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Informist, Thursday, Apr. 9, 2026

By Aaryan Khanna

MUMBAI – Government bond prices slumped Thursday as the tenuous ceasefire between the US and Iran threatened to break, pushing crude oil prices back up. The 10-year benchmark 6.48%, 2035 bond was the worst-affected as traders short-sold the gilt ahead of its INR 340-billion auction Friday, dealers said.

The 2035 bond ended at INR 96.71, down sharply from INR 97.12 Wednesday. Its yield ended at 6.9601%, up from 6.8984%. Short-term gilts fell more than long-term bonds as concerns of domestic rate hikes resurfaced, though the fears were kept in check by the neutral commentary from the Reserve Bank of India's Monetary Policy Committee Wednesday, dealers said.

Tensions in West Asia came to the fore again after Israel's widespread attack on Lebanon Wednesday threatened the ceasefire between Iran and the US announced earlier in the day after five weeks of hostilities. While US officials have said Lebanon was not part of the ceasefire agreement, Iran said it was. Tehran reportedly announced closure of the Strait of Hormuz just a day after reopening the crucial waterway to all ships as part of the ceasefire. Consequently, Brent Crude futures for June were at $98.59 per barrel at 1700 IST, up nearly 6% from the end of Indian market hours Wednesday.

"Risk appetite may have improved after the MPC (decision), but that doesn't mean crude (oil) is not a real factor," a dealer at a private-sector bank said. "Market will react in a more balanced way, but concerns over inflation and rate hikes are still there."

Traders had feared a rate hike as early as June after the price of India's crude oil basket rose over 60% on month in March. CPI inflation in March is expected at 3.40%, against 3.21% in February, according to an Informist Poll of economists. Comments from the RBI's rate-setting panel Wednesday highlighting upward risks to inflation and downward risks to growth were on the whole suggestive of higher rates if the conflict in West Asia continued, but no monetary policy tightening is expected until the second half of the financial year 2026-27 (Apr-Mar), dealers said.

Yields on bonds maturing in up to five years had tumbled Wednesday after the ceasefire and the Monetary Policy Committee's remarks, with the 6.01%, 2030 gilt ending 30 basis points lower, compared with the 15-bp fall in the 10-year benchmark yield. As traders reassessed the rate hike trajectory in the face of the evolving situation in West Asia, these bonds saw some selling pressure.

Some traders were of the view that short-term gilts were overbought Wednesday, especially as the share of their supply has been increased sharply in the Apr-Sept borrowing calendar. On the other hand, some banks considered these bonds attractive for their asset-liability management. RBI Governor Sanjay Malhotra reiterated Wednesday that the central bank would ensure sufficient liquidity in the banking system. When asked, he shied away from guiding for a variable rate reverse repo auction that would have raised overnight rates.

Dealers in both the call and money markets said easy liquidity conditions aided the demand for short-term bonds. The net liquidity absorbed by the RBI from the banking system Wednesday was INR 4.57 trillion, the largest liquidity surplus using this metric in nearly five years. Long-term gilts were traded thinly Thursday and saw the least impact of the rise in crude oil prices.

Meanwhile, the 10-year benchmark 6.48%, 2035 bond was under pressure through the day, falling sharply after opening at INR 96.95. Traders expanded their short positions in the bond ahead of its fresh supply, with both foreign banks and primary dealers having aggressively covered their short sales Wednesday after the softer-than-expected Monetary Policy Committee decision and the ceasefire announced in West Asia.

This build-up of short bets will help the INR 340-billion supply sail through at the auction, dealers said. State-owned banks may also buy the 10-year bond for their held-to-maturity portfolios, keeping its cut-off yield below 7% unless offshore triggers worsen overnight, they said.

Some traders had expected the government to issue a new 10-year bond at the auction this week and avoided large bets last week, before the 6.48%, 2035 bond was announced for auction Monday. The bond already has an outstanding of INR 1.92 trillion. A full issuance Friday will take its outstanding to the most among bonds maturing before 2063.

"This is the usual activity. Since the auction is of the 10-year, it is usually open season in short-selling the bond directly," a dealer at a primary dealership said. "There is definitely more demand in the market now than in March, so there is no fear of devolvement at least, not for this bond."

Turnover in the government securities market was INR 587.75 billion, sharply down from INR 802.90 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. The instrument has remained out of use since February.

OUTLOOK

Gilt prices will take cues Friday from overnight geopolitical developments in West Asia and their impact on crude oil prices and US Treasury yields, dealers said. Traders may avoid large bets before the INR 340-billion auction of the 10-year benchmark 6.48%, 2035 gilt at 1030-1130 IST.

Demand for the gilt is seen firm, led by short-covering interest from primary dealers and foreign banks. The auction result will lend direction to bond prices in the latter part of the day. State-owned banks and mutual funds may also consider the 10-year gilt lucrative if its yield climbs to near 7%, especially after the Monetary Policy Committee eased fears of rate hikes in India until October, dealers said.

However, these concerns may come to the fore again if Brent crude prices remain around $100 a barrel. Rate-sensitive short-term bonds may remain out of favour unless tensions in West Asia cool and the ceasefire between the US and Iran holds, dealers said.

Data released after Indian market hours Thursday showed US core personal consumption expenditures rose 3.0% on year and 0.4% on month in February, accelerating from the previous month. The rise in the US Federal Reserve's preferred inflation gauge was in line with the consensus view in a Dow Jones poll. After the data, the CME FedWatch tool showed 72.1% of market participants see no change in the US federal funds rate in the remainder of 2026, 26.8% see a rate cut, and a minuscule number expect a rate hike.

Traders await CPI inflation for March, due Monday, which is seen at 3.4%, according to an Informist Poll of 13 economists. A print closer to 4.0% will again spur bets of a quicker rate hike cycle.

The movement in overnight indexed swap rates and the rupee may also influence gilts. The yield on the 10-year benchmark 6.48%, 2035 gilt is seen at 6.86-7.10%.

India Gilts: Remain sharply down on rise in crude oil prices, OIS rates

MUMBAI--1635 IST--Prices of government bonds remained sharply down tracking a rise in Brent crude oil prices and overnight indexed swap rates, dealers said. Traders also continued to place short bets ahead of the INR-340-billion gilt auction Friday, they added. 

After hovering near $97-per-barrel level since 0900 IST, Brent crude oil futures traded at $98.46 per barrel at 1622 IST. Dealers attributed the upward movement in crude oil prices to lack of clarity on continuance of ceasefire between the US and Iran. On Thursday, Iran's Deputy Foreign Minister Saeed Khatibzadeh called Israel's attack on Lebanon a "grave violation" of the ceasefire, BBC reported. Crude oil prices have been under pressure Thursday after Iran reportedly closed the Strait of Hormuz following the attacks, which weighed on gilts.

Traders continued to place short bets ahead of the auction of 6.48%, 2035 bond Friday, making the bond the worst-hit among liquid gilts, dealers said. "Everyone is selling now. They (market participants) will cover shorts (sales) in the (gilt) auction tomorrow (Friday)," a dealer at a private-sector bank said. The demand at the auction is seen robust with public-sector banks expected to buy the 10-year gilt for their held-to-maturity portfolios.

Doubts over the ceasefire holding raised concerns of rate hikes in India only a day after the Monetary Policy Committee was seen pushing back against those fears at its April meeting. The 6.01%, 2030 bonds fell nearly 30 basis points Wednesday, the best day for a five-year bond since July 2020. While traders still expect rate hikes only in the second half of 2026-27 (Apr-Mar), the rate-sensitive bonds remained out of favour as compared to bonds maturing in 15 years or more. 

"The short-term bond was overbought (Wednesday)," a dealer at a public-secor bank said. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen moving in a range of 6.90% to 7.00% for the rest of the day. At 1616 IST, the turnover in the gilt market was INR 512.85 billion, sharply lower than INR 707.40 billion at 1630 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.  (Diksha Tripathy)

India Gilts: Fall more on rise in OIS, short selling by PDs, foreign banks

MUMBAI--1349 IST--Prices of government bonds fell further tracking an intraday rise in overnight indexed swap rates and short sales by traders ahead of the gilt auction Friday, dealers said. A rise in crude oil prices and lack of clarity on whether the US-Iran ceasefire will hold also weighed on bond prices, they added.

The five-year overnight indexed swap rate was up 8 basis points at 1200 IST from market close Wednesday, which weighed on bond prices, dealers said. Around the same time, Brent crude oil futures for June delivery topped $98 per barrel, up over 5% from the end of Indian market hours Wednesday. 

"Market sentiment is dubious at the moment. Nobody knows if the ceasefire will stay or it will be violated. We (market participants) don't know how long will this ceasefire sustain. There is no sort of clarity right now", a dealer at a public-sector bank said.               

Market participants, especially primary dealerships and foreign banks, placed short bets ahead of the INR-340-billion auction of the 10-year benchmark 6.48%, 2035 gilt Friday to make room for the fresh supply. Foreign banks had turned top net buyers of gilts Wednesday after being net sellers for the previous eight straight sessions. The short-covering activity seen Wednesday did not hold Thursday as geopolitical concerns persisted, though most traders were not worried that the Reserve Bank of India's Monetary Policy Committee would hike rates in a hurry after comments from RBI Governor Sanjay Malhotra following the latest monetary policy decision Wednesday.

The short-selling in the 6.48%, 2035 bond – the 10-year benchmark underperformed other maturities on Wednesday when prices jumped – will help the INR 340-billion auction on Friday sail through. With the MPC keeping its repo rate at 5.25% and policy stance neutral, along with the RBI ensuring adequate liquidity in the banking system, banks are likely to step up their purchases of the 2035 gilt as well. State-owned banks may look for the bond to add to held-to-maturity portfolio if the 10-year benchmark yield rises to around 7% by the auction, though losses intraday Wednesday were limited by purchases from banks and mutual funds around 6.95% yield, dealers said.

The yield on the 10-year benchmark 6.48%, 2035 bond is seen moving in a range of 6.90% to 7.00% for the rest of the day. At 1348 IST, the turnover in the gilt market was INR 363.90 billion, sharply lower than INR 517.40 billion at 1340 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.  (Diksha Tripathy)

India Gilts: Sharply dn on short bets before bond sale; oil price rise weighs

--Dealers: Gilts fall as oil price, US ylds rise; Iran shuts Strait of Hormuz 

MUMBAI--0932 IST--Prices of government bonds opened sharply lower Thursday as traders placed short bets to make room for fresh supply of the 6.48%, 2035 bond at the INR-340-billion gilt auction Friday, dealers said. A rise in crude oil prices after reports of Iran shutting the Strait of Hormuz again amid a fragile ceasefire agreement between the US and Iran also weighed on bond prices.

Brent crude oil futures for June delivery traded at $96.70 per barrel at 0932 IST, against $92.82 at the close of Indian trading hours Wednesday. In a post on Truth Social at 0916 IST, US President Donald Trump said that US armed forces would remain around Iran "until such time as the REAL AGREEMENT reached is fully complied with". Trump said that if Iran does not comply with the ceasefire, the "Shootin' Starts".    

"(Brent) Crude oil price is already above $95 per barrel. Any new development related to the violation of (US-Iran war) ceasefire will bring down the prices further. It (yield on 10-year benchmark 6.48%, 2035 gilt) can break (rise above) the 6.95% level, if that happens," a dealer at a public sector bank said. "The yield (on the 6.48%, 2035 gilt) may go up to 7.00% even," the dealer added.

A rise in US Treasury yields also limited the rise in bond prices. The yield on 10-year benchmark US Treasury note rose to 4.30% at 0930 IST, after hovering near 4.25% at 1700 IST Wednesday. Traders also assessed minutes of the US Federal Open Market Committee's meeting in March, released late Wednesday, which showed that some officials were open to raising interest rates if inflation in the US remained above their target due to the West Asia war. 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen moving in a range of 6.90% to 6.97% for the rest of the day. At 0931 IST, the turnover in the gilt market was INR 47.35 billion, significantly lower than INR 113.80 billion at 0940 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.  (Diksha Tripathy)

India Gilts: Seen down as oil price rises amid fragile US-Iran ceasefire

MUMBAI – Prices of government bonds are seen opening lower Thursday as Brent crude oil futures for delivery in June neared the $100 per barrel mark amid a fragile ceasefire agreement between Iran and the US, dealers said. Short sales on the 10-year benchmark bond, as traders make room for its fresh supply Friday, may also weigh, they said.

The yield on the 10-year benchmark 6.48%, 2035 bond is seen opening around 6.92%, and is seen in a range of 6.85-7.10% Thursday. The bond closed at INR 97.12, or 6.8984% yield, Wednesday. The 10-year benchmark gilt yield fell 15 basis points Wednesday, the most in a day since May 10, 2022.

Bond prices had surged Wednesday after the US and Iran agreed to a ceasefire, which included Israel, but might reverse some of those gains Thursday after Iran said a ceasefire was "unreasonable". The remark comes after Israel bombed Beirut Wednesday, saying the truce did not apply to Lebanon. The Associated Press reported that Iran had closed the Strait of Hormuz again. At 0800 IST, Brent crude oil futures for delivery in June were $96.85 per barrel, up from $92.82 per barrel at 1700 IST Wednesday. Consequently, the yield on the benchmark 10-year US Treasury note was 4.30% at 0800 IST, up from 4.24% at the close of gilt market hours Wednesday. 

Domestically, focus is on the auction of INR 340 billion of the 10-year benchmark bond Friday. 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 0800 IST showed trades worth INR 192.31 billion in the 6.48%, 2035 gilt. Several traders were expecting the Centre to issue a new 10-year bond this week, but due to the reissuance of the current benchmark, traders prefer short-selling the bond in the secondary market to pick up stock at the auction for a cheaper price, they said.  

The Reserve Bank of India's Monetary Policy Committee's decision Wednesday had eased bond traders' fears of an imminent rate hike in Apr-Sept FY27, and traders had pared bets of a rate hike in June, now expecting a hike in late 2026. The RBI's inflation forecasts for FY27 did not indicate an early rate hike cycle, dealers said. However, the policy decision considered the US-Iran ceasefire and the inflation estimates considered Brent crude at around $85 per barrel. Traders may once again begin to price in a quicker rate hike cycle if the West Asia war prolongs, and Brent crude hovers at $100 per barrel, dealers said. In a note on the policy decision, 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." Bond prices may also track the movement of the rupee against the dollar Thursday, which is seen opening lower as crude prices rose.  (Cassandra Carvalho)

US$1 = INR 92.65

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

Edited by Tanima Banerjee

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