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Informist, Friday, Mar. 27, 2026

By Aaryan Khanna

NEW DELHI – Government bond prices ended sharply lower Friday as fears of fiscal slippage in 2026-27 (Apr-Mar) added to prevailing worries about a rate hike by the Reserve Bank of India's Monetary Policy Committee due to the rise in crude oil prices following the war in West Asia, dealers said. Traders also trimmed their gilt holdings to pick up higher-yielding state bonds, with the intraday rise in US Treasury yields and crude oil prices further weighing on bond prices.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 96.82, sharply down from INR 97.27 Wednesday. The bond closed at a yield of 6.9419%, up from 6.8750% in the previous session. Money markets were shut on Thursday for Ram Navami. The 10-year benchmark yield closed at its highest level since Jul. 26, 2024. The benchmark yield has risen for the past 10 sessions.

Early Friday, the government announced it has cut excise duty on petrol and diesel by INR 10 per litre each to help oil marketing companies with their underrecoveries on pump prices, without changing pump prices. At the same time, it announced fresh duties on exports of diesel and aviation turbine fuel. Central Board of Indirect Taxes and Customs Chairman Vivek Chaturvedi said Friday that the revenue loss from the excise duty cut will be INR 70 billion per fortnight, while the duty imposition will add INR 15 billion to the government's coffers.

On an annualised basis, the net drawdown in government revenues would be INR 1.43 trillion, though the current rate of INR 55 billion may change as the government will revisit the export duties every fortnight, dealers said. Dealers had initially expected a hit of between INR 1.00 trillion and INR 1.50 trillion in 2026-27 (Apr-Mar). While traders were not immediately worried about a rise in the Centre's gross borrowing, as the new fiscal year has yet to begin, they were wary of the mounting fiscal cost of the war in West Asia and its impact on the Indian economy. 

Moreover, the impact on the exchequer will likely be reduced if the government allows oil marketing companies to raise pump prices at the end of April after the state elections. The RBI's dividend transfer in May, likely a record, is also likely to help the government meet its fiscal deficit target while keeping gross borrowing unchanged. The record RBI dividend would have otherwise strengthened the fiscal position in FY27, which will now be used to normalise the government's finances, dealers said.

"No matter what, it's going to be a big hit if it continues for more than a month. Fiscal math will have to change to account for it if crude is still around these levels by April-end," a dealer at a state-owned bank said. "The market is not really worried about extra borrowing right now, but the wheels are turning in everyone's head about how much the loss will be over the course of the year if the war extends."

Traders were already worried that retail inflation would rise due to the impact of the war in West Asia, prompting the Monetary Policy Committee to raise rates as early as June. Brent crude futures for May delivery climbed to $110.68 a barrel at 1700 IST from $106.89 a barrel at 0900 IST, weighing on gilt prices. Oil marketing companies had raised domestic liquefied petroleum gas cylinder prices by 7% as early as Mar. 7, along with a hike in commercial cooking gas cylinder prices, only a week into the war in West Asia. Oil companies last week raised industrial diesel prices by nearly 25% to INR 109.59 a litre.

With the government citing that oil companies are incurring a loss of nearly INR 24 billion per day from selling petrol and diesel at current prices, traders were more certain of a fuel price hike soon, dealers said. Private fuel retailers, which serve around 10% of the market, have already raised prices by INR 5 a litre.

The 10-year US Treasury yield also topped 4.46% by 1700 IST, hitting an eight-month high. While foreign banks were likely on the selling side in the bond market, such traders also aggressively covered their bets as the 10-year 6.48%, 2035 gilt's yield rose to an intraday high of 6.95%. Some private-sector banks and primary dealers also covered their bets. However, the only stable purchases came from state-owned banks, which considered current yields lucrative, preventing the 10-year gilt's yield from rising beyond 6.95%, dealers said. 

However, several traders also said India's GDP growth would slump as a result of shortages caused by the effective standstill of vessels near the Strait of Hormuz during the war, which would prevent a rate hike in a hurry, dealers said. The government has curtailed the supply of LPG to industries and commercial establishments, likely adversely affecting growth. Reports have also said that some fuel pumps have shut down across states despite the government's assurances of adequate fuel supplies.

Meanwhile, the result of the state bond auction was worse than expected, and some traders who bid for bonds at higher yields unexpectedly got some stock, prompting them to sell gilts late in the day, dealers said. Poor demand from long-term investors pushed up cut-off yields on some state bonds maturing in 15 years or more over 8% for the first time since July 2022. The appetite of life insurers and pension funds for state bonds had likely been fulfilled as the March-quarter state bond issuances reached a quarterly record of INR 5.23 trillion, dealers said. In FY26, total state bond issuance rose 19% on year to a record INR 12.77 trillion.

"Maybe by the close, there was some additional selling. Traders had bid negatively (at higher yields) and got hit by the supply," a dealer at a private-sector bank said. "Honestly, there is nothing to be done in such a market, all the traders will be out, it is like trying to catch a falling sword."

Traders also looked ahead to the release of the government's borrowing calendar for dated securities for Apr-Sept and for Treasury bills for Apr-Jun. Informist had reported, quoting a government source, that the Centre may borrow 53-58% of its full-year revised target in the first half of the coming fiscal. The gross market borrowing in 2026-27 is likely to have fallen to INR 16.09 trillion from the budgeted INR 17.20 trillion, due to the gilt switches the government conducted after Feb. 1.

Traders had pencilled in gross borrowing of around INR 8.50 trillion, or around 53-55% of the revised target, in Apr-Sept. Most traders did not expect any changes to the tenures that the government would issue or the frequency per bond at the auction. However, some traders expect the RBI to change the auction mode from the current multiple-price method to the uniform-price method to attract long-term investors.

Turnover in the government securities market was INR 359.90 billion, similar to INR 344.00 billion Wednesday, 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 Friday, the same as the rest of March.

OUTLOOK

Gilts are not traded on Saturdays. Gilt prices may rise sharply Monday after the Apr-Sept borrowing calendar was lighter than market estimates, dealers said. After market hours Friday, the government said it will borrow INR 8.20 trillion through the issuance of dated securities in Apr-Sept, lower than expectations of around INR 8.50 trillion to INR 8.90 trillion.

Long-term bonds are likely to rise sharply as their share of borrowing has come down to less than 25% from 29.4% in Oct-Mar. On the other hand, bonds maturing in up to 15 years may underperform, as their share of issuance has increased compared with the previous half-year. The gross Treasury bill issuance of INR 2.88 trillion was also slightly lower than market estimates, dealers said. 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. 

The rise in prices may be limited due to uncertainty over the war in West Asia, especially with high crude oil prices. Developments over the weekend may lend cues. Fiscal worries have added to rate hike fears after the government cut excise duty on petrol and diesel on Friday, though these may be allayed somewhat by the light borrowing calendar in the first half, dealers said.

The RBI's lack of secondary-market gilt purchases, following significant activity in the first half of March, has disappointed traders. Data released Friday showed the RBI bought only INR 100 million worth of gilts in the week to Mar. 20 after buying nearly INR 900 billion in the secondary market in the previous four weeks, in addition to INR 1 trillion from open market operation auctions. 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.

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% Monday.

India Gilts: Remain sharply dn post state bond results; some cut-offs top 8%

NEW DELHI--1615 IST--Government bond prices remained sharply down after the results of the state bond auction, where 11 states raised INR 399.92 billion. This was less than the notified INR 429.41 billion, but poor demand pushed up cut-off yields on some state bonds maturing in 15 years or more over 8% for the first time since July 2022.

Traders had expected a rise in cut-off yields at the second large state bond auction this week, though none had expected yields above 8%. The appetite of life insurers and pension funds for state bonds had likely been fulfilled as the March-quarter state bond issuances reached a quarterly record of INR 5.23 trillion, dealers said. Banks and traders were not keen to buy bonds with longer maturities, especially due to uncertainty on the global front and volatility in the domestic fixed income market, they said.

The auction result had little impact on gilt prices, which remained sharply lower due to fresh supply and worries about additional borrowing in 2026-27 (Apr-Mar) following an excise duty cut on petrol and diesel.  The government is likely to incur a revenue loss of INR 70 billion fortnightly due to the excise duty cut of INR 10 per litre on petrol and diesel, announced earlier in the day, Central Board of Indirect Taxes and Customs Chairman Vivek Chaturvedi said Friday. Meanwhile, the rupee fell to a record closing low of 94.8125 a dollar Friday, with the weakness of the domestic unit seen driving away foreign portfolio investors.

An intraday rise in Brent crude futures for May delivery to $110 per barrel and the 10-year US Treasury yield topping 4.45%, hitting an eight-month high, also weighed on gilt prices, dealers said. However, fresh sales from the adverse triggers were offset by both short-covering and value buying from state-owned and private-sector banks, dealers said. Several traders met their target on short-selling gilts when the 10-year benchmark 6.48%, 2035 gilt's yield hit a 20-month high of 6.95% earlier in the day. 

"Around these levels, there should be natural buying, but we should have been here three weeks ago," a dealer at a primary dealership said. "Because of the RBI actions, no one could trade on the short side (place short bets), so now we have broken through all sorts of levels." The RBI bought INR 1.8 trillion worth of gilts in the primary and secondary markets in the first half of March to offset the liquidity impact of its dollar sales aimed at protecting the rupee.

The central bank has largely been absent from on-screen purchases over the last two weeks, but some traders expect it to buy bonds near the close of trade at 1700 IST. After the sharp rise in yields due to the uncertainty about the war in West Asia, RBI may look to rein in the rise ahead of the announcement of the Centre's borrowing calendar for Apr-Sept and its return to issuing bonds, dealers said. The last auction of gilts was on Mar. 6.

At 1615 IST, the turnover in the gilts market was INR 302.10 billion, up from INR 285.75 billion at 1630 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Money markets were shut Thursday for Ram Navami. The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.88-7.00% for the rest of the day. (Aaryan Khanna)

India Gilts: Remain dn in choppy trade; poor demand seen at state bond sale

MUMBAI--1353 IST--Prices of government bonds remained sharply down, but sporadically recovered some losses on likely purchases at levels seen lucrative, dealers said. The intraday fall of the rupee to record lows weighed. Demand at the INR-429.41-billion state bond auction is seen poor due to nearly INR 1.00 trillion of state bond supply in a holiday-shortened week, dealers said. Several traders expect cut-off yields on state bonds maturing in 15 years or more at 8.00% or above.

At the state bond auction, some mutual funds and insurance companies likely bid for long-term papers, but large investors gave the auction a miss after purchasing bonds at the auction Tuesday, some dealers said. However, long-term state bonds could be better bid than short-term bonds. Demand from banks was tepid, with several traders expecting some states to reject bids for some bonds due to bids at sharply higher yields than the auction Tuesday, dealers said. An Informist poll estimated the cut-off yields on states' 15-year bonds at 7.90% Friday.  

"Banks have bid terribly for state bonds. Who will want to buy with 1-lakh-crore supply in the same week?" a dealer at a state-owned bank said. 

In the secondary market, some traders speculated that the Reserve Bank of India or other large entities were purchasing gilts on-screen, as prices were off the day's lows. Some banks purchased gilts at levels seen attractive and covered short bets after the yield on the 10-year benchmark gilt hovered near its highest since July 2024. However, most dealers trimmed their bond holdings as the Centre's cut in excise duty on petrol and diesel raised chances of higher gross borrowing in FY27, clouding the outlook for Indian bonds which are already pricing in rate hikes and higher inflation in the next twelve months due to supply disruptions amid the West Asia war. The 10-year 6.48%, 2035 benchmark bond yield is seen hitting 7.00% going into FY27, dealers said, with some expectations of hitting that yield Friday itself. 

Nearing the end of trade, dealers will track data from the RBI's Weekly Statistical Supplement to ascertain if the central bank purchased gilts on-screen in the week ended Mar. 20. Between Mar. 13 and Mar. 19, the 'Others' segment of gilt market participants, which includes insurance companies, provident funds, and the RBI, net purchased gilts worth INR 20.14 billion, as per data from Clearing Corp. of India. The RBI accounts for its on-screen gilt trades based on the day of settlement. Post market hours, traders also await the release of the Centre's borrowing plan for Apr-Sept FY27. 

At 1353 IST, the turnover in the gilts market was INR 208.50 billion, up from INR 148.30 billion at 1330 IST Wednesday, 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 6.85-7.00% during the rest of the day. (Cassandra Carvalho)

India Gilts: Tumble; Centre revenue seen hit up to INR 1.5 tln on excise cut

MUMBAI--1034 IST--Prices of government bonds slumped with the benchmark 10-year bond yield hitting 6.9523%, its highest since Jul. 25, 2024, on fears that the Centre would have to forgo a revenue of between INR 1.00 trillion and INR 1.50 trillion in the financial year 2026-27 (Apr-Mar) following the cut in excise duty on petrol and diesel, dealers said. A slump in the rupee against the dollar and a sharp rise in Brent Crude futures and US Treasury yields since the end of gilt market hours Wednesday also weighed on bond prices, dealers said.

Considering the rise in crude oil prices, the government has chosen to take a hit on its finances to avoid increasing the retail price of petrol and diesel, Petroleum and Natural Gas Minister Hardeep Singh Puri said in a post on the social media platform X. The annualised fiscal hit to the government is seen at approximately INR 1.55 trillion, Madhavi Arora, chief economist, Emkay Global Financial Services, said.

"Around (INR) 1-1.5 (trillion) is the number we're hearing (for revenue loss to the Centre), and sentiment is already weak, crude and US yields have risen (since Wednesday)," a dealer at a private-sector bank said. "The OIS (overnight indexed swap) curve is not overpricing in rate hikes, it's a realistic expectation, now a rate hike is on the cards this (calendar) year itself, possibly June." Due to the surge in global energy prices in March, several traders expect the Reserve Bank of India's Monetary Policy Committee to raise the repo rate as early as June. According to an Informist Poll, in the worst-case scenario where the military conflict in West Asia drags on for the rest of 2026, economists expect the Monetary Policy Committee to raise the repo rate by up to 50 basis points from the current 5.25% in the current calendar year. 

Several traders hit stop-losses due to the slump in bond prices. Some were expecting bond yields to rise in the near term, and the 10-year benchmark bond yield is on track to hit 7.00% going into FY27, unless there is support from the RBI, they said. So far this week, there has been no indication of the central bank purchasing gilts on-screen, contrary to what was expected, dealers said. The fall in prices was limited, and the 10-year 6.48%, 2035 bond yield was off highs on purchases by state-owned banks at levels seen as attractive, and some traders covered short bets, they said. 
 

"Some stop-losses were definitely hit, at around 6.91% (yield on the 10-year benchmark bond), but these yields are so good to buy right now, there's value-buying happening," a dealer at a state-owned bank said.

The large state bond supply also weighed on gilt prices, dealers said. The RBI after market hours Wednesday had raised the notified size of the state bond auction Friday to INR 429.41 billion from INR 395.41 billion in an earlier release. Bond traders were already grappling with heavy state bond supply this week after states raised INR 548.34 billion through auction Tuesday.

At 1034 IST, the turnover in the gilts market was INR 77.75 billion, up sharply from INR 32.25 billion at 1030 IST Wednesday, 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 6.85-7.00% during the rest of the day.  (Cassandra Carvalho)

India Gilts:Seen dn on higher state bond supply Fri; H1 borrow calendar eyed

MUMBAI – Prices of government bonds are seen opening lower Friday, after the Reserve Bank of India raised the notified size of the auction of state government bonds for Friday, dealers said. Elevated Brent crude oil prices and a rise in US Treasury yields will also weigh on bond prices, they said. Caution ahead of the expected release of the Centre's borrowing calendar for Apr-Sept post market hours may prevent a sharp movement in bond prices. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.78-6.95% Friday. It ended at INR 97.27, or 6.8750% yield Wednesday, the highest closing yield for a 10-year benchmark bond since Sept. 2, 2024. Indian financial markets were shut Thursday for Ram Navami. Brent crude oil futures for May delivery traded at $105.94 per barrel at 0815 IST, up from $97.98 at 1700 IST Wednesday. The yield on the benchmark 10-year US Treasury note was 4.41% at 0815 IST, up from 4.32% at the end of gilt market hours Wednesday, hovering near its highest since July.

The Reserve Bank of India post market hours Wednesday raised the notified size of the state bond auction Friday to INR 429.41 billion from INR 395.41 billion in the prior release. Bond traders were already grappling with heavy state bond supply this week after states raised INR 548.34 billion through auction Tuesday. However, demand for long-term state bonds is seen robust as several insurance companies and other long-term investors missed out on supply Tuesday, and only one or two large entities picked up stock, dealers said. 

Post market hours Friday, traders expect the release of the Centre's borrowing calendar for Apr-Sept. Informist had Wednesday reported that the government would release the calendar indicating its market borrowing plan for Apr–Sept after market hours on Friday, citing a senior finance ministry official. Informist also reported that the Centre may raise 53-58% of its gross borrowing target for 2026-27 (Apr-Mar) in the first half of the financial year. Traders also await the size of weekly auctions, with most expecting a reduction in the notified size of 10-year bond auction, compared to INR 320 billion in the Oct-Mar FY26 calendar. Some traders also expect a shift to uniform-price method auctions, from the multiple-price method being used currently.

Traders may also assess the impact of the Centre's cuts in excise duty on petrol and diesel Friday and its impact on revenue, dealers said. The movement of the rupee against the dollar will also lend direction to bond prices, they said.  (Cassandra Carvalho)

End

US$1 = INR 94.81

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

Edited by Saji George Titus

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