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Informist, Tuesday, Mar. 17, 2026

By Aaryan Khanna

NEW DELHI – Government bond prices ended lower as investors' preference for state bonds kept gilts out of favour, with some selling near the close as traders were wary of holding positions overnight, dealers said. Bonds recovered some losses intraday as overnight indexed swap rates fell and the state bond supply of INR 575.25 billion was absorbed with cut-offs on expected lines.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.36, down from INR 98.42 Monday. The gilt closed at a yield of 6.7143%, up from 6.7059% Monday. Trade volumes remained thin through the day due to geopolitical uncertainty from the West Asia war, with inflationary concern persisting as Brent crude futures remained above $100 a barrel.

Brent crude futures for May delivery were at $103.23 a barrel at the end of Indian market hours Tuesday, lower than the peak of near $105 a barrel earlier in the day but similar to the level at 1700 IST Monday. Traders said the Reserve Bank of India's aggressive intervention in both the fixed income and foreign exchange markets to limit the impact of high crude oil prices suggested the central bank's initial estimate was for the West Asia conflict to wind down within the month. The longer the conflict goes, the more likely that gilt prices drift lower, especially around the time when fresh government bond supply hits the market in April, dealers said. 

The result of the state bond auction was seen as a positive for gilt prices, with the Reserve Bank of India setting cut-off yields on states' 10-year bonds at 7.42-7.56%, against the Informist Poll median of 7.45-7.50%. Only Sikkim's issuance of INR 2.50 billion drew a higher-than-expected cut-off. However, state-owned banks focused on absorbing the fresh supply of the higher-yielding asset while being less aggressive in buying the 10-year gilt above the psychologically crucial 6.70% yield as seen over the past two sessions, dealers said. State-owned banks have been top net buyers in the secondary market on Friday and Monday.

"There is no directional movement in prices, everything is range-bound," a dealer at a primary dealership said. "The fact that the 10-year state bond yields did not hit even 7.50% shows that everyone has good appetite for fresh supply. Considering the liquidity situation, I think the RBI should be happy with what it has done and hold off on any further measure, including OMO (open market operation purchase) until March."

The central bank conducted two OMO auctions last week to buy gilts worth INR 1 trillion, a week after it infused INR 572.10 billion of liquid through on-screen purchases. Some traders had expected an OMO auction of up to INR 500 billion or a dollar-rupee buy-sell swap auction of up to $10 billion this week to add to systemic liquidity. With the temporary liquidity infusion through a seven-day, INR 1.50 trillion variable rate repo auction announced for Tuesday, the chances of durable liquidity measures reduced, dealers said. Traders had trimmed their bets on a further OMO auction, though some of these hopes were rekindled by the poor demand at the auction Tuesday. The RBI got bids worth only INR 480.14 billion at its first VRR auction in over six weeks, which it accepted.

Since the RBI's bond purchases had capped gilt yields, traders did not have the risk appetite to short sell bonds, especially with no supply of central government securities forthcoming in March. While this capped the fall in gilt prices, traders preferred to keep their portfolios light amid the global uncertainty and with no strong conviction that prices would move higher in the near term, dealers said. The turnover in the government securities market was INR 221.90 billion, down from an already low INR 266.10 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There has been no trade using the RBI's wholesale e-rupee pilot in March, a trend that continued Tuesday.

Unlike the last few sessions, foreign banks stayed on the sidelines instead of selling gilts, dealers said. The RBI was also not seen buying or selling bonds in the secondary market Tuesday, as evident in low volumes. Inflation worries weighed on gilts maturing in under five years more than longer-dated bonds, dealers said. The erstwhile five-year benchmark 6.01%, 2030 fell sharply for the second straight day, while the new benchmark 6.36%, 2031 gilt's losses also exceeded the fall in the 10-year 6.48%, 2035 bond. 

"The 10-year point has been protected by the RBI's OMOs, both through auction and in the secondary market," a dealer at a state-owned bank said. "This has led the (government bond yield) curve to bear steepen as the risk of a rate hike in FY27 is being priced in." Bear-steepening refers to a phase where short-term bond yields rise quicker than those of long-term bonds.

Meanwhile, the 30-year benchmark 7.24%, 2055 bond reversed early losses due to firm demand from life insurers and pension funds for state bonds, which spilt over into gilts, dealers said. Traders were of the view that term premia on long-term bonds were unlikely to increase as these institutional investors were sitting flush with liquidity and would deploy it at the end of the financial year, keeping bonds maturing in 15 years or more in favour, dealers said.

OUTLOOK
On Wednesday, bonds are expected to move in a narrow band due to a lack of significant domestic cues. Traders may also be cautious in taking large bets ahead of the US Federal Open Market Committee rate decision at 2330 IST Wednesday, dealers said. 

The US rate-setting panel is widely expected to keep the policy rate steady at 3.50-3.75% for the second straight meeting. Activity from foreign banks and foreign portfolio investors is likely to be lacklustre Wednesday as traders await the US central bank's commentary on the West Asia war. US Federal Reserve members will release a summary of their economic projections, which will be closely watched for guidance on further rate cuts. The median forecast at the last such release was only a 25-basis-point rate cut in 2026.

The overnight movement in crude oil prices and US Treasury yields may also lend cues to gilts, with traders focused on the developments in the war in West Asia. Any significant movement in the rupee against the dollar and overnight indexed swap rates will also lend cues to bond prices during the day.

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.

Traders do not expect the RBI to conduct any further measures to infuse durable liquidity in March, though it may conduct more variable rate repo operations before the end of the month to help bank's meet short-term cash mismatches at the year end, dealers said. The central bank got bids worth only INR 480.14 billion at the INR-1.50-trillion seven-day VRR auction. It accepted all bids at a cut-off yield of 5.26%. The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.65-6.75% Wednesday.

India Gilts: Off lows after absorbing huge state bond supply; OIS falls

NEW DELHI/MUMBAI--1635 IST--Government bond prices largely recovered from their fall after the result of the state bond auction was on expected lines. A sharp fall in the five-year overnight indexed swap rate also aided gilt prices. Volumes remained thin through the day as traders avoided taking large bets due to the uncertainty caused by the war in West Asia, dealers said.

Twenty-one states raised INR 475.25 billion at the state bond auction against the INR 584.20 billion notified, a larger-than-indicated supply. At the auction, the Reserve Bank of India set cut-off yields on states' 10-year bonds at 7.42-7.56%, against the Informist Poll median of 7.45-7.50%. Only Sikkim's issuance of INR 2.50 billion drew a higher-than-expected cut-off, which made little impact on market sentiment, dealers said. Some traders had expected the spread of state bonds over gilts to widen because of the size of the auction, the largest in the current financial year ending Mar. 31, referring to it as a "tail". Instead, spreads of both short- and long-term gilts were largely similar to last week. This is seen as a sign of investor appetite.

"The auction was in line, maybe even slightly better than expected, as there was no tail despite the large size," a dealer at a private-sector bank said. "Everyone was there--insurers, PFs (provident funds), banks--since supply is now coming to an end for the (financial) year."

Banks were replacing gilts sold to the RBI at the central bank's purchases through open market operations over the past two weeks, which have totalled over INR 1.5 trillion. Traders also helped gilts recover from the day's low since the five-year OIS rate fell to 6.38% from 6.43% Monday despite crude oil prices remaining at a level similar to the previous day, dealers said. Prices of most bonds remained down as banks had met their investment needs through state bonds, though the 30-year benchmark 7.24%, 2055 gilt reversed a fall.

At 1635 IST, the turnover in the gilts market was INR 183.25 billion, down from INR 233.25 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 6.68-6.74% during the rest of the day.  (Aaryan Khanna and Diksha Tripathy)

India Gilts: Remain down in thin trade; state bond auction result awaited

MUMBAI--1334 IST--Prices of government bonds remained down in lacklustre trade. Traders are waiting for the result of the state bond auction and tracking intraday movement of Brent crude oil prices, dealers said. At 1334 IST, turnover in the gilt market was INR 96.70 billion, lower than INR 111.85 billion at 1335 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. A fall in overnight indexed swap rates limited the fall in bond prices, dealers said.

At the state bond auction, banks bid for bonds maturing in up to 15 years for their investment books, dealers said. Large insurance companies and provident funds bid for longer tenures, dealers said. Several dealers were interested in purchasing Maharashtra's four-year bond. Traders were also attentive to cut-off yields on Karnataka's bonds as the state's issuances make up 17% of the entire INR-584.20-billion notified size, dealers said. The state has raised funds only twice this financial year outside the Jan-Mar quarter, but has issued bonds every week since January so far.

Heavy supply of corporate bond this week could reduce demand for state bonds, but most dealers preferred state bonds due to slightly higher yields amid low risk appetite, they said. State Bank of India aims to raise up to INR 75 billion through 10-year bonds Tuesday, while JSW Kalinga Steel aims to raise INR 95 billion Wednesday, as per dealers in the corporate bond market. Additionally, state bonds can be included in computing banks' statutory liquidity ratio requirements, increasing preference for these securities, dealers said.

"Nothing much happening in the market right now. Movement in the market so far is just crude (oil price)-related," a dealer at a private sector bank said. "Demand should be there in the (state bond) auction. Those who sold in the OMO (open market operation auction) will come for state bonds. PSUs (state-owned banks) were definitely on the buying side this auction."

In the secondary market, some traders covered short bets and refrained from aggressive sales on expectations that the RBI could purchase gilts on-screen if bond prices fall any further. Traders were also unsure of the near-term trajectory of bond prices amid volatile crude oil prices, dealers said. Even after a poorly-subscribed variable rate repo auction Tuesday, traders expect the RBI to announce more measures to infuse liquidity the rest of this month, as around INR 1.8 trillion of outflows for goods and services tax payment are due end of this week, they said. The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.65-6.76% during the rest of the day.

"RBI is not on-screen yet but due to poor subscription in the VRR it might come (buy gilts) on-screen. Also, if it (10-year benchmark 6.48%, 2035 bond yield) hits the 6.72% level, it will step in," a dealer at a public sector bank said.  (Cassandra Carvalho and Diksha Tripathy)

India Gilts: Tad down ahead of large state bond auction; demand seen firm

MUMBAI--0934 IST--Prices of government bonds were down Tuesday due to large supply of state government bonds at auction, dealers said. Traders avoided building positions aggressively until the result of the auction, they said. The fall in bond prices was limited due to the transient liquidity infusion through the variable rate repo auction Tuesday and expectations of on-screen buys from the Reserve Bank of India, they said. However, some traders were divided on whether the VRR auction will reduce chances of the central bank conducting more OMO auctions the rest of the month.

Demand at the state bond auction is likely to be firm as public sector banks will pick up bonds to replenish their books after selling bonds to the RBI at the open market operations auctions last week, dealers said. Banks are likely to bid for bonds maturing between seven and 15 years to add to their held-to-maturity books before the end of March. Some traders preferred state bonds as the yield on these bonds is higher than gilts of similar maturity, dealers said. Demand for long-term state bonds will be robust from insurers and pension funds, as seen in recent state bond auctions, they said. Lack of scheduled gilt auctions in the rest of financial year 2025-26 (Apr-Mar) also helped the higher demand for state bonds, dealers said. Tuesday, 21 states will raise INR 584.20 billion, higher than INR 438 billion announced in states' borrowing calendar for the March quarter.

Losses were limited after the RBI announced an INR-1.50-trillion variable rate repo auction of a seven-day tenure to infuse transient liquidity into the banking system. Some traders expect another VRR auction of around INR 500 billion within the current fortnight, dealers said. Some traders also expect the RBI to buy bonds in the secondary market to limit a rise in the yield on the 10-year benchmark bond above the key level of 6.72%, they said.

"I think the yields can go to 6.72% (on the 6.48%, 2035 bond) today (Tuesday), at which we can see RBI stepping in," a dealer at a private sector bank said. "...Also, it depends on the SDL (state bond) cut-offs (yield), if it is higher than expected. Demand right now seems good, but some states might see some tail (bids at a higher yield)."  

At 0934 IST, the turnover in the gilt market was INR 16.10 billion, lower than INR 22.30 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 6.65-6.76% during the rest of the day.  (Janwee Prajapati and Diksha Tripathy)

India Gilts: Seen flat; may fall as hopes of RBI gilt buys fade on VRR notice

MUMBAI – Prices of government bonds are seen opening largely steady Tuesday. While the Reserve Bank of India's decision to conduct a variable rate repo auction of INR 1.50 trillion for a seven-day tenure Tuesday is a welcome move to pull down overnight borrowing rates, it is seen reducing the chances of the central bank purchasing gilts on-screen or through auction for the rest of the month, dealers said. The result of the INR-584.20-billion state bond auction will influence bond prices later in the day, they said. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.67-6.75% Tuesday, after ending at INR 98.42, or 6.71% yield Monday. Brent crude oil futures for May delivery were at $103.11 per barrel at 0800 IST, against $103.52 at the end of gilt market hours Monday. The yield on the benchmark 10-year US Treasury note was 4.24% at 0800 IST, inching lower from 4.25% at 1700 IST Monday. US yields eased ahead of the US Federal Open Market Committee's rate decision at 2330 IST Wednesday. While inflation is seen higher due to the war, risks to economic growth and a weak jobs market in the US capped a rise in the 10-year US yield. While a status quo on rates is expected Wednesday, commentary and the outlook on growth and inflation after the US-Iran war broke out will be in focus, dealers said.

As offshore triggers were largely unchanged overnight, on the domestic front, bond prices are seen slightly lower due to the transient liquidity infusion through the VRR. The RBI last conducted such an operation on Jan. 30. Traders said a VRR lowered the chances of the RBI infusing durable liquidity by purchasing gilts through open market operations on-screen and via auction. The RBI likely refrained from on-screen gilt purchases Monday, even as the 10-year benchmark bond yield rose past 6.70%, a level it seemed to have protected through hefty purchases last week, dealers said. The 'Others' segment of gilt market participants--which comprises insurance companies, provident funds, and the RBI--net sold gilts worth INR 820 million in the secondary market Monday, as per data from Clearing Corp. of India. Several traders were expecting the announcement of an OMO auction this week. Some were also expecting notice of a dollar-rupee buy-sell swap auction, which would also reduce chances of further OMO auctions after INR 1 trillion of OMO auctions last week, they said.  

Demand at the state bond auction is seen robust despite its larger-than-expected size, dealers said. State-owned banks which got to sell gilts from their held-to-maturity books to the RBI at the OMO auctions last week are looking to replenish their books with higher-yielding state bonds, they said. The lack of gilt supply this month after the last scheduled gilt auction Mar. 6 is seen boosting appetite for state bonds, especially from investors looking to buy long-term bonds, they said. The movement of the rupee against the dollar and the five-year overnight indexed swap rate will also lend direction to the movement of bond prices during the day, dealers said.  (Cassandra Carvalho)

End

US$1 = INR 92.37

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

Edited by Akul Nishant Akhoury

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