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Informist, Tuesday, Feb. 17, 2026

 

By Aaryan Khanna

 

NEW DELHI – Prices of most government bonds ended slightly higher after cut-off yields at the state bond auction were lower than expected and showed robust demand for fresh supply. However, profit-taking led most bonds to end off highs by the close of trade, dealers said. 

 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.73, up from INR 98.70 Monday. The bond's yield closed at 6.6600%, down from 6.6642% the previous session. The benchmark yield fell to below 6.65% intraday, after which state-owned banks likely booked profits, preferring to add higher-yielding state government securities rather than gilts, dealers said.

 

Gilt prices surged after opening lower, driven by robust demand expected for state bonds at the auction. At the state bond auction, 14 states raised INR 394.50 billion, against the INR 379 billion notified, as Maharashtra and Gujarat utilised greenshoe options on their bonds. Bonds maturing between 10 and 15 years received aggressive bids from banks, dealers said. 

 

A continued fall in US Treasury yields after a holiday also aided domestic prices, dealers said. The 10-year US Treasury yield fell to a fresh four-month low of 4.02% intraday after January CPI in the world's largest economy came in lower than expected. However, benchmark gilts could not hold on to most gains by the end of the day.  

 

"It was another day when the market enthusiasm seemed absent as prices rose," a dealer at a private-sector bank said. "These are the kind of levels where everyone seems to be churning their portfolios."

 

Bonds maturing up to five years gained the most, while the 30- and 40-year benchmark gilts reversed earlier gains to end lower. Long-term bonds had gained earlier on the view that there would be limited upcoming supply in the segment, with states also rarely borrowing in the 30-year tenure. However, the sentiment soured as traders speculated about a gilt switch auction in the remainder of the current financial year ending March, which will reduce the supply of short-term gilts while leading to a fresh issuance of longer-duration gilts, dealers said.

 

The Reserve Bank of India asked banks about the feasibility of conducting more auctions to switch government bonds in the remainder of 2025-26 (Apr-Mar), Informist reported Tuesday, quoting bond dealers with direct knowledge of the matter. The central bank also sought feedback from the banks on which bonds to include in the auctions, they said.

 

With bond supply sailing through heading into the end of the financial year, traders said bond yields will not rise sharply in the near term, improving risk appetite and spurring demand for bonds issued by states viewed as having lower fiscal strength. The increasing re-issuance of state bonds is also making them more attractive as it enhances their liquidity and enables a higher computation value to meet liquidity coverage ratio norms.

 

With or without additional switch auctions, short-term bonds will remain in favour with banks, mutual funds and even foreign portfolio investors, dealers said. The RBI's daily net liquidity absorbed from the banking system has remained above 1% of banks' net demand and time liabilities in February and was at INR 2.59 trillion Monday, the latest data showed. Expectations of a variable rate reverse repo operation have been pushed back to after goods and services tax outflows are completed by the end of the week, dealers said. 

 

"We think prices will continue to be range-bound: supply will not allow yields to fall and surplus liquidity will not allow them to rise," a dealer at a primary dealership said. "Since last week, two to three pieces of good news have come, like the (RBI-government) switch and US yields coming down, but the market has not reacted as positively as it could have."  

 

Turnover in the government securities market Tuesday was INR 509.80 billion, down from INR 559.95 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 for the second straight day Tuesday.

 

OUTLOOK

On Wednesday, bond prices may open steady due to a lack of significant domestic cues. Traders may also avoid large bets on caution ahead of the release of the minutes of the US Federal Open Market Committee's latest meeting after Indian market hours. 

 

Traders expect banking system liquidity to remain in surplus, aiding short-term gilts. Dealers are awaiting the announcement of further gilt switch auctions after Informist reported that the RBI asked banks whether more such tenders were feasible in FY26 and sought feedback on which bonds to include.

 

The RBI's Monetary Policy Committee is expected to keep the policy repo rate at 5.25% through FY27, dealers said. Traders do not expect further liquidity infusions or open market operations auctions to buy bonds from the RBI following comments by central bank officials after the monetary policy earlier this month. This is likely to keep the 10-year gilt yield in a band of 6.55-6.85% till March, dealers said.

 

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 6.63-6.72% Wednesday.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	98.7250	6.6600%	98.6950	6.6642%
6.33%, 2035	97.9500	6.6290%	97.8225	6.6479%
6.01%, 2030	98.9900	6.2734%	98.8925	6.2990%
6.68%, 2040	96.5700	7.0624%	96.5275	7.0673%
6.90%, 2065	93.0250	7.4500%	93.0600	7.4470%

 

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	1621 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.76	98.83	98.64	98.71	98.70
YTM (%)	6.6557	6.6456	6.6722	6.6621	6.6642

 

India Gilts: 10-year benchmark off highs; short-term bonds up 

 

MUMBAI--1621 IST--Prices of most government bonds were off highs on profit booking after the yield on the benchmark 10-year 6.48%, 2035 bond fell below the key 6.65% level, dealers said. Bond prices remained up after the state bond auction result, which was in line with expectations despite the large quantum, dealers said. Speculation of the Reserve Bank of India conducting a gilt switch auction on behalf of the Centre to reduce the gross borrowing for 2026-27 (Apr-Mar) aided the rise in gilt prices, they said. This led to short-term bond prices rising sharply while bonds maturing in 10 to 15 years were off the day's highs, dealers said. 

 

At the state bond auction, 14 states raised INR 394.50 billion, against the INR 379 billion notified, as Maharashtra and Gujarat utilised the greenshoe options. Bonds maturing between 10 and 15 years received aggressive bids from banks, dealers said. 

 

"Banks likely preferred the nine to 11-year state bonds for their held-to-maturity books," a dealer at a private sector bank said. "Yes, I think they have enough space in their investment books since we did not see any significant replacement demand after the last open market operation auction. So, they might pick up these bonds for replacement also."  

 

Some banks received calls from the RBI inquiring about the feasability about conducting more auctions to switch government bonds in 2025-26 (Apr-Mar), Informist reported Tuesday, quoting dealers. The central bank sought feedback on which bonds to include in the auctions. A switch operation entails replacing a security maturing in the near term with a longer-maturity paper, effectively postponing the government's debt repayment. Dealers speculate that the government could switch bonds maturing in FY27, held by market participants, to bring down gross market borrowing in FY27.

 

At 1622 IST, the turnover in the gilt market was INR 462.50 billion, lower than INR 511.15 billion at 1630 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 6.63-6.68% for the rest of the day. (Janwee Prajapati)

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India Gilts: Rise; long-term bonds up as appetite for state bonds seen firm

 

	1231 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.75	98.77	98.64	98.71	98.70
YTM (%)	6.6564	6.6535	6.6722	6.6621	6.6642

 

MUMBAI--1231 IST--Prices of government bonds recovered, with long-term bonds rising more as demand at the weekly state bond auction is seen firm, dealers said. At the INR-379-billion state bond auction on Tuesday, demand is seen firm across tenures, as yield spreads over gilts of similar maturity are seen as lucrative for banks' investment portfolios, dealers said. 

 

Even as some banks are reaching internal limits on investment in state bonds, traders still prefer these securities for their relatively higher returns in investment books. Since bond yields are not seen rising sharply in the near-term, improved risk appetite is seen spurring demand for bonds issued by states viewed as having lower fiscal strength, dealers said. Demand is seen especially robust in state bonds maturing within six to eight years, as state-owned banks prefer these tenures. An Informist poll estimated the cut-off yields on states' 10-year bonds for Tuesday's auction at 7.48-7.52%, a yield spread of around 82 to 86 basis points over the 6.48%, 2035 gilt, similar to a spread of 81-86 bps on 10-year bonds at last week's state bond auction. Some traders bet on the per basis value price appreciation of state bonds maturing within 10 to 20 years, dealers said.

 

Moreover, appetite for long-term state bonds is seen firm from insurance companies and pension funds, dealers said. The 6.90%, 2065 bond last traded 17 paise higher from Monday's close in the secondary market. "We saw that last time long-term investors didn't get the desired amount, so we are hearing they are there today (Tuesday)," a dealer at a private sector bank said. "And this auction is 38,000 crore (INR 380 billion), market participants were fearing 40,000 or 45,000 crore (INR 400 billion or INR 450 billion), but it's lower, so there will be demand." 

 

Traders expect similar state bond auction sizes for the rest of the March quarter. Last week, traders had feared that state bond auction sizes could be higher than INR 400 billion, after states raised INR 476.20 billion on Feb. 10. However, despite the large supply, investor demand for state bonds last week was firm, quelling fears that traders would have to absorb the heavy supply, dealers said. Some dealers speculate that cut-off yields at last week's auction were likely to be the highest in the March quarter, while others are wary of upcoming supply.  

 

At 1230 IST, the turnover in the gilt market was INR 168.15 billion, lower than INR 210.40 billion at 1235 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 6.63-6.70% for the rest of the day. (Cassandra Carvalho)

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India Gilts: Tad down on short sales before state bond auction

 

	0925 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	98.65	98.71	98.64	98.71	98.70
YTM (%)	6.6707	6.6618	6.6722	6.6621	6.6642

 

MUMBAI--0925 IST--Prices of most government bonds were a tad down after opening steady, as traders placed short bets on gilts to make room for state bonds at the auction Tuesday, dealers said. Investor demand for the high-yielding securities is seen strong, dealers said. Bond prices also tracked the movement of the five-year overnight indexed swap rate, which inched higher after opening at 6.02%. 

 

At the INR-379-billion state bond auction, state-owned banks are seen purchasing bonds maturing in less than 10 years. Some traders are eager to bid for papers maturing within 10 to 20 years due to lucrative yield spreads of these bonds over gilts of similar maturities. Long-term bond investors such as pension funds are also likely to bid for longer-term maturities, dealers said. The notified size of the auction is largely in line with INR 390 billion indicated in states' borrowing calendar for Jan-Mar, boosting appetite for the fresh supply. Bond traders are pricing in similar auction sizes for the rest of the March quarter. 

 

"Of late we are seeing decent demand for state bonds, so I think it (bidding at auction) will be good. The longer-end should also sail through, investors will be there," a trader at a primary dealership said. 

 

Bond prices will track the result of the state bond auction later in the day. In the near term, the yield on the benchmark 10-year 6.48%, 2035 bond is seen falling to 6.65% or below on the downside, as traders expect the benchmark 10-year US Treasury yield to fall to 4.00% or lower. A rise in the 10-year benchmark gilt yield is likely to be capped at the psychologically crucial 6.70% level, dealers said.

 

At 0925 IST, the turnover in the gilt market was INR 28.95 billion, lower than INR 41.05 billion at 0930 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 6.63-6.70% for the rest of the day. (Cassandra Carvalho)

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India Gilts: Seen largely steady before state bond sale; US yld fall to aid

 

MUMBAI – Prices of government bonds are seen opening largely steady Tuesday ahead of the state bond auction, but easing of US Treasury yields in early Asian trade may support a rise, dealers said. 

 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.63-6.72% yield Tuesday after ending at INR 98.70, or 6.66% yield Monday. The yield on the benchmark 10-year US Treasury note was 4.03% at 0830 IST, inching down from 4.05% at 1700 IST Monday. US financial markets were shut on Monday for Presidents' Day. 

 

Later in the day, traders will track the result of the INR-379-billion state bond auction. Gujarat and Maharashtra have provided for a greenshoe option. The notified size is largely in line with INR 390 billion indicated in states' borrowing calendar for Jan-Mar. State-owned banks are seen purchasing state bonds maturing in less than 10 years, they said. Long-term bond investors such as pension funds are also likely to bid for longer-term maturities, dealers said.  

 

In the secondary market, traders will watch out for purchases by foreign portfolio investors after FPIs net purchased gilts worth INR 3.65 billion through the fully accessible route Monday, according to data from Clearing Corp. of India. FPI gilt holdings through this route are now at a record high of INR 3.27 trillion. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors. 

 

Bond prices are likely to continue closely tracking the movement of the five-year overnight indexed swap rate, as the swap is seen hitting the psychologically crucial 6.00% level Tuesday due to comfortable liquidity, and tracking a fall in US yields. Bonds may also track the movement of the rupee against the dollar during the day, dealers said. (Cassandra Carvalho)

 

End

 

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

 

Edited by Saji George Titus

 

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