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Informist, Wednesday, Mar. 18, 2026

By Aaryan Khanna

NEW DELHI – Government bond prices reversed early gains and ended lower on Wednesday as the rupee fell sharply against the dollar to a record closing low, dealers said. An intraday rise in crude oil prices and continuing uncertainty about the West Asia war weighed on gilt prices in the second half.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.24, down from INR 98.36 Tuesday. The bond closed at a yield of 6.7330%, up from 6.7143% the previous day. Bond prices ended near the day's low as traders were wary of holding onto positions before the holiday Thursday. Money markets are shut Thursday for Gudi Padwa. Trade volumes were muted for the third straight day, both because of global uncertainty and since some traders were on leave before the festival.

The rupee fell to a record low of 92.6450 a dollar intraday, before closing at a record closing low of 92.6300 against the greenback. Banks' dollar buys for importers offset sales by state-owned banks, likely on behalf of the Reserve Bank of India, dealers said. The fall of the rupee past 92.50 a dollar triggered stop losses and led to further weakness in the domestic currency. The rupee's weakness and fears of a wider current account deficit were seen prompting the RBI to tighten monetary policy earlier than expected due to concerns about imported inflation, dealers said.

Inflationary concerns were further compounded by the rapid rise in crude oil prices after 1600 IST, dealers said. Brent crude for May delivery surged to $105.26 a barrel by 1700 IST from $101.95 a barrel at 0900 IST following reports that Iran's natural gas facilities were hit in attacks by the US and Israel. Moreover, traders are concerned about the premium on domestic crude oil prices over the international benchmark, which was termed "alarmingly high" by Sunidhi Securities' economist Siddarth Kothari on Tuesday. The price of India's crude oil basket was $146.09 a barrel on Tuesday, a record high according to government data going back to April 2006.

"There is an increased awareness of India's crude basket being sharply higher than what the Brent levels are, so we could sink back into a fragility mode on the macro(economic) front," a dealer at a private-sector bank said. "FPI (foreign portfolio investor) outflows have been continuous and were there today, and since the war is continuing, it may be giving the RBI a signal to stop being so aggressive."

On a daily basis, FPIs have been net sellers of fully accessible route gilts since Mar. 4, soon after the outbreak of the war in West Asia on Feb. 28. From a record high of INR 3.31 trillion then, FPI holdings of these index-eligible securities have fallen by nearly INR 130 billion to INR 3.18 trillion, Clearing Corp. of India data as at 1930 IST Wednesday showed. The data showed net sales Wednesday totalled INR 21.69 billion. With FPIs ramping up their sales over the past two days, foreign banks were also likely on the selling side Wednesday, dealers said.

Some dealers had expected the RBI to buy gilts in the secondary market as the 10-year gilt's yield topped the psychologically crucial 6.72% mark, same as last week. However, most dealers said the central bank may let yields drift up slightly due to the West Asia war extending into its third week and with no end in sight. The RBI has bought gilts worth more than INR 1.5 trillion over the past two weeks through open market operation auctions and secondary market purchases but was absent on Wednesday and seems to be on the sidelines so far this week, dealers said.

Traders now expect the RBI to step in on screen when the yield on the 6.48%, 2035 bond rises above the key 6.75%, dealers said. Though the central bank had sterilised some of the liquidity impact of its dollar sales to protect the rupee by conducting buy-sell dollar-rupee swaps, the drain in durable liquidity may open up more space for RBI bond purchases in the remainder of the month, they said.

"There is not much sense for them to continue buying bonds every time there is a fresh round of weakness," a dealer at a state-owned bank said. "PSU banks have turned to the buying side to replace (bonds sold to the RBI) after the OMOs. That is giving the market some sense of normalcy daily."

Bond prices had risen in thin trade early in the day due to an overnight fall in US Treasury yields ahead of the US Federal Open Market Committee's rate decision at 2330 IST. At 0900 IST, the benchmark 10-year US Treasury yield was 4.19%, down from 4.22% at 1700 IST Tuesday, with little change during Indian market hours. Though a status quo is widely expected on the policy rates, even domestic bond market dealers are looking forward to the FOMC's commentary on growth and inflation following the rise in fuel prices. State-owned banks were also likely buying bonds at levels seen lucrative, with crude oil prices having eased slightly overnight, dealers said. They continued to pick up gilts as prices fell through the day, limiting losses.

Turnover in the government securities market was INR 305.10 billion, up from INR 221.90 billion Tuesday but lower than usual, 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 Wednesday.

OUTLOOK

Money markets are shut on Thursday for Gudi Padwa. On Friday, gilt prices may take cues from the US FOMC's rate decision and associated commentary on growth and inflation in the world's largest economy, dealers said. In addition to the rate decision, which is largely discounted as a pause, the US Federal Reserve will also release the quarterly Summary of Economic Projections. The movement of Brent crude oil prices amid the escalating war in West Asia will also be closely watched.

Brent crude for May delivery surged to $109 a barrel after the US and Israel attacked two Iranian gas production facilities in the south of the country, as well as the Bushehr nuclear plant. Tehran has vowed retaliation and issued evacuation orders for oil production and storage facilities in major oil producers in the region allied with the US, including Saudi Arabia, Qatar, and the United Arab Emirates.

Traders expect the RBI to purchase gilts in the secondary market, effectively capping yields, if the geopolitical situation worsens. The central bank has bought gilts worth over INR 1.5 trillion over the past two weeks, but there have been no signs of any purchases from the RBI this week, dealers said. 

Any significant movement in US Treasury yields, the rupee against the dollar, and overnight indexed swap rates will also lend cues to bond prices during the day. Traders do not expect the RBI to conduct any further auctions to infuse durable liquidity in March but said this view may change if the central bank's dollar sales to protect the rupee increase, dealers said.

The central bank has announced a three-day, INR 750-billion variable rate repo auction Friday to ease the liquidity crunch from goods and services tax outflows scheduled on Friday and Monday, dealers said. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.65-6.78% Friday.

India Gilts: Reverse gains as rupee falls to record low; RBI buys eyed

MUMBAI--1531 IST--Prices of government bonds were down, reversing prior gains as the rupee fell to record lows against the dollar, dealers said. The yield on the benchmark 10-year 6.48%, 2035 gilt rose to 6.7279%, the highest in a little more than a week, tracking the fall in the local currency. Traders were expecting the Reserve Bank of India to step in and limit further rise in yields by buying gilts on-screen, but there was no indication of such purchases yet Wednesday, dealers said. Some traders expect the 10-year bond yield to hit 6.75% by end of the session if the central bank does not purchase gilts on-screen, they said. 

"Fundamentally, things have to re-adjust, RBI has to let go at some point," a trader at a primary dealership said. "But this is the grey area, so even without RBI, market is holding. Past two sessions doesn't look like he's (RBI) been there (on-screen). But there's no (gilt) supply now, no volumes, so its holding (prices are not falling further)." 

The rupee ended at a record low of 92.6300 per dollar Wednesday. Foreign portfolio investors likely sold gilts, dealers said. Traders sold bonds to trim exposure to risk ahead of several scheduled holidays, in case offshore triggers change and the West Asia war escalates in the meantime, they said. RBI-administered markets are shut Thursday for Gudi Padwa. The two-day weekend follows after Friday's trading session.

An intraday rise in Brent crude oil futures for May delivery also weighed on bond prices, dealers said. Brent crude oil futures for May delivery inched higher to $103.25 per barrel at 1531 IST from $101.95 per barrel at 0900 IST. Some dealers were also concerned that India's energy bill was rising due to the West Asia war. The price of India's crude oil basket rose $3.40 to $146.09 per barrel Tuesday, and rose over $6 Monday.  

Losses were limited on purchases from state-owned banks as the 10-year benchmark bond yield hit levels seen as attractive to purchase gilts, dealers said. Further, most traders were on the sidelines, refraining from building heavy positions amid uncertainty, and did not hold much exposure to risk, dealers said. Traders were also cautious ahead of the US Federal Open Market Committee's interest rate decision later Wednesday, even as US Treasury yields fell before the key event.  

Volumes picked up when bond prices reversed gains. At 1531 IST, the turnover in the gilt market was INR 240.95 billion, higher than INR 136.00 billion at 1530 IST Tuesday, 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 6.65-6.75% during the rest of the day. (Cassandra Carvalho and Diksha Tripathy)

India Gilts: Remain up on PSU banks' buys; trade volume subdued

MUMBAI--1326 IST--Prices of government bonds remained up as public sector banks bought gilts, dealers said. A fall in the 10-year US Treasury yield and overnight indexed swap rates also helped. Trade volume remained low as traders refrained from aggressive bets due to fears of the war in West Asia escalating and expectations that the Reserve Bank of India will purchase gilts on-screen if gilt prices fall, they said. At 1326 IST, the benchmark 10-year US Treasury yield was 4.18%, against 4.19% at 0900 IST and 4.22% at 1700 IST Tuesday. The five-year OIS rate fell to a low of 6.34% intraday from 6.38% at 1700 IST Tuesday.  

"We have an in-and-out position in 10-year (6.48%, 2035 bond)," a dealer at a state-owned bank said. "Buys are mostly in up to five-year papers for LCR and SLR requirements." 

Public sector banks bought gilts maturing in up to five years to add to their held-to-maturity books after they sold gilts to the Reserve Bank of India at open market operations auctions, dealers said. Traders refrained from any aggressive sales nearing the end of the March quarter, as they wish to show a profit in their books when valuations are marked to market prices, dealers said. Moreover, traders now await the release of the Centre's borrowing calendar for the first half of the financial year 2026-27 (Apr-Mar), they said.    

"The G-sec borrowing calendar is a big trigger," a dealer at another public sector bank said. "I expect 54% of the total borrowing to be scheduled in the first half and about 30% of this to be in long-term (tenure bonds). Proportions will be something similar to last year (FY26)."

At the INR-340-billion Treasury bill auction, mutual funds picked up the 91-day T-bills, while banks bought the 182-day T-bills and 364-day T-bills, dealers said. The central bank set cut-off yields largely along expected lines, despite a liquidity crunch. The RBI set a cut-off of 5.33% on the 91-day T-bill, 5.54% on the 182-day T-bill and 5.65% on the 364-day T-bill, against Informist poll estimates of 5.34%, 5.55%, and 5.65%, respectively.  

At 1326 IST, the turnover in the gilt market was INR 124.95 billion, higher than INR 93.40 billion at 1330 IST Tuesday, 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 6.65-6.75% during the rest of the day. (Janwee Prajapati and Diksha Tripathy)

India Gilts: Tad up on fall in US yields, short covering; FOMC meet eyed

MUMBAI--0945 IST--Prices of government bonds rose slightly Wednesday due to an overnight fall in the yield on the 10-year benchmark US Treasury note, dealers said. Some traders covered short bets, which also helped bond prices. Trade volume is likely to remain low ahead of the US Federal Open Market Committee's policy statement and the money market holiday in India Thursday, they said. 

The FOMC announcement is expected at 2330 IST. Traders widely expect the US rate-setting committee to keep interest rates unchanged. According to the CME FedWatch tool, Fed fund futures have nearly fully priced in a status quo on the federal funds rate Wednesday. At 0900 IST, the benchmark 10-year US Treasury yield was 4.19%, down from 4.22% at 1700 IST Tuesday.

Back home, some traders expect the cut-off yield at the Treasury bill auction Wednesday to be lower as primary dealerships are likely to bid aggressively for these bills, dealers said. The government will sell INR 80 billion of 364-day T-bills, INR 120 billion of 182-day T-bills and INR 140 billion of 91-day T-bills Wednesday. Bids are to be submitted between 1030 IST and 1130 IST.  

Traders also covered some short bets as they expect the Reserve Bank of India to purchase bonds in the secondary market, and this also helped bond prices, dealers said. The hope of RBI's on-screen purchases had prevented the yield on the 10-year benchmark 6.48%, 2035 bond from rising above 6.72% Tuesday, dealers said.

"There is nothing much going on right now, volume is also very low," a dealer at a primary dealership said. "I think there could be some selling later in the day and the yield (on the 6.48%, 2035 bond) can go to 6.75%, if the RBI does not step in."  

At 0945 IST, the turnover in the gilt market was INR 21.25 billion, higher than INR 14.60 billion at 0930 IST Tuesday, 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)

India Gilts: Seen opening tad higher as US yields ease before FOMC decision

MUMBAI – Prices of government bonds are seen opening a tad higher Wednesday, as US Treasury yields eased ahead of the US Federal Open Market Committee's rate decision at 2330 IST, dealers said. Traders may refrain from aggressive bets ahead of the key policy decision. The CME FedWatch tool showed that Fed fund futures nearly fully priced in a status quo in the federal funds rate Wednesday. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.67-6.75% Wednesday, after ending at INR 98.36, or 6.71% yield Tuesday. The yield on the benchmark 10-year US Treasury yield was 4.19% at 0815 IST, down from 4.22% at the end of gilt market hours Tuesday. Brent crude oil prices for May delivery hovered between $100 and $105 per barrel, as has been so far this week.  

The FOMC's commentary and the outlook on growth and inflation after the US-Iran war broke out will be in focus, dealers said. US Federal Reserve members will release a summary of their economic projections, which will be closely watched for guidance on further rate cuts. Foreign investors may be on the sidelines ahead of the FOMC's decision, dealers said. Foreign banks have net sold gilts worth INR 420.59 billion in the secondary market so far this month, as per data from Clearing Corp. of India, amid a risk-off sentiment and a surge in crude oil prices due to the West Asia war. In the same period, foreign portfolio investors have net sold gilts worth INR 105.87 billion through the fully accessible route, taking their total gilt holdings in this route to INR 3.20 trillion, the lowest since the end of January.  

Trade is seen lacklustre, as was the case Tuesday, as traders may avoid taking large bets amid elevated crude prices and inflationary fears. Traders also await indications of the Reserve Bank of India purchasing gilts on-screen, which has been absent the past two trading sessions. The central bank is speculated to have purchased gilts on-screen last week, to cap a rise in bond yields. Short-sellers have been covering short bets with the view that the central bank could purchase gilts at any point on-screen if bond yields suddenly rise, dealers said. However, traders are holding light positions, and several traders may be on leave as money markets are shut Thursday for Gudi Padwa. 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 92.63

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

Edited by Ashish Shirke

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