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Informist, Tuesday, Apr. 7, 2026

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended mixed Tuesday ahead of the Reserve Bank of India's Monetary Policy Committee decision Wednesday. Most bond prices ended higher as dealers now expect the MPC to hold the repo rate steady at 5.25% and to adopt a neutral tone in its commentary. An intraday fall in US Treasury yields and a brief decline in Brent crude oil prices also helped prices. The 10-year benchmark 6.48%, 2035 bond ended steady, with short sales ahead of its fresh supply Friday offsetting gains, dealers said. 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 96.13 or 7.0458% yield, the same as Monday. In comparison, the 6.01%, 2030 bond ended 24 paise higher at INR 97.45 or 6.7010% yield, while the 15-year benchmark bond ended at 15 paise higher at INR 93.80 or 7.39% yield. 

"There was some news of explosion at Kharg Island (in Iran) so 10-year fell again, but at figure 96 (INR 96) on the 10-year benchmark bond people were short-covering intraday so again 10-year price rose, and then they're shorting at around 20-22 (INR 96.20-INR 96.22) so it was volatile today (Tuesday)," a trader at a primary dealership said. "But broadly, it's just positioning before MPC, it (policy) should not be hawkish." 

Most bond prices across the yield curve were up as they were attractive to buy at current levels, dealers said. State-owned banks also bought gilts, as they had ample liquidity, dealers said. The net liquidity absorbed by the RBI, a proxy for liquidity surplus, was at INR 3.95 trillion Monday, the highest since Aug. 5 and up from INR 3.68 trillion Sunday. Several traders favoured the 15-year bond. Mutual funds covered short bets and have been net buyers of gilts since Mar. 27 due to attractive yields, expectations of a neutral monetary policy, and hopes of the war in West Asia de-escalating, dealers said.  

During gilt market hours, Brent crude oil prices for delivery in June fell to $107.65 per barrel from $111.21 at 0900 IST and $108.58 at 1700 IST Monday, before recovering again to $110.75 per barrel at 1700 IST. Bond prices tracked crude's intraday movements amid choppy trade. The 10-year US Treasury yield fell to 4.35% at 1700 IST, from 4.32% earlier and 4.37% at 1700 IST Monday. The overnight indexed swap rates tracked the fall, pushing up bond prices. Though offshore triggers helped, traders trimmed excess paid positions in swaps and covered short positions in gilts ahead of the policy decision, dealers said. 

Comments from Finance Minister Nirmala Sitharaman in post-market hours Monday also aided the rise in bond prices, dealers said. However, some termed the comments as "loose talk" that did not align with macroeconomic fundamentals. On Monday, Sitharaman said that the Centre had fiscal room to allow the RBI's MPC to cut rates and support the economy. Her comments come at a time when the one-year OIS is pricing in nearly four rate hikes within the next 12 months.

Some private-sector banks' asset and liability management desks were purchasing short-term bonds maturing in 2027 and 2028, since the maturities of these bonds are expected to fall within a rate-hike cycle, allowing banks to add them to their investment books at higher yields, dealers said. The 'Reported Deals' segment of the RBI's Negotiated Dealing System-Order Matching platform saw trades totalling INR 26.00 billion in the 7.06%, 2028 gilt and INR 11.95 billion in the 5.63%, 2026 gilt Tuesday. According to data from Clearing Corp. of India at 1825 IST, foreign portfolio investors net sold INR 11.95 billion of the 2028 bond and INR 7.69 billion of the 2026 bond through the fully accessible route. FPIs likely sold these gilts to domestic counterparties as their interest payments were coming up. Usually, foreign investors will offload such bonds to avoid receiving the government's half-yearly interest payments, which are subject to withholding tax.

Cut-off yields at the first state bond auction of FY27 Tuesday were slightly below expectations, boding well for bond prices, dealers said. However, yield spreads over gilts of similar maturities were comparable to those seen in Jan-Mar, contrary to what some traders had hoped for before FY27 began.

"State bond (auction) was within expectations only, but yes, we did not see that seasonal Q1 (Apr-Jun) spread compression today (Tuesday) because mostly the papers today were duration (long-term), which no one wants in a scenario where people are expecting rate hikes. And the states were also not preferred," a dealer at a state-owned bank said. "If this (West Asia) war wasn't there, we would've easily seen a 65 bps spread (on states' 10-year state bonds) today."  

Bond prices had opened lower after the RBI, post market hours on Monday, said the Centre will sell INR 340 billion of the 6.48%, 2035 gilt on Friday. Traders were expecting the Centre to issue a new 10-year 2036 bond Friday since the outstanding of the current 10-year benchmark bond is INR 1.92 trillion, nearing the INR 2.00 trillion mark at which the Centre usually issues a new bond. 

"People were expecting a new bond but now that its the old bond only, why buy it in secondary, might as well buy it for cheaper at auction," a dealer at a private sector bank said.  

Turnover in the government securities market was INR 481.45 billion Tuesday, similar to INR 474.25 billion Monday, 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 Tuesday. The instrument has remained out of use since February.

OUTLOOK

On Wednesday, at open, bond prices may track movements in Brent crude oil prices after US President Donald Trump's deadline for Iran to reopen the Strait of Hormuz ends at 0530 IST. However, the major focus will be on the Reserve Bank of India's Monetary Policy Committee meeting decision. RBI Governor Sanjay Malhotra will announce the decision at 1000 IST. Traders largely expect the panel to hold the repo rate steady, continuing its 'neutral' stance and opt for a neutral tone in its commentary. Bond yields have fallen in the past two sessions as traders pared bets of the panel raising the repo rate by 25 basis points Wednesday, though a few dealers still fear a rate hike. Traders fear that oil supply disruptions due to the war in West Asia will stoke inflation, quickening the pace of India's rate hike cycle. Dealers expect the panel to hike rates at its June policy meeting. 

Traders expect the RBI to raise its quarterly inflation forecasts for FY27 by 30 to 50 bps, and project a higher-than-initially-expected FY27 CPI inflation print due to the oil price surge. Traders expect a forecast of 4.60% or close to 5% for FY27. CPI inflation in March, due Monday, is seen at 3.4% according to an Informist Poll of 13 economists as the war in West Asia likely pushed fuel inflation higher. Most traders also expect the central bank to lower its FY27 GDP growth projections by 20-40 bps. 

As for the policy stance, a few traders expect the MPC to change its stance to "withdrawal of accommodation" Wednesday, thereby setting the stage for a rate hike in June. Most dealers do not expect this since the panel is likely to require more time to assess the full impact of the war in West Asia on the Indian economy, and may refrain from hiking rates so early to avoid a hit to growth. Several dealers also expect the central bank to first set the stage for a rate hike by draining systemic liquidity. The RBI has not conducted a variable-rate reverse repo operation so far this month, despite ample systemic liquidity. Traders hope that the central bank will continue to support systemic liquidity.  

The voting pattern on the rate and stance decision will be closely watched, with some dealers expecting dissents. External MPC member Ram Singh is likely to support a 'neutral' stance after opting for an 'accommodative' stance in the past two policies. Any dissents in voting are likely to pull down bond prices, dealers said. "We know what the direction is, we just need to know what the next action is and how soon it could come, and any dissent could give us that hint," a dealer at a mutual fund said.   

The 10-year benchmark yield is expected to be in the range of 6.90% to 7.20%, with 6.90% is seen only as a knee-jerk reaction to a policy viewed as "dovish". Traders expect a neutral, cautious tone and phrases such as "wait and watch (mode)" from the panel. Traders do not expect a rate cut, as CPI inflation is projected to rise in FY27 even if the war concludes soon. Some traders fear that the MPC could adopt a tone that is too "dovish," which would be a "policy error" and misalign with macroeconomic fundamentals. All in all, if the RBI hikes rates, yields are expected to rise. If the policy is neutral, traders may place short bets again as the outcome was priced in, some traders said. If the policy is unexpectedly soft, yields may still rise in the longer run after a brief fall, dealers said. Traders also await clarity on the RBI's foreign exchange management policy, after it prevented the rupee's depreciation by imposing curbs on net open rupee positions in the onshore market. Some traders had feared a rate hike in April solely to limit the rupee's fall against the dollar. 

India Gilts: Rise more on state bond auction result, fall in crude prices

MUMBAI--1557 IST--Prices of most government bonds were at the day's high after the Reserve Bank of India published the result of the state-bond auction which largely aligned with market expectations, dealers said. Fresh purchases by banks and short covering by mutual funds also supported bond prices, they added. Trade in the benchmark 10-year 6.48%, 2035 gilt was volatile ahead of the policy decision and fresh supply of the bond Friday.

Cut-off yields on states' 10-year bonds were at 7.81% to 7.91%, as per the RBI release, with seven states raising INR 181.59 billion. The cut-off yields on states' 10-year bonds were seen at 7.75-7.80%, according to the median of estimates of 10 bond dealers polled by Informist.

Global factors including an intraday fall in US Treasury yields and crude oil prices helped bond prices rise further. Brent crude oil futures for June delivery fell to a low of $107.56 per barrel against $111.21 per barrel at 0900 IST. The yield on the 10-year benchmark US Treasury note fell below the key 4.35% mark to 4.33% at 1540 IST.

Traders maintained caution before the decision of the RBI's Monetary Policy Committee Wednesday. "Rate decision will be important and will be closely tracked, but RBI's tone will be even more important this time around," a dealer at a private-sector bank said. Most market participants expect the MPC to keep the repo rate unchanged at 5.25%, but a few are of the view that it will hike the key lending rate by 25 basis points to 5.50%. On the stance front, most traders expect the MPC to maintain the current 'neutral' stance, while some say it might be changed to 'withdrawal of accommodation'.

Some traders expect an operation twist Wednesday after the policy decision, wherein the RBI will sell short-term bonds and buy long-term bonds simultaneously, dealers said. 

"Usually it is only long-term investors who buy these (bonds). If there is a cap on the supply of long-term bonds or if RBI says that I will buy these bonds from you (market) then it (the fall in yields) will trickle down to 10-year (bonds) also. The (yield) curve will flatten," a dealer at another private sector bank said. 

At 1557 IST, turnover in the gilt market was INR 414.85 billion, higher than INR 376.45 billion at 1530 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. (Diksha Tripathy and Janwee Prajapati)

India Gilts: Up in choppy trade; eyes on state bond auction result

MUMBAI--1404 IST--Prices of government bonds were up in a choppy trade as mutual funds covered their short sales and private-sector banks made fresh purchases at yield levels seen attractive, dealers said. A fall in overnight indexed swap rates also helped bond prices, they said.

Some traders who had lightened their portfolios in the past two weeks due to escalation in the West Asia war and trimmed their risk at the financial year end were keen to pick up gilts ahead of the domestic rate decision Wednesday, dealers said. Traders looked ahead to the Reserve Bank of India's Monetary Policy Committee decision on the repo rate and policy stance. Bond prices already reflect that the panel will be in favour of curbing inflationary pressures emanating from the rise in crude oil prices and commentary that is more growth-supportive may drive up gilt prices, dealers said.

At 1359 IST, the one-year and five-year OIS rates were down over 6 basis points each at 6.12% and 6.63%, respectively, continuing their fall from Monday. The gains in bond prices were limited as Brent crude oil futures for June delivery continued to hover above $111 per barrel at 1330 IST as against $108.58 per barrel at close of Indian trading hours Monday.

Traders also await the result of the state-bond auction. Most market participants expect slightly lower spreads between the state bonds and gilts of similar maturity Tuesday as compared with the last auction of such bonds on Mar. 27. This is because the size of the auction was lower in the June quarter, compared to the last auction in the March quarter, dealers said. Seven states offered to sell INR 181.59 billion at 1030-1130 IST.

"Demand for long-term bonds will be robust from long-term investors due to a lower quantum this time and also because of bear flattening of the yield curve," a dealer at a private-sector bank said. "Bear flattening" indicates that yields on short-term bonds will rise quicker than long-term gilt yields.

The yield on the 10-year benchmark 6.48%, 2035 bond is seen moving in a range of 7.00-7.10% Tuesday. At 1404 IST, the turnover in the gilt market was INR 263.80 billion, higher than INR 239.80 billion at 1330 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. (Diksha Tripathy and Janwee Prajapati)

India Gilts: Reverse losses on OIS fall; dn earlier on lack of new 10-yr gilt

MUMBAI--1017 IST--Prices of government bonds opened sharply down Tuesday as traders were disappointed that the Centre did not choose to issue a new 10-year gilt at the auction of government securities Friday, dealers said. An overnight rise in crude oil prices also pulled down bond prices, they added. However, prices reversed early losses tracking a fall in overnight indexed swap rates, dealers said. The five-year OIS rate fell to 6.64% from 6.72% at 0900 IST. A slight overnight fall in the 10-year US Treasury yield also helped the rise in prices. The yield on 10-year benchmark US Treasury note was 4.35% at 1017 IST, down from 4.37% at the end of gilt market hours Monday.  

The government will sell INR 340 billion of the 6.48%, 2035 gilt Friday. Most traders were expecting that the Centre would issue a new 2036 bond Friday since the outstanding of the current 10-year benchmark bond is INR 1.92 trillion, nearing the INR-2.00-trillion mark at which the Centre usually issues a new bond. However, since the same bond will be re-issued Friday, traders placed short bets on the gilt in the secondary market to pick up the bond at a cheaper price at the auction Friday.

Traders were cautious ahead of the policy decision by the Reserve Bank of India's Monetary Policy Committee Wednesday. Most traders expect the rate-setting panel to keep the RBI repo rate unchanged at 5.25%; however, a few expect the rate to be raised by 25 basis points to 5.50%.

Market participants will be closely tracking developments in the West Asia, especially since Tuesday marks the end of the 48-hour deadline set by US President Donald Trump for Iran to make a deal. A situation with no deal between the two warring nations could push up Brent crude oil prices higher, which in turn, will pull down bond prices, dealers said. Brent crude oil prices for June delivery traded above the psychologically crucial level of $110 per barrel at 1017 IST Tuesday, higher than $108.58 per barrel at the close of Indian trading hours Monday. 

Market participants expect moderate demand at the auction of state government securities Tuesday. "Since the auction today (Tuesday) has more long-term papers, the buying might come from public sector banks and insurers," a dealer at a public-sector bank said. Traders expect yield spreads over gilts of similar maturity to compress compared to those in the March quarter of FY26. Seven states will raise INR 181.59 billion Tuesday, with the notified auction size the same as that in states' indicative borrowing calendar for the Apr-Jun quarter. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen moving in a range of 6.95% to 7.20% Tuesday. At 1017 IST, the turnover in the gilt market was INR 74.80 billion, higher than INR 40.20 billion at 0930 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. (Diksha Tripathy)

India Gilts: Seen steady before MPC decision Wed; rise in oil price to weigh

MUMBAI – Prices of government bonds are seen opening steady Tuesday due to caution ahead of the Reserve Bank of India's Monetary Policy Committee decision Wednesday, dealers said. Easing of US Treasury yields overnight will help bond prices, they said. However, a rise in Brent crude oil prices is likely to limit any gains, they said. Traders will also track the result of the state bond auction Tuesday. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.95-7.20% Tuesday. It had ended at INR 96.13, or 7.0458% yield Monday. The yield on the 10-year benchmark gilt fell 9 basis points Monday, the most in a day since Dec. 24. At 0700 IST, the benchmark 10-year US Treasury yield was 4.35%, down from 4.37% at the end of Indian trading hours Monday.

Traders' bets on an end to the war in West Asia increased after US President Donald Trump set Tuesday as the final deadline for Iran to make a deal. He said that if Iran failed to allow free passage of ships through the Strait of Hormuz, he would order strikes on Iran's power plants and bridges. However, Iran said it would retaliate forcefully if Trump carried out his threats. On Monday, Iran publicly rejected a plan for a 45-day ceasefire and demanded a permanent end to the war, saying the US must compensate for damages. Brent crude oil price for June delivery was over $111 per barrel at 0700 IST, higher than $108.74 per barrel at the close of Indian trading hours Monday.  

At the state bond auction, traders expect yield spreads over gilts of similar maturity to compress compared to those in the March quarter of FY26. Investors are likely to pick up state government bonds at the auction due to their lucrative yields, dealers said. Seven states will raise INR 181.59 billion Tuesday, with the quantum the same as the size in the indicative borrowing calendar for the Apr-Jun quarter.  

Most traders expect the RBI's repo rate to be kept unchanged on Wednesday, with "hawkish" commentary likely to set the stage for rate hikes going ahead in view of the war in West Asia. Most traders expect the rate-setting panel to hike the repo rate by 25 bps in June. Traders are expected to refrain from building aggressive positions due to caution ahead of the Monetary Policy Committee's decision Wednesday, dealers said.

Traders will also track the movement of overnight indexed swap rates after the one-year swap rate fell 19 basis points and the five-year swap rate fell 17 basis points Monday, both down the most in a day since Apr. 6, 2023. Some traders may place short bets on the 10-year benchmark bond ahead of its fresh supply Friday, which will weigh on its price, dealers said. Due to the rate cues coming from the West Asia conflict, and after the Centre published its borrowing calendar for Apr-Sept, traders expect the bond yield curve to "bear-flatten" or the yields on short-term bonds to rise, while long-term bond yields may fall, dealers said. (Janwee Prajapati)

End

US$1 = INR 93.0075

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

Edited by Saji George Titus

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