 trillion in FY27, sharply up from the market expectations of INR 16.30 trillion.

 

Traders covered short bets as the sentiment improved after US President Donald Trump and Indian Prime Minister Narendra Modi announced a trade deal late Monday, 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 1800 IST showed trades worth INR 77.66 billion in the 6.48%, 2035 gilt, and INR 134.22 billion in the erstwhile 10-year 6.33%, 2035 bond, from INR 77.11 billion and INR 141.58 billion respectively Monday. 

 

However, several traders still erred on the side of caution, as the trade deal would reduce the hit to economic growth and, in turn, lower the chances of further monetary policy easing, dealers said. Additionally, the rupee's appreciation due to the trade deal suggested that the RBI was likely to step in with dollar purchases to build its dollar reserves, thereby injecting rupee liquidity. Hopes that the RBI would conduct at least INR 1.00 trillion more in open market operations auctions by the end of the March quarter faded, and traders pared bets on further liquidity infusions from the RBI. Inflation is also seen rising in Jan-Mar and FY27, which weighed on the outlook for bond prices, dealers said.

 

On a positive note for bond prices, traders expect the trade deal to bring foreign inflows into gilts, and are likely to raise chances of Bloomberg Index Services including India's fully accessible route bonds in its flagship Global Aggregate Index, dealers said. In January, the index provider had deferred the inclusion. 

 

Systemic liquidity was well above the comfort zone of INR-1.00-trillion Monday, due to the Centre's month-end expenditure, prompting purchases in short-term gilts, dealers said. The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was INR 1.71 trillion Monday, sharply up from INR 886.42 billion Sunday. Mutual funds received some inflows and bought gilts and state bonds at the auction, dealers said. Several traders also preferred bonds maturing in 2033 and 2034. Long-term bonds were out of favour for traders, ahead of the impending supply in FY27.  

 

"Already, the spread of short-term bonds is very good over repo. If you expect a rate hike in 2028, then your (7.18%) 2033 paper will be a five-year paper then, so you are reducing your duration risk by buying this paper," a dealer at another state-owned bank said. "This is good for investment books, but the new (6.68%) 2033 paper is good for trading also." 

 

At the state bond auction, cut-off yields were slightly lower than expected, despite the large supply, likely due to demand from investors like mutual funds for short bonds and from pension funds for long-term state bonds. States raised INR 15.5 billion more than the notified amount of INR 365 billion Tuesday.

 

Turnover in the gilt market Tuesday was INR 419.35 billion, down from INR 675.95 billion Monday, 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 Tuesday, as seen for over two weeks. Communication from the RBI with traders on e-rupee trades in the gilt market has reduced, dealers said. 

 

OUTLOOK 

On Wednesday, bond prices are likely to open higher, continuing the buying momentum seen Tuesday, on bets of foreign inflows and lower government borrowing after the US and India agreed to a trade deal. Traders will closely track the details of the trade deal. Commerce and Industry Minister Piyush Goyal said Tuesday that the two countries will soon issue a joint statement on the deal. A trade ministry official, who did not want to be identified, said the joint statement may come within a week. The official also said that negotiations with the US will continue even after the current deal is signed.

 

Traders expect the yield on the 10-year benchmark gilt to fall to 6.68-6.70?fore rising again on concerns of heavy bond supply in FY27, and profit-booking, dealers said. "Now is a good time to sell because you've got the levels, and you know this is going to be short-lived. The buying will fizzle out because of supply issues," a dealer at another state-owned bank said. 

 

Bonds may also track overnight movement in US Treasury yields, though the impact of the offshore cue may be limited as traders focus on the trade deal and the outcome of the RBI's Monetary Policy Committee meeting this week, dealers said. Some traders were expecting the RBI to announce more OMO auctions of INR 1 trillion to INR 1.5 trillion in February, with the number potentially rising to INR 2 trillion by the end of the March quarter. Those bets were pared after the trade deal, dealers said. Some traders expect RBI Governor Sanjay Malhotra to signal scope for further softening of monetary policy, while emphasising that the central bank will continue to provide liquidity to the banking system. Some traders also expect the RBI to announce a relaxation in liquidity coverage ratio norms, which could negatively impact bond prices, dealers said. 

 

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 6.68-6.80%.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	98.2700	6.7245%	97.9800	6.7662%
6.33%, 2035	97.4000	6.7098%	97.1800	6.7426%
6.01%, 2030	98.8200	6.3167%	98.4900	6.4033%
6.68%, 2040	95.7700	7.1541%	95.4800	7.1876%
6.90%, 2065	92.7500	7.4730%	92.4000	7.5026%

 

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India Gilts: Remain sharply up post trade deal; short-term bonds outperform

 

	1429 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.26	98.37	98.20	98.25	97.98
YTM (%)	6.7259	6.7101	6.7342	6.7273	6.7662

 

	1429 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	97.42	97.54	97.40	97.54	97.18
YTM (%)	6.7068	6.6897	6.7098	6.6897	6.7426

 

MUMBAI--1429 IST--Prices of government bonds remained sharply up as sentiment improved and the rupee appreciated after India and the US announced a trade deal late on Monday. Short-term bonds outperformed other tenures, due to their lucrative yield spreads over the repo rate and improvement in systemic liquidity. Long-term bonds recovered slightly after tumbling Monday. Gains were capped after states exercised the greenshoe option at the state bond auction, adding to the already-heavy supply. Cut-off yields at the auction were largely along expected lines. Traders who purchased gilts Monday when the 10-year benchmark gilt yield neared 6.78%, sold bonds at a profit. Concerns over heavy bond supply in the upcoming financial year also weighed on prices. 

 

At the INR-365-billion state bond auction, demand was moderate amid heavy supply. The RBI set cut-off yields of 7.52-7.57% on states' 10-year bonds, against an Informist poll estimate of 7.50-7.55%. However, bond prices pared some gains after the result as Gujarat and Maharashtra exercised a greenshoe option, adding to heavy supply. States raised INR 15.5 billion more than the notified amount of INR 365 billion Tuesday. Bidding for short-term state bonds was robust from banks and mutual funds, dealers said. The cut-off yield on Maharashtra's four-year bond was 6.90%, against expectations of 6.96%. Traders were awaiting the result to gauge state bond spreads for the rest of the March quarter, since auction sizes are seen similar to Tuesday, if not higher, dealers said. 

 

Traders were still unsure of how the impact of the US-India trade deal would play out in the government bond market, and awaited further details on the deal to gauge factors such as inflation and GDP growth estimates. In a note Tuesday, economists from HDFC Bank estimated an upside of 20-30 basis points in India's FY27 GDP growth, from their current projection of 6.9%, assuming the trade deal holds and other factors are unchanged. Higher growth would reduce the case for further monetary policy easing, dealers said. As the rupee appreciates, the need for liquidity infusion from the Reserve Bank of India is also seen reducing, thereby leading to traders paring bets of further open market operation auctions. The RBI is likely to boost its dollar reserves when the rupee appreciates, thereby infusing rupee liquidity, dealers said.

 

However, the cementing of the much-anticipated deal is seen bringing in foreign inflows, and could also increase chances of Bloomberg Index Services including India's fully accessible route bonds in its flagship Global Aggregate Index, dealers said. In January, the index provider had deferred the inclusion. As of 1429 IST, FPIs net sold gilts worth INR 649.7 million through the fully accessible route Tuesday, according to data from Clearing Corp. of India. Traders favoured short-term bonds due to their lucrative yield spreads over the repo rate. The 6.01%, 2030 bond offered a spread of 107 bps over the repo rate of 5.25%.

 

"I've not seen FPI flows yet (Tuesday) but yes foreign inflows could be more now (post India-US trade deal). But I'm not sure if this (price rise) will sustain. We'll be in a range of 72 to 82 only (6.72-6.82% yield on the 6.48%, 2035 bond)," a dealer at a state-owned bank said. "I think now is a good time to buy the 7-year bond, it's not liquid but you're getting a spread of around 150 bps over repo, the 'carry' factor is good here."  

 

At 1429 IST, the turnover in the gilt market was INR 374.15 billion, against INR 499.95 billion at 1430 IST Monday, 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 6.66-6.76% for the rest of the day.  (Cassandra Carvalho)

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India Gilts: Jump on short covering, fall in OIS post India-US trade deal

 

	1005 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.24	98.37	98.20	98.25	97.98
YTM (%)	6.7288	6.7101	6.7342	6.7273	6.7662

 

NEW DELHI--1005 IST--Government bond prices surged after the India and US agreed to a trade deal. The rise was triggered by traders covering their short sales in gilts placed during the sharp fall in prices Monday and with the five-year overnight indexed swap rate falling, dealers said.  

 

"It is more of a reversal of yesterday's selling," a dealer at a state-owned bank said. "Not sure if we will see any of this buying sustaining below 6.70% (yield on the 10-year benchmark 6.48%, 2035 gilt) but right now, there seems to be some short covering in the market."

 

The 10-year yield had risen 7 basis points Monday, marking its worst day since August, and traders had placed fresh short sales after the government pegged its gross borrowing at a record INR 17.20 trillion in 2026-27 (Apr-Mar), higher than traders had anticipated. The rupee's sharp rise in expected to attract foreign portfolio investors, especially in short-term bonds where easier rupee liquidity has led to spreads over the repo rate seeming attractive, dealers said.

 

The rupee surged the most in over 12 years at the open and was at 90.31 a dollar at 0955 IST, against 91.51 a dollar at 1530 IST Monday. Offshore traders also cut their paid fixed rate positions in the five-year OIS rate, with domestic traders taking the other side of the trade in OIS and buying gilts, dealers said. 

 

However, dealers said the deal would not materially change supply dynamics in the gilt market and may potentially even reduce demand. The Reserve Bank of India is seen holding off on further open market operation auctions and instead buying dollars, infusing rupee liquidity into the domestic banking system through that route, dealers said. Purchases were also limited ahead of the hefty state bond auction at 1030-1130 IST, they said. At the auction, fourteen states will raise INR 365 billion, with state bonds maturing in up to seven years favoured by banks for their held-to-maturity portfolios.

 

At 1005 IST, the turnover in the gilt market was INR 158.75 billion, against INR 191.55 billion at 1030 IST Monday, 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 6.66-6.76% for the rest of the day.  (Aaryan Khanna)

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India Gilts: Seen sharply up after India, US agree to trade deal

 

NEW DELHI – Government bond prices are expected to rise sharply Monday after India and the US agreed to a long-awaited trade deal. US President Donald Trump and India's Prime Minister Narendra Modi announced the deal on social media late Monday.

 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.65-6.75% Tuesday after ending at INR 97.98, or 6.77% yield Monday, its highest closing level in over a year. Gilt prices had slumped Monday, with the benchmark yield rising the most since August, after the government's target for gross borrowing in 2026-27 (Apr-Mar) was sharply higher than expected. The government pegged its dated securities issuance at INR 17.20 trillion, against INR 16.3 trillion seen in an Informist poll.

 

India and the US began negotiations on a bilateral trade deal in March, which has stalled across several months. Trump announced India's reciprocal tariff rate on its exports to the US would now be 18%, against the 25% imposed in early August. There was no official clarity on whether India's exports would still carry the 25% penal tariff introduced by the US in end-August, which had effectively led to tariffs of 50% on India's exports.

 

Traders said the deal would reduce the fiscal push needed from the government to bolster India's growth, potentially easing supply, which was seen exceeding market demand in FY27. Moreover, foreign portfolio investors who had remained on the sidelines expecting weakness in the rupee may rush to lock in yields seen attractive in the domestic market, especially piling into short-term bonds. The Reserve Bank of India is also expected to supply more rupee liquidity as it buys some of the foreign dollar inflows to push up its foreign exchange reserves, dealers said. 

 

The sharp rise in the rupee will also push up gilt prices near the open, dealers said. The offshore market suggested the rupee would open above 91 a dollar, against 91.51 a dollar at 1530 IST Monday. However, the benefits of growth and increased dollar inflows may reduce the quantum of open market operations the RBI announces in the future and its Monetary Policy Committee may not cut rates further, dealers said. 

 

"Earlier, no rate cut was in account of weak rupee; now no cut as we have no reason to worry," a dealer at a primary dealership said. "That is why I say bond guys are crazy."  (Aaryan Khanna)

 

End

US$1 = INR 90.2650

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

 

Edited by Saji George Titus

 

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