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Informist, Tuesday, May 19, 2026

By Diksha Tripathy

MUMBAI – Prices of government bonds were up Tuesday on improved risk appetite with no sign of escalation in the West Asia war, dealers said. Bond prices were supported as state-owned banks bought bonds at levels seen as attractive, they said. However, the fall of the rupee to a record low and elevated Brent crude oil prices capped gains in bond prices, dealers added.  

The benchmark 10-year 6.48%, 2035 bond ended at INR 95.73, higher than INR 95.59 Monday. The bond's price had risen to as much as INR 95.87 during the day. Its yield settled at 7.1101%, down from 7.1313% Monday.

Bond prices opened slightly lower Tuesday but soon reversed losses and rose sharply in early trade as state-owned banks bought bonds at levels seen as attractive, dealers said. Traders see the 7.13-7.14% yield level on the 10-year benchmark bond as a technical level where state-owned banks will step in to buy bonds, they said. Traders also expect the Reserve Bank of India to support bond prices through on-screen gilt purchases if the benchmark yield rises above the 7.15% level, dealers said.

Trade volume in the gilt market was relatively low Tuesday as traders were uncertain over the trajectory of the West Asia war, dealers said. Total turnover in the government securities market was INR 397.90 billion, down from INR 495.80 billion Monday, according to the Clearing Corp. of India Ltd. There was no trade through the Reserve Bank of India's wholesale e-rupee pilot Tuesday. The instrument has remained unused since February.

Elevated Brent crude oil prices weighed on bond prices Tuesday, dealers said. Brent crude futures for July delivery remained above the psychologically crucial $110-per-barrel mark and were at $111.03 per barrel at 1700 IST. Brent prices have surged since late February after the war in West Asia effectively shut the Strait of Hormuz. The fall in the rupee to a record low of 96.6125 against the dollar also weighed on bond prices, dealers said. The rupee closed at 96.5325 per dollar and has fallen over 2% in the last eight sessions.

"The moment Brent goes above $110 (per barrel), market starts to react," a dealer at a public-sector bank said. "Today (Tuesday), it was around $109 (per barrel) and then rose above $110 (per barrel). The rupee also depreciated, so all these factors together affected the market."  

The absence of any escalation in the West Asia war kept market sentiment positive despite all the negative cues such as the rupee depreciation and the elevated crude oil prices, dealers said. Expectations of a large surplus transfer from the Reserve Bank of India to the government also supported sentiment. Market participants expect the central bank to transfer INR 2.7 trillion to INR 3.5 trillion to the government as surplus for 2025-26 (Apr-Mar). The RBI had transferred a record INR 2.69 trillion for FY25.

"There is now an expectation of higher inflows from the RBI also, which will be positive for the market," a dealer at a primary dealership said. "Plus, the governor said the MPC (Monetary Policy Committee) will look through the first-round impact before taking any step, so that is being seen as a hint at delay in the rate hike cycle, and that is a big thing."

Expectations of a delayed rate hike cycle strengthened after RBI Governor Sanjay Malhotra, in a transcript published late Monday, saidthat the central bank generally tries to "look through" the first-round impact of supply-side shocks that lead to higher prices.

Bond prices were also supported after an Informist report said that the government would refrain from increasing market borrowing in FY27 despite global headwinds, slower growth concern, and the possibility of lower tax collections. The ministry will instead closely monitor expenditure and raise funds through avenues such as spectrum auctions, asset monetisation, and disinvestment, a finance ministry official told Informist late Monday. The comments reduced fears of additional gilt supply this financial year, which in turn will support bond prices, dealers said.

Bond prices did not react significantly to the outcome of the state bond auction, dealers said. Six states raised INR 201 billion through bonds Tuesday. Banks bid for shorter-term bonds mainly for their held-to-maturity books, but demand was not aggressive, leading to cut-off yields coming in higher than market expectations, dealers said. 

For bonds maturing in 10 years and more, cut-off yields were broadly in line with expectations, dealers said. The RBI set cut-off yields of 7.83% and 7.81% for Rajasthan's 10-year 7.64%, 2036 bond and Tamil Nadu's 10-year 7.73%, 2036 bond, respectively. The cut-off yields on states' 10-year bond reissues were seen at 7.80-7.82%, according to an Informist poll.

The impact of the nearly 90-paise-per-litre increase in retail fuel prices Tuesday on bond prices was muted, dealers said. Traders had largely anticipated the hike and expect further increases in the near term due to oil supply concerns stemming from the West Asia war. Indian Oil Corp. Ltd. raised retail petrol and diesel prices by around 90 paise per litre each Tuesday. This was the second increase in less than a week amid the ongoing energy crisis. On Friday, the company had raised retail petrol and diesel prices by INR 3 per litre each.

"I see more such retail fuel price hikes coming, if the rupee depreciates further," a dealer at another state-owned bank said. "I think the hikes will be gradual, around INR 1-INR 3 per litre, but more increases are likely in the near future."

OUTLOOK

On Wednesday, traders will track developments related to the West Asia war and Brent crude oil prices, dealers said. Any major escalation in the conflict could push bond yields higher from current levels. Traders will also monitor overnight indexed swap rates and the rupee, they said.

The yield on the 6.48%, 2035 bond is seen in the 7.05-7.15% range Wednesday. Traders do not expect the benchmark 10-year yield to breach the 7.15% level as bond prices are likely to remain supported by purchases from state-owned banks at levels seen lucrative, dealers said.

India Gilts: Remain up on PSU bank buys; oil price rise, rupee fall weigh

MUMBAI--1545 IST--Prices of government bonds remained up as public-sector banks likely bought gilts after bond prices came off the day's high, dealers said. Bonds prices had fallen from the day's high as Brent crude oil prices surged past the psychologically crucial level of $110 per barrel intraday, they said. The fall of the rupee to a record low also weighed on bond prices, dealers said. The state bond auction results were in line with market expectations, dealers said.

The rupee fell to a record low of INR 96.6100 a dollar Tuesday, tracking a rise in crude oil prices and pulling bond prices down. An intraday rise in US yields and Brent crude oil price also weighed on bond prices, dealers said. At 1530 IST, the yield on the 10-year benchmark US Treasury note was at 4.62%, up from 4.60% at 0900 IST. The Brent crude oil futures contract for July delivery was at $110.36 per barrel at 1530 IST, slightly up from $109.85 per barrel at 0900 IST.

However, purchases from state-owned banks at levels seen to be attractive limited the fall and kept bond prices higher than Monday, dealers said. Market sentiment remained positive with no signs of escalation in the West Asia war, which also helped bond prices, they said.

"The (10-year benchmark bond) price is already up so, if any positive commentary comes this week from the US-Iran war, then the rates (10-year benchmark bond's price) could rise up to INR 96.50," a dealer at a public-sector bank said.

Bond prices hardly reacted to the state bond auction result, wherein a total of six states raised INR 201 billion through the sale of bonds, dealers said. Banks bid for the shorter-term bonds at the auction mainly for held-to-maturity books, dealers said. The cut-off yields at the auction were largely in line with market expectations. The Reserve Bank of India set cut-off yields of 7.83% and 7.81% for Rajasthan's 10-year 7.64%, 2036 bond and Tamil Nadu's 10-year 7.73%, 2036 bond, respectively. The cut-off yields on states' 10-year bonds at Tuesday's auction were seen at 7.80-7.82%, according to an Informist Poll.

"(US President Donald) Trump has said there will be no attack for a few days, but the market is still not sure about it, as it is looking like a mixed comment," a dealer at another state-owned bank said.

At 1545 IST, the turnover in the gilts market was INR 320.45 billion, down from INR 384.65 billion at 1530 IST Monday, according to data from the RBI's Negotiated Dealing System–Order Matching platform. Traders held their positions amid uncertainty about the end of the US-Iran war, which kept the volume relatively low. For the rest of the day, the yield on the 10-year benchmark bond is seen in the range of 7.08–7.12%.  (Durgesh Nandan)

India Gilts: Remain up; short-term bond demand at auction seen weak  

MUMBAI--1225 IST--Prices of government bonds remained up as traders bought bonds at levels seen attractive, supported by positive market sentiment amid no signs of escalation in the West Asia war, dealers said. Trading volumes, however, remained muted as market participants awaited the result of the auction of state government securities, they said.

The absence of any major escalation in the West Asia conflict has improved overall market sentiment and boosted traders' risk appetite, dealers said. State-owned banks were seen buying bonds at attractive levels Tuesday, they said. Traders are likely to book profits if the price of the benchmark 10-year 6.48%, 2035 bond rises to INR 95.85-95.90, dealers added.

Six states invited bids to raise a total of INR 201 billion through bond sales Tuesday, lower than the INR 231 billion indicated in the states' Apr-Jun indicative borrowing calendar for this week. Dealers had mixed expectations on the auction demand, with some even anticipating cancellations as investors may not have enough room in their portfolios to absorb additional supply from state bond auctions, they said.

"I don't think there will be enough demand today (Tuesday) at the auction," a dealer at a state-owned bank said. "People have already bought (bonds) and filled their portfolios when the yields were high. Now they won't have enough space for state bonds at least. It will be bad, might even be cancelled."

For short-term securities, traders expect higher cut-off yields and relatively weak demand, dealers said. Public  and private sector banks are likely to bid for these shorter-tenure papers, they said. Demand for long-term papers, however, is expected to be supported by investors and pension funds looking to add to their investment books. 

For Punjab's 12-year bond, dealers expect the cut-off yield to be close to 8.00%. However, traders do not expect the cut-off yield on long-term papers to rise above the 8.00% mark because of demand for longer-duration securities from insurers and pension funds. Dealers said higher-than-expected cut-off yields at the auction could weigh on gilt prices in the secondary market.

Some investors are not willing to take on longer-duration exposure amid uncertainities on the West Asia war front. Dealers expect cut-off yields on the 30-year state bonds to be 30-40 basis points higher than current levels on the government's 30-year benchmark paper. The 7.24%, 2055 gilt was trading at INR 95.07, or 7.6635% yield, at 1225 IST.

The cut-off yield on states' 10-year bonds at Tuesday's auction is seen at 7.80-7.82%, according to the median estimate of 14 bond dealers polled by Informist. At last week's state bond auction, the cut-off yields on 10-year state bonds were set at 7.73-7.80%, implying a spread of 68-75 basis points over the Centre's benchmark 10-year 6.48%, 2035 gilt.

At 1225 IST, the turnover in the gilt market was INR 187 billion, lower than INR 227.40 billion at 1230 IST Monday, 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 7.05–7.15% 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: Up as oil prices ease slightly; improved risk appetite helps

MUMBAI--0925 IST--Prices of government bonds were up Tuesday as Brent crude oil fell below the psychologically crucial level of $110 per barrel, dealers said. Prices were also supported as traders bought bonds at levels seen as attractive, they said.    

Traders expect banks to continue their buying momentum from Monday, which is likely to help bond prices, dealers said. Private-sector banks were the largest net buyers of bonds with purchases worth INR 36.53 billion, while state-owned banks net bought bonds worth INR 29.40 billion Monday, data from the Clearing Corp. of India. Ltd. showed. 

"The 7.13-14% (yield on the benchmark 10-year 6.48%, 2035 bond) is a good technical resistance level," a dealer at a state-owned bank said. "Traders across the board will buy bonds at these levels because when the yield goes to 7.05%, they can still book a profit.'  

A slight ease in crude oil prices and US yields helped bond prices, dealers said. Brent crude oil futures for July delivery were at $109.79 per barrel at 0925 IST, slightly down from $110.66 at 1700 IST Monday. Meanwhile, the yield on the 10-year US Treasury note was 4.60% at 0930 IST, compared to 4.61% at the end of Indian gilt trading hours Monday.    

The impact of a hike in retail fuel prices by nearly 90 paise by Indian Oil Corp. Ltd. was muted on the market, dealers said. Traders had expected a hike and anticipate more such hikes to come in a similar gradual way, they said. The rise in crude oil prices due to the West Asia war have led to heightened expectations of higher inflation data in subsequent months, which is expected to prompt traders to bet on repo rate hikes in FY27, dealers said. 

Traders will also closely track the result of the auction of state government securities Tuesday, where six states plan to raise INR 201 billion through bond sales. Dealers expect the auction to go through smoothly since the size is smaller than the INR 231 billion indicated in the states' Apr-Jun borrowing calendar. Banks are likely to bid aggressively at the auction to add bonds to their held-to-maturity portfolios, dealers said. Insurers are likely to go for long-term bonds to add to their investment books, they said. However, if cut-off yields at the auction come in higher than expected, it could weigh on gilt prices in the secondary market.  

At 0925 IST, the turnover in the gilt market was INR 44.55 billion, lower than INR 52.45 billion at 0930 IST Monday, 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 7.05–7.15% 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 flat; fear of W Asia war escalation eases, oil price weighs

MUMBAI - Prices of government bond prices are likely to open flat Tuesday as the Brent crude oil prices eased slightly below the key $110 per barrel mark, dealers said. Overnight ease in US Treasury yields will also help, they said. However, the rise in retail fuel prices will weigh on market sentiment as it will lead to expectations of a higher inflation print in the coming months, dealers said. Later in the day, the results of INR-201-billion state bond auction will lend cues, they said.

The yield on the 10-year benchmark 6.48%, 2035 bond is expected to open near 7.13% and is seen in the 7.10-7.15% range during the day, dealers said. Traders expect the bond yields to remain below 7.15% as they will likely cover their short positions, dealers said. Monday, the 10-year benchmark bond had ended at INR 95.59, or 7.1313% yield. The yield on 10-year benchmark gilt rose to its highest since May 8, 2024 on fears of further escalation in the West Asia war. The rise in 10-year benchmark yield past 7.12% triggered stop losses which also pulled down prices. 

Brent crude oil futures for July delivery eased to trade below $110 per barrel in early trade Tuesday, slightly down from $110.66 at the end of Indian trading hours, following comments from US President Donald Trump. President Trump said he would hold off on new military strikes, raising hopes for a deal that could end the war and restore energy shipments through the Strait of Hormuz. However, earlier Monday, both the US and Iran said they had rejected new proposals, calling them insufficient for a deal which weighed on oil prices. The White House said a proposal delivered by Tehran through mediators on Sunday showed no meaningful progress, according to media reports. Iran, meanwhile, said US demands were unacceptable. Following these developments, the 10-year benchmark US Treasury yield eased to 4.59% overnight, but moved up in early trade to 4.60%, unchanged from 1700 IST Monday.

Back home, Indian Oil Corp. raised retail fuel prices by nearly 90 paise in Delhi following the hike of INR 3 per litre on Friday. The rise in pump prices will lead to heightened expectations of higher inflation data in subsequent months, which will prompt traders to bet on repo rate hikes in FY27, dealers said. Overnight indexed swap rates climbed Monday, with the one-month OIS rate nearly pricing in a repo rate hike of 25 basis points within the next month as the yield on the 10-year US Treasury note surged to its highest in over a year and near-month Brent crude oil futures rose past $110 per barrel, dealers said. Traders will also track the movement of overnight indexed swap rates and the rupee, they said.

Traders will also closely watch the state government securities auction on Tuesday, where six states plan to raise INR 201 billion through bond sales. Dealers expect the auction to go through smoothly since the size is smaller than the INR 231 billion indicated in the states' Apr-Jun borrowing calendar. Demand is expected from banks for their held-to-maturity portfolios and from insurers, dealers said. However, if cut-off yields at the auction come in higher than expected, it could weigh on gilt prices in the secondary market.  (Janwee Prajapati)

US$1 = INR 96.53

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

Edited by Akul Nishant Akhoury

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