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Informist, Friday, Feb. 6, 2026

By Aaryan Khanna

MUMBAI – Government bond yields surged Friday as traders were disappointed with the Reserve Bank of India's commentary on liquidity after the Monetary Policy Committee's rate decision, dealers said. This led to poor demand at the INR 290-billion weekly gilt auction, pushing up yields further. The panel's decision to hold the repo rate at 5.25% and keep the policy stance at neutral was widely expected.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.19, sharply down from INR 98.81 Thursday. The bond's yield closed at 6.7363% from 6.6472% the previous day. The benchmark yield rose 9 basis points Friday, the most in a day since Aug. 18. Yields had fallen heading into the policy outcome after India and the US agreed to a trade deal Monday, drawing in some foreign banks and investors, while the RBI held overnight money market rates at the lower end or below its liquidity adjustment facility corridor of 5.00-5.50%.

RBI Governor Sanjay Malhotra reiterated that the central bank would endeavour to keep the weighted average call rate, the operating target of the monetary policy, aligned with the policy repo rate of 5.25% notwithstanding a day or two of a slip. He also mentioned the variety of operations, including variable rate reverse repos, that the RBI had on hand to manage liquidity. The weighted average call rate was below the LAF corridor and hit an over three-year low of 4.98% Wednesday, while remaining around 5.00% in the rest of the week. Any VRRR operations would lead banks to park liquidity with the RBI and push up rates, dealers said.

Some traders were also disappointed with the RBI governor's comments on focusing on gross gilt supply instead of net supply. Investors track the gross supply because if they roll over their investment from a maturing security, the maturity profile of their portfolios increases, adding risk. The government has pegged its gross borrowing through dated securities at a record INR 17.20 trillion in 2026-27 (Apr-Mar), which top RBI officials said would be managed efficiently. The borrowing is up from INR 14.61 trillion estimated for FY26. Malhotra focussed on the difference between the budgeted net supply of INR 11.73 trillion for FY27 against the budgeted supply of INR 11.54 trillion for FY26 as being low.

Traders are more sanguine, especially as they see RBI's liquidity injections using open market operation auctions at an end in the current fiscal year. This is due to the sizeable liquidity surplus of more than INR 2 trillion in the banking system, despite the central bank Friday promising "proactive" and "pre-emptive" liquidity measures going ahead.

"Because he had let the (weighted average) call rate remain around the SDF, people came into the policy thinking he would signal some comfort on rates," a dealer at a private-sector bank said. "There were also no new liquidity measures he announced."

Moreover, dealers said the policy outcome itself was not as detrimental to bond yields as the expectations and market positioning heading into the outcome. Even a week ago, traders had only light portfolios, which had been further trimmed after the government's announcement of a record INR 17.20-trillion gross borrowing programme in the Union Budget for 2026-27 (Apr-Mar). However, the volatility this week and recent tailwinds pushed down bonds yields, with foreign banks turning net buyers to the tune of nearly INR 90 billion between Tuesday and Thursday after India and the US agreed to a trade deal, Clearing Corp. of India data showed.

Furthermore, the 10-year gilt yield had fallen 5 bps to 6.65% Thursday largely due to the RBI accepting offers for the erstwhile 10-year benchmark 6.33%, 2035 bond at prices sharply higher than indicated by Financial Benchmarks India Ltd. Wednesday at its open market operation auction. Unfortunately, that is now seen as the last OMO auction in the current financial year ending March. At the same time, supply of central and state bonds will continue till March -- especially the latter -- and keep the pressure up on gilt yields, dealers said.

Demand for the 40-year benchmark gilt was expected to be firm after the bidding ended at 1330 IST. However, the RBI set a cut-off price of INR 92.53 or 7.4917% yield for the 6.90%, 2065 gilt at the auction, against INR 92.85 or 6.4650% expected in the median of an Informist poll.

Traders who had placed protective bids and demanded higher yields unexpectedly got supply of the bond. Demand from pension and provident funds was lower than the market had expected for the INR 130 billion of supply, which drew bids worth only INR 243.35 billion. This bid-to-cover ratio of less than two times was much lower than the long-term average of 2.8 times. With the bond being traded in relatively low quantum, traders could not immediately get the stock off their portfolios and trimmed their holdings of the 6.48%, 2035 and the 6.68%, 2040 bonds, the two most traded gilts, dealers said.

"It looks like the EPFO (Employee Provident Fund Organisation) wasn't there today. They typically pick up around INR 30 billion of these 40-year bonds at every auction," a dealer at a primary dealership said. "It looks like they are either waiting for the state bond auction announcement or next week's 50-year gilt supply before they commit, as yields are seen on the higher side now." After market hours, the RBI announced that 14 states will raise INR 486.15 billion Tuesday, higher than the indicated amount of INR 427.50 billion for next week.

The 15-year benchmark bond's yield rose after the result despite demand for it at the auction being on expected lines. Banks and mutual funds likely picking up the 6.68%, 2040 bond at auction due to its attractive spread over the 10-year benchmark 6.48%, 2035 gilt, dealers said. The spread of the 15-year benchmark was 45 basis points at 1230 IST, when bidding for the auction began, compared with 40 bps on Jan. 30.

Bond yields had opened lower Friday but quickly reversed as traders booked profits to trim their exposure to the MPC outcome and gilt auction, dealers said. The yield on the benchmark 10-year US Treasury note was 4.20% at 1700 IST, against 4.28% at the end of Indian market hours Thursday after a slew of economic data in the US indicated weakness in the labour market. Traders pared bets of status quo on rates by the US Federal Open Market Committee in March. Weekly jobless claims in the week ended Saturday rose by 22,000 to 231,000, against an estimate of 212,000 in a poll by The Wall Street Journal.

Turnover in the gilts market Friday was INR 697.15 billion, down from INR 732.00 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 the second straight day Friday.

OUTLOOK

Gilts are not traded Saturday. On Monday, bond prices may take cues from the movement in US Treasury yields over the weekend. Some traders were tracking the negotiations between the US and Iran scheduled Friday on cues for geopolitical risk and the movement of the rupee, dealers said.

Traders do not expect further liquidity infusion and monetary policy support from the RBI after its officials' comments following the MPC decision Friday. No further rate cuts are likely to be forthcoming from the rate-setting panel in the remainder of 2026, dealers said. This is likely to keep the 10-year gilt yield in a band of 6.60-6.85% till March, they said.

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.

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 6.70-6.82% Monday.

India Gilts: Fall more as cut-off price at 2065 gilt tender lower than view

MUMBAI--1616 IST--Government bond prices fell further after the result of the INR-290-billion auction showed the cut-off price of the 6.90%, 2065 gilt was sharply lower than expected, dealers said. Traders had already been disappointed that Reserve Bank of India officials refused to spell out any of its "pre-emptive" and "proactive" liquidity measures after the Monetary Policy Committee's rate decision Friday.

Demand for the 40-year benchmark gilt was expected to be firm after the bidding ended at 1330 IST. However, the RBI set a cut-off price of INR 92.53 for the bond at auction, against INR 92.85 expected in the median of an Informist poll. Traders who had demanded higher yields unexpectedly got supply of the gilt. Demand from life insurers and pension funds was likely lower than the market had expected for the INR 130 billion of the supply, which drew bids worth only INR 243.35 billion. With the bond being traded in relatively low quantums, traders could not immediately get the stock off their portfolios and trimmed their holdings of the 6.48%, 2035 and the 6.68%, 2040 bonds, the two most traded gilts, dealers said.

"Even before the auction, the market was expecting immediate liquidity measures in the policy and the RBI didn't commit to anything," a dealer at a primary dealership said. "Any traders who had bid negatively, at a tail, would have gotten the stock and would be selling liquid bonds, including 10- and 15-year (benchmarks)."

In contrast, the demand and cut-off price for the 6.68%, 2040 bond was on expected lines, with banks and mutual funds likely picking up the bond at auction due to its attractive spread over the 10-year benchmark 6.48%, 2035 gilt, dealers said. The spread of the 15-year benchmark was 45 basis points at 1230 IST, when bidding for the auction began, compared with 40 bps on Jan. 30. 

State-owned banks bought the 6.48%, 2035 gilt as the 10-year benchmark yield rose above the psychologically crucial 6.75% mark for only the second session in the current financial year ending March, dealers said. RBI data released Friday, which showed the central bank bought INR 47.40 billion worth of gilts outside open market operation auction in the week to Jan. 30, may also limit losses. However, the quantum of purchases was lower than what some traders had expected.

At 1616 IST, the turnover in the gilts market was INR 619.25 billion, higher than INR 576.90 billion at 1630 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 6.68-6.80% for the rest of the day. (Aaryan Khanna)

India Gilts: Dn more on fresh supply; RBI officials' remarks fail to impress

MUMBAI--1359 IST--Prices of government bonds fell more after slumping earlier, as traders made room for fresh supply at the gilt auction, and as remarks by Reserve Bank of India officials at the post-policy press conference failed to impress bond traders, they said. The yield on the benchmark 10-year 6.48%, 2035 gilt rose 7 basis points from Thursday's close, and is seen rising further. 

RBI Governor Sanjay Malhotra said the central bank wasn't looking at changing the liquidity management framework, or the RBI's current liquidity management operations immediately. Malhotra said that liquidity was a continuous process, and that the RBI had provided it outside monetary policy. He said the central bank couldn't mention the exact details on liquidity in the monetary policy statement. Malhotra and RBI Deputy Governor T. Rabi Sankar said that the central bank was certain that it would manage the Centre's gross borrowing efficiently. Bond prices plunged Monday after the Centre unveiled a record gross borrowing of INR 17.20 trillion for 2026-27 (Apr-Mar) in the Union Budget.  

On the liquidity front, traders were hoping that the RBI would Friday announce some measure to infuse liquidity into the banking system, including further open market operation auctions. Traders were also hoping that the RBI would consider other possible measures such as an 'operation twist', and widening of the Standing Deposit Facility by an additional 25 basis points below the repo rate from the current width of 25 bps.

"There is currently no hope for future OMOs (open market operation auctions), but otherwise it (policy) was neutral. Market may be misinterpreting Malhotra's comments because he did say that he will provide sufficient liquidity. Some sales before auction also (weighing)," a trader at a primary dealership said. "But I am expecting some repositioning in portfolios, there will be some selling in the next few days."

RBI officials' comments on the Centre's borrowing plan for FY27 also did little to abate the fall in bond prices, dealers said. "DG (deputy governor) has said they will manage the gross borrowing, he has given the previous years' example. So, I think in FY27 they will have some OMOs or switches, but for now there's nothing positive," a dealer at a private sector bank said. 

Traders focused on the INR-290-billion gilt auction, wherein demand for the 2065 paper is seen robust from long-term investors. Demand for the 15-year benchmark bond is expected for banks' held-to-maturity books, with weak demand from traders, they said. 

"I think some shorts will be covered in the 6.68%, 2040 gilt at the auction, and some buys for banking books," a dealer at a state-owned bank said.

At 1359 IST, the turnover in the gilts market was INR 422.70 billion, higher than INR 330.60 billion at 1435 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 6.68-6.80% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Slump on short bets; no liquidity infusion measure announced yet

MUMBAI--1116 IST--Prices of government bonds slumped after Reserve Bank of India Governor Sanjay Malhotra did not announce any immediate measures to infuse liquidity at the outcome of the Monetary Policy Committee meeting Friday, dealers said. Traders were expecting some liquidity measure to be announced, at least an INR-500-billion open market operation auction for February, they said. Other than that, the tone and commentary of the governor was neutral, and nothing significantly negative for bond prices, they said. Moreover, bond prices fell as traders placed short bets before the INR-290-billion gilt auction, dealers said. Short-term bonds were sharply down post Malhotra's statement.

"There's no OMO announcement, he could've said for now we'll have one OMO and later on we will see (whether further liquidity infusion is needed)," a dealer at a private sector bank said. "But what if he then says we will use VRR (variable rate repo auction) to infuse (transient) liquidity? Now let's see at the press conference, someone will ask this question; how do you plan to infuse liquidity?" The post-policy press conference will begin at 1200 IST.

Malhotra Friday said that the RBI would remain proactive in liquidity management, and reiterated that the central bank would ensure sufficient liquidity in the banking system. Any liquidity management operations would be "pre-emptive", Malhotra said, adding that the RBI would keep a "sufficient allowance for unanticipated fluctuations in government balances, changes in currency in circulation, foreign exchange intervention, etc." 

At the policy outcome in December, Malhotra had said that the central bank would provide sufficient liquidity to the banking system to keep it in surplus and aid monetary policy transmission. Traders were expecting, and hoping that, the fresh comments made by Malhotra Friday would give an assurance that the central bank would provide comfortable liquidity to the banking system. Some traders were uncertain on further liquidity steps and policy easing by the central bank after Malhotra's statement Friday. Other dealers said that the policy outcome was along expected lines, and that traders were just making room for fresh supply at the auction. 

"I think the sell-off is because of auction only. After Malhotra has said "inflation is benign", what more do you want? The overnight rates are 4.50%, what more liquidity infusion can the RBI do?" a dealer at another private sector bank said. "It (the fall in prices) is the auction, technicals, and people bought too much yesterday (Thursday) for no reason at all." The yield on the benchmark 10-year 6.48%, 2035 gilt hovered between the key technical levels of 6.68% and 6.70% after the policy outcome, after falling to as low as 6.63% at market open. 

The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 130 billion of the 6.90%, 2065 bond Friday. Prices of both bonds were sharply down before the auction, after surging Thursday. Demand for the 2065 bond is seen robust from insurance companies and pension funds, dealers said. A dealer at a private sector bank estimated that around INR 20 billion of the gilt would be purchased for bond forward rate agreements. Traders have mixed views on the 2040 gilt, with likely tepid demand seen for held-for-trading books. Some state-owned banks are likely to purchase the bond for their held-to-maturity books after sales to the RBI at OMO auctions, dealers said.

At 1116 IST, the turnover in the gilts market was INR 234.60 billion, higher than INR 160.15 billion at 1130 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 6.65-6.77% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Fall more after MPC leaves repo, stance unch; RBI ups CPI view

MUMBAI--1009 IST--Prices of government bonds fell more after Reserve Bank of India Governor Sanjay Malhotra said that the Monetary Policy Committee voted unanimously to leave the repo rate unchanged at 5.25%, and retained the policy stance at "neutral". The RBI also upwardly revised its CPI inflation and GDP growth forecasts, which some traders were expecting, and reduced hopes of further policy easing. 

The RBI revised its Apr-Jun FY27 CPI inflation forecast to 4.0% from 3.9% and its Jul-Sept FY27 CPI inflation forecast to 4.2% from 4.0%. It also raised its Apr-Jun GDP growth estimate to 6.9% from 6.7%, and the Jul-Sept FY27 GDP growth estimate to 7.0% from 6.8%. 

"The commentary of the governor is neutral, but (CPI and GDP estimate) projected (on the) higher side seems hawkish," a dealer at a state-owned bank said. 

At 1009 IST, the turnover in the gilts market was INR 104.65 billion, higher than INR 58.55 billion at 1030 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 6.58-6.80% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Most down as traders trim risk before MPC decision, gilt auction

MUMBAI--0920 IST--Prices of most government bonds were down Friday after opening higher, ahead of Reserve Bank of India Governor Sanjay Malhotra's monetary policy statement at 1000 IST. Most bond prices opened higher tracking an overnight fall in US Treasury yields, but reversed gains as traders trimmed risk before the key event. Fresh supply of INR 290 billion at the weekly gilt auction later in the day also weighed, dealers said. 

"People are a bit confused about what the policy outcome will be," a trader at a primary dealership said. "After yesterday's (Thursday) rally, people want to get out of those positions and book profits. The price action yesterday was unexpected, and then we have auction also today (Friday)." Traders took the opportunity to book profits after the yield on the 10-year benchmark gilt hit a low of 6.63%, the lowest since Jan. 22. 

Several traders view the Monetary Policy Committee's meeting outcome as risky, and are uncertain on where bond prices will move later in the day. "There's no saying where we're (bond prices) are going today (Friday), it definitely is risky, after market bought so much yesterday (Thursday)," a dealer at a state-owned bank said. "If RBI doesn't say anything that TREPS (triparty repo rate) is too low and all, then yields have a good scope to fall also. All depends on that, so far they've let rates be low." The weighted average call money rate –- the central bank's operating target –- has been well below the RBI's repo rate of 5.25% so far this week. 

At 0920 IST, the turnover in the gilts market was INR 28.80 billion, lower than INR 34.40 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 6.58-6.80% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Seen up on US yld fall, bets of soft commentary by RBI Malhotra

MUMBAI – Prices of government bonds are seen opening higher Friday, tracking an overnight fall in US Treasury yields. However, traders may refrain from aggressive bets ahead of Reserve Bank of India Governor Sanjay Malhotra's address at 1000 IST, wherein the governor will detail the decision of the Monetary Policy Committee's three-day meeting, dealers said. Traders do not expect the rate-setting panel to cut the repo rate, nor do they expect a change in the committee's stance to "accommodative." Malhotra's commentary and tone are expected to emphasise that the central bank will provide comfortable liquidity to the banking system, with several traders expecting the central bank to announce measures to infuse liquidity into the banking system. Most traders have not built significant positions ahead of the policy outcome, with some expecting it to be a "non-event", they said.

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.58-6.80% yield on Friday after ending at INR 98.81, or 6.65% yield Thursday. On Thursday, the 10-year benchmark yield fell the most since Dec. 24, after the RBI set cut-off prices at the open market operation auction sharply higher than expectations. Traders interpret the OMO cut-offs, the ample liquidity in the banking system, and the lack of an announcement of a variable rate reverse repo operation by the RBI as a signal that Friday's MPC outcome will be favourable for bond prices.  

Based on feedback to the RBI, traders have varied expectations on what measures the central bank could introduce to provide liquidity. Several traders expect relaxation in liquidity coverage ratio requirements, which could negatively impact bond prices, dealers said. 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, dealers said. 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. 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 the current width of 25 bps.

Traders have mixed views on the six-member panel's voting pattern. Several traders see the current repo rate of 5.25% as the terminal repo rate. Traders also do not have a firm view on 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.

As per the outcome of the policy and the post-policy press conference, traders may also track the movement of the rupee against the dollar and the five-year overnight indexed swap rate, dealers said. Demand at the INR-290-billion gilt auction will hinge on the policy outcome, dealers said. The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 130 billion of the 6.90%, 2065 bond Friday. Prices of both bonds surged Thursday in spite of the fresh supply. 

An overnight fall in US Treasury yields is likely to aid bond prices. The yield on the benchmark 10-year US Treasury note was 4.19% at 0820 IST, against 4.28% at 1700 IST Thursday after a slew of economic data in the US indicated weakness in the labour market. Traders pared bets of status quo on rates by the US Federal Open Market Committee in March. Weekly jobless claims in the week ended Saturday rose 22,000 to 231,000, against an estimate of 212,000 in a poll by The Wall Street Journal. (Cassandra Carvalho)

End

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

Edited by Ashish Shirke

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