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Informist, Monday, Mar. 23, 2026

By Aaryan Khanna

NEW DELHI – Government bond prices recovered significant losses by close of the session Monday after US President Donald Trump's remarks pulled down Brent crude oil prices and US Treasury yields, dealers said. In a social media post at 1635 IST, Trump said he had ordered a five-day halt on strikes on Iran's power plants and energy infrastructure.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 97.52, slumping from INR 98.21 Friday. The bond closed at a yield of 6.8379%, up from 6.7369% the previous session. This was the highest single-day rise in the 10-year yield since Oct. 6, 2023, and it closed at its highest level since Jan. 13, 2025. The bond had hit an intraday low of INR 97.19, falling over a rupee from the previous close. The 10-year benchmark yield had hit an intraday high of 6.8871%, the highest since November 2024.

The yield on the 10-year US Treasury note fell to as low as 4.31% towards the close of Indian market hours after trading at 4.44% at 1630 IST. Brent crude oil for May delivery fell below $100 a barrel briefly on signs of a thaw in the West Asia conflict, which entered its fourth week Saturday. Traders had short sold gilts during the day with Brent crude futures persistently above $110 a barrel. The sharp slide led to only stop-losses intraday without robust purchases, either from state-owned banks or from the Reserve Bank of India as some traders had hoped, dealers said.

"Since the market was trading on the headline, the only recovery came in from short covering," a dealer at a primary dealership said. "People are getting their calls wrong at every level and I feel sorry for anyone who bought at 6.78% or 6.80% (yield on the 10-year benchmark 6.48%, 2035 gilt) hoping that 'Others' would buy." The dealer was referring to secondary market purchases by the RBI, which is part of the 'Others' segment in Clearing Corp. of India data.

State-owned banks were on the buying side through the day but their appetite was limited due to uncertainty about the war, dealers said. A rise in the 10-year yield to multi-year highs stoked some appetite for gilts but most banks had already filled up their portfolios with state government securities, with the huge supply of these bonds over the past month coming into the market at attractive spreads over gilts.

The RBI Saturday issued a revised press release for the state bond auction Tuesday. The central bank said 22 states would raise INR 574.08 billion through the sale of bonds, against INR 556.88 billion specified in the prior release. This is nearly INR 95 billion more than INR 479.85 billion indicated in states' borrowing calendar for Jan-Mar. Moreover, states are scheduled to raise another INR 120 billion through an auction on Friday, which traders expect to be revised higher to around INR 300 billion when the details are notified.

Market sentiment was downbeat through the day after stop-losses were triggered in early trade. The rupee's fall against the dollar also weighed on bond prices. The rupee ended at 93.9750 per dollar, a record closing low against the greenback, after having fallen 0.3% Monday. Dollar demand for importers amid the continued West Asia conflict continued to weigh on the domestic currency.

Traders were afraid the central bank's commitment to easy monetary policy conditions would reverse due to the near-term risks of higher inflation from the rise in crude oil prices and fall of the rupee. This weakened the case for keeping overnight rates below the policy repo rate of 5.25%, as the RBI had largely done since the beginning of February. Hopes of further open market operations have also faded as the RBI stayed on the sidelines despite the rise of the 10-year bond yield to nearly 6.89%, dealers said.

Some traders have begun pricing in rate hikes into bonds in 2026, which is what overnight indexed swap rates are already reflecting, dealers said. The 6.36%, 2031 gilt's yield rose to 6.59% Monday, the highest for a five-year benchmark in a year. The 15-year benchmark 6.68%, 2040 gilt's yield rose to 7.28% intraday, the most since January 2024.

With lack of appetite for gilts from investors through the day, traders placed intraday short bets that they had to cover in a hurry after Trump's remarks, dealers said. Trade volumes were relatively low despite the volatility and the steep fall in prices as traders cited lack of free float of the 10-year 6.48%, 2035 gilt in the secondary market. Despite the benchmark's INR 1.92 trillion outstanding, around half of it was likely parked in banks' held-to-maturity or available-for-sale portfolios at a loss and so was not freely traded, dealers said. The RBI likely held around INR 500 billion of the bond, constricting trading volumes between market participants, they said. 

"It's very difficult to trade in this market," a dealer at a private-sector bank said. "There's no certainty and no buyer. There's no free float of stock. In such a situation, where volumes are low and volatility is high, traders will never enter the market."

Turnover in the government securities market was INR 449.80 billion, up from INR 406.20 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There have been no trades using the RBI's wholesale e-rupee pilot in March, a trend that continued on Monday.

OUTLOOK

On Tuesday, bond traders will take cues from developments in the war between the US-Israeli alliance and Iran, and from their impact on Brent crude prices, dealers said. US President Trump's comments on a five-day halt in strikes on Iran's energy infrastructure eased crude prices Monday, but officials from Tehran rebuffed his claim that the two sides were negotiating.

The result of the state bond auction may lend direction to gilt prices, though several investors are seen preferring state bonds while avoiding gilts, dealers said. The RBI Saturday said 22 states would raise INR 574.08 billion through the sale of bonds, nearly INR 95 billion more than INR 479.85 billion indicated in states' borrowing calendar for Jan-Mar.

Traders have begun avoiding short-term bonds due to fears of domestic rate hikes in FY27 if inflation rises following the surge in global crude prices. Currently, most traders do not expect a rate hike in the next three meetings or six months but fear a lengthening of the West Asia conflict bringing forward those hikes, dealers said. 

The RBI's apparent lack of secondary market gilt purchases, after significant activity in the first half of March, may disappoint some traders. The central bank also refrained from announcing any durable measures to infuse liquidity. The central bank will conduct an overnight variable rate repo operation for INR 1 trillion at 0930-1000 IST Tuesday. This is seen as reducing the chances of open market operations to buy bonds, dealers said.

Focus will be on the government's borrowing calendar for Apr-Sept, which is likely to be released by the end of next week, dealers said. The gross market borrowing for FY27 is likely to be revised down to around INR 16 trillion after the government conducted gilt switches with the RBI and in the market. These switches have all targeted bonds maturing in FY27, effectively reducing the repayment burden in the coming fiscal year and lowering gross market borrowing from the record INR 17.20 trillion announced in the Union Budget for FY27.

Traders do not expect the RBI to purchase gilts in the secondary market even as the geopolitical situation pushes yields higher. The central bank had been aggressive in its intervention in the first half of March, capping gilt yields and limiting the rupee's fall. The central bank has bought gilts worth nearly INR 1.8 trillion in the first half of March, but there have been no signs of any purchases from the RBI over the past 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. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.72-6.90% Tuesday.

India Gilts: At day's low as rupee slumps, PSU banks' buying limits losses

MUMBAI--1308 IST--Prices of government bonds hit the day's low as the rupee fell to record lows, dealers said. The yield on the 10-year benchmark 6.48%, 2035 bond hit 6.8390%, the highest in financial year 2025-26 (Apr-Mar); indeed, the highest since Jan. 14, 2025. The surge in US Treasury yields and Brent crude oil prices dragged down gilt prices. An intraday rise in overnight indexed swap rates also contributed to the fall in bond prices. However, public sector banks bought bonds at attractive levels, which limited the fall in bond prices, dealers said. 

The rupee fell to a record low of 93.9425 a dollar in morning trade, down from 93.8300 a dollar at 0900 IST. It has fallen 23 paise from its close Friday and by almost three rupees in March alone. Brent crude oil price for May delivery remained above the psychological $110 per barrel and was over $113 per barrel at 1247 IST, up from over $107 per barrel Friday.

The rise in crude oil prices pulled up bond yields and overnight indexed swap rates. This led to a rise in OIS rates as the five-year OIS rose to the day's high of 6.55%, the highest since Mar. 23, 2024. The one-year OIS also rose to the day's high of 5.99%, its highest since Apr 2. The yield on the 10-year benchmark bond is now up 18 basis points from pre-war levels.   

"Right now, we are in a difficult position," a dealer at a state-owned bank said. "It is risky to go long (buy gilts) if the situation (war in West Asia) worsens. People (traders) cannot even go short (place short bets) because if the RBI (Reserve Bank of India) intervenes (purchases bonds in the secondary market) then it will be difficult to cover those bets."  

The large quantum of state government bonds at the auction Tuesday also weighed on gilt prices. At the state bond auction Tuesday, 22 states will raise INR 574.08 billion, over INR 94 billion higher than the quantum indicated in the borrowing calendar for the March quarter. Some traders expect the cut-off yields on 10-year state bonds to rise by 20 basis points following the rise in the yield on the 10-year benchmark 6.48%, 2035 gilt, dealers said.

At 1308 IST, the turnover in the gilt market was INR 163.80 billion, up from INR 130.40 billion at 1230 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 6.77-6.85% during the rest of the day. (Janwee Prajapati and Diksha Tripathy)

India Gilts: Slump as stop-losses triggered; US yields, oil prices rise

MUMBAI--1055 IST--Prices of government bonds tumbled as traders hit stop-losses, with US Treasury yields surging and Brent crude for May delivery above $110 per barrel, dealers said. The yield on the benchmark 10-year 6.48%, 2035 gilt hit 6.8364%, the hghest since Jan 14, 2025. The 10-year US Treasury yield was at its highest since late July, and Brent crude oil futures for May delivery hovered near $112 per barrel as the military conflict in West Asia escalated over the weekend.  

Traders hit stop-losses as the 10-year benchmark gilt yield rose above the key 6.80% level, dealers said. The fall of the rupee to record lows against the dollar also furthered the drop in bond prices, dealers said. Traders also began to price in the lack of on-screen purchases by the Reserve Bank of India, after no indication of such purchases last week, they said. Traders speculate that due to further escalation in the West Asia conflict and a surge in crude oil prices, the RBI is taking a step back and letting bond yields reflect the change in the macroeconomic scenario, pricing in the likelihood of higher inflation and the quicker possibility of a rate hike cycle in India, dealers said.  

"At the last (previous day's) low at around 90 paisa (INR 97.90 on the 10-year benchmark gilt), we've usually seen the RBI step in (to buy gilts on-screen) at those levels," a dealer at a private sector bank said. "Today (Monday), there was no intervention which would've triggered stop-losses. We're not expecting RBI on-screen today. Maybe they're (RBI) also awaiting clarity, nobody knows where the crude situation is going so they're (RBI) not intervening."

Overnight indexed swap rates also surged, and systemic liquidity fell to a deficit for the first time since Jan. 21, furthering the fall in bond prices, dealers said. Traders expect stop-losses again near the 6.85% yield on the 10-year benchmark gilt. At a day's high of 6.8364%, the 10-year benchmark yield has risen nearly 18 basis points since the close on Feb. 27, the last trading session before the conflict in West Asia began. 

At 1055 IST, the turnover in the gilt market was INR 78.65 billion, up from INR 58.20 billion at 1030 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 6.77-6.85% during the rest of the day. (Cassandra Carvalho and Diksha Tripathy)

India Gilts: Seen dn on rise in crude price, US ylds, large state bond supply

MUMBAI – Prices of government bonds are seen opening lower Monday due to an escalation in the West Asia war over the weekend and the subsequent rise in crude oil prices and US Treasury yields, dealers said. Domestically, the large supply of state bonds and lack of indications of the Reserve Bank of India's on-screen purchases last week are likely to weigh on bond prices, they said.

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.70-6.80% Monday, after ending at INR 98.21, or 6.74% yield Friday. The yield on the benchmark 10-year US Treasury yield was 4.41% at 0800 IST, hitting 4.42% in early Asian trade, and up from 4.30% at the end of gilt market hours Friday. Brent crude oil for May delivery was at $112.49 at 0800 IST, 4% higher than $107.99 at the end of Indian gilt market hours Friday. The Israeli-American war with Iran entered its fourth week, with Iran targeting US bases much further than its known capabilities for missile ranges. US President Donald Trump on his social media site Truth Social early Sunday threatened to "obliterate" Iran's power plants if the country did not "fully open" the Strait of Hormuz "without threat" within 48 hours of the notice. 

Most bond prices had recovered from a sharp fall Friday nearing the end of trade on speculated purchases by the RBI, several traders had said. Some traders had said that state—owned banks were purchasing gilts. Data from Clearing Corp. of India showed that state-owned banks were the largest net buyers, net purchasing gilts worth INR 32.88 billion Friday, followed by foreign banks net purchasing INR 10.92 billion. The 'Others' segment of gilt market participants--which consists of insurance companies, provident funds, and the RBI--net bought gilts worth INR 1.80 billion Friday. State-owned banks were likely purchasing gilts to replenish books and maintain their liquidity coverage ratios, dealers said. Traders speculate that the central bank is allowing Indian bond yields to re-align with global bond yields on fears of inflation rising due to oil supply disruptions.

The Reserve Bank of India Saturday issued a revised release for the state bond auction Tuesday. The central bank said 22 states would raise INR 574.08 billion through the sale of bonds, against INR 556.88 billion specified in the prior release. This is nearly INR 95 billion more than INR 479.85 billion indicated in states' borrowing calendar for Jan-Mar. The large supply comes in a holiday-shortened week with another state bond auction scheduled Friday. The borrowing calendar shows that states aim to raise INR 120 billion through bonds Friday, but this amount is also likely to be higher than indicated, dealers said. Indian financial markets are shut Mar. 31, the last day of the current financial year, for Mahavir Jayanti. Financial markets are also shut Thursday for Ram Navami.

Nearing the end of the financial year 2025-26 (Apr-Mar), traders await the Centre's borrowing calendar for Apr-Sept, along with the quarterly borrowing calendars for state bonds and Treasury bills. Traders largely expect over 50% of the Centre's borrowing to be concentrated in Apr-Sept. Focus is on the proportion of tenures the Centre will choose, with expectations of the government capping its issuance of 30-50 year bonds at 30% or less. Traders expect gilt supply to be concentrated in papers maturing between five to seven years, dealers said. Some traders also expect the government to lower its auction sizes of 10-year and 15-year bonds, thereby increasing the frequency of auction of these tenures. Some dealers expect the RBI to switch to uniform-price method auctions, from the current multiple-price method, they said. (Cassandra Carvalho)

End

US$1 = INR 93.98

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

Edited by Ashish Shirke

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