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Informist, Thursday, Apr. 2, 2026

By Aaryan Khanna

NEW DELHI – Government bonds began the new financial year that started on Wednesday with a whimper. Yields shot up for the second straight session on Thursday and the 10-year benchmark yield rose for the 12th session in a row. Risk appetite soured ahead of a long weekend due to uncertainty about the war in West Asia, with crude oil prices and US Treasury yields rising intraday. There was further selling pressure after cut-off yields at the INR 290-billion auction were set higher than expected, dealers said.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 95.55, plunging 65 paise from INR 96.20 Monday. Money markets were shut on Tuesday and Wednesday. The bond closed at a yield of 7.1329%, nearly 10 basis points higher than 7.0345% in the previous session. The benchmark gilt yield ended at its highest closing level since May 8, 2024.

Traders had hoped for signs of the war drawing to a close amid reports of negotiations by the two sides, including over the two days that India's money markets were shut. A day after saying Iran had asked the US for a ceasefire, US President Donald Trump early Thursday vowed to hit Iran "extremely hard" in the next two to three weeks. Brent crude oil futures for June delivery surged to $109.51 a barrel at the end of Indian market hours Thursday, after settling below $100 a barrel Wednesday. The 10-year US Treasury yield rose to 4.38%, near the top of its trading range in the last eight months.

Traders have also been disappointed that the Reserve Bank of India has stepped away from open market operations after the first half of March and has not signalled any discomfort with gilt yields rising, including at the auction Thursday, dealers said. The geopolitical risk and negative offshore triggers hurt appetite for gilts even as yields rose to multi-year highs.

"We are staring at three, potentially four days where Trump can do what he wants since the markets are shut," a dealer at a private-sector bank said. Financial markets in India and the US are shut Friday for Good Friday. "Since he has not shut the Iran chapter in today's speech, the market generally has no sense of direction and people can't hope to carry any risk these days."

Traders also cited the sharp mark-to-market losses they were facing daily over the past few days due to lack of RBI support in the market, poor investor appetite, and concerns over rising inflation. In its losing run since Mar. 11, the 10-year benchmark yield has itself has risen nearly 50 basis points, leading to a fall of more than INR 3 in the 6.48%, 2035 gilt. 

High crude oil prices through March due to the effective closure of the Strait of Hormuz will likely affect the rest of the economy, with prices of other commodities also rising in recent days and likely to push up CPI inflation in the coming months, dealers said. This may even lead to rate hikes by the RBI's Monetary Policy Committee. Near-term overnight indexed swap rates are pricing in a 25-basis-point rate hike at the upcoming rate decision on Wednesday.

Most traders do not expect an immediate rate hike, especially with India's GDP growth likely to be hurt by the slowdown in exports and curbing of economic activity from higher energy costs. Short-term gilts maturing up to five years have already priced in more than one rate hike of 25 bps in 2026, making it an attractive buy, though even state-owned banks feared taking big bets during the volatility in the market. Moreover, CPI inflation is unlikely to top the upper bound of the RBI's 2-6% tolerance band unless the war goes on for several more months, giving the MPC a buffer to hold rates in the near-term, dealers said.

Heavy sales from foreign portfolio investors in a thin market added to the rise in yields, with their activity ramping up over the last two sessions, dealers said. FPIs sold over INR 40 billion of fully accessible route gilts on Thursday, bringing their two-session total from this week to INR 73.18 billion, according to Clearing Corp. of India data. 

Dealers said this was triggered by the RBI's new rules curbing foreign exchange derivative trades by authorised dealers in India. This made foreign investors' offshore positions profitable at the cost of domestic players. This was why the 1.8% rise in the rupee to 93.10 a dollar by the end of trade Thursday did not have a major positive impact on gilt prices, dealers said.

"FPIs are very happy with the RBI's new norms, it has allowed them to make a killing in the offshore market (on their foreign exchange positions)," a dealer at another private-sector bank said. "So they are exiting gilts even at a 5-10 basis point loss on their positions, just trying to exit the market."

The volatility was enhanced by thin trading volumes in the first part of the day, which picked up only after the auction result. Turnover in the government securities market was INR 427.30 billion, similar to INR 432.45 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

The government raised the notified INR 290 billion in its first debt sale of the fiscal. The cut-off yield for the INR 170 billion supply of the 6.68%, 2040 bond was 3 basis points higher at 7.53% than the median estimate in an Informist Poll. The cut-off on the 7.43%, 2076 bond also topped the median estimate by 3 basis points, at 7.88%.

Investors demanded higher yields due to the geopolitical risks, especially with large mark-to-market losses in store for if yields rose further, dealers said. Banks parked the 15-year benchmark bond in their held-to-maturity books and mutual funds sold gilts of other maturities to pick up fresh stock of the 2040 gilt as its returns were seen lucrative. Life insurers and pension had limited cash to deploy into long-term term gilts after investing funds in the record supply of state bonds in the March quarter, especially with the quasi-sovereign securities offering yields higher than 8% in the final auction of 2025-27 (Apr-Mar).

Still, the INR 120-billion supply of the 50-year bond was better absorbed due to reduction in the share of ultra-long bonds by the government, dealers said. The share of bonds maturing in 30-50 years has fallen to less than 25% in the Apr-Sept borrowing calendar, down 10 percentage points from the previous year and substantially from the 29.4% share in the half-year ended March.

"The government has done a smart thing in keeping the long-term supply lower," a dealer at a primary dealership said. "At least this way even a few big insurers or funds are enough to help the auctions sail through."

Some traders had expected the RBI to reject all or some bids for bonds as cut-off yields spiked. The central bank had rejected all bids for Treasury bills worth INR 350 billion at the last such auction in FY26 and the government did not schedule an auction for T-bills this week, seen by traders as a sign of a large cash balance. On the other hand, several traders had feared the RBI would partially devolve the supply on underwriters.

With neither scenario coming through, traders were of the view that the RBI was not uncomfortable with the market demanding high yields for government bonds amid the global uncertainty. This effectively signalled that yields could continue to climb until the central bank's next communication at the rate decision on Wednesday, dealers said.

Meanwhile, there were no trades using the RBI's wholesale e-rupee pilot Thursday. The tool has remained out of use since February, with treasuries entirely giving it a skip in March.

OUTLOOK

India's financial markets are shut Friday for Good Friday. On Monday, bonds may open steady as the three-day Monetary Policy Committee meeting begins. Gilt yields may track the movement of Brent crude oil futures and developments in West Asia over the long weekend. The movement in US Treasury yields ahead of the release of jobs data for March in the world's largest economy may also lend direction.

Even with the geopolitical events in focus over the past month, the reaction of the domestic rate-setting panel will now be a bigger trigger for gilt prices and trade volumes may be low till the rate decision on Wednesday, dealers said. The commentary of the committee and of RBI members on both growth and inflation will be key, especially for rate-sensitive short-term bonds. A minority of market participants expects the MPC to hike the repo rate by 25 bps, both in the face of inflationary pressures and to protect the rupee.

Most traders expect a "hawkish" pause on the repo rate, with commentary likely to set the stage for rate hikes. The RBI is likely to peg its inflation forecast for FY27 at around 4.60%, dealers said. 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 MPC to raise the repo rate by up to 50 bps from the current 5.25% in 2026. The one-year overnight indexed swap rate is pricing in 100 bps of rate hikes over the next 12 months, dealers said.

Due to the rate cues coming from the conflict, and after the Centre published its borrowing calendar for Apr-Sept, traders expect the bond yield curve to "bear-flatten", they said. Foreign portfolio investors may continue selling fully accessible route bonds, weighing on prices. The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.95-7.20% Monday.

India Gilts: Remain sharply down as auction cut-off prices lower than view

MUMBAI--1640 IST--Prices of government bonds remained sharply down as cut-off prices at INR 290-billion auction came in lower than expected, especially with Brent crude oil prices and US Treasury yields rising intraday, dealers said. The Reserve Bank of India Thursday set a cutoff of INR 92.63 for 6.68%, 2040 gilt and INR 94.38 for 7.43%, 2076 gilt at the auction. This is sharply lower than the Informist poll of INR 92.88 for 6.68%, 2040 gilt and INR 94.75 for 7.43%, 2076 bond.

Foreign banks, mutual funds, and private-sector banks continued to sell bonds in the secondary market which led to a further fall in the bond prices, a dealer at a primary dealership said. Even public-sector banks, which are usually on the buying side, were not actively present in the trading session Thursday, except for a few big ones, the dealer added. Traders' risk appetite was dull ahead of the long weekend with uncertainty on the war in West Asia between the US-Israel and Iran. 

"Volumes (in the gilts market) are really low because at this point there is so much of uncertainty that no one wants to build positions. One post by (US President Donald) Trump can change the game," a dealer at a private-sector bank said. 

Traders now await decisions by the Monetary Policy Committee next week for the RBI's commentary on India's growth and inflation outlook due to the war. The MPC meeting is scheduled Mon-Wed. While most traders expect the rate-setting panel to maintain status quo, near-term overnight indexed swap rates are pricing in a 25-basis-point repo rate hike in response to rising price pressures from the war. The commentary is likely to be less accommodative than in February, dealers said.

"If the war continues for a month or so, we might see a rate hike by the RBI," the private-sector bank dealer said.

Market participants hope for some measure or buying action by the RBI to prevent further rise in bond yields as it did in the foreign exchange market to limit fall of rupee either at or before the rate decision, dealers said. The yield on 10-year benchmark 6.48%, 2035 bond is expected to cross 7.20% as soon as next week if the RBI does not announce open market operations to buy bonds at auction, or purchases gilts on-screen directly.

At 1640 IST, turnover in the gilt market was INR 383.20 billion, slightly up from INR 367.70 billion at 1630 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Volumes rose sharply over the past hour due to the auction result. Money markets were shut on Tuesday and Wednesday on account of Mahavir Jayanti and annual closing of banks, respectively. Financial markets will be shut Friday for Good Friday. (Diksha Tripathy)

India Gilts: Fall more after auction result; further rise in crude oil weigh

MUMBAI--1430 IST--Prices of government bonds fell more Thursday after the result of the INR 290-billion weekly gilt auction showed demand for the first supply of gilts in the new financial year was poor. An intraday rise in crude oil prices and US Treasury yields continued to weigh on bond prices, dealers said. At the day's high, the yield on the 10-year benchmark 6.48%, 2035 gilt was at 7.1163%, its highest since May 14, 2024.

The government sold INR 170 billion of the 6.68%, 2040 bond and INR 120 billion of the 7.43%, 2076 bond at 1030-1130 IST. With cut-off yields expected to be high and primary dealers demanding cut-offs of over 7 paise on the 2040 bond and 10 paise on the 2076 gilt for underwriting, some traders expected the RBI to reject all or a partial amount of bids for the bonds at auction. The government did not accept any bids for INR 350 billion of Treasury bills last week and has foregone supply in the short-term instrument this week, which is seen as a sign of high cash balances and the central bank's displeasure with high yields demanded by the market, dealers said.

However, if the government chose to borrow at higher yields while devolving the supply on underwriters, bond prices were expected to fall further. Neither eventuality took place as the Reserve Bank of India accepted bids worth the notified amount. However, cut-off prices were sharply lower than expected. The RBI set the cut-off on the 2040 gilt at INR 92.63, against the INR 94.88 median in an Informist Poll. Similarly, the 2076 bond's cut-off price was INR 94.38, lower than the INR 94.75 median of the poll.

Banks picked up the 2040 bond for their held-to-maturity portfolios though they demanded higher yields to park it there. Mutual funds also bought the 15-year bond as its spread over the 10-year benchmark 6.48%, 2035 gilt was over 40 basis points, considered lucrative, dealers said. Large investors were not aggressive in their bids due to the continued uncertainty over the war in West Asia, a long weekend coming up, and the mark-to-market losses already showing in their portfolios despite trimming their bond holdings.

"Auction result was more or less on the expected lines but it was not aggressive," a dealer at a private-sector bank said. "The fall in prices is still auction-related only since people were expecting cancellation but it went through."

These factors weighed on demand for the 50-year benchmark gilt as well. While the supply was not large, long-term investors such as pension funds and life insurers had limited cash on hand to absorb supply right at the beginning of the financial year after having deployed it at the end of the previous fiscal, dealers said. The share of bonds maturing in 30-50 years has fallen to less than 25% in the Apr-Sept borrowing calendar, down nearly 10 percentage points from a year ago and 5 percentage points from the Oct-Mar issuance pattern. With the 7.43%, 2076 bond not traded Thursday and generally illiquid, traders avoided picking up the gilt. Banks' bids for bond forwards and forward-rate agreements with insurers also likely did not top INR 20 billion, dealers said.

Gilt prices remained under pressure even before the result as Brent crude oil futures for June delivery topped $108 per barrel intraday and were near the psychologically crucial $110 a barrel mark, after US President Donald Trump vowed to hit Iran "extremely hard" in next two to three weeks. Traders had hoped for some positive news on US-Iran war ceasefire which led to crude oil prices falling below $100 per barrel early Thursday. The benchmark 10-year US Treasury yield was at 4.38%, near the top of its trading range over the last eight months.

"Trump shattered those hopes by not providing clarity on the timeline of the war," a dealer at another private-sector bank said.

The global trigger outweighed the impact of the rupee's appreciation on the bond prices. The rupee rose over 2.0% to 92.86 a dollar Thursday, with the currency helping prevent some losses in gilts, dealers said.

The rupee's strength will not spark additional inflows from foreign portfolio investors into gilts as the RBI had effectively reduced the convertibility of the rupee through its measures to limit the currency's depreciation, dealers said. Last week, the regulator curbed authorised dealers' onshore net open positions at $100 million by Apr. 10 and doubled down on it Wednesday by preventing them from offering non-deliverable derivatives involving the rupee to clients.

"Market was already expecting the rupee to appreciate. It (rupee) was supposed to go up starting on Mar. 30 (Monday) only, but maybe banks did not act that day. Now, they (banks) are acting on it (RBI norm)," the second dealer said.

At 1430 IST, turnover in the gilt market was INR 314.10 billion, up from INR 272.95 billion at 1435 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Volumes rose sharply over the past hour due to the auction result. Money markets were shut on Tuesday and Wednesday on account of Mahavir Jayanti and annual closing of banks, respectively. Financial markets will be shut Friday for Good Friday. (Diksha Tripathy and Aaryan Khanna)

India Gilts: Open lower due to lack of clarity on end of US-Iran war

MUMBAI--0912 IST--Prices of government bonds opened lower Thursday as crude oil prices climbed again after US President Donald Trump warned of more strikes on Iran in the next two to three weeks, dealers said. Traders had expected Trump to signal a move towards ceasefire, but the US president did not provide clarity on the end of the war in West Asia. Brent crude oil futures traded at $106 per barrel, as against nearly $115 at the end of Indian market hours Monday, but were up from just below $100 before Trump's address.

Market participants see the 10-year 6.48%, 2035 benchmark gilt moving in the range of 6.95% to 7.10%. The jump in crude oil prices dominated the impact of a higher rupee and the fall in US treasury yields. At 0912 IST, the benchmark 10-year US Treasury yield was 4.38%.

Traders also await the weekly gilt auction Thursday in which the government will sell INR 170 billion of the 6.68%, 2040 bond and INR 120 billion of the 7.43%, 2076 bond. Traders expect demand for these papers to be firm. Public sector banks and mutual funds are likely to buy these bonds to add to their held-to-maturity books, dealers said. The attractive spread on the 15-year bond over the 10-year bond will also keep demand for the 6.68%, 2040 robust, dealers added. Expectations of lower GDP growth and lower supply of long-term bonds in the borrowing calendar for Apr-Sept are likely to support demand for long-term bonds.

Dealers expect the yield on 10-year benchmark gilt to stay 7% for a few days due to uncertainties about how long the war will last. They, however, are not sure if the Reserve Bank of India will intervene to purchase gilts in the secondary market Thursday. Market participants will closely track the movement in crude oil prices and US yields, apart from the rupee. 

At 0912 IST, the turnover in the gilt market was INR 16.45 billion, sharply lower than INR 34.75 billion at 0940 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Money markets were shut on Tuesday and Wednesday on account of Mahavir Jayanti and annual closing of banks, respectively. Thursday is the only trading session for the rest of the week, as financial markets will be shut Friday for Good Friday. (Diksha Tripathy)

India Gilts: Seen up as crude oil price down from Mon; auction result eyed

MUMBAI – Prices of government bonds are seen opening higher Thursday as the market adjusts to Brent crude oil futures, which firmed up early Thursday but are down from Monday, the last day Indian government bonds were traded, dealers said. Easing of US Treasury yields will also help Indian bond prices, dealers added. Some traders are likely to cover short bets placed ahead of the first scheduled weekly gilt auction in financial year 2026-27 (Apr-Mar), which will also help bond prices. Later in the day, bond prices will track the result of the INR 290-billion gilts auction, dealers said.

The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.95-7.15% Thursday. It had ended at INR 96.20, or 7.0345% yield Monday, the highest closing yield for the 10-year benchmark since Jun 4, 2024. 

Traders expect the yield on 10-year benchmark bond to open between 6.95% and 7.00% following comparatively lower prices of Brent crude May futures, which traded above $106 per barrel at 0730 IST Thursday, down from near $115 per barrel at 1700 IST Monday.

US Treasury yields also are down from Monday but have firmed up after US President Donald Trump said the US would hit Iran very hard in the next two to three weeks. The yield on the benchmark 10-year US Treasury note was 4.36% at 0730 IST, down from 4.38% at the end of Indian trading hours Monday but up from 4.31% earlier. US job openings slipped to 6.9 million in February from 7.2 million in January. Hiring fell to its lowest level since April 2020, with nearly 4.8 million workers finding roles in February, the Labor Department's monthly job openings and labor turnover survey showed.

At the weekly gilt auction Thursday, the government will sell INR 170 billion of the 6.68%, 2040 bond and INR 120 billion of the 7.43%, 2076 bond. Traders expect demand for the 6.68%, 2040 bond to be robust, given the attractive spread of the 15-year benchmark bond over the 10-year benchmark bond. Banks may add the 15-year paper to their held-to-maturity books due to attractive yields on this bond, dealers said. The 50-year paper will also be in demand due to a reduction in supply of long-term bonds in the Apr-Sept borrowing calendar, they said. Traders expect the cut-off on the 15-year bond to be between 7.45% and 7.47%, a tad higher than the secondary market yield on bonds of this maturity.

Traders expect short-term bonds to remain under pressure given the expectations of a hike in the benchmark Reserve Bank of India repo rate as inflation is expected to rise due to the war in West Asia, dealers said. Moreover, a larger supply of short-term bonds in the Apr-Sept borrowing calendar will also pull down prices of these bonds, dealers said. 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 RBI repo rate by up to 50 bps from the current 5.25% in 2026.

Long-term bonds, on the other hand, will likely remain supported by expectations of lower GDP growth and a lower supply of these bonds in the borrowing calendar for the first half of the current financial year, dealers said. This will lead to a flattening of the yield curve, they said.

Traders are likely to refrain from holding aggressive positions and will remain on the sidelines Thursday as it is the only trading session for the rest of the week, dealers said. Financial markets will be shut Friday on account of Good Friday. As banks unwind their long-dollar bets to meet regulatory requirements, traders expect the rupee to appreciate slightly and subsequently limit a rise in bond yields next week, dealers said. The intraday movement of the rupee will also lend cues to bond prices, they said. (Janwee Prajapati)  End

US$1 = INR 93.10

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

Edited by Ashish Shirke

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