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Informist, Wednesday, May 6, 2026

By Diksha Tripathy

MUMBAI – Government bond yields ended sharply lower as prices of Brent crude oil slumped to a two-week low after a news report that the US and Iran are close to an agreement to end the war, dealers said. Bond yields also fell as traders covered short positions, with some traders buying bonds afresh as they considered current yields attractive if the war ends soon, they said.

The 10-year benchmark 6.48%, 2035 government bond ended at INR 96.97, sharply up from INR 96.33 Tuesday. The yield on the bond fell to an intraday low of 6.8977%, down 12 basis points from 7.0184% Tuesday, which is its biggest fall in a day since Apr. 8. The benchmark yield had ended above the psychologically crucial 7% mark in the last three sessions. Wednesday, the yield recovered to end at 6.9219%, down 8 bps. 

The total traded volume of government securities more than doubled to INR 842.70 billion from INR 408.05 billion Tuesday, data from Clearing Corp. of India Ltd. showed. Dealers said the sharp rise in volume was a reaction to the positive news, with the rise in prices prompting traders to take profit on bonds they had picked up when the 10-year gilt's yield was above 7%.

"Brent (crude oil price) had fallen overnight and there was already some positive sentiment in the market," a dealer at a state-owned bank said. "Traders were really active throughout the day and that's why the high volume."

Brent crude for July delivery fell to the day's low of $96.75 per barrel after a report by US website Axios said the US and Iran are closing in on a one-page memo to end the war. By the end of Indian market hours, the July oil contract was at $98.10 per barrel, still down over $10 from $108.41 per barrel at the beginning of Indian market hours. Crude oil prices had fallen in Asian trade after US President Donald Trump announced the end of Project Freedom, whose aim was to allow ships passage through the Strait of Hormuz, due to progress in negotiations with Iran. At 1700 IST Tuesday, Brent crude July futures were at $112.95 per barrel and the overnight fall pulled down the 10-year gilt below 7.00% in early trade Wednesday, dealers said.

"Falling crude was the highlight of the day," a dealer at a private-sector bank said. "If the crude (oil price) stays below $100 (per barrel) and maybe falls more to let's say $90 (per barrel), we can see 6.85% (yield on the 10-year benchmark bond) levels also."

A sharp rise in the rupee against the dollar also pulled bond yields down, dealers said. The rupee recorded its biggest daily gain in almost five weeks because of the fall in crude oil prices. Foreign investors have been averse to investing in India's debt and equity markets because of the consistent weakness of the rupee against its peers, dealers said. The domestic unit had ended at a record closing low of 95.28 a dollar Tuesday. It rose to 94.61 a dollar at Wednesday's close. Bond traders also fear the Reserve Bank of India will tighten monetary policy to attract foreign portfolio investors and curb the rupee's fall, dealers said. 

Stability in the rupee is expected to attract foreign portfolio investment back into bonds and data showed some inflows Wednesday, dealers said. Foreign portfolio investors bought fully accessible route gilts worth INR 27.52 billion on a net basis Wednesday, according to CCIL data at 1928 IST.

Wednesday, the 10-year bond yield remained below the key 7.00% level as traders covered short positions with an improved risk appetite driven by hopes of de-escalation in the US-Iran war, dealers said. Traders have been covering short positions in the 6.48%, 2035 bond ahead of the weekly gilt auction Friday, when the government will sell INR 340 billion of a new 10-year bond, they said. The new bond was last traded at 6.90% in a when-issued trade.

State-owned banks bought bonds early in the day when the yield on the 10-year benchmark gilt hovered near 6.98-6.99%, dealers said. In the last hour of the trading session, however, these banks are likely to have taken profits as the 10-year yield fell below the psychologically crucial 6.90% mark, they said. 

There was no trade using the RBI's wholesale e-rupee pilot Wednesday. The instrument has not been used since February.

OUTLOOK

Thursday, bond prices will track developments in the West Asia war and their impact on Brent crude oil prices, dealers said. After falling below $100 a barrel for the first time in two weeks, Brent Crude futures climbed past that crucial level after Indian market hours on US President Donald Trump's comment about bombing Iran if a deal is not reached. Reports that Tehran has made a website to administer the Strait of Hormuz also resulted in oil prices rising.

Any sign that an end to the war is near could pull Brent crude for July delivery down to $90 a barrel, which may prompt the 10-year benchmark gilt yield to fall towards 6.85%. A further fall in the bond's yield is not expected as CPI inflation is expected to remain high through the year, which will prompt traders to take profits at that yield level, dealers said.

However, any sign of escalation in the West Asia war could push the 10-year bond yield back above 7.00%, dealers said. Traders will also track the movement of overnight indexed swap rates and the rupee, they said.

A lack of further cues on the domestic front and from the West Asia war would keep the market steady, they said. There are no scheduled domestic triggers on Thursday. The yield on the 6.48%, 2035 bond is seen in a range of 6.90-7.00% on the day.

India Gilts: Rise more as Brent falls under $100/bbl; 10-yr yld down 11 bps

MUMBAI--1630 IST--Prices of government bonds rose further after Brent crude for July delivery fell below $100 a barrel for the first time in two weeks. Indian financial markets and crude oil prices were reacting to an Axios report that the US and Iran were closer than ever to a peace deal to end the war in West Asia, dealers said. 

"People will rush to buy at every level, even below 6.90%, if the war ends," a dealer at a primary dealership said. "Right now, all the risk premium is going out of the market as crude (Brent futures) are below $100 (a barrel).

Brent crude for July delivery fell to a low near $99 per barrel, its lowest since Apr. 22, after the report, from around $108 a barrel at the beginning of Indian market hours Thursday. The overseas cues brought down the five-year overnight indexed swap rate to 6.48%, down nearly 20 basis points from Tuesday's close. The five-year benchmark 6.36%, 2031 gilt also surged as dealers said the bond's yield was lucrative if fears of rate hikes in India subsided.

The yield on the 10-year benchmark 6.48%, 2035 gilt has fallen around 11 bps intraday. Traders will continue buying the 10-year gilt yield and its yield may fall to as low as 6.90% if crude oil prices remain near current levels, dealers said. Gains were currently limited by sales from traders who had bought gilts when the 10-year yield was above 7.00%, they said. 

For the rest of the day, the yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 6.88–6.95% range. At 1630 IST, the turnover in the gilt market rose to INR 758.55 billion from INR 682.45 billion at 1630 IST Tuesday, data from the RBI's Negotiated Dealing System–Order Matching platform showed.  (Durgesh Nandan and Aaryan Khanna)

India Gilts: Surge on report US, Iran close to peace deal; crude tumbles

MUMBAI--1450 IST--Prices of government bonds surged further after Axios reported that the US and Iran were close to a deal to end the war in West Asia, dealers said. The news agency reported, citing US officials, that the White House believed the two sides were close to an agreement and had sent a one-page memorandum of understanding to Iran, expecting a response in 48 hours. 

"There is a new report saying US and Iran are looking to make a peace deal, that's moved crude prices (down)," a dealer at a private-sector bank said. "Now that crude (oil price) is down, our (gilt) market is also reacting to it." Volumes surged due to the positive news since the morning. At 1450 IST, turnover in the gilt market was INR 505.25 billion, significantly higher than INR 239.35 billion at 1430 IST Tuesday.

Brent crude oil prices for July delivery fell to below $104 per barrel from above $108 a barrel at 0900 IST on Wednesday. The rupee jumped to as high as 94.57 a dollar from a low of 95.18 a dollar earlier in the day. Bond prices have been especially sensitive to both triggers as a stable rupee is expected to attract foreign investors into gilts at current yield levels, dealers said. 

Traders said they preferred to trade only in liquid bonds due to the constant updates from the war in West Asia. The 10-year benchmark 6.48%, 2035 gilt and 15-year benchmark 6.68%, 2040 gilt comprised 80% of the total market volume. Moreover, some traders considered the yield on the 2040 bond attractive and were buying it earlier in the day, dealers said. 

Gilt prices were already sharply up in early trade as Brent crude futures had fallen overnight from near $113 a barrel at 1700 IST Tuesday. Traders continued covering their short sales, which led to a sharp jump in prices, though state-owned banks were likely to sell the 10-year 6.48%, 2035 gilt at a yield below 6.95% to book profits, dealers said. In the secondary market, public-sector banks have bought over INR 35 billion worth of gilts on a net basis in the first two trading days of May, after picking up nearly INR 160 billion of gilts in April, according to Clearing Corp. of India data.

Traders were also looking to cover short bets in the 10-year benchmark gilt as it is going off the run, with the government selling INR 340 billion of a new 10-year, 2036 gilt at auction Friday. Even before gilt prices had risen so sharply, traders expected the Reserve Bank of India would set a coupon below 7.00% on the new bond, potentially going so far as to make its preference for a lower coupon known to market participants, dealers said. 

"I do not think the coupon on the new 10-year will be higher than 6.93-6.94%," a dealer at a primary dealership said. "Even if the crude rises to $115 per barrel, the coupon will be 2-3 basis points below 7%." For the rest of the day, the yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 6.85–7.00% range.  (Janwee Prajapati and Diksha Tripathy)

India Gilts: Sharply up as oil prices fall, traders cover short positions

MUMBAI--0946 IST--Prices of government bonds rose sharply and volumes more than tripled as the market reacted to the overnight fall in prices of Brent crude oil, dealers said. Bond prices were also supported as traders covered short positions expecting prices to rise further, they said. The benchmark 6.48%, 2035 bond opened 17 paise higher from Tuesday and then rose another 14 paise to a high of INR 96.64 so far.      

The rise was driven by the fall in Brent crude oil July futures, which fell below the psychological level of $110 per barrel after media reports said two ships passed through the Strait of Hormuz safely amid a fragile ceasefire between the US and Iran. Brent crude oil July futures were at $108.05 per barrel at 0930 IST, down almost $5 from $112.95 per barrel at the end of Indian gilt trading hours Tuesday. 

Traders covered short positions in the secondary market as they expect bond yields to fall further as the yield on the 10-year benchmark 6.48%, 2035 bond fell below the key 7% level, dealers said. Traders have been covering short positions in the 10-year benchmark bond ahead of the weekly gilt auction Friday, when the government will sell INR 340 billion of a new 10-year bond, they said. Traders also expect state-owned banks to buy bonds at current yields later in the day.

"(Brent) crude (oil price) has moved down and this is a big positive for the market," a dealer at a state-owned bank said. "It is the key factor that has been driving the market for the last few weeks now. Some short covering is also there, which is acting as an add-on factor supporting bond prices."                    

For the rest of the day, the yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 6.95–7.02% range. At 0946 IST, turnover in the gilt market was INR 107.35 billion, significantly higher than INR 35.25 billion at 0930 IST Tuesday, data from the RBI's Negotiated Dealing System–Order Matching platform showed.  (Diksha Tripathy)

India Gilts: Seen up as crude oil prices fall below $110/bbl

MUMBAI – Prices of government bonds are likely to open higher Wednesday tracking an overnight fall in crude oil prices that slipped below the crucial level of $110 per barrel, dealers said. Brent crude oil prices fell after media reports claimed two ships passed through the Strait of Hormuz amid a fragile US-Iran ceasefire. Some traders are likely to continue to cover their short positions ahead of the weekly gilt auction of the new 10-year benchmark bond, dealers said.  

The yield on the 10-year benchmark 6.48%, 2035 bond is expected to open near 7.00% and is seen in the 6.90-7.01% range during the day, dealers said. Tuesday, the 10-year benchmark bond ended at INR 96.33, or 7.0184% yield. Gilt prices had ended slightly higher after reversing all losses as traders covered short positions following a report that said the Reserve Bank of India was mulling fresh measures to support the rupee.  

On the West Asia war front, US President Donald Trump hinted towards a potential agreement to end the US-Iran war on diplomatic efforts involving Pakistan and other countries. In a post on Truth Social, Trump said, "Great progress has been made toward a complete and final agreement with representatives of Iran." However, the blockade on the Strait of Hormuz will remain in full effect, he said. US' "Project Freedom" initiative, to guide stranded vessels through the Strait of Hormuz, has been halted for a "short period of time", the US President said. 

Brent crude oil futures for July delivery traded at over $107 per barrel at 0710 IST, down almost 5% from the end of Indian gilts trading hours Tuesday. Oil prices fell on reports that two vessels transited the Strait of Hormuz and the US said the ceasefire with Iran was still holding despite fire exchanges.

Later in the day, traders are likely to cover their short positions placed on the 10-year benchmark 6.48%, 2035 bond, dealers said. Traders expect the RBI to set a coupon of around 6.97-6.98% on the new 10-year bond, dealers said. The government will sell INR 340 billion of the new 10-year bond Friday. At the T-bill auction later in the day, cut-off yields are likely to be similar to last week's cut-off yields, dealers said.  (Janwee Prajapati)

US$1 = INR 94.61

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

Edited by Pankaj Aher and Rajeev Pai

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