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Informist, Wednesday, Apr. 8, 2026

By Cassandra Carvalho

MUMBAI – Government bond yields tumbled Wednesday as bets of a rate hike in June have been pushed to late 2026 after the decision of the Reserve Bank of India's Monetary Policy Committee was on expected lines and the US and Iran agreed to a two-week ceasefire, dealers said.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 97.12 or 6.8984% yield, against INR 96.13 or 7.0458% yield on Tuesday. The yield fell nearly 15 basis points, the biggest fall in a day in nearly four years, in spite of fresh INR-340-billion supply of the bond Friday. As traders unwound bets of a rate hike in June, the 6.01%, 2030 bond yield fell 30 bps, the most for a five-year bond since Jul. 10, 2020. Long-term bond yields also fell, with the 15-year benchmark 6.68%, 2040 bond yield down 16 bps--the most in a day since Sept. 2020. The yield on the 6.90%, 2065 bond fell 12 bps.

"It was a decent MPC, it was a placeholder policy," a dealer at a private sector bank said. "He (RBI Governor Sanjay Malhotra) was actually quite dovish today, but now it depends on whether the (US-Iran) ceasefire holds and where crude (oil price) settles." 

Brent crude oil futures for delivery in June fell to $92.82 per barrel at 1700 IST, from $110.75 per barrel at the same time Tuesday, after the US and Iran agreed to a two-week ceasefire. Consequently, the yield on the benchmark 10-year US Treasury note fell to 4.24% at close of the Indian gilt market from 4.35% same time Tuesday. Gilt traders expected yields to plunge before the MPC decision at 1000 IST itself, due to de-escalation in the West Asia war which has gone on for more than a month.

However, traders are wary about the adherence of the ceasefire, and where Brent crude oil prices will be headed. Traders said the central bank's inflation forecasts for FY27 made Wednesday did not indicate any urgency in rate hikes. The RBI projected India's CPI inflation in FY27 at 4.6%, in line with expectations of most traders. Some traders were expecting a projection closer to 5.0%. The central bank's forecast considers crude oil at $85 per barrel in 2026-27 (Apr-Mar), according to the half-yearly Monetary Policy Report released Wednesday. Crude oil prices could settle closer to $100 per barrel, which could quicken the pace of rate hikes, some dealers said.

In line with most expectations, the MPC unanimously voted to hold the repo rate steady at 5.25%, and retained its 'neutral' stance. Bond yields briefly fell further after this announcement. The tone of the panel's statement and that of RBI Governor Sanjay Malhotra was also largely neutral with a "dovish" tilt--inclined to easing policy. Several traders were fearing a "dovish" policy which eventually would see bond yields rising, but the announcement of a ceasefire overnight justified the policy tone, they said. 

The governor did provide ample warning on what's to come, even if the tone was 'dovish', dealers said. As expected, the panel was cautious in its decision making, opting to "wait and watch" as it is too early to gauge the impact of the West Asia war, dealers said.

"He was neutral but he has kept open all options, he has said CAD (current account deficit) can go higher, CPI has upside, GDP has downside, and this El Nino also if it impacts, then we'll have to reassess (the trajectory of rates), so let's see what the data shows us, it all depends on that now," a dealer at a public sector bank said.

However, for most of the session, the yield on the benchmark 10-year bond failed to fall below the key 6.90% level. Traders initiated fresh short positions on the bond to make room for INR 340 billion of its supply Friday. If there was no 10-year bond auction this week, the bond yield could have fallen to 6.85%, dealers said. Since the RBI likely owns a large chunk of the 6.48%, 2035 bond due to its purchases on-screen in Jan-Mar, traders were aggressive in placing short bets on the bond to get their hands on auction stock, they said. In early trade, traders had gotten "squeezed" in the bond and offered to lend funds for as low as 1.05% to cover their short sales on the bond in the special repo segment of the Clearcorp Repo Order Matching System. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1900 IST showed trades worth INR 192.31 billion in the 6.48%, 2035 gilt, up from INR 170.05 billion Tuesday.

Foreign portfolio investors turned net buyers of gilts Wednesday for the first time in five sessions, net purchasing gilts worth INR 5.13 billion through the fully accessible route, as per data from Clearing Corp. of India. Foreign banks were likely covering short bets, dealers said.

Turnover in the government securities market was INR 802.90 billion, almost double of INR 481.45 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 Wednesday. The instrument has remained out of use since February.

OUTLOOK

On Thursday, bond yields will track developments in the US-Iran ceasefire and the movement of Brent crude oil prices, dealers said. Considering the policy decision Wednesday, and if oil prices fall further, yields may continue to fall as traders pare bets of rate hikes. However, any fall in the 10-year benchmark bond yield may be limited as traders place short bets on the bond before its auction Friday.

Traders await CPI inflation for March, due Monday, which is seen at 3.4%, according to an Informist Poll of 13 economists as the war in West Asia likely pushed fuel inflation higher. A print closer to 4.0% will once again spur bets of a quicker rate hike cycle. After Malhotra Wednesday reiterated that the central bank will continue to be pro-active and pre-emptive in liquidity management, yields may move downwards as expectations of a variable-rate reverse repo operation in the near-term fade. The 10-year benchmark yield is expected to be in the range of 6.85% to 7.03%.

India Gilts: Remain up as rate hike bets pared; 10-yr yld remains above 6.90% 

--Gilts rise more, dealers defer bets of June rate hike by MPC to late 2026 

--Dealers:Gilts up; RBI Malhotra says low rates in short, medium-term possible

--Dealers: Short sales limiting fall in 6.48%, 2035 gilt yld below 6.90% 

--Dealers: Short-selling 6.48%, 2035 gilt before its INR-340-bln supply Fri 

MUMBAI--1505 IST--Prices of government bonds remained up, briefly rising further during the post-policy press conference as traders deferred bets of a rate hike by the Reserve Bank of India's Monetary Policy Committee to late 2026 from earlier expectations of June, dealers said. RBI Governor Sanjay Malhotra's comment that low interest rates were possible in the short- and medium-term also supported bond prices, they added. However, the yield on the benchmark 10-year 6.48%, 2035 bond failed to sustain a fall below the 6.90% yield, as traders found the level attractive to place short bets ahead of the bond's fresh supply Friday.

Traders were of the view that the central bank's inflation forecasts for FY27 did not indicate chances of a rate hike in 2026, with most now pushing back their rate hike expectations to Oct-Dec or Jan-Mar, from expectations of June earlier. Further, Malhotra said that it was "quite possible" that lower interest rates could continue even in the medium term despite the West Asia war. The central bank Wednesday projected CPI inflation in FY27 at 4.6%, which was what most traders expected, but some traders were expecting 5.0% or higher.

The MPC Wednesday kept the repo rate unchanged at 5.25% while maintaining a 'neutral' stance. As traders pared their rate hike bets, a sharp fall in overnight indexed swap rates also pushed up bond prices, dealers said. The one-year OIS rate hit the day's low of 5.85%, the lowest since Mar. 20. The five-year OIS rate fell 29 basis points during the day, the most since at least August 2015. 

Traders have priced in a high CPI inflation print for March, which saw the brunt of the West Asia war. The CPI inflation print for March, due Monday, is seen at 3.4%, according to an Informist poll of 13 economists, compared to 3.21% in February. Some traders expect a print closer to 4.0%. In case CPI inflation for March is higher than the consensus estimate, the yield on the 10-year benchmark gilt could rise to 7.05%, dealers said. 

"If you look at the inflation projection, it is within the target range. So, RBI would be able to manage it. I don't think rate will be hiked this year (FY27) or at least in first half of this year. Even if inflation goes up due to maybe crude-related movement, the rate will be hiked in December or February by 25-50 bps." In a note, economists at HDFC Bank said that the RBI's CPI inflation forecast for Apr-Sept "looks conservative given the rising input cost pressures for various sectors and also for households."

Despite all the positive factors, the yield on the 10-year benchmark 6.48%, 2035 gilt failed to sustain a fall below the key 6.90% yield, due to the INR-340-billion auction of the bond Friday. "There is an underlying auction-related pressure right now. Despite that, it (yield on 6.48%, 2035 bond) has come down to a decent level but I do not see it breaking 6.90% so early," a dealer at a private sector bank said. If there was no 10-year bond auction this week, the bond yield is likely to have fallen to 6.85% Wednesday, dealers said. Since the RBI likely owns a large chunk of the 6.48%, 2035 bond due to its purchases on-screen in Jan-Mar, traders were aggressive in placing short bets on the bond to get their hands on auction stock, they said.  

The yield on the 10-year benchmark 6.48%, 2035 bond is seen moving in a range of 6.85% to 6.95% for the rest of the day. At 1505 IST, the turnover in the gilt market was INR 571.90 billion, significantly higher than INR 279.85 billion at 1435 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. (Diksha Tripathy)

India Gilts: Remain sharply up post MPC statement, fall in crude oil prices

MUMBAI--1137 IST--Prices of government bonds remained sharply up, after briefly paring some gains during Reserve Bank of India Governor Sanjay Malhotra's statement as foreign banks covered short bets, dealers said. A sharp fall in crude oil prices and US Treasury yields after a two-week ceasefire announcement between the US and Iran supported bond prices, they added.

Prices of Brent crude oil futures for June delivery traded at $93 per barrel, below key $95-per-barrel mark, at 1220 IST, as against $110.75 at the close of Indian trading hours Tuesday.

The decision by the RBI's Monetary Policy Committee to keep the repo rate unchanged at 5.25% was largely in-line with market expectations, dealers said. Malhotra said yields on government securities were "rangebound" in February while acknowledging the sharp rise in bond yields after the US-Iran war broke out. Due to overnight developments and after the governor's statement, some traders have for the moment pushed further their expectations of a rate hike at the June policy to later in the year. However, traders were still sensitive to the governor's cautious tone, noting that while the panel opted for a neutral tone they kept their options open and warned of upside risks to inflation and India's current account deficit, and a hit to growth later in the year if global geopolitics worsen and energy prices rise.  

"His (RBI Governor Sanjay Malhotra's) tone was broadly neutral, neither hawkish not dovish, which is what the market was expecting," a dealer at a private-sector bank said. 

Traders do not see an immediate impact of inflation-related commentary by the MPC due to a sufficient liquidity buffer, dealers said. "It (inflation impact) will play out in next two-three months. But even if it does, bond yields will not be impacted much. These factors are already priced in. It will maximum reach 7.00% because liquidity is sufficient in the market and war-related impact is factored in," a dealer at a public-sector bank said. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen moving in a range of 6.85% to 6.95% for the rest of the day. At 1135 IST, the turnover in the gilt market was INR 368.20 billion, significantly higher than INR 159.10 billion at 1130 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. (Diksha Tripathy)

India Gilts: Pare some gains on short bets; MPC decision largely within view

MUMBAI--1020 IST--Prices of government bonds gave up some gains after traders began placing short bets as the yield on the benchmark 10-year 6.48%, 2035 gilt hit 6.90%, the lowest since Mar. 25, after the Reserve Bank of India's Monetary Policy Committee voted unanimously to leave the repo rate unchanged at 5.25% and retained its stance at 'neutral', which is what gilt market participants had expected. In a knee-jerk reaction, bond prices briefly rose further after RBI Governor Sanjay Malhotra announced the decision to hold the repo rate steady. The governor outlined downside risks to GDP growth and upside risks to inflation, and bond prices gave up some gains. However, bond prices still remained sharply higher.

"Policy was neutral but levels on G-sec at 6.90% (yield on the 10-year benchmark bond) look to start building shorts (short bets)," a market participant said. "Buying at 6.90% doesn't make sense." Traders also placed short bets to make room for INR 340 billion of the 10-year benchmark Friday. 

Malhotra said risks to inflation forecasts were to the upside, which was viewed as slightly negative for bond prices. The RBI projected India's FY27 CPI inflation at 4.6%, an estimate in line with bond traders' expectations. Malhotra said there were downside risks to economic growth due to the West Asia war and uncertainty in the monsoon pattern. However, the RBI projected India's FY27 GDP growth at 6.9%, the higher end of bond traders' estimates, as they expected a print of around 6.5%. In line with expectations, the central bank revised downwards its quarterly FY27 GDP growth projections, while raising its CPI inflation estimates.  

"He (RBI Malhotra) said growth is in good health, and inflation risk due to oil commodities prices and El Nino," a dealer at a public sector bank said. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen moving in a range of 6.85% to 7.06% on Wednesday. At 1034 IST, the turnover in the gilt market was INR 270.60 billion, sharply higher than INR 78.40 billion at 1030 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. (Cassandra Carvalho)

India Gilts: Jump on Iran-US ceasefire, bets of neutral tone by MPC

--Dealers: Gilts surge after US, Iran announce two-week ceasefire 

--Dealers: 6.48%, 2035 gilt sharply up as traders cover short bets 

--Dealers: Short sellers getting "squeezed" in 6.48%, 2035 bond

--CONTEXT:Proxy for short sales shows INR 187 bln volume in 6.48%, 2035 gilt 

--Dealers: Gilts surge on hopes of neutral tone in RBI MPC commentary 

--India 10-yr gilt yld down 13 bps Wed vs Tue, biggest fall since 10 May'22 

MUMBAI--0935 IST--Prices of government bonds jumped Wednesday, and the 10-year benchmark gilt yield fell 13 basis points, the steepest fall over its previous close since May 10, 2022, as Brent crude oil futures for delivery in June fell below $95 per barrel and the yield on the benchmark 10-year US Treasury note fell to 4.25% at 0900 IST from 4.35% at 1700 IST Tuesday. Sentiment eased after the US and Iran agreed to a two-week ceasefire, after over a month of military combat in West Asia. 

Traders covered short bets, and some traders got "squeezed" in the 10-year benchmark 6.48%, 2035 gilt, dealers said. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 0934 IST showed trades worth INR 191 billion in the 6.48%, 2035 gilt, up from INR 170.05 billion Tuesday.

"Commentary will be neutral, there's definitely some short-squeeze," a dealer at a private sector bank said. "People are short-covering."

Traders expect a neutral tone at the outcome of the Reserve Bank of India's Monetary Policy Committee meeting decision at 1000 IST. They expect the panel to hold the repo rate steady at 5.25%, with commentary indicating a "wait and watch", cautious tone. Most expect the committee to retain its 'neutral' stance. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen moving in a range of 6.85% to 7.20% Wednesday. At 0935 IST, the turnover in the gilt market was INR 125.70 billion, sharply higher than INR 12.00 billion at 0930 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. (Cassandra Carvalho and Janwee Prajapati)

India Gilts: Seen sharply higher as US, Iran agree to two-week ceasefire

MUMBAI – Prices of government bonds are seen opening sharply higher Wednesday after the US and Iran agreed to a two-week ceasefire to negotiate a definitive peace agreement, dealers said. Following this development, Brent crude oil prices fell very sharply and US Treasury yields eased, and this will help bond prices, they said. Traders will also cover short bets, which will also help bond prices, dealers said. However, the major focus will be on the decision of the Reserve Bank of India's Monetary Policy Committee, which will be detailed at 1000 IST.  

The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.90-7.10% Wednesday. The bond had ended at INR 96.13, or 7.0458% yield, Tuesday. At 0700 IST, the benchmark 10-year US Treasury yield was 4.26%, down more than 9 basis points from 4.35% at the end of Indian trading hours Tuesday.

According to various statements on social media by top officials, the US and Iran have agreed to a two-week ceasefire brokered by Pakistani Prime Minister Shehbaz Sharif and top general Asim Munir, with negotiations on the peace agreememnt to begin in Islamabad from Friday. 

"We received a 10 point proposal from Iran, and believe it is a workable basis on which to negotiate," US President Donald Trump said on his social media platform Truth Social. "Almost all of the various points of past contention have been agreed to between the United States and Iran, but a two-week period will allow the Agreement to be finalised and consummated."

The agreement of a peace deal between the US and Iran came hours ahead of Trump's deadline for Iran to reopen the Strait of Hormuz at 0530 IST. In a social media post Tuesday, Trump had said, "A whole civilisation will die tonight, never to be brought back again." Brent crude oil prices for June delivery fell below $95 per barrel from over $110 per barrel at 1700 IST Tuesday. 

Back home, most traders expect the rate-setting panel to hold the repo rate steady, continuing its 'neutral' stance, and opting 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 do fear a rate hike. However, a ceasefire between the US and Iran will ease traders' expectation of a rate hike as the fear of oil supply disruptions due to the war in West Asia will be alleviated. 

Traders expect the RBI to raise its quarterly inflation forecast for FY27 by 30-50 bps and project a higher CPI inflation print due to the rise in international oil prices. They also expect the RBI to forecast CPI inflation at 4.60% or close to 5% for FY27. Most traders also expect the central bank to lower its FY27 GDP growth projection by 20-40 bps. 

Traders expect that the panel will require more time to assess the full impact of the war in West Asia on the Indian economy and may refrain from hiking rates early to avoid a hit to growth. The voting pattern on the rate and stance decision will be closely watched, with some dealers expecting some dissenting votes. External MPC member Ram Singh is likely to support a 'neutral' stance after opting for an 'accommodative' stance at the past two policy meetings.

The yield on 10-year benchmark bond is likely to fall below 6.90% if the commentary is viewed as "dovish". Later in the day, profit booking and short bets placed ahead of the weekly gilt auction will pull down the price of 10-year benchmark bond, dealers said.  

Traders also await clarity on the RBI's foreign exchange management policy after it prevented further depreciation of the rupee by imposing curbs on net open rupee positions of banks in the onshore market. (Janwee Prajapati)

End

US$1 = INR 92.58

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

Edited by Ashish Shirke

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