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Informist, Monday, May 18, 2026

By Diksha Tripathy

MUMBAI – Prices of government bonds slumped Monday on low risk appetite owing to the fears of further escalation in the West Asia war, dealers said. A gap-down opening in bond prices triggered stop losses on gilt portfolios for some traders near 7.10% and 7.12% yield on the 10-year benchmark 6.48%, 2035 gilt. However, purchases from state-owned banks at levels seen attractive helped bond prices, dealers added.

The benchmark 10-year 6.48%, 2035 bond ended at INR 95.59, sharply lower than INR 96.03 Friday. The bond's price had fallen to as low as INR 95.51. Its yield settled at 7.1313% and rose nearly 7 basis points from the previous close, both the highest since Apr. 2. During the day, the benchmark yield hit 7.1435%, its highest since May 8, 2024.

"7.10% is an important level, so stops (stop losses) were hit between 7.10% and 7.12% (yield on the 10-year benchmark bond)," a dealer at a state-owned bank said. "Traders across the board were selling, but for PSUs, it's a good level so they bought, but in general everyone was selling." 

The yield on the benchmark 10-year bond remained above the 7.10% level throughout the session Monday after opening at 7.0948%. Traders expect the Reserve Bank of India to support bond prices if the benchmark yield breaches the 7.15% level, dealers said. There was speculation that the RBI would buy bonds in the secondary market if the benchmark yield crossed 7.15% Monday.

Expectations of RBI purchases were fuelled by buying from the 'others' category, comprising insurers, pension funds, and the RBI, on Friday, which some traders believe was largely on account of the central bank. Members of the category net bought bonds worth INR 15.78 billion Friday, data from the Clearing Corp. of India Ltd. showed. However, some of those purchases could have come from transfers of auction stock to pension funds and life insurers after the sale of a new 40-year bond Friday, dealers said. The government issued a new 2066 bond at auction Friday with the RBI setting its coupon at 6.71%.

State-owned banks with higher risk appetite continued to support bond prices after having sold gilts aggressively to the RBI in financial year 2025-26 (Apr-Mar) and sitting on relatively lighter portfolios, dealers said. The total traded volume in government securities stood at INR 496.30 billion, down from INR 545.20 billion Friday, according to data from CCIL. Traders attributed the relatively lower volume to uncertainty amid the West Asia war due to which traders held their positions. There was no trade through the RBI's wholesale e-rupee pilot Monday. The instrument has remained unused since February.

Elevated Brent crude oil prices and US Treasury yields also weighed on bond prices Monday, dealers said. Brent crude oil prices cooled intraday from $111 per barrel but remained above $110 per barrel at the end of gilt market hours, which weighed on bond prices, dealers said. At 1700 IST, Brent crude oil futures for July delivery were at $110.60 per barrel, up from $108.21 per barrel at the end of Indian market hours Friday. Meanwhile, the yield on the 10-year benchmark US Treasury note was at 4.61% at 1700 IST, lower than 4.63% at 0900 IST Monday, but sharply higher than 4.54% at 1700 IST Friday. 

"High US yields are a problem but nothing can overpower the impact of (high) crude (oil prices) at this point," a dealer at a private-sector bank said. "It is the factor that is driving your market. The rupee and US yields are all adding to it (the fall in bond prices)."    

A sharp fall in the rupee against the dollar also weighed on bond prices, dealers said. After hitting a record low of 96.3875 a dollar during the day, the Indian unit settled at 96.3450 a dollar Monday, a record closing low. If the rupee extends its fall, bond prices will also come down tracking the fall as the domestic unit's weakness reduced the confidence of foreign investors while also making a stronger case for monetary policy tightening, dealers said.

Bond prices reacted very little to the result of the gilt switch auction Monday, dealers said. The government switched eight gilts with five longer-tenure securities worth INR 210.98 billion at the auction Monday against the notified amount of INR 300 billion. Participation at the switch auction was likely limited to a few banks, dealers said. Traders had expected a partial switch, as the source securities were similar to those offered in earlier switch auctions and banks now hold limited stock of such papers after previous exercises, they said.

OUTLOOK

On Tuesday, traders will track developments related to the West Asia war and Brent crude oil prices, dealers said. US President Donald Trump's latest warning to Iran on a peace deal has dampened traders' risk appetite and fuelled fears of a further escalation in the West Asia conflict. Any major escalation in the war could push bond yields higher, dealers said. Traders will also track the movement of overnight indexed swap rates and the rupee, they said. The yield on the 6.48%, 2035 bond is seen in the 7.00-7.15% range Tuesday.

Traders will also closely track the auction of state government securities, wherein six states will raise INR 201 billion through bond sales Tuesday. Traders expect the auction to sail through smoothly as the auction size is lower than the indicated amount of INR 231 billion in the states' borrowing calendar for Apr-Jun, dealers said. Demand from banks for their held-to-maturity portfolios and insurers is expected at the auction, dealers said. However, higher-than-expected cut-off yields on bonds at the auction could weigh on gilt prices in the secondary market, they said. 

India Gilts: Remain down on stop losses; switch auction participation weak

MUMBAI--1313 IST--Prices of government bonds remained sharply lower as traders hit stop losses after the yield on the 10-year benchmark 6.48%, 2035 bond rose above the 7.10% mark, to near 7.15% the highest since May 2024, dealers said. However, some state-owned banks stepped in to buy bonds and traders covered short positions when the yield on the benchmark paper neared 7.15%, lending some support to bond prices, dealers said. Traders remained cautious ahead of the result of the INR 300-billion switch auction, which is expected to provide further cues to the market, they added.

The government invited bids on Monday to switch eight gilts worth INR 300 billion with five longer-tenure securities. Participation at the switch auction was limited to a few banks, dealers said. Traders expect only a partial switch, as the source securities were similar to those offered in earlier switch auctions and banks now hold limited stock of such papers after previous exercises, dealers said.

Traders saw limited scope for profit in the securities being offered, especially after bond prices fell sharply due to a rise in crude oil prices after the announcement of the switch auction Wednesday, dealers said. As a result, bidders were unlikely to have aggressively chased the securities, with little urgency to book gains in profit-and-loss statements, they said. However, dealers added that cut-off prices for longer-tenure papers could be relatively higher as demand for those bonds remained steady due to elevated yield levels.

"Demand was weak only (at the switch auction)," a dealer at a state-owned bank said. "Only banks hold most of these securities and that, too, few banks only participated this time, so we'll have to look at the cut-offs." 

In early trade, stop losses triggered additional selling pressure on bond prices, dealers said. Some traders hit stop losses as the yield on the 10-year benchmark 6.48%, 2035 bond remained between 7.10% and 7.12%. However, state-owned banks bought bonds as the yield on the benchmark paper neared the psychologically crucial 7.15% level, dealers said. Traders also said there was speculation that the Reserve Bank of India could make on-screen purchases in the secondary market if the benchmark yield breached 7.15%. Hopes of such support from the central bank were supported by data from Clearing Corp. of India Ltd., which showed that the "others" category — comprising insurers, pension funds and the RBI — net bought bonds worth INR 15.78 billion Friday.

A slight intraday fall in Brent crude oil prices and US yields helped bond prices, dealers said. Brent crude oil futures for July delivery were at $110.64 per barrel at 1240 IST, down from $111.24 per barrel at 0900 IST. At the same time, the yield on the 10-year US Treasury note fell slightly to 4.62% from 463% at 0900 IST.

At 1313 IST, the turnover in the gilt market was INR 265.60 billion, significantly higher than INR 197.75 billion at 1330 IST Friday, data from the RBI's Negotiated Dealing System–Order Matching platform showed. For the rest of the day, the yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 7.05–7.17% range.  (Diksha Tripathy)

India Gilts: Slump as US ylds rise; Brent crude price above $110/bbl weighs

MUMBAI--0945 IST--Prices of government bonds slumped as US Treasury yields and prices of Brent crude oil rose over the weekend, dealers said. Traders also trimmed positions due to low risk appetite amid uncertainty about an end to the US-Iran war, they said.

The 6.48%, 2035 benchmark bond opened at INR 95.83, down from INR 96.03 at 1700 IST Friday. The price fell by nearly 22 paise in early trade as traders trimmed risk positions, dealers said. The yield on the 10-year benchmark bond rose to 7.1343%, its highest level since Apr. 6, and over 7 basis points higher than its closing level Friday. 

Following US President Donald Trump's warning to Iran over a peace deal, Brent crude oil futures rose above the key level of $110 per barrel Monday from $108.21 per barrel at the end of Indian market hours Friday. The rise in US yields also weighed on bond prices, dealers said. The yield on the 10-year benchmark US Treasury note was above 4.63% at 0930 IST, sharply higher than 4.54% at 1700 IST Friday. 

"It is crude (oil prices) and US yields that's driving the (bond) prices down," a dealer at a state-owned bank said. "And I think we are going to see 7.13-14% (the yield on the 10-year benchmark bond) today (Monday)."   

Traders also remained cautious ahead of the gilt switch auction Monday, the result of which is expected to lend cues to the market, dealers said. The government will switch eight gilts worth INR 300 billion with five longer-term securities. Traders expect only a partial switch at Monday's auction, since the source securities are similar to those offered at previous auctions and banks hold limited amounts of them after prior switches. The market had expected more benchmark securities to be included in the switch auction, dealers said.

At 0945 IST, the turnover in the gilt market was INR 82.65 billion, higher than INR 45.25 billion at 0930 IST Friday, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching platform showed. For the rest of the day, the yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 7.04–7.15% range. Any major escalation in the West Asia war could push the yield on the 10-year benchmark bond to above 7.15%, dealers said. (Diksha Tripathy)

India Gilts: Seen sharply dn on oil price rise, highest US yld in over a yr

MUMBAI – Prices of government bonds are seen opening lower as Brent crude oil prices firmed up to over $110 per barrel on fears of an escalation of hostilities in West Asia, dealers said. The sharp rise in US Treasury yields to the highest level in over a year will also weigh on bond prices, they said. Traders are likely to remain cautious on the back of the heightened tensions in West Asia and ahead of the switch auction result, dealers said.

The yield on the 10-year benchmark 6.48%, 2035 bond is expected to open near 7.08% and is seen in the 7.00-7.15% range during the day, dealers said. Traders expect the yield on the 10-year benchmark bond to rise above 7.10% if the situation in West Asia worsens. Dealers said traders are likely to avoid building aggressive positions, which will also limit any recovery in bond prices. Friday, the 10-year benchmark bond had ended at INR 96.03, or 7.0644% yield. Gilt prices had ended sharply lower as traders trimmed risk positions ahead of the weekend as crude oil prices and US Treasury yields rose sharply. 

Brent crude oil prices rose above $110 per barrel after President Donald Trump warned that the "clock was ticking" for Iran to agree to a peace deal with the US. He cautioned that "there won't be anything left of them" if Iran's leaders do not move quickly towards negotiations. Iran also announced that it will soon propose a new plan to regulate maritime traffic and impose shipping tolls in the Strait of Hormuz. Any further disruption in the key waterway could send shock waves through global energy markets already rattled by the war.

Following the escalations, Brent Crude futures for July delivery rose to near $112 per barrel, up from $108.21 per barrel at the end of Indian market hours Friday. At 0730 IST, the benchmark 10-year US Treasury yield was 4.63%, up over 9 basis points from 4.54% at 1700 IST Friday.

Traders will also closely track the outcome of the INR 300-billion switch auction. The government said it will switch eight gilts with five longer-term bonds. Traders expect only a partial switch at Monday's auction, since the source securities are similar to those offered at previous auctions and banks hold limited amounts of them after prior switches. The market had expected more benchmark securities to be included in the switch auction, dealers said.

Market participants will also take cues from the Reserve Bank of India's seven-day variable rate repo auction scheduled for Monday and the liquidity surplus in the banking system. Traders will also track the movement of overnight indexed swap rates and the rupee, they said.  (Janwee Prajapati)  End

US$1 = INR 96.35

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

Edited by Akul Nishant Akhoury

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