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Informist, Monday, Mar. 16, 2026

By Aaryan Khanna

NEW DELHI – Government bond prices ended lower Monday due to rise in crude oil prices over the weekend, with traders also trimming their holdings near the end of the session on risk aversion amid the West Asia conflict, dealers said. Gilts recovered some losses as Brent crude oil futures were off intraday peaks by 1700 IST, with state-owned banks also stepping up purchases of the 10-year benchmark 6.48%, 2035 gilt above 6.70% yield.

The 6.48%, 2035 gilt closed at INR 98.42, down from INR 98.60 Friday. The gilt closed at a yield of 6.7059%, up from 6.6798% Friday. It had fallen to a low of INR 98.33, with the yield rising to a one-week high of 6.72% intraday.

Brent crude oil for May delivery rose to an intraday high of $106.50 a barrel before falling to $103.26 per barrel by 1700 IST. The contract was still up from $99.97 per barrel at 1700 IST Friday, rising after Indian market hours due to the continued closure of the Strait of Hormuz and Iran's declaration that it is not negotiating with the US to end the war. Typically, a rise in crude oil prices increases upside risks to inflation in India and provides less room for the Reserve Bank of India to prolong its monetary policy accommodation.

Some traders have begun betting that the RBI's Monetary Policy Committee may hike rates in the latter half of 2026-27 (Apr-Mar) as inflation is on a rising trajectory and above the central bank's 4% target. Others said hit to economic growth, in the form of lower industrial output due to constraints of fuel availability, may increase the monetary policy support to the economy.

"The scale of the recovery cannot be complete since crude is over $100 a barrel still," a dealer at a private-sector bank said. "People are constantly worried that inflation will go up, CAD (current account deficit) will go up, and that bond yields are not keeping up with domestic fundamentals." The rupee hit a record low of 92.4750 a dollar on Friday and approached that level on Monday as well.

Traders were expecting purchases from the RBI in the secondary market to limit losses as the 10-year yield rose above 6.70%. With crude prices on the boil and no sign of central bank support at around 1300 IST, gilt prices continued to slip, triggering minor stop-losses from banks and dragging bonds to the day's low, dealers said. By the end of the day, some traders speculated modest purchases from the RBI in the secondary market along with the intraday fall in crude prices prompting a pullback.

Traders looked forward to daily Clearing Corp. of India data on the secondary market to track the activity of 'Others', a category that includes the central bank, insurers and provident funds. After record purchases from the segment in the Mar. 6 week, data showed the RBI bought gilts worth INR 572.10 billion in the same week. This is the largest quantum of liquidity the central bank has infused in a week through open market operations outside of auctions, according to RBI data going back to November 2012. While the CCIL data shows activity on the same day, the RBI data is on a 'T+1' basis.

In addition to its secondary market activity, the central bank has also bought gilts worth INR 1 trillion through two open market operation auctions last week. Traders saw this as a sign from the RBI that it was uncomfortable in gilt yields rising despite the conflict in West Asia and that it wanted to ensure easy monetary conditions and liquidity in money markets amid tax outflows. Moreover, it likely wanted to curtail volatility in gilt prices even as other asset classes faced a lot of turmoil.

"The size of their (RBI) intervention shows that the base case for them is that the war ends pretty soon," a dealer at a state-owned bank said. "They want the market turbulence to be minimal and that is showing in the market now since trade volumes have come down and nobody is shorting (short selling)." The turnover in the government securities market was INR 266.10 billion, down from INR 336.30 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There was no trade using the RBI's wholesale e-rupee pilot on Monday, the same as for the last fortnight.

A larger than indicated state bond auction also weighed on demand for gilts through the day. Post market hours Friday, the RBI said 21 states will raise INR 584.20 billion Tuesday, more than INR 438 billion indicated in states' indicative borrowing calendar for Jan-Mar. Most traders had expected the notified size to overshoot the indicated amount, but a number closer to INR 600 billion is larger than what they were expecting, dealers said.

Moreover, several traders had expected the RBI to announce a liquidity infusion measure after the market hours Friday. These ranged from further OMO auctions of up to INR 500 billion, an up to $10 billion dollar-rupee buy-sell swap auction, or a variable rate repo auction. The lack of these soured market sentiment, especially with the spike in money market rates Monday, dealers said. The overnight call money rate hit a three-week high of 5.45% intraday, near the RBI's Marginal Standing Facility rate of 5.50% and well above the 5.25% repo rate.

OUTLOOK
Gilt prices may Tuesday take direction from the overnight movement in crude oil prices and US Treasury yields as traders keep track of developments in West Asia. The result of the state bond auction is likely to influence bond prices in the second half of the day, dealers said.

A fall in Brent crude price to below $100 a barrel may prompt a fall in the 10-year gilt yield to 6.68%, while a continued rise in the May futures contract could push the benchmark yield to 6.72%, dealers said. Losses are likely to be limited on expectations of RBI purchases in the secondary market to cap yields and add liquidity into the banking system. Trade activity in bonds is muted after the RBI bought over INR 1.5 trillion of gilts over the last two weeks, with the benchmark yield seen around 10 basis points below its fair market value, dealers said.

Even if crude oil prices ease, the large supply of state bonds may keep purchases in bonds limited, dealers said. Twenty-one states will raise INR 584.20 billion Tuesday, more than INR 438 billion indicated in states' indicative borrowing calendar for Jan-Mar. Most traders had expected the notified size to overshoot the indicated amount but the announced supply is larger than even those expectations, which were closer to INR 500 billion, dealers said. 

Traders may also be sensitive to any movement in US Treasury yields before the Federal Open Market Committee's rate decision at 2330 IST Wednesday. The US rate-setting panel is expected to hold rates, though commentary and the outlook on growth and inflation after the US-Iran war broke out will be in focus, dealers said.

The RBI's announcement of a seven-day, INR 1.5-trillion variable rate repo auction may aid demand for short-term bonds Tuesday after they fell sharply Monday, dealers said. This is the first VRR auction the central bank will conduct since Jan. 30. Any significant movement in the rupee against the dollar and overnight indexed swap rates will also lend cues to bond prices during the day. The 10-year benchmark 6.48%, 2035 bond is seen in the 6.65-6.75% range Tuesday.

India Gilts: Down as crude oil prices high; VRR expected this week

MUMBAI–-1531 IST--Prices of government bonds remained down intraday mainly due to prices of crude oil remaining above the psychological level of $100 per barrel, dealers said. The yield on the 10-year benchmark 6.48%, 2035 bond, however, is still at a better-than-expected level due to the bond purchases by the Reserve Bank of India, dealers said.

"Markets have moved a bit. The 6.70% level is still better for now and it has been maintained only because of RBI intervention in the past week. Based on the war and inflation conditions, the levels should have been around 6.80-6.85%," a dealer at a large public sector bank said.

For the week ended Mar. 6, the RBI net purchased gilts worth INR 572.10 billion in the secondary market. This was the largest quantum of liquidity the central bank has infused in a week through open market operations outside of auctions, as per RBI data.

The movement in yields mirrored the rise in overnight indexed swap rates. The five-year overnight indexed swap rate touched a high of 6.4650%, the highest since June 2024, and the one-year swap rate touched 5.8850%, the highest since April 2025. This was due to the depreciation of the rupee and the crude price movement, a dealer said. However, the buying in the OIS market does not seem to be from offshore players since the volumes are not that high, dealers said. "Even if they are on the paying side, they must be some small companies, not the big ones," a dealer at a large public sector bank said. Brent crude oil futures for May delivery were at $104.83 per barrel at 1500 IST, almost unchanged from $104.25 at 0900 IST but higher than $99.80 at the end of gilt market hours Friday.

Dealers also expect the RBI to announce a variable rate repo of INR 1 trillion this week to infuse liquidity in the market. "There are chances of this (variable rate repo by the RBI) because the liquidity due to advance taxes will drain out in some time, so then you need liquidity measures," a dealer said. 

Dealers expect to see decent demand at the INR-584.20-billion auction of state government bonds Tuesday as public sector banks will look to replenish their books before the end of March, dealers said. Public sector banks are expected to buy long-term bonds, while insurers and mutual funds are expected to buy short-term papers. Dealers will also track announcements by the US Federal Reserve late Wednesday.

At 1531 IST, turnover in the gilt market was INR 181.25 billion, significantly down from INR 227.50 billion at 1530 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 6.62-6.72% during the rest of the day. (Diksha Tripathy)

India Gilts: Remain down; losses limited on PSU bks' buys, short covering

MUMBAI--1327 IST--Prices of government bonds remained down due to an intraday rise in overnight indexed swap rates and crude oil prices, dealers said. Public sector banks likely bought bonds at levels seen attractive, which limited the fall in bond prices and a rise in the 10-year benchmark 6.48%, 2035 bond yield above 6.70%, they said. Traders also expect the Reserve Bank of India to purchase bonds in the secondary market, which may lead to a recovery in bond prices, dealers said.

Brent crude oil futures for May delivery were $106.23 per barrel at 1327 IST from $104.25 at 0900 IST, and $99.80 at the end of gilt market hours Friday. Tracking the rise in Brent crude, the five-year overnight indexed swap rate hit 6.4750%, the highest since Jun. 4, 2024. 

"Prices are subdued due to oil prices," a dealer at a private sector bank said. "We have not fallen more because people are expecting intervention from the RBI. If he (RBI) intervenes, then we might see a rally." Some dealers do not expect the RBI to intervene in the bond market Monday. 

"It seems unlikely to me that the RBI will come in the secondary (market) today (Monday) because it has not intervened in the rupee market," a dealer at a small finance bank said. "When he (RBI) buys rupee to prevent it from falling, it sucks out (rupee) liquidity from the market. So, to infuse liquidity again, he buys bonds. This is the pattern I have seen in the past few days."

Some traders covered short bets as they expected the central bank to buy bonds in the secondary market nearing the end of trade Monday, dealers said. Public sector banks also bought gilts at attractive levels, though not in large amounts, dealers said. This limited the rise in the 10-year benchmark 6.48%, 2035 bond yield above 6.70%, dealers said. Traders also wished to avoid a further fall in bond prices as they look to show profits in their books for the March quarter, they said. A proxy for tracking short sales in a particular bond is the number of trades in a paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1232 IST showed trades worth INR 120.04 billion in the 6.48%, 2035 gilt, down from INR 124.84 billion Friday.

Traders avoided risky bets and preferred the most-liquid 10-year benchmark bond as they were unsure of the trajectory in bond prices, dealers said. Some traders also bought the 15-year benchmark 6.68%, 2040 bond due to attractive yield, while others refrained from doing so as the large supply of state bonds concentrated in similar maturities is likely to weigh on the price of this bond, dealers said.

Traders expect demand at the INR-584.20-billion state bond auction to be firm as traders prefer higher-yielding state bonds over gilts. Public sector banks will likely pick up state bonds maturing between seven and 12 years for their held-to-maturity books, as they look to refill these portfolios after sales to the RBI at open market operations auctions, dealers said. Some traders expect state bond supply in the rest of March to be around INR 600 billion to INR 650 billion per auction, which will likely drag down gilt prices further as it is significantly higher than the amount indicated in the state borrowing calendar for March quarter, dealers said.

At 1327 IST, the turnover in the gilt market was INR 112.45 billion, similar to INR 119.35 billion at 1330 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 6.65-6.72% during the rest of the day.  (Janwee Prajapati and Diksha Tripathy)

India Gilts:Down on rise in crude oil prices; hopes of RBI buys limit losses

MUMBAI--0950 IST--Prices of government bonds were down Monday following a rise in oil prices past the $100-per-barrel mark, dealers said. The larger-than-indicated supply of state bonds at the auction Tuesday also pulled down bond prices. However, losses were limited as traders expect the Reserve Bank of India to purchase bonds in the secondary market to boost interbank liquidity. 

Brent crude price for May futures rose to over $104 per barrel at 0900 IST Monday compared to $99.80 per barrel at 1700 IST Friday. US President Donald Trump ordered strikes on Iranian military targets on Kharg island Friday, warning of potential attacks on oil facilities. Trade volume remained muted given the military conflict in West Asia.

"Currently, there is nothing much. The (rise in prices of) crude is weighing prices down," a dealer at a primary dealership said. "... Still no sign of RBI right now...may come at mid day or end of the day, which will lower the yields till 6.60%, I think."

Traders expect the demand for state bonds to be firm, similar to past auctions. Insurance companies and pension funds will most likely bid for the long-term bonds with maturities over 15 years. Some traders are expected to prefer state bonds as the yield on these bonds is attractive, dealers said. Tuesday, 21 states will raise INR 584.20 billion, higher than INR 483 billion announced in the state borrowing calendar for the March quarter. 

Traders had expected the central bank to announce liquidity measures such as another open market operations auction or a variable rate repo auction of around INR 1 trillion, post-market hours Friday. However, the RBI did not announce any such measure, which has soured sentiment, dealers said. Some traders still expect the central bank to come up with such an announcement in the current week.

The fall in prices was limited as most traders expect the RBI to purchase bonds in the secondary market as the yield on the 10-year benchmark 6.48%, 2035 bond is around 6.70%. These expectations were boosted by the latest data, which showed the RBI net purchased gilts worth INR 572.10 billion in the secondary market in the week ended Mar. 6. This is the largest quantum of liquidity the central bank has infused in a week through open market operations outside of auctions, according to RBI data going back to November 2012.

At 0950 IST, the turnover in the gilt market was INR 28.25 billion, many times over the INR 4.85 billion turnover 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 6.63-6.70% during the rest of the day.  (Janwee Prajapati and Diksha Tripathy)

India Gilts: Seen dn on heavy state bond supply, Brent crude above $100/bbl

MUMBAI – Prices of government bonds are seen opening lower Monday, as Brent crude for May delivery remained above $100 per barrel, and the West Asia war showed no signs of ebbing. On the domestic front, heavy state bond supply may also add to pressure on bond prices, dealers said. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.63-6.72% Monday, after ending at INR 98.60, or 6.68% yield Friday. Brent crude oil futures for May delivery were $104.20 per barrel at 0800 IST, jumping to $106.50 in early trade, after the US struck Iran's oil-exporting Kharg Island, from $99.80 at the end of gilt market hours Friday. With the West Asia war in its third week, Iranian Foreign Minister Abbas Araghchi dismissed US President Donald Trump's comments that Tehran wants to "negotiate badly". The yield on the benchmark 10-year US Treasury note was 4.27% at 0800 IST, unchanged from 1700 IST Friday, ahead of the US Federal Open Market Committee's two-day meeting Tuesday, wherein traders expect status quo on rates.

Post market hours Friday, the Reserve Bank of India said 21 states will raise INR 584.20 billion Tuesday, more than INR 438 billion indicated in states' borrowing calendar for Jan-Mar. Most traders had expected the notified size to overshoot the indicated amount, but a number closer to INR 600 billion is larger than what they were expecting, dealers said.  

Several traders were expecting the RBI to announce measures to infuse liquidity post market hours Friday, and the lack of such an announcement might also weigh on bond prices, dealers said. After payments of around INR 1.5 trillion for advance tax on income tax and corporation tax, payments for goods and services tax amounting to around INR 1.8 trillion will drain systemic liquidity by end of this week, dealers said. Dealers in the foreign exchange market were expecting the announcement of a dollar-rupee buy-sell swap auction of up to $10 billion for three years, as the central bank's dollar sales in the spot market drain rupee liquidity. Gilt market dealers expect more open market operations auctions, after INR 1.00 trillion of OMO auctions conducted last week. Some also expect a variable rate repo auction of at least a one-week tenure.

Overnight indexed swap rates are seen opening higher Monday, and traders may continue to receive fixed rates in the five-year swap while selling five-year bonds as the non-funded instrument offers a higher return. Bonds may also track the movement of the rupee against the dollar, which is seen opening near record lows.

Losses may be limited as the RBI may step in to buy bonds on-screen if the 10-year benchmark bond yield rises to 6.70%, levels above which the central bank is not seen comfortable, dealers said. Data released Friday showed that the central bank net purchased gilts worth INR 572.10 billion on-screen in the week ended Mar. 6, the largest quantum of liquidity the central bank has infused in a week through open market operations outside of auctions, according to RBI data going back to Nov. 2012. State-owned banks may also purchase gilts to replenish their books after sales to the RBI at OMO auctions. (Cassandra Carvalho)

End

US$1 = INR 92.42

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

Edited by Ashish Shirke

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