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Informist, Friday, Feb. 27, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended sharply higher Friday after India's GDP growth for the December quarter was lower than most traders had expected, dealers said. The fall of the benchmark 10-year US Treasury yield below the psychologically crucial 4.00% level and the subsequent fall in the five-year overnight indexed swap rate below 6.00% also boded well for bond prices, they said. The cut-off price set on the 6.48%, 2035 bond at the gilt auction was broadly in line with expectations despite the large supply. This, too, helped bond prices to rise, dealers said.  

The 6.48%, 2035 gilt price rose to the day's high of INR 98.77 before closing at INR 98.73, up from INR 98.49 Thursday. Its yield closed at 6.6601%, down from 6.6943% at the end of Thursday's trading session. At 1700 IST, the benchmark 10-year US Treasury yield was 3.99%, down from 4.05% at the same time Thursday. The five-year OIS closed at 5.99%, down 6 basis points from Thursday's close.

Traders had expected India's GDP growth to be near or above 8% following the revision in the base year. Data released by the statistics ministry at 1600 IST showed GDP growth for the December quarter at 7.8%. The lower-than-expected GDP growth resulted in a surge in bond prices as it raises the possibility of further interest rate easing by the Reserve Bank of India's Monetary Policy Committee, dealers said.

GDP growth for the financial year 2025-26 (Apr-Mar) is projected at 7.6%, according to the government's second advance estimate. The first advance estimate had projected FY26 GDP growth at 7.4%. The cut-off price of INR 98.36 and weighted average price of INR 98.38 set on the 10-year benchmark bond at auction also aided bond prices, dealers said. At the INR 320-billion auction, demand was firm from across the spectrum of market participants, including corporate entities and mutual funds, dealers said.

"I think the GDP (growth data) is positive enough for a rally," a dealer at a private-sector bank said. "There was a slight rise in prices even before the GDP (growth data) was out, maybe because auction is also better than expected, which is also a positive."

Besides the GDP growth data, some traders pointed out that the government reported higher tax and non-tax revenue, which could reduce its borrowing, dealers said. "(Bond) prices rose because the government's revenue was on the higher side and GDP was also lower," a dealer at a state-owned bank said. "People also covered some short bets... and (Prime Minister Narendra) Modi also made some comments about bond market that also market took as positive." The Centre's Apr-Jan non-tax revenue was INR 5.573 trillion, against INR 4.676 trillion a year ago. Gross tax revenue for the period was INR 32.418 trillion, against INR 29.844 trillion a year ago.

Bond prices rose after the gilt auction ended, reversing an earlier fall after the prime minister said the government is working to strengthen India's bond market to meet long-term financing needs. Some traders await clarity on the prime minister's comments as they could also have been in relation to the corporate bond market, dealers said. Some traders also covered short bets, placed earlier in the week, expecting a rise in bond prices after the auction result was published, dealers said.

Earlier in the day, bond prices were down as traders placed short bets ahead of the auction to make space in their portfolios for the large auction supply. The state bond auction announcement after market hours Thursday also weighed on prices. According to the release, 13 states will raise INR 431.30 billion Monday, higher than the indicated quantum of INR 358.05 billion in the borrowing calendar for the March quarter.

Turnover in the government securities market was INR 721.35 billion, up sharply from INR 362.80 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the sixth session running, there was no trade using the RBI's wholesale e-rupee pilot.

OUTLOOK

Gilts are not traded Saturday. On Monday, prices may open lower on profit-taking after Friday's rise and ahead of the large supply of state government bonds, dealers said. Thirteen states will raise INR 431.30 billion, higher than the indicated quantum of INR 358.05 billion in the states' borrowing calendar for the March quarter. The movement in US Treasury yields may also lend cues after the benchmark 10-year US Treasury yield fell below the crucial level of 4% in Friday's session.

Demand from long-term investors is likely to be firm at the weekly state bond auction as most of the bonds are of medium- to long-term maturity, dealers said. Long-term investors who missed out at previous gilt and state bond auctions are expected to bid Monday.

The RBI had announced Thursday that the government will switch four bonds worth INR 250 billion maturing in FY27 with five longer-term gilts through an auction Monday. The upcoming supply in longer-duration papers may weigh on prices of gilts maturing in six to 13 years, dealers said. However, traders largely see the auction as a positive for bond prices as it is likely to reduce the Centre's borrowing in FY27, dealers said.   

Traders may also track any updates on the Iran-US situation, dealers said. Significant movement in the rupee, the five-year overnight indexed swap rate, and crude oil prices may also lend cues to gilts. The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.63-6.75% Monday.

India Gilts: Reverse fall, stay up as auction sails through; Oct-Dec GDP eyed

MUMBAI--1421 IST--Prices of government bonds remained up after the cut-off price on the 6.48%, 2035 gilt at the auction was largely in line with expectations, even slightly better than what some dealers were expecting. Prices rose earlier in the session, reversing prior losses, after Prime Minister Narendra Modi said the government is working to strengthen India's bond market to improve long-term financing needs, dealers said. A fall in the benchmark 10-year US Treasury yield and the five-year overnight indexed swap rate to the psychologically crucial 4% and 6% levels, respectively, aided the rise, they said. Gains were capped on profit-taking and caution ahead of India's GDP growth data for Oct-Dec, due at 1600 IST. 

The Reserve Bank of India set a cut-off price of INR 98.36 on the 10-year benchmark 6.48%, 2035 gilt at the gilt auction, marginally higher than an Informist Poll estimate of INR 98.35. Several dealers were expecting a lower cut-off price, and bond prices had fallen further around the time of the auction, they said. However, there was robust demand for auction stock from across market participants, dealers said. Corporate houses and mutual funds also bid for the bond, along with aggressive bids from traders who had placed short bets on the bond the past week, dealers said. 

"We were expecting lower than 35 (INR 98.35) because shorts (short sales) were not as much as we were expecting, but partial allotment is 11%. So only 11% of people have received stock at 36 (INR 98.36), and that means that people have bid aggressively at higher prices, at 37 or 38 (INR 98.37-INR 98.38)," a dealer at a state-owned bank said. 

Most traders expect the Centre to issue a new 10-year bond in the financial year starting Apr. 1, dealers said. This is the last 10-year bond auction and the penultimate gilts auction in the current financial year, increasing demand for the most-preferred, liquid 10-year benchmark security, dealers said. Around INR 80 billion to INR 120 billion of short bets were covered at the auction, some dealers said. 

A fall in US yields and, subsequently, OIS rates aided the rise in bond prices, dealers said. The five-year OIS hit a low of 5.9950%, the lowest since Jan. 14. Foreign participants received fixed-rate contracts in swaps, dealers said. Prices had risen earlier in the session as traders assessed comments from Modi on the bond market, and some traders covered short bets expecting bond prices to rise after the auction result was published, dealers said.   

At 1421 IST, the turnover in the gilts market was INR 382.10 billion, up from INR 222.75 billion at 1430 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 6.63-6.75% during the rest of the day.  (Cassandra Carvalho and Janwee Prajapati)

India Gilts: Remain down ahead of INR-320-bln weekly auction result

NEW DELHI--1140 IST--Government bond prices remained down ahead of the result of the INR 320 billion weekly gilt auction. Traders expect firm demand at the auction but the large supply of gilts and state bonds continued to weigh on prices before the result, dealers said.

"Quite a lot of short covering is there at the auction today and there is no panic in the market about the supply," a dealer at a state-owned bank said. "But at the same time, the 10-year bond can go to 6.72% just because the supply is coming continuously and states will issue more than 40,000 crore (INR 400 billion every week now)."

Traders expect short sales worth around INR 120 billion to be covered at the auction, placed in the run-up to the sale of the most-liquid gilt. The rest of the auction will be mopped up by different sections of market participants as this is the last scheduled auction of the 10-year benchmark gilt in the financial year ending March.

However, banks were not aggressive with their bids for the 6.48%, 2035 bond, saying they would prefer to fill their bond portfolios with higher-yielding state bonds especially as supply is ramping up, as is usual in the March quarter. Thirteen states will raise INR 431.30 billion via bonds Monday, higher than the indicated INR 358.05 billion in the Jan-Mar calendar. The announcement, which came after market hours Thursday, had already pushed down bond prices and will lead to cut-off price below current market levels for the 10-year benchmark gilt in the face of its large INR 320-billion auction, dealers said.

Traders do not expect a fall in the 6.48%, 2035 gilt below INR 98.30, at which level traders are likely to cover their short sales more aggressively in the secondary market and potentially initiate bets on the bond's price rising. State-owned banks also stepped up purchases above 6.70% yield on the 10-year benchmark gilt, dealers said. Traders may avoid aggressive bets after 1200 IST and before the auction result. After the result lends direction to gilt prices, traders will watch out for the release of India's GDP data at 1600 IST.

A fall in the 10-year US Treasury yield to below 4.00% for the first time in three months also limited losses in gilts and pulled down the five-year overnight indexed swap rate. Should the 10-year benchmark US yield end below the psychologically crucial 4.00% mark at the end of US market hours Friday, it will break a 200-week moving average and may lead to further downside in the US yields, potentially making gilts a better option for foreign portfolio investors, dealers said.

At 1145 IST, the turnover in the gilt market was INR 122.40 billion, higher than INR 90.05 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 6.63-6.75% during the rest of the day.  (Aaryan Khanna)

India Gilts: Fall on larger-than-indicated amount at state bond auction Mon

NEW DELHI--0930 IST--Government bond prices fell after the Reserve Bank of India Thursday announced that states would borrow a larger-than-indicated amount at an auction Monday. Traders avoided picking up gilts on caution before the INR 320-billion auction of the 10-year benchmark 6.48%, 2035 bond at 1030-1130 IST and before India's GDP data is released at 1600 IST.

Thirteen states will raise INR 431.30 billion via bonds Monday, higher than the indicated INR 358.05 billion in the Jan-Mar calendar. At the weekly gilt auction Friday, some banks may be less aggressive in picking up the gilt with the heavy supply of higher-yielding state bonds coming up, dealers said. Demand for the 10-year benchmark is seen firm with significant short covering from traders expected. However, some traders placed fresh short bets on the 6.48%, 2035 bond before the debt sale with some seeing the cut-off yield at auction to go as high as 6.72% in the face of the large supply.

Losses were limited due to an overnight fall in the 10-year US Treasury note to 4.01% from 4.05% at 1700 IST Thursday, dealers said. State-owned banks also stepped up their purchases in the 6.48%, 2035 gilt as the 10-year benchmark yield rose above the psychologically crucial 6.70% level.

"For domestic bonds, it is going to be supply factor that is going to play out rather than US yields," a dealer at a foreign bank said. "Even if you have gilt supply ending, March has four trading holidays and five state bond auctions – what Holi will you celebrate?"

The gilt auction result and GDP data at 1600 IST is expected to lend further direction to bond prices. At 0930 IST, the turnover in the gilt market was INR 28.25 billion, slightly lower than INR 34.65 billion at the same time 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 6.63-6.75% during the rest of the day.  (Aaryan Khanna)

India Gilts:Seen dn on state auction notice; gilt auction demand may be firm

NEW DELHI – Government bond prices are seen opening slightly lower Friday after states notified they will borrow a larger-than-indicated amount at auction Monday. However, a fall in US Treasury yields overnight and firm demand expected at the INR 320-billion gilt auction Friday may limit losses, dealers said.

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.63-6.75% Friday, after ending at INR 98.49, or 6.69% Thursday. Bond prices had opened higher but ended lower Thursday on caution before the auction and the release of India's GDP data at 1600 IST Friday, dealers said.

The Reserve Bank of India, after market hours Thursday, said 13 states will raise INR 431.30 billion via bonds Monday, higher than the indicated INR 358.05 billion in the Jan-Mar calendar. While the supply is seen sailing through due to firm demand from investors in the higher-yielding assets, some traders are concerned that the increasing supply on state bonds may hurt demand for gilts in the secondary market and the auction, dealers said.

At the same time, demand for the INR 320-billion supply of the 6.48%, 2035 gilt at auction 1030-1130 IST is still seen firm as this is the last auction of the 10-year benchmark gilt in the current financial year ending March. Traders are also keen to cover their short bets after a build-up of short sales since Tuesday. State-owned banks are also likely to be firm bidders as the 10-year benchmark yield tops 6.70%, dealers said. They were net buyers Thursday as the yield on the 6.48%, 2035 bond approached the psychologically crucial level.

Meanwhile, the yield on the benchmark 10-year US Treasury yield was 4.01% at 0830 IST, down from 4.05% at 1700 IST Thursday as traders looked ahead to the release of wholesale inflation in the world's largest economy. Weekly unemployment numbers in the US were broadly in line with expectations. Intense negotiations between the US and Iran regarding the future of Tehran's nuclear programme concluded on Thursday without an agreement but were seen reducing the risk of a military showdown between the two countries. Brent crude for April delivery cooled slightly to near $70 a barrel.

All these factors may be upended if GDP growth is higher than expected, dealers said. The median estimate in an Informist poll puts India's GDP growth at 7.5% for the December quarter. The GDP for Oct-Dec based on the new series and second advance estimate for GDP growth in FY26 are scheduled for release at 1600 IST Friday. In Jul-Sept, GDP growth was 8.2% in the old series with FY12 as the base year.

Traders are positioning for a reading around 8%, which may stoke concern about a quicker rate hike if inflation rises past the RBI's 4% target in the second half of 2026, dealers said. If GDP growth for the December quarter is in line with or slightly lower than the median economist estimate of 7.5%, bond prices may rise and swap rates may fall.  (Aaryan Khanna)  End

US$1 = INR 90.9700

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

Edited by Rajeev Pai

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