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Informist, Wednesday, Feb. 4, 2026

 

By Cassandra Carvalho

 

MUMBAI – Prices of government bonds ended higher Wednesday as systemic liquidity was at the highest level since early December, which improved appetite for gilts, dealers said. The 10-year benchmark 6.48%, 2035 gilt yield fell below the key technical level of 6.70% nearing the end of trade as the five-year overnight indexed swap rate fell to the key 6.08% level. Traders bet on the Reserve Bank of India assuring that it will continue to provide sufficient liquidity to the banking system at the outcome of its Monetary Policy Committee meeting Friday.

 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.46, up from INR 98.27 Tuesday. The bond's yield closed at 6.6972%, down from 6.7245% the previous day, after falling 4 basis points Tuesday. The 15-year benchmark 6.68%, 2040 bond ended at INR 95.93, up 16 paise from Tuesday's close, ahead of a fresh supply of INR 160 billion Friday. The five-year OIS rate ended at 6.08%, the lowest in around two weeks.

 

Bond prices were up for most of the day amid ample liquidity surplus and tracked a fall in swap rates. Nearing the end of trade, the 10-year benchmark gilt was up sharply on likely purchases by mutual funds and some private-sector banks, dealers said. Offshore traders received fixed rate contracts, which led to domestic traders purchasing gilts to hedge their paid bets in OIS, they said. 

 

"OIS receiving is just translating to bonds. The bond buying is only from the domestic front, I believe," a dealer at a private-sector bank said. "OIS is being received across the curve and (five-year) OIS is at crucial 6.08%. If it breaks (falls below) 6.08% then that opens up an opportunity for a 6.00% and then tomorrow (Thursday) we have an OMO (open market operation auction) also, so if that result is good we can see (a rise in bond prices.)"

 

Overnight indexed swap rates also fell as overnight borrowing rates slumped amid ample liquidity, dealers said. The net liquidity absorbed from the banking system by the RBI--a proxy for the liquidity surplus--rose to INR 2.17 trillion Tuesday, the highest since Dec. 5, from INR 1.71 trillion Monday. This led to lower-than-expected cut-off yields on Treasury bills at the auction Wednesday, dealers said. The RBI set a cut-off yield of 5.34% on the 91-day T-bill, 5.60% on the 182-day T-bill, and 5.65% on the 364-day T-bill, against Informist poll estimates, respectively, of 5.36%, 5.61%, and 5.66%.

 

Along with domestic investors, foreign portfolio investors were also purchasing gilts, dealers said. As of 1900 IST, FPIs had net purchased gilts worth INR 19.07 billion through the fully accessible route, taking total FPI holdings in gilts through this route to a record high of INR 3.24 trillion, according to data from Clearing Corp. of India. In the "Reported Deals T+1" segment of the RBI's Negotiated Dealing System-Order Matching platform, 30 trades totalling INR 42.95 billion were conducted in the 10-year benchmark gilt. Traders attributed these purchases to mutual funds and FPIs.

 

Traders were also optimistic that the RBI would set cut-off prices higher than indicative prices at the open market operation auction of INR 500 billion Thursday. The RBI has offered to buy seven gilts, including the erstwhile 10-year benchmark 6.33%, 2035 gilt, at the auction. While the bond has outperformed gilts of similar maturity recently, traders do not hold the bond at a profit in their portfolios and are likely to sell to the RBI at higher prices in an attempt to make a profit, dealers said. Several of the other bonds the RBI has offered to buy Thursday have been offered at previous OMO auctions and traders have largely sold most of the stock they own, they said. Any such bonds remaining in their books are not "in the money".

 

"At the last minute people were buying to bump up the (indicative) prices for FBIL (Financial Benchmark India Pvt. Ltd.), I'm expecting cut-off prices 20 paise above FBIL," a dealer at a state-owned bank said. "For 6.33%, 2035 especially, but even all the other papers are out of the money, so at least 15-20 paise above FBIL we will tender at."

 

Gains were capped as traders who had bought gilts when the 10-year benchmark yield neared 6.78?rlier in the week sold them at a profit, dealers said. Traders largely dismissed the fall in the rupee Wednesday after the local currency appreciated 1.4% against the dollar in the previous session. Caution ahead of several triggers lined up later in the week also limited price movement, they said. Friday, traders will also track the Monetary Policy Committee's decision, along with the INR 290-billion gilts auction result. While the lack of an announcement of a variable rate reverse repo auction so far this week is seen as a signal from the RBI that it is comfortable with lower rates, some traders said the central bank could conduct the auction any day in the rest of the trading week owing to a slump in overnight money market rates. The RBI has not conducted a VRRR auction since Dec. 5.

 

Turnover in the gilts market Wednesday was INR 570.65 billion, up from INR 419.35 billion Tuesday, according to data on the RBI's NDS-OM platform. There were two trades using the RBI's wholesale e-rupee pilot for INR 100 million in the 6.79%, 2034 gilt. No trade had been conducted using this method for more than two weeks.

 

OUTLOOK

Thursday, bond prices are likely to open higher and the 10-year benchmark gilt yield is likely to fall to the key level of 6.68% if cut-off prices at the INR 500-billion OMO auction are set higher than indicated by FBIL, dealers said. The RBI has offered to buy seven bonds--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.

 

Traders will watch out for purchases by foreign investors after purchases through the fully accessible route hit a record high Wednesday. The movement of the five-year OIS rate will also lend cues, with traders expecting it to fall to 6.00% by Friday. Traders await details of the India-US trade deal to gauge its impact on inflation and growth.

 

Money market rates will also be closely tracked after the weighted average call rate Wednesday ended at its lowest since Aug 4, 2022, barring Saturdays. The 10-year benchmark gilt yield may rise to 6.75% if the RBI conducts a VRRR auction this week, dealers said. 

 

Traders expect the yield on the 10-year benchmark gilt to fall to 6.68?fore rising again on concern of heavy bond supply in FY27, dealers said. Bonds may also track the 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 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 6.62-6.76%.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	98.4600	6.6972%	98.2700	6.7245%
6.33%, 2035	97.5700	6.6846%	97.4000	6.7098%
6.01%, 2030	98.8700	6.3037%	98.8200	6.3167%
6.68%, 2040	95.9300	7.1356%	95.7700	7.1541%
6.90%, 2065	92.9000	7.4603%	92.7500	7.4730%

 

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India Gilts: Remain up as 5-year OIS falls to near-2-wk low, liquidity ample

 

	1531 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.40	98.43	98.22	98.26	98.27
YTM (%)	6.7066	6.7015	6.7317	6.7260	6.7245

 

MUMBAI--1531 IST--Prices of government bonds were up, tracking a fall in overnight indexed swap rates, and as ample surplus liquidity in the banking system boosted appetite for bonds, dealers said. Foreign portfolio investors also likely purchased gilts, dealers said. However, the yield on the benchmark 10-year 6.48%, 2035 bond failed to fall below the key 6.70% level due to profit-booking, caution before two auctions, and the Reserve Bank of India's Monetary Policy Committee meeting decision Friday. 

 

The five-year OIS rate fell to 6.08%, its lowest in nearly two weeks, as offshore traders received fixed rate contracts, dealers said. Domestic traders on the other side of the trade hedged their paid bets by buying gilts, dealers said. Ample liquidity surplus and a fall in forward dollar-rupee premiums also led to a receiving bias in swaps, dealers said. FPI purchases also aided gilt prices; as of 1530 IST, FPIs net purchased gilts worth INR 2.16 billion through the fully accessible route Wednesday, according to data from Clearing Corp. of India. In the 'Reported Deals T+1' segment of the RBI's Negotiated Dealing System-Order Matching platform, 20 trades totalling INR 28.80 billion were conducted in the 10-year benchmark gilt. Traders attributed these purchases to FPIs.    

 

However, gains were limited due to caution before several triggers lined up later in the week. The RBI has offered to buy gilts worth INR 500 billion at the open market operation Thursday, including the erstwhile 10-year benchmark 6.33%, 2035 gilt. Cut-off prices at the auction are seen largely above indicative prices, especially in the 6.33%, 2035 bond. While the bond has outperformed gilts of similar maturity recently, traders do not hold the bond at a profit in their portfolios, and will likely sell to the RBI at higher prices in an attempt to make a profit, dealers said. Several of the other papers the RBI has offered to buy Thursday have been offered at previous OMO auctions and traders have largely sold most of the stock they own, they said. Any such bonds remaining in their books is not "in the money".

 

On Friday, traders will also track the INR-290-billion gilt auction result, along with the MPC's decision. Traders were also cautious due to concerns that the RBI may conduct a variable rate reverse repo auction this week due to a slump in overnight money market rates. Some traders do not expect a VRRR since bond yields are seen rising if the RBI conducts such an auction, which the RBI is unlikely to be comfortable with. The RBI has not conducted a VRRR since Dec. 5.    

 

"There's a lot to wait and watch for, firstly we haven't yet gotten the details of the (US-India) trade deal," a trader at a primary dealership said. "And then there's expectations of a VRRR also. Let's see if before policy, RBI chooses to conduct one."

 

Cut-off yields at the INR-290-billion Treasury bill auction were lower than expectations due to ample surplus liquidity in the banking system, dealers said. Banks parked INR 3.65 trillion with the RBI at its Standing Deposit Facility Tuesday, the highest since Jun. 13.   

At 1531 IST, the turnover in the gilt market was INR 452.95 billion, similar to INR 423.50 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 6.68-6.76% for the rest of the day.  (Cassandra Carvalho)

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India Gilts: Up as surplus liquidity widens, money market rates tumble

 

	1210 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.37	98.43	98.22	98.26	98.27
YTM (%)	6.7101	6.7022	6.7317	6.7260	6.7245

 

NEW DELHI--1210 IST--Government bond prices rose as traders bet on bond prices rising, with risk appetite picking up due to widening surplus liquidity in the banking system, dealers said. Lack of action from the Reserve Bank of India to arrest tumbling money market rates also led to expectations it was comfortable with easier liquidity conditions.

 

The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – rose to INR 2.17 trillion Tuesday from INR 1.71 trillion Monday. The liquidity surplus has risen sharply over the past week due to the RBI's measures to infuse durable liquidity and the government's month-end spending. Going ahead, the RBI is not expected to sell dollars after the rupee surged following India and the US agreeing to a trade deal, reducing an avenue for rupee liquidity to decline. 

 

The weighted average call money rate on Wednesday was 5.04%, barely above the lower end of the Liquidity Adjustment Facility corridor at 5.00%. The weighted average triparty repo rate – a wider market which includes mutual funds – was at 4.26%, down even from 4.40% the previous day. The overnight Mumbai Interbank Outright Rate – a money market benchmark – fell to an over three-year low of 5.13% Tuesday and is expected to be even lower at around 5.05% Wednesday. 

 

Money market and gilt dealers had widely expected the RBI conduct a variable rate reverse repo operation maturing Friday to mop up the excess liquidity until the policy decision. However, the central bank has so far not conducted such an auction.

 

"Since the RBI has let TREPS (triparty repo) rates loose below the SDF (standing deposit facility rate of 5.00%), the entire curve is moving left (yields are falling)," a dealer at a primary dealership said. "By the time the policy comes around, he (RBI) will have injected another INR 1.5 trillion. So it is important to see he will do about it." The $10-billion, three-year dollar-rupee buy-sell swap auction conducted Wednesday and the RBI's open market operation auction to buy bonds worth INR 500 billion Thursday will both settle on Friday.

 

Traders now expect the central bank to signal it will continue to ensure heavy liquidity surplus at the conclusion of the three-day Monetary Policy Committee meeting on Friday. However, the MPC is not seen cutting rates and the RBI is also not likely to announce further operations to infuse liquidity, dealers said. Until last week, traders had expected an announcement of an INR 1-trillion open market operation to buy bonds in February or March, which may no longer be required after the trade deal, they said. Traders also booked profits as the yield on the 10-year benchmark 6.48%, 2035 bond fell to the psychologically crucial 6.70% level, capping gains.

 

At 1210 IST, the turnover in the gilt market was INR 233.20 billion, against INR 277.35 billion at 1235 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 6.68-6.76% for the rest of the day.  (Aaryan Khanna)

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India Gilts: Steady in thin trade amid lack of fresh cues; MPC meet in focus

 

	0935 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.31	98.33	98.22	98.26	98.27
YTM (%)	6.7195	6.7166	6.7317	6.7260	6.7245

 

NEW DELHI--0935 IST--Government bond prices were steady in thin early trade due to lack of significant triggers for gilts. Traders were also assessing the direction bond prices would take after the recent volatility, and were wary of placing aggressive bets as the Reserve Bank of India's Monetary Policy Committee meeting begins Wednesday, dealers said.

 

Some traders expect the RBI to announce further measures to infuse durable liquidity into the banking system at the outcome of the monetary policy meeting. At the same time, it may announce measures such as variable rate reverse repo operations to suck out transient liquidity, dealers said. Traders are not betting on a rate cut by the MPC or even a softer policy stance after India and the US Monday announced they had agreed to a trade deal. 

 

The improved liquidity increased demand for short-term bonds, which were being preferred by investors across the market, dealers said. Foreign portfolio investors are also expected to buy gilts maturing in up to three years aggressively after the sharp rise in the rupee following the trade deal announcement.

 

"(I) expect the prices to be range-bound now," a dealer at a private sector bank said. "I too was thinking we could see some more positivity from the trade deal but it looks like short-term bonds will be the best bet."

 

Earlier, bonds were slightly lower due to the fall in the rupee and with focus on upcoming supply at the weekly gilt auction Friday, dealers said. The 6.68%, 2040 gilt had fallen but reversed losses and rose, likely due to a trader betting that the bond would see firm demand for its fresh supply of INR 160 billion at auction Friday. The rupee fell to as low as 90.54 a dollar on importers' dollar buys after closing at 90.27 a dollar Tuesday following the trade deal announcement. Traders across asset classes awaited further details from India and the US on the trade deal.

 

At 0935 IST, the turnover in the gilt market was INR 58.20 billion, sharply lower than INR 103.15 billion at the same time 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 6.68-6.76% for the rest of the day.  (Aaryan Khanna)

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India Gilts: Seen steady after recent volatility, as MPC meet begins

 

NEW DELHI – Government bond prices are expected to open steady after the recent volatility, dealers said. Prices of bonds have moved sharply in the last two trading sessions, first down and then up, as traders dealt with the presentation of the Union Budget for 2026-27 (Apr-Mar) and then the announcement of the India-US trade deal late Monday. The three-day meeting of the Reserve Bank of India's Monetary Policy Commmittee was also in focus as it begins Wednesday.

 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.68-6.76% Wednesday after ending at INR 98.27, or 6.72% yield Tuesday. The previous day, the yield had closed at 6.77%, its highest closing level in over a year. 

 

Dealers' expectations on RBI liquidity management and monetary policy actions were mixed. Some said the central bank may not announce further liquidity infusion operations in the coming week after the deal was struck. The influx of dollars is expected to increase rupee liquidity in the domestic banking system. There were no bets of a rate cut at the policy, dealers said.

 

Others said that even with no fresh liquidity operations to announce, the RBI is likely to commit to maintaining surplus liquidity in the banking system over the next few months to better transmit repo rate cuts that took place from February to December last year. On Tuesday, the overnight Mumbai Interbank Outright Rate – the money market benchmark – fell to 5.13% from 5.28% Monday, below the repo rate of 5.25% for the first time since Dec. 12. It also hit its lowest level since Aug. 4, 2022.

 

Traders may begin placing short bets before the weekly gilt auction Friday, which may lead to bonds maturing in 15 years or more underperforming during the day, dealers said. The government will sell INR 160 billion of the 6.68%, 2040 gilt and INR 130 billion of the 6.90%, 2065 bond at the auction.

 

However, demand from life insurers and pension funds is expected to remain firm due to an increase in inflows in the March quarter. The 40-year benchmark gilt may remain well bid at the auction as its yield is at an over two-year high, making it attractive for long-term investors to lock in, dealers said.

 

The impact of the recent news has largely been factored in, with concern about the record gross borrowing programme of INR 17.20 trillion for FY27 still weighing on traders' minds. The supply is higher than the INR 16.5 trillion that traders had expected. However, the trade deal with the US led to some optimism on the government's finances, including hopes of bond buybacks next year. Riding on India's strong economic momentum and with uncertainties from steep US tariffs now addressed, the government could end FY27 in a stronger fiscal position than projected in the Budget, Economic Affairs Secretary Anuradha Thakur told Informist in an interview Tuesday.

 

The reduction in tariffs and the rise in the rupee may drive foreign portfolio investors to pick up gilts maturing in less than three years, dealers said. Even though data showed FPIs were net sellers of fully accessible route bonds Tuesday, dealers expect a sharp revival in inflows into bonds maturing in up to three years after the rupee's appreciation. The domestic unit posted its best day against the greenback Tuesday, rising 1.4%. Further appreciation is expected as more details of the deal emerge this week, dealers said.  (Aaryan Khanna)  End

 

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

 

Edited by Rajeev Pai

 

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