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Informist, Wednesday, Mar. 25, 2026

By Aaryan Khanna

NEW DELHI – Most government bonds ended slightly lower as traders lacked the risk appetite to buy bonds despite a fall in crude oil prices, amid overarching uncertainty over the war in West Asia, dealers said. The session was characterised by volatility and relatively low volumes as the market struggled for direction, with investors on the sidelines even as yields have risen to multi-year highs. Some long-term bonds ended higher as traders bet that the share of bonds maturing in over 30 years would fall in Apr-Sept from the calendar for the half-year ended March.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 97.27, down from INR 97.32 Tuesday. The bond closed at a yield of 6.8750%, up from 6.8681% in the previous session. The 10-year benchmark yield closed at its highest level since Sept. 2, 2024. The 2035 bond's price moved between gains and losses in a band of INR 97.20-97.48 Wednesday. Selling pressure reappeared in the latter half of the day amid caution ahead of the market holiday on Thursday for Ram Navami, dealers said.

"The natural buyers are not there despite yields going up. No trader wants to take a view. Even PSU (state-owned) bank ALMs (asset-liability management desks) are not very active", a dealer at a foreign bank said. "I do think the war is winding down, but no investor wants to take a call until the situation actually stabilises."

US President Donald Trump on Monday said there had been negotiations between the US and Iran on a potential ceasefire agreement and halted strikes on Iran's energy facilities for five days. He reiterated that a deal was close on Tuesday, while Iranian officials have denied that any talks have taken place. Media reports on senior US officials travelling to meet Iranian representatives Wednesday cooled Brent crude futures for May delivery below the crucial $100 a barrel mark intraday. The reports raised hopes of a quick end to the war, reducing concerns about domestic inflation and prompting the Reserve Bank of India's Monetary Policy Committee to hike rates in a hurry, dealers said. Some traders, especially from private-sector banks, bought gilts, betting that the military aggression would end this week.

However, some dealers fear that the negotiations will not bear fruit after the US and Israel have killed top Iranian leadership while bombing civilian centres over the past four weeks. Moreover, a normalisation of Brent crude oil prices to $80 a barrel or lower may take a few months, as both supply and output have been hit. State-owned banks, usually the largest buyers as yields rise, have kept to the sidelines, with credit growth taking precedence over increasing investments near the end of the financial year on Tuesday.

"We can't take a call right now and there is no need to take a big position until the situation normalises. There is also a holiday tomorrow (Thursday) and barely any trading opportunity until April now," a dealer at a state-owned bank said. "Most of the volatility is because there are no volumes, nothing else. It's just too risky." In addition to Thursday, money markets are closed on Tuesday and Apr. 1. 

Wednesday, bond prices opened sharply higher, tracking global cues, which kept losses limited. In addition to crude prices easing, the 10-year US Treasury yield also fell to 4.32% at 1700 IST from 4.37% at the end of Indian market hours Tuesday. An intraday rise in Brent crude to over $100 a barrel ate into gains, as did the announcement of a larger-than-expected state bond auction for Friday.

After market hours Tuesday, the RBI said 12 states will raise INR 395.41 billion through bonds Friday. This is much higher than INR 120 billion indicated in the borrowing calendar for Jan-Mar and comes just after 21 states raised INR 548.34 billion through bonds Tuesday. Traders had expected an auction of around INR 300 billion at most, with others expecting the last dated supply in 2025-26 (Apr-Mar) to be only INR 150 billion to INR 200 billion. 

Bond prices recovered slightly after the RBI did not accept any bid at the INR 350-billion Treasury auction Wednesday. Some traders saw this as a signal from the central bank that it is not comfortable with yields trending higher, especially in short-term securities, dealers said. However, others said the decision was likely taken because the government is likely to be sitting on surplus cash after a slew of tax payments that led to significant outflows from the banking system liquidity over the past week.

Traders also await the release of the government's borrowing calendar for the first half of the financial year 2026-27 (Apr-Mar). Informist had reported, citing a senior finance ministry official, that the Centre will release the calendar after market hours Friday. 

Traders expect the borrowing pattern in Apr-Sept to be similar to that in the second half of FY26, in terms of bond tenures, their share in the calendar and the practice of issuing a bond of a particular tenure once every four weeks. The RBI held meetings with the market last month to gauge demand before finalising the half-yearly borrowing calendar with the government. Some investors have also proposed moving to uniform-price auctions rather than multiple-price auctions for government bonds.

In Oct-Mar, 10-15-year papers accounted for 42.6% of the borrowing calendar and were recommended to be cut slightly to around 40%. Bonds maturing in three, five, and seven years accounted for 28% of the Oct-Mar calendar, a figure market participants suggested raising slightly to around 30%. They have also asked the government to borrow 28–30% of the H1 issuance through long-term papers with a tenure of 30 years or more, similar to 29.4% in Oct-Mar.

The government has been reducing the share of long-term bonds in the last two borrowing calendars and some traders were betting on a further reduction of the share of bonds maturing in 30, 40 and 50 years. Others were of the view that the Centre may keep its issuance of bonds maturing in up to seven years lower as these rate-sensitive bonds will turn out of favour if the market begins pricing in rate hikes, dealers said. The divided view kept gains in long-term bonds limited, though they outperformed other tenures during the day.

"Market is taking some punts on borrowing calendar where possible," a dealer at a primary dealership said. "We heard some people have a view that the share of long-term bonds will increase since they (government) will want to avoid borrowing in five-to-seven-year paper due to the redemptions already piled up." The government's gilt repayment is over INR 5 trillion annually until FY32. The government's INR 1.11-trillion worth of gilt switches since February have brought down the maturities in FY27 to INR 4.36 trillion.

Turnover in the government securities market was INR 344.00 billion, down from INR 390.60 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the RBI's wholesale e-rupee pilot on Wednesday, the same as the rest of March. 

OUTLOOK
Money markets are shut Thursday for Ram Navami. On Friday, developments in the war in West Asia and its impact on crude oil prices will be the foremost trigger for bonds. If there is a breakthrough in talks between the US and Iran on a ceasefire, Brent crude futures are seen falling to $85 a barrel and the 10-year gilt's yield may recover to 6.80% as state-owned banks step up purchases. However, if Brent remains above $100 a barrel and there is no certainty on further developments in the war, traders expect bond yields to remain at current levels, which are the highest in over a year.

Some banks may step up purchases of the 10-year benchmark gilt to improve its valuation in their portfolios near the quarter- and financial year-end on Tuesday. With Tuesday also a holiday, profits and losses on Friday will be the last opportunity for entities to realise trading gains on their portfolios in FY26, dealers said. Bonds are settled on a 'T+1' basis and Monday's trades will be settled in the new financial year in April. The 10-year benchmark gilt yield was at 6.58% at the end of FY25.

The result of the state bond auction Friday will also lend cues to gilt prices, with demand seen as modest after supply worth INR 548 billion was absorbed Tuesday. After market hours Tuesday, the RBI said 12 states will raise INR 395.41 billion through bonds Friday, sharply up from INR 120 billion for the week in the indicative calendar.

The RBI's apparent lack of secondary-market gilt purchases, following significant activity in the first half of March, has disappointed traders. The central bank also refrained from announcing any durable measures to infuse liquidity through auction, which are seen as unlikely until at least mid-April, dealers said. After market hours Tuesday, the central bank announced it would conduct two variable rate repo auctions to supply liquidity to the banking system through the end of the financial year on Mar. 31 next week.

Focus will be on the government's borrowing calendar for Apr-Sept, likely to be released Friday. The gross market borrowing for FY27 is likely to be revised down to around INR 16.09 trillion after the government conducted gilt switches bilaterally 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. Informist reported after market hours, quoting a government official, that the government may raise 53-58% of its FY27 gross borrowing target through the issuance of dated securities in Apr-Sept.

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 6.75-6.92% Friday.

India Gilts: Tad down on sales ahead of holiday Thu; borrowing calendar eyed

MUMBAI--1604 IST--Government bond prices came off their highs and were down slightly as traders sold bonds to trim exposure to risk ahead of the market holiday Thursday and release of the borrowing calendar Friday, dealers said. Concern about escalation of the military conflict in West Asia also weighed on prices, they said. Earlier in the day, bond prices had recovered from a fall after the Reserve Bank of India rejected all bids for Treasury bills at its auction. Some public-sector banks are likely to have bought gilts as the yield on the 10-year benchmark 6.48%, 2035 bond seemed attractive, which limited the fall, dealers said.

Bond prices were slightly down on concern of escalation of the conflict in West Asia. Moreover, traders avoided building aggressive positions because of the lack of risk appetite to hold positions ahead of the market holiday Thursday, given that the conflict is continuing, dealers said. Traders also await the release of the government's borrowing calendar for the first half of the financial year 2026-27 (Apr-Mar). Informist had reported, citing a senior finance ministry official, that the Centre will release the calendar after market hours Friday. Most dealers expect the borrowing proportion to be similar to the borrowing calendar for the second half of FY26, dealers said.

Bond prices had recovered after the RBI did not accept any bid at the T-bill auction Wednesday. Some traders saw this as a signal from the central bank that it is not comfortable with higher rates, dealers said. However, others said the result was not much of a shock as the government is likely to be sitting on surplus cash after a slew of tax payments.

At 1604 IST, the turnover in the gilts market was INR 280.95 billion, down from INR 325.90 billion at 1630 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.48%, 2035 bond is seen at 6.75-6.90% during the rest of the day.  (Janwee Prajapati and Diksha Tripathy)

India Gilts: Reverse gain as crude oil price rises, state bond supply large

MUMBAI--1311 IST--Prices of government bonds reversed gains and traded lower after crude oil prices rose above the psychological level of $100 per barrel fuelled by concerns about escalation in the war in West Asia, dealers said. Foreign banks likely sold gilts and this added to the pressure on prices, they said. The larger-than-expected borrowing by states scheduled for Friday also dampened sentiment, dealers said.

People are concerned about escalation of the war, a dealer at a primary dealership said. If there is no de-escalation or no peace talks, prices will drop further, the dealer said. The yield on the 6.48%, 2035 bond could rise to 6.90-7.00%, the dealer added.

At 1200 IST, Brent crude oil traded above $100 per barrel, which pulled down bond prices. Moreover, foreign banks continued selling gilts. They net sold INR 29.60 billion of gilts Tuesday and their sales so far this month total over INR 490 billion. These banks likely sold emerging market bonds and moved to safe haven assets, dealers said.

After market hours Tuesday, the Reserve Bank of India announced 12 states would raise INR 395.41 billion through bonds Friday, which was at the higher end of the range of borrowing expected by market players, dealers said. Traders expect the cut-off yields on the 10-year state bonds will be higher at 7.90-8.00% after the higher cut-offs at the last auction of state bonds. At the auction Tuesday, the cut-offs on states' 10-year bonds ranged from 7.55% to 7.87%, with the highest cut-off coming in at over 100 basis points above the 10-year 6.48%, 2035 gilt.  

Traders expect banks to pick up state bonds maturing between seven and 12 years at the auction to replenish their portfolios after selling bonds to the RBI at its open market operation auctions, dealers said. Long-term bonds being sold by states will see firm demand from insurers, similar to previous auctions of state bonds, they said.

"Spreads will be higher for West Bengal and Uttar Pradesh," a dealer at a private sector bank said. "For UP, we have larger supply, so cut-offs will be higher. So it's a supply-related movement. For West Bengal, this is normally what we have seen, spreads are higher."

At 1311 IST, the turnover in the gilt market was INR 143.45 billion, significantly lower than INR 199.65 billion at 1345 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.48%, 2035 bond is seen at 6.75-6.90% during the rest of the day.  (Janwee Prajapati and Diksha Tripathy)

India Gilts: Off highs on large state bond supply despite drop in oil prices

MUMBAI--0933 IST--Prices of government bonds were up Wednesday, as Brent crude oil futures for May delivery fell below $100 per barrel on expectations of de-escalation in the US-Iran war, dealers said. Gains were limited due to the larger-than-indicated notified size of the state bond auction Friday, dealers said. Twelve states will raise INR 395.41 billion through bonds Friday, more than INR 120 billion indicated in states' borrowing calendar for Jan-Mar. Traders expect high cut-off yields at theauction Friday, though demand from insurance companies and provident funds may pull down the longer end of the state bond yield curve after only one or two large entities' bids were accepted for long-term state bonds at the auction Tuesday, dealers said.  

"Globally, situation has softened, US yields have fallen but these people here are giving us 40,000 crore of supply, so second half (of trading hours) will start seeing a sell-off, people will start shorting (short-selling gilts)," a dealer at a state-owned bank said. 

The 10-year US Treasury yield fell to 4.35% at 0930 IST from 4.37% at the end of gilt market hours Tuesday, tracking the fall in Brent crude prices. Even if the West Asia war shows signs of de-escalation, the 10-year benchmark 6.48%, 2035 gilt is on track to hit 7.00% in the new financial year starting Apr., as gilt supply adds to bond traders' woes. Due to the war in West Asia and elevated crude oil prices, several bond traders expect the Reserve Bank of India's Monetary Policy Committee to begin hiking rates in the second half of 2026, sooner than previously expected. This week, heavy state bond supply of nearly INR 1.00 trillion has put pressure on gilt prices, dealers said. 

At 0933 IST, the turnover in the gilt market was INR 17.35 billion, lower than INR 28.30 billion at 0935 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 6.75-6.90% during the rest of the day.  (Cassandra Carvalho)

India Gilts: Seen up as oil below $100/bbl; heavy state bond supply to weigh

MUMBAI - Prices of government bonds are seen up Wednesday though the rise may not sustain as traders assess several news reports about the direction of the West Asia war, even as Brent crude oil futures fell below the key $100-per-barrel mark. Gilts may see selling pressure as traders grapple with nearly INR 1.00 trillion of state bond supply in a holiday-shortened week, dealers said. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.78-6.95% Wednesday. It ended at INR 97.32, or 6.87% yield in a choppy session Tuesday. Indian financial markets are shut Thursday for Ram Navami. Brent crude oil futures for May delivery traded at $98.51 per barrel at 0800 IST, down from $101.87 at 1700 IST Tuesday. The yield on the benchmark 10-year US Treasury note was 4.35% at 0800 IST, against 4.37% at the end of gilt market hours Tuesday.

Reuters reported that Iran has told the United Nations Security Council that "non-hostile vessels" may pass through the Strait of Hormuz if ‌they coordinate with Tehran's authorities. Meanwhile, citing two officials, the New York Times reported that the US has ordered the deployment of around 2,000 airborne troops to West Asia, even as it has sent Iran a 15-point plan to end the war. The Wall Street Journal reported a figure of around 3,000 soldiers. The financial daily also reported that Saudi Arabia has allowed the US military access to one of its bases, while the United Arab Emirates has closed an Iranian-owned hospital and club, indicating steps into entering the war. 

The Reserve Bank of India, post market hours Tuesday, said 12 states will raise INR 395.41 billion through bond issuances Friday. This is much higher than INR 120 billion indicated in states' borrowing calendar for Jan-Mar, and piles onto supply just after 21 states raised INR 548.34 billion through bonds Tuesday. Several traders were expecting Friday's auction size to be at least INR 300 billion or more, while some expected INR 150 billion to INR 200 billion, dealers said. Bond prices had fallen Tuesday after the result of the state bond auction disappointed traders, with the cut-off yield on Sikkim's 10-year bond around 100 basis points higher than that of the benchmark 10-year 6.48%, 2035 bond. Similar yield spreads are expected Friday, dealers said.

Focus will also be on the government's borrowing calendar for Apr-Sept, which is likely to be released by the end of the week, dealers said. The gross market borrowing for FY27 is likely to be revised down to around INR 16.09 trillion after the government conducted gilt switches bilaterally with the RBI and in the market. Traders expect more supply of gilts in bonds maturing within five to seven years, dealers 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 Saji George Titus

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