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Informist, Monday, Feb. 9, 2026

 

MUMBAI – Government bond prices ended lower Monday as traders trimmed their holdings ahead of the INR-486.15-billion supply of state bonds at auction Tuesday, dealers said. Purchases from state-owned banks and an intraday cooling of the five-year overnight indexed swap rate limited losses as the 10-year benchmark yield had topped the psychologically crucial 6.77% level early in the day.

 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.06, down from INR 98.19 Friday. The bond's yield closed at 6.7559% from 6.7363% the previous day. Traders placed short bets as bond prices are expected to fall, as investors are likely to demand higher yields to absorb fresh supply, dealers said.

 

The state bond auction Tuesday is the largest since March and exceeds the INR 427.50 billion pencilled in for this week in the indicative calendar. Traders now expect states to borrow the full indicated amount of INR 5 trillion in the March quarter, with supply expected to ramp up in the coming weeks to make up for the lower supply so far, dealers said. Through the first five weeks of the quarter before Tuesday's auction, states have undershot the calendar by nearly INR 500 billion.

 

Comments from Reserve Bank of India officials after the Monetary Policy Committee outcome Friday were also not seen aiding bond prices. Traders do not expect any further open-market operations auctions to buy bonds in the current financial year ending March. The RBI also raised its GDP growth and CPI forecasts, seen as a signal the MPC will not cut rates further, dealers said. 

 

"The market is reacting to the lack of OMO from the RBI on Friday and then the additional state bond supply," a dealer at a public-sector bank said. "Since there are no positives to look forward to, even traders are facing the Monday blues." 

 

Traders are also concerned about the skew towards long-term bond supply at the auction, after the cut-off price for the 6.90%, 2065 gilt auction Friday was sharply lower than expected. Pension funds, provident funds and life insurers were seen avoiding the 40-year benchmark gilt Friday to keep space for the hefty supply of state bonds, dealers said

 

State bonds have drawn aggressive bids from long-term investors in January. A break in this trend would likely hurt prices of long-term gilts as well. With risk appetite limited, traders are likely to cut their positions in liquid bonds if they get any stock of long-term bonds at the auction, as seen on Friday, dealers said. Bonds maturing in over 30 years were underperformers on Monday as well, with the yield on the 40-year benchmark gilt rising to 7.55% intraday, its highest since December 2024. However, prices may recover from current levels if the supply sails through. 

 

"Since the market was stuck with 40-year (bond) positions after the auction, the sentiment has been even worse," a dealer at a private-sector bank said. "So it would be a problem if more pain comes in the 13-23-year papers in the auction tomorrow (Tuesday)."

 

The most-traded 6.48%, 2035 gilt was the worst hit among bonds of similar maturities, as traders initiated short sales in the bond before the fresh state bond supply. Losses in the 6.33%, 2035 and 7.18%, 2033 gilts were limited with the view that the yield curve would be steeper amid the liquidity surplus and heavy supply of both gilts and state bonds in the coming weeks, dealers said. The Reserve Bank of India also bought both of the latter gilts at its most recent open-market operation auction on Thursday, helping their prices. The RBI's purchase had triggered a "short squeeze" on these securities last week.

 

The Monetary Policy Committee's rate decision Friday and the commentary from Reserve Bank of India Governor Sanjay Malhotra suggested that the bond market may not get support either from further repo rate cuts or open market bond purchases through auctions, dealers said. Some traders considered Malhotra's remarks on liquidity as a sign of consistent support, as the central bank ensured surplus liquidity in the banking system after sustained deficits during Dec-Jan.

 

State-owned banks stepped up purchases, looking to replace bonds sold to the RBI at open market operations. They were especially aggressive in bonds maturing in under five years, where the spread over the cash funding rate was seen as lucrative, dealers said. The weighted average call rate was 5.03%, while the weighted average triparty repo rate was 4.27%. Purchases from state-owned banks sometimes brought the 10-year benchmark gilt's price off lows during the day.

 

The five-year overnight indexed swap contract's notional traded volume topped INR 100 billion for the fifth straight session, and the rate reversed an early rise. The benchmark swap rate ended at 6.18% from 6.23?rlier in the day. Offshore traders had aggressively paid fixed rates early in the day and after the flow ended, traders took the opportunity to receive fixed rates, which were near an 11-month high, dealers said.

 

The five-year benchmark 6.01%, 2030 gilt ended only slightly lower Monday. However, some traders also said that the 6.01%, 2030 gilt may see a build-up of short sales later in the week, with an auction of a five-year gilt scheduled this week, according to the Oct-Mar borrowing calendar. The bond would also be extremely vulnerable if the RBI announces a variable-rate reverse repo operation in the coming days to push up call money rates to near the policy repo rate of 5.25%, dealers said.

 

Turnover in the gilts market Monday fell to INR 433.05 billion from INR 697.15 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were six trades worth INR 350 million using the RBI's wholesale e-rupee pilot Monday, after no trades for the previous two sessions.

 

OUTLOOK

On Tuesday, bond prices may open steady amid caution ahead of the state bond auction at 1030-1130 IST. Fourteen states will raise INR 486.15 billion this week, higher than INR 427.50 billion in the indicative calendar for Jan-Mar, dealers said.

 

Traders do not expect further liquidity infusion from the RBI and open market operation auctions to buy bonds 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.

 

Some traders expect 'Others' – a category which includes the central bank – to have been net buyers of gilts in the secondary market Monday. Any indication of RBI purchases will be seen as a positive Tuesday, with the RBI expected to continue buying gilts sporadically in the secondary market to send a signal to cap yields, dealers said.  Traders will also track the surplus liquidity in the banking system, which rose to a six-month high of INR 3.62 trillion on Friday before declining over the weekend.

 

Significant movement in US Treasury yields, 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% Tuesday.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	98.0550	6.7559%	98.1900	6.7363%
6.33%, 2035	97.1900	6.7417%	97.3025	6.7248%
6.01%, 2030	98.6625	6.3588%	98.6850	6.3528%
6.68%, 2040	95.4650	7.1896%	95.6200	7.1716%
6.90%, 2065	91.9700	7.5395%	92.2500	7.5155%

 

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India Gilts: Remain down; losses limited as 5-year OIS rate cools

 

	1620 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.05	98.13	97.95	97.96	98.19
YTM (%)	6.7573	6.7450	6.7710	6.7696	6.7363

 

MUMBAI--1620 IST--Government bond prices remained lower due to lack of significant cues intraday ahead of the state bond auction Tuesday, the largest since March. A slight fall in the five-year overnight indexed swap rates kept bond prices off lows, dealers said.

 

The five-year OIS contract's notional traded volume topped INR 100 billion for the fifth straight session and it reversed an early rise. The benchmark swap rate fell to 6.17%, from 6.23?rlier in the day. Offshore traders had aggressively paid fixed rates early in the day and after the flow ended, traders took the opportunity to receive fixed rates, which were near an 11-month high, dealers said.

 

"We are stuck in a tight trading range, nothing more," a dealer at a private-sector bank said. "There is some buying coming from traders around the figure (INR 98.00 on the 10-year benchmark 6.48%, 2035 gilt) which has stabilised the market at this point, but levels will only get worse after the (state bond) auction (Tuesday)."

 

Fourteen states will raise INR 486.15 billion through bonds, higher than the indicative amount of INR 427.50 billion for this week. Dealers expect better demand for bonds maturing in up to five years both at the auction and in the secondary market. With money market rates well below the repo rate, banks were keen to lock in the "carry" – the spread of an instrument over the cash funding rate – of around 120 basis points on the five-year benchmark 6.01%, 2030 gilt, dealers said.

 

The most-traded 6.48%, 2035 gilt was the worst hit among bonds of similar maturities as traders initiated short sales in the bond before the fresh state bond supply. Losses in the 6.33%, 2035 and 7.18%, 2033 gilts were limited with the view that the yield curve would be steeper amid the liquidity surplus and heavy supply of both gilts and state bonds in coming weeks, dealers said. The Reserve Bank of India also bought both of the latter gilts at its most recent open market operation auction to buy bonds Thursday, benefitting their prices. The RBI's purchase had triggered a "short squeeze" on these securities last week. 

 

At 1620 IST, the turnover in the gilt market was INR 388.35 billion, sharply down from INR 620.85 billion at 1630 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 6.73-6.78% for the rest of the day. (Aaryan Khanna)

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India Gilts: Remain down on fresh short sales before state bond auction Tue

 

	1415 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.00	98.13	97.95	97.96	98.19
YTM (%)	6.7638	6.7450	6.7710	6.7696	6.7363

 

MUMBAI--1415 IST--Government bond prices remained lower as traders placed fresh short bets ahead of the INR 486.15-billion state bond auction Tuesday, dealers said. Purchases from state-owned banks limited the losses.

 

Traders had covered some short bets near the close of trade on Friday due to caution before the weekend and early on Monday as the 10-year gilt's yield topped the psychologically crucial 6.77% mark, its highest closing level so far in 2025-26 (Apr-Mar). They initiated fresh short sales after gilt prices were seen lower, with investors looking to mop up the massive supply of state debt at spreads considered lucrative, dealers said.

 

"One of the strategies right now is to short week to week before the auctions, there is enough supply," a dealer at a primary dealership said. "Yields are going to continue higher until we see natural demand coming in. The RBI seems to have ended the fight in artificially keeping the 10-year yield anchored."

 

Most traders expect gilt prices to continue falling due to the supply pressure from state government securities and gilts until the end of February, when the Centre's borrowing calendar ends. In March, states themselves have indicated a supply of INR 1.8 trillion. With states notifying a higher-than-indicated amount at the auction this week, traders were also betting that they would borrow around the full indicated amount in the Jan-Mar calendar of INR 5.00 trillion. Through the first five weeks of the quarter before Tuesday's auction, states have undershot the calendar by nearly INR 500 billion.

 

The Monetary Policy Committee's rate decision Friday and commentary following that from Reserve Bank of India Governor Sanjay Malhotra suggested that the bond market may not get support either from further repo rate cuts or open market bond purchases through auctions, dealers said. Some traders considered Malhotra's remarks on liquidity as a sign of consistent support by ensuring surplus liquidity in the banking system, after sustained deficits during Dec-Jan.

 

State-owned banks stepped up purchases, looking to replace bonds sold to the RBI at open market operations. They were especially aggressive in bonds maturing in under five years, where the spread over the cash funding rate was seen lucrative, dealers said. The weighted average call rate was 5.06% as of 1405 IST Monday, while the weighted average triparty repo rate was 4.30%.

 

The five-year benchmark 6.01%, 2030 gilt outperformed other liquid gilts, while bonds maturing in 30 years and more slid further ahead of the state bond supply and after poor demand for the 6.90%, 2065 bond at auction Friday. However, some traders also said that the the 6.01%, 2030 gilt may see a build-up of short sales later in the week with an auction of a five-year gilt scheduled this week, according to the Oct-Mar borrowing calendar. The bond would also be extremely vulnerable in case the RBI announces a variable rate reverse repo operation in coming days to push up call money rates to near the policy repo rate of 5.25%, dealers said.

 

"The market is in a confused zone as it processes what exactly the policy means," a dealer at a private-sector bank said. "One thing is for sure that the (yield) curve is going to be steeper, since everyone seems to be favouring the sub-five-year segment while supply is beating up the long end."

 

At 1415 IST, the turnover in the gilt market was INR 288.25 billion, down from than INR 437.80 billion at 1430 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 6.70-6.80% for the rest of the day. (Aaryan Khanna)

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India Gilts: Off lows on PSU bk buys, short covering after sharp fall at open

 

	0945 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.10	98.13	97.95	97.96	98.19
YTM (%)	6.7501	6.7450	6.7710	6.7696	6.7363

 

NEW DELHI--0945 IST--Government bond prices were off lows due to purchases by state-owned banks and traders covering their short bets as the 10-year benchmark 6.48%, 2035 gilt's yield neared 6.77% at the open, seen psychologically crucial. Prices remained down as traders made room for the higher-than-indicated supply of state bonds at auction Tuesday, dealers said.

 

"It will important to see how the market behaves in the 6.77-6.78?nd now, that will be crucial," a dealer at a primary dealership said. "Right now, traders have found good levels to cover (short sales) and PSU (state-owned) banks are also buying, but the trend in yields should be higher due to supply pressures." Fourteen states will raise INR 486.15 billion on Tuesday, higher than INR 427.50 billion in the indicative calendar for Jan-Mar.

 

Traders said appetite for fresh supply would only materialise at higher yields, with large purchases by the Reserve Bank of India at open market operation auctions now seen unlikely in the rest of the financial year ending March. The RBI's net liquidity absorbed from the banking system – a proxy for the liquidity surplus – rose to INR 3.63 trillion Friday, the highest since Aug. 6. The market was also looking out for any indiciation that the RBI was buying gilts in the secondary market, which was expected in a bid to cap yields rather than add liquidity to the banking system, dealers said.

 

Some long-term investors may also step in to pick up gilts maturing in 30 years or more after the sharp rise in yields Friday, dealers said. The yield on the 40-year benchmark 6.90%, 2065 bond ended 10 basis points higher Friday at 7.52%, making it lucrative to pick up in the secondary market. Pension and provident funds had refrained from picking up the gilt at auction, likely preferring to wait for the already heavy supply of state bonds indicated in the calendar, dealers said. State bond supply is seen ramping up in the coming weeks, especially after states had undershot the indicative calendar for the March quarter, which is at a record INR 5 trillion, in the first few weeks of January.

 

At 0945 IST, the turnover in the gilt market was INR 57.50 billion, higher than INR 45.50 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 6.70-6.80% for the rest of the day. (Aaryan Khanna)

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India Gilts: Seen down as state bond auction Tue larger than indicated

 

MUMBAI – Government bond prices may open lower Monday after states announced a larger-than-expected bond auction after market hours Friday, dealers said. Fourteen states will raise INR 486.15 billion on Tuesday, higher than INR 427.50 billion in the indicative calendar for Jan-Mar. This is scheduled to be the largest state bond auction since March.

 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.70-6.80% yield Monday after ending at INR 98.19, or 6.74% yield Friday. Yields had risen sharply Friday due to a lack of fresh liquidity infusion measures after the Reserve Bank of India's Monetary Policy Committee announced status quo on rates and policy stance, as expected. However, money market rates are seen at or below the policy rate of 5.25% going ahead and systemic liquidity seen in surplus, dealers said.

 

Losses are seen limited as state-owned banks are likely to step up purchases when the 10-year gilt yield rises past the key 6.75% mark. Gilts maturing between seven and 15 years are seen falling the most due to the concentration of state bond supply in this segment Tuesday. Bonds maturing in up to five years may remain in favour, especially as the RBI did not announce a variable rate reverse repo operation to suck out liquidity as some traders had feared Friday, dealers said.

 

Traders do not expect further liquidity infusion and monetary policy support from the RBI after its officials' comments following the MPC decision. 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.

 

A slight rise in the 10-year US Treasury yield to 4.23% at 0830 IST from 4.20% at the end of Indian market hours Friday may not have much impact on gilts, dealers said. However, the movement in the rupee during the day may lend cues. The domestic unit is seen rising against the greenback Monday after closing at 90.66 per dollar Friday.  (Aaryan Khanna)

 

End

 

US$1 = INR 90.76

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

 

Edited by Saji George Titus

 

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