More Stories

Informist, Thursday, Feb. 5, 2026

By Cassandra Carvalho

MUMBAI – Prices of government bonds surged Thursday after the Reserve Bank of India set the cut-off price on the erstwhile 10-year benchmark 6.33%, 2035 bond at INR 98.18 at the open market operation auction, 65 paise higher than that indicated by Financial Benchmarks India Pvt. Ltd. Wednesday. Cut-off prices on all seven bonds the RBI offered to buy at the auction were higher than indicated. The higher-than-expected cut-off prices were a signal from the central bank that it would support bond prices, dealers said. After the auction result, traders bet that the outcome of the RBI's Monetary Policy Committee meeting Friday would be favourable for bond prices.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.81, sharply up from INR 98.46 Wednesday. Traders bought the bond to replenish their books after sales to the RBI at the OMO auction, they said. The bond's yield closed at 6.6472%, down 5 basis points from 6.6972% the previous day. The erstwhile 10-year benchmark 6.33%, 2035 bond ended at INR 97.97 or 6.63%, down 6 bps from the previous session. Traders also covered short bets in the gilt, dealers said. Long-term bonds ended sharply higher.

"We didn't think RBI would give (the cut-off price on the 6.33%, 2035) 60 paise above FIMMDA (indicative levels)," a dealer at a state-owned bank said. "The cut-offs are really good, it triggered some short-covering also. Traders are viewing it (cut-off prices) as a sign that RBI wants to support the market. People are still expecting one more OMO of INR 500 billion for February."

The central bank accepted the entire notified amount of INR 500 billion at the OMO auction. The RBI accepted the largest amount of INR 203.46 billion for the 7.18%, 2033 gilt at the auction. Traders were expecting the largest quantum to be for the 6.33%, 2035 gilt but the sharply-higher-than-expected cut-off prices offset any disappointment, dealers said.

Before the OMO auction result was published, bond prices briefly gave up some gains, and some bond prices fell--including the 6.33%, 2035 bond and the five-year benchmark 6.01%, 2030 bond--tracking a rise in overnight indexed swap rates. The five-year OIS rate rose to the day's high of 6.12%, from a day's low of 6.05%, as domestic traders trimmed excess received bets ahead of the decision of the Monetary Policy Committee on Friday. Moreover, the five-year swap failed to fall below the key 6.05-6.06% levels, which led to profit-booking, dealers said.

Other than the OMO auction, traders are focussing on the MPC decision Friday. Traders do not expect a rate cut at the outcome. Several traders see the current repo rate of 5.25% as the terminal repo rate. However, traders expect the tone and commentary of the rate-setting panel, and of RBI Governor Sanjay Malhotra, to signal that the central bank will provide comfortable liquidity to the banking system. Based on feedback to the RBI, traders have varied expectations on what measures the central bank could introduce to provide liquidity. Several traders expect a relaxation in liquidity coverage ratio requirements, which could negatively impact bond prices, dealers said.

Traders expect the RBI to switch gilts it owns which mature in 2026-27 (Apr-Mar) with the Centre. The RBI is estimated to own INR 700 billion to INR 900 billion of gilts maturing in FY27. While most traders expect such a switch to be conducted in FY27, bond prices would surge if such an operation is conducted in Jan-Mar itself. Other possible measures that traders expect include an 'operation twist', long-term variable rate repo operations, a fixed repo window, and widening of the Standing Deposit Facility by an additional 25 basis points below the repo rate from a current width of 25 bps.

Some traders expect the RBI to conduct further OMO auctions in the March quarter itself. However, most of these hopes were dashed after the announcement of a US-India trade deal reduced chances of the RBI's dollar sales in the foreign exchange market and the subsequent drain on rupee liquidity. The probability of the RBI conducting further dollar-rupee buy-sell swaps has reduced, dealers said, after the rupee appreciated 1.4% against the dollar Tuesday. The announcement of India-US trade deal is seen reducing the pace of fall in bond prices.

"Market is just up because things are improving, we have some comfort from the trade deal, liquidity is good," a dealer at a private sector bank said. "I'm not expecting anything from the policy, I think OMO cut-offs are just good because it's the last OMO. But if they won't announce a VRRR (variable rate reverse repo) and if they have one more OMO than that is a yield management signal."

Ample liquidity in the banking system also aided the rise in gilt prices, dealers said. The net liquidity absorbed from the banking system by the RBI -- a proxy for the liquidity surplus -- fell to INR 1.96 trillion Wednesday from INR 2.17 trillion Tuesday. However, while traders prefer short-term bonds due to the comfortable liquidity, uncertainty on what the RBI will indicate on liquidity Friday deterred traders from aggressively piling onto short-term bonds, even as yields of these bonds are seen at a lucrative spread over the repo rate of 5.25%.

Turnover in the gilts market Thursday was INR 732.00 billion, up from INR 570.65 billion Wednesday, according to data on the RBI's NDS-OM platform. There were no trades using the RBI's wholesale e-rupee pilot Thursday, compared to two trades of INR 100 million in the 6.79%, 2034 gilt conducted Wednesday. Prior to Wednesday, no trade had been conducted using this method for more than two weeks.

OUTLOOK

Friday, bond prices may open steady ahead of the decision of the Monetary Policy Committee at 1000 IST, dealers said. Traders do not expect a rate cut or change in stance at the policy outcome, and do not have firm expectations of the RBI's forecasts for GDP growth and inflation, since the Ministry of Statistics and Programme Implementation will release a new series for both data points in February. Some traders expect both data prints to be revised higher. There is likely to be a divergence in voting pattern among the members of the MPC, dealers said.

Traders will watch out for purchases by foreign investors after their holdings through the fully accessible route hit a record high Thursday. 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. Traders will also track liquidity in the banking system, as the RBI's liquidity infusion measures this week are expected to add around INR 1.4 trillion to the liquidity surplus Friday.

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 outcome of the MPC, dealers said. Significant movement 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 6.60-6.80%.

India Gilts: Surge as cut-off price on 6.33%, 2035 sharply higher than view

MUMBAI--1549 IST--Prices of government bonds surged--recovering from a brief fall--after the Reserve Bank of India set a cut-off price of INR 98.18 on the erstwhile 10-year benchmark 6.33%, 2035 gilt at the open market operation auction, sharply higher than an Informist poll estimate of INR 97.64. The yield on the 10-year benchmark 6.48%, 2035 gilt dipped below the key 6.65% level after the auction results, amid purchases by traders of the gilt to replenish their books after sales to the RBI at the auction, dealers said.

The RBI accepted INR 67.68 billion of the erstwhile 10-year benchmark gilt at the auction. The cut-off prices on the other gilts the RBI offered to buy were also above estimates. The RBI accepted the full notified amount of INR 500 billion at the auction. Some traders had feared that the central bank would not accept the entire amount as offers were at prices well above the indicative prices, and the current surplus liquidity was ample, dealers said. State-owned banks said after the auction ended at 1030 IST that they did not bid aggressively.

Earlier, traders had expected the 6.33%, 2035 gilt to be the bond that the RBI bought the most at the auction, as it was the erstwhile 10-year benchmark gilt. While traders had been constantly demanding that the gilt be included in the OMO auctions, they said their interest in offering the bond at market prices had dulled, as the sale would have resulted in a loss on their portfolios.

"He (RBI) has taken offers 7-10 basis points above market (in yield terms), how could he not take 7 bps below now that the market dynamics have changed," a trader at a primary dealership said. "If he had not given the entire thing today (Thursday), then traders would not have believed a word he said on calming markets down tomorrow (Friday)."

The higher-than-expected cut-off prices at the OMO indicated that the outcome of the Monetary Policy Committee meeting Friday would be favourable for bond prices, some dealers said. While traders may trim risk near the end of trade, dealers do not expect a sharp fall in prices. Traders bet on RBI Governor Sanjay Malhotra's commentary Friday signalling that the central bank will provide comfortable liquidity to the banking system, with several dealers expecting some liquidity measures or relaxation in liquidity coverage ratio requirements.  

Just before the result was published, some government bonds had fallen and most gilts were off highs due to a sharp rise in the five-year overnight indexed swap rate. The five-year OIS rate rose to 6.12% from a low of 6.05% earlier in the day. Swap rates rose as the five-year OIS rate failed to fall below the psychologically crucial 6.05-6.06% level, and domestic traders trimmed excess positions ahead of the RBI's Monetary Policy Committee meeting decision Friday, dealers said. A slight rise in the Mumbai Interbank Forward Outright Rate also pushed up OIS rates, they said.

"Looks like it (five-year OIS) didn't break (fall below) 6.06%, so some reversal from there," a dealer at a private sector bank said. "We've seen this before. Every time we (OIS) fail to break a level, there's an upward move. And now before the MPC, people would not want to receive too much, we've seen good paying (fixed rate contracts) at 6.06% levels." 

At 1549 IST, turnover in the gilt market was INR 542.40 billion, higher than INR 448.00 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 6.60-6.70% for the rest of the day. (Cassandra Carvalho and Aaryan Khanna)

India Gilts: Up more on bets of high 6.33%, 2035 cut-off, quantum at OMO

MUMBAI--1312 IST--Prices of government bonds rose further on optimism that amongst the seven gilts the RBI has offered to buy at the open market operation auction Thursday, it will buy the erstwhile 10-year benchmark 6.33%, 2035 gilt in the largest quantum, dealers said. The cut-off prices on gilts at the OMO auction are seen sharply higher than those indicated by Financial Benchmarks India Pvt. Ltd. on Wednesday.

A poll by Informist estimated the cut-off price on the 6.33%, 2035 gilt at INR 97.64, higher than its indicative price of INR 97.53. Most traders have stock of this bond, but hold it at a loss in their portfolios, dealers said. Since the RBI has also conducted nearly INR 7 trillion of OMOs in the current financial year, banks have offered bonds above indicated prices and have not been aggressive at Thursday's auction. This may lead to a lower quantum of tenders and a higher cut-off price, dealers said. Bond prices may rise after the auction result if the cut-off and size accepted of the erstwhile 10-year benchmark bond is better than, or within market expectations. However, a few traders expect the cut-off price to be set at par with, or lower than indicative prices as they would want to tender aggressively to sell larger quantities of the bond, they said. Cut-off prices on longer-term papers at the OMO auction are seen much higher than the indicated prices. A poll by Informist estimated the cut-off on the 7.09%, 2054 bond at INR 96.60, compared to its indicative price of INR 96.48.

Traders also bet on the RBI assuring that it will provide comfortable liquidity to the banking system, at the outcome of its Monetary Policy Committee meeting Friday. While traders have pared bets of the RBI announcing further OMO auctions at the outcome, RBI Governor Sanjay Malhotra's commentary is expected to signal further liquidity infusions from the central bank. Traders do not expect a rate cut at the policy outcome, and do not have firm expectations of the RBI's forecasts for GDP growth and inflation, since the Ministry of Statistics and Programme Implementation will release a new series for both data points in February. Some traders expect both data prints to be revised higher.

Due to uncertainty on what the RBI will indicate on liquidity Friday, traders refrained from aggressively piling onto short-term bonds, even as yields of these bonds are seen at a lucrative spread over the repo rate of 5.25%. The 6.01%, 2030 bond last traded 2 paise higher from Wednesday's close. The bond had risen 5 paise Wednesday, after surging 33 paise on Tuesday. Foreign banks and portfolio investors, along with some mutual funds, are seen purchasing these bonds, but clarity on liquidity is awaited, dealers said.

"People want to know what he's (RBI) is going to do on liquidity," a trader at a primary dealership said. "If he's going to let a (the weighted average call rate fall to) 4.50%, then that's a proxy cut, short-term (bond yields) can see a good fall. But if he says he's going to do both VRR (variable rate repo) and VRRRs (variable rate reverse repo), he'll get a VRRR auction then it's not going to be good."

At 1312 IST, turnover in the gilt market was INR 237.85 billion, lower than INR 319.70 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 6.62-6.74% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Tad up on liquidity comfort, profit booking caps gains

NEW DELHI--0945 IST--Government bond prices rose slightly as the Reserve Bank of India refrained from announcing a variable rate reverse repo auction, spurring bets that the central bank would guide for easy liquidity conditions going ahead, dealers said. Traders sold bonds at a profit on caution before the result of the RBI's open market operation auction and the Monetary Policy Committee's rate decision on Friday.

The net liquidity absorbed from the banking system by the RBI – a proxy for the liquidity surplus – was at INR 1.96 trillion Wednesday, above INR 1.7 trillion for the third straight day. Meanwhile, the one-day interbank call money rate was near the RBI's standing deposit facility rate of 5.00% in early trade Thursday for the second straight day. 

"People are basically betting on the policy to be more dovish due to the RBI's reluctance in doing a VRRR," a dealer at a primary dealership said. "But we will have to look at the OMO cut-offs also – banks will tender at higher levels (than indicative prices on Financial Benchmarks India Ltd. Wednesday) since nobody has the bonds, or they are not in profit."

The RBI has 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 the auction at 0930-1030 IST. Banks are expected to tender the bonds are prices higher than indicative levels for Wednesday. If the RBI accepts those offers and sets a cut-off above the indicative levels, traders said gilt prices could rise more in the latter half of the day.

Foreign investors are expected to continue buying bonds and receiving swap rates after picking up fully accessible route bonds worth nearly INR 20 billion Wednesday. However, traders sold the 10-year benchmark 6.48%, 2035 gilt as its yield fell below the 6.70% yield mark at a profit on the view that prices would not rise much further before the rate decision Friday. The fall in the five-year overnight indexed swap rate to 6.05% from 6.08% Wednesday also aided gilt prices as the overnight Mumbai Interbank Outright rate – the floating leg of the contract – is seen being set well below the policy repo rate of 5.25%. The OIS rate also retreated from the psychologically crucial level and inched up to 6.07% at 0935 IST.

At 0945 IST, the turnover in the gilt market was INR 39.45 billion, slightly higher than INR 24.25 billion at 0930 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 6.65-6.74% for the rest of the day.  (Aaryan Khanna)

India Gilts: Seen up on comfortable liquidity; caution seen before OMO tender

NEW DELHI – Government bond prices may open slightly higher Thursday as traders pick up gilts noting increased liquidity in the banking system, lower money market rates, and the 10-year benchmark yield closing below the key 6.70% mark Wednesday. Gains may be limited due to caution before the Reserve Bank of India's open market operation auction Thursday and the outcome of its Monetary Policy Committee meeting Friday.

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.65-6.74% Thursday after ending at INR 98.46, or 6.70% yield Wednesday. Bond prices rose Wednesday due to surplus liquidity in the banking system, a fall in overnight indexed swap rates, and purchases by foreign portfolio investors.

FPIs are expected to continue buying gilts after the India-US trade deal was agreed upon Monday and led to an appreciation in the rupee, dealers said. FPIs bought fully accessible route gilts worth nearly INR 20 billion Wednesday, bringing their holdings of the bonds to a record high of INR 3.24 trillion.

The selection of more liquid securities including the erstwhile 10-year benhcmark 6.33%, 2035 bond at the OMO purchase is seen as a positive for gilt prices. Traders have driven up the price on the 6.33%, 2035 bond this week in the hope of selling it to the RBI at a slight profit or mininal loss, after the yield on the bond rose to its highest in 2026-27 (Apr-Mar) Monday. The RBI has 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 auction 0930-1030 IST.

The 10-year benchmark gilt yield is likely to fall to the key level of 6.68% if cut-off prices at the OMO auction are set higher than indicated by Financial Benchmarks India Pvt. Ltd. for Wednesday, dealers said. However, traders may book profits in the 6.65-6.68% yield range on the 10-year before the MPC outcome Friday. Some market participants may also make room for the weekly gilt auction worth INR 290 billion Friday near the end of the day.

Traders do not expect the RBI's rate-setting panel to cut the repo rate further, after a reduction in the policy rate by 25 basis points to 5.25% in December. Most participants expect this to be the terminal rate. Instead, focus is on Governor Sanjay Malhotra's commentary on liquidity management. Surplus liquidity has risen to a two-month-high this week after being tight in December and January.  (Aaryan Khanna)

End

US$1 = INR 90.3550

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

Edited by Ashish Shirke

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.