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Informist, Thursday, May 21, 2026

 

By Diksha Tripathy

 

MUMBAI – Prices of government bonds ended sharply down in volatile trade Thursday due to a rise in prices of Brent crude oil, dealers said. Traders trimmed risk positions and placed short bets amid fears of further escalation in the war in West Asia, weighing on bond prices. Bets on an interest rate hike by the Reserve Bank of India also pulled bond prices down, they said. 

    

The benchmark 10-year 6.48%, 2035 bond ended at INR 95.71, sharply lower than INR 95.96 Wednesday. Its yield settled at 7.1134%, up from 7.0761% Wednesday. The bond's price traded in a wide range between INR 95.60 and INR 96.33, influenced by several news reports during the day.

 

A Reuters report, citing sources, said Iran's Supreme Leader has directed that the country's near-weapons-grade uranium should not be sent abroad, hardening Tehran's stance on one of the key demands of the US in peace talks. The demand is seen as complicating efforts to end the war in West Asia. Following the report, Brent futures for July delivery rose to the day's high near $108 a barrel and were at $106.81 per barrel at 1700 IST. A fall in Brent futures to below $104 a barrel during the day helped bonds recover nearly all of their losses.

 

Bond prices had opened sharply higher Thursday, tracking the overnight decline in US Treasury yields and Brent crude oil prices on reports that the US and Iran were getting closer to a peace deal. The benchmark 10-year bond opened at INR 96.20 and rose to as high as INR 96.33 in early trade. However, bonds erased gains and prices fell sharply after a Bloomberg report said the Reserve Bank of India was considering all measures, including a repo rate hike, to stabilise the rupee, dealers said.

 

"Selling, profit booking, everything was there, but above all, there was panic in the market after that report (on the interest rate hike)," a dealer at a state-owned bank said. "Everything was looking very positive early morning, be it the rupee, crude oil prices, or US yields. But after the news, there was absolute chaos."

 

Trade volume in the gilt market rose sharply on active intraday trading in a volatile market. The total turnover in the government securities market was INR 614.05 billion, sharply up from INR 532.40 billion Wednesday, according to data from the Clearing Corp. of India Ltd. There was no trade through the RBI's wholesale e-rupee pilot Thursday. The instrument has remained unused since February.

 

Most traders now expect the RBI's Monetary Policy Committee to raise the key policy rate by 25-50 basis points at its Jun. 3-5 meeting. Some dealers also said the central bank could opt for an off-cycle rate hike ahead of the scheduled MPC meeting. The one-year overnight indexed swap rate, a bellwether of domestic interest rate expectations, surged to a 16-month high of 6.44% during the day, suggesting markets may be pricing in a 50-basis-point rate hike in June. The sharp rise in OIS rates weighed on bond prices, with the one-year swap rate ending 15 bps higher at 6.36% Thursday, dealers said.

 

While dealers said the Bloomberg report suggested the RBI wanted to prepare the market for a potential rate hike, it would be a sharp pivot from recent public comments by top officials and the central bank's own actions. The central bank has conducted large variable rate repo auctions thrice this week despite poor demand for funds, seen as a bid to keep the weighted average call rate near the repo rate amid tightening liquidity and goods and services tax payments, dealers said. On Wednesday, the RBI even announced a three-year, $5 billion dollar-rupee buy-sell swap auction to infuse durable rupee liquidity into the banking system. These measures are not consistent with signalling imminent monetary policy tightening, dealers said.

 

Fluctuations in Brent crude oil prices added to the volatility in the bond market. Iranian media reported that the latest US proposal seemed to narrow the gap between the warring parties' positions, cooling oil prices, before a Reuters report once again raised concerns that a deal would not be struck, dealers said. A peace deal in West Asia may lead the MPC to reconsider sharp rate hikes, but the continuation of the war is strengthening the case for monetary policy tightening, dealers said.

 

Similarly, US Treasury yields also rose intraday, weighing on domestic bond prices, dealers said. At 1700 IST, the yield on the 10-year US Treasury note was at 4.61% compared with 4.59% at 0900 IST, though still lower than 4.64% at the close of Indian market hours Wednesday. Despite the focus on the upcoming MPC meeting, traders said that overseas cues and developments in the West Asia war are continuing to have a significant impact on bond prices. 

 

Throughout the day, traders avoided large bets on either a rise or a fall in gilt prices due to significant volatility. Traders also made room for the INR 320 billion gilt auction on Friday. The government will sell INR 110 billion each of the 6.03%, 2029 bond and the 6.68%, 2033 bond, and INR 100 billion of the 7.24%, 2055 bond at auction at 1030-1130 IST Friday. 

 

"There was some selling in the market before (the weekly gilt) auction," a dealer at a private-sector bank said. "Now the market is expecting a rate hike, too, so that added more pressure (on bond prices)."    

 

OUTLOOK

Bond prices will track developments related to the West Asia conflict and movements in Brent crude oil prices at the open on Friday, dealers said. Focus will then turn to the outcome of the RBI's board meeting and the surplus that the central bank will transfer to the government for 2025-26 (Apr-Mar).

 

The central board of the RBI is likely to meet Friday to discuss and approve the transfer of surplus to the government for 2025-26 (Apr-Mar), according to an Informist report. Traders expect the RBI to transfer a surplus of INR 2.70 trillion to INR 3.50 trillion to the government. However, it can also go higher if the central bank's board reduces the contingent risk buffer, which was set at the top end of its 4.5-7.5?nd in FY25, dealers said. The surplus transfer may be announced at around 1100 IST, as has been the case in past years.

 

After that, traders will track the results of the INR 320-billion weekly gilt auction Friday. The government will sell INR 110 billion each of the 6.03%, 2029 bond and the 6.68%, 2033 bond, and INR 100 billion of the 7.24%, 2055 bond. Demand at the auction is expected from banks and insurers, dealers said. However, the focus on a rate hike in June is likely to dampen overall demand, especially if there is no positive development on the war in West Asia, they added.

 

The yield on the 6.48%, 2035 bond is seen in the 7.05-7.15% range Friday. However, any signs of escalation in the West Asia conflict could push the benchmark 10-year yield above 7.15%. Traders said purchases of the bond by state-owned banks at yields of 7.14-7.15%, which they see as attractive, are likely to prevent the benchmark yield from breaching that mark. At the lower end of the range, profit booking by traders who bought gilts when yields were above 7.10% is expected to prevent the yield from falling below 7.05%, dealers said.

 

	THURSDAY		WEDNESDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	95.7100	7.1134%	95.9550	7.0761%
6.33%, 2035	95.7500	6.9755%	95.7400	6.9769%
6.36%, 2031	97.5800	6.9655%	97.9900	6.8609%
6.68%, 2040	93.7200	7.4030%	93.8900	7.3825%
6.90%, 2065	89.7000	7.7402%	89.8500	7.7268%

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India Gilts: Sharply down on fears of escalation in West Asia war

 

	1628 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	95.70	96.33	95.60	96.20	95.96
YTM (%)	7.1149	7.0194	7.1301	7.0391	7.0761

MUMBAI--1628 IST--Prices of government bonds were sharply down following an intraday rise in Brent crude oil price and US yields, dealers said. Crude oil price rose on a Reuters report that said Iran's supreme leader has issued a directive saying the country's near-weapons-grade uranium should not be sent abroad. The order from Ayatollah Mojtaba Khamenei may disrupt the peace talks between Iran and the US.

 

Brent crude oil futures for July delivery rose to over $107 per barrel following the development. Earlier reports of a likely peace deal had pulled Brent crude oil price below $105 per barrel Thursday. At 1623 IST, the yield on the 10-year benchmark US Treasury note was 4.62%, up from 4.59% at 0900 IST but still down from 4.63% at 1700 IST Wednesday. The rise in the US Treasury yield also weighed on bond prices.

 

The rise in bond prices earlier in the day was capped as traders took profits, dealers said. Some traders also placed short bets ahead of the INR-320-billion gilts auction Friday, which also pulled down bond prices, 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 Clearing Corp. of India Ltd.'s Repo Order Matching System. Data at 1627 IST showed trades worth INR 189.47 billion in the 6.48%, 2035 gilt. At 1628 IST, the turnover in the gilt market was INR 586.25 billion, sharply up from INR 477.10 billion at 1630 IST Wednesday, according to data from the RBI's Negotiated Dealing System–Order Matching platform. 

 

The government will sell INR 320 billion of three gilts through Friday's auction. Banks, mutual funds, and insurance companies are likely to be the major participants at the auction, dealers said. While banks are expected to bid for shorter-term bonds, insurance companies are likely to buy long-term bonds, they said. The 6.03%, 2029 bond at the auction is likely to be under pressure on fears of rate hikes by the RBI's Monetary Policy Committee, dealers added. The cut-off yield on the 6.68 33bond is expected to be at least 2 basis points less than on the 10-year bond, dealers said.

 

"The (trade) volume was sharply up Thursday due to a wide trading range (7.02-7.13% yield) in the 10-year benchmark," a dealer at a private-sector bank said. "Due to this wide range there was a lot of profit booking (7.02% yield on 6.48%, 2035 bond) and short selling in the market today (Thursday)."

 

For the rest of the day, the yield on 6.48%, 2035 bond is seen in the 7.01–7.14% range. Dealers expect the yield to be around 7.10% for the 10-year benchmark at the end of the day.  (Durgesh Nandan)

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India Gilts: Sharply down; erase all gains on report RBI mulls rate hike

 

	1230 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	95.78	96.33	95.60	96.20	95.96
YTM (%)	7.1035	7.0194	7.1301	7.0391	7.0761

 

MUMBAI--1230 IST--Prices of government bonds erased all earlier gains and traded sharply lower after a Bloomberg report that the Reserve Bank of India was considering a repo rate hike to support the rupee amid its sharp fall, dealers said. However, some traders covered short positions during the day, which lent some support to bond prices, they added.

 

Following the report, traders said they now expect the RBI's Monetary Policy Committee to raise the key policy rate by 25-50 basis points at its Jun. 3-5 meeting. The fall of the rupee has already weighed on bond prices and any rate hike would further exert pressure on the market by pushing bond yields higher, dealers said.

 

"Market sentiment was positive initially, but this news (of a likely rate hike) completely reversed it," a dealer at a state-owned bank said. "Crude oil prices and US Treasury yields were lower, which was supporting bond prices, and the market expected the yield on the 10-year benchmark bond to remain range-bound till 7.08%. But now that expectation has changed."

 

A sharp rise in overnight indexed swap rates also weighed on bond prices, dealers said. Intraday, the one-year OIS rate rose over 20 bps to 6.41% as of 1230 IST, while the five-year OIS rate was up over 6 bps at 6.86%. Dealers said the one-year OIS rate was factoring in more than 100 basis points of rate hikes in the current financial year, leading to aggressive paying interest in the segment. 

 

At 1230 IST, the turnover in the gilt market was INR 314.40 billion, sharply higher than INR 162.10 billion at 1230 IST Wednesday, 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 7.04–7.15% 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)

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India Gilts: Up on hopes of US-Iran peace deal; traders book profits

 

--Dealers: Gilts up as Brent below $110/bbl on hopes of US-Iran peace deal 

 

	0938 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	96.01	96.33	95.96	96.20	95.96
YTM (%)	7.0678	7.0194	7.0754	7.0391	7.0761

 

MUMBAI--0938 IST--Prices of government bonds were up as prices of Brent crude oil fell well below the psychologically crucial level of $110 per barrel and US yields eased overnight, dealers said. Bond prices were pulled down as traders booked profits and placed short bets, they said.

 

The 10-year 6.48%, 2035 bond opened at INR 96.20, up over 24 paise from Wednesday. The price of the benchmark bond soon jumped 13 paise in early trade as traders bought bonds at levels seen attractive, dealers said. However, some traders who had bought the bond when the yield was at 7.13-7.14% level, booked profits, which weighed on the bond price and it fell to the day's low of INR 96.00. 

 

The volume in the market remained over three times that on Wednesday as traders actively traded bonds amid signs of a peace deal between the two warring nations, which made the market's sentiment positive, dealers said. At 0925 IST, the turnover in the gilt market was INR 86.65 billion, higher than INR 29.95 billion at 0930 IST Wednesday, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching platform showed.  

 

"We expected the market to be positive only today, but it is behaving a little unusually," a dealer at a state-owned bank said. "Despite crude (oil prices) being low, the yield on the 10-year bond is at 7.07%, which is too much. I think people are short-selling or maybe booking their profits." 

 

Brent crude oil prices were at $105.84 per barrel at 0925 IST, as against $108.68 per barrel at 1700 IST Wednesday. Prices fell after US President Donald Trump hinted at peace talks between the US and Iran. Dealers said the long-awaited breakthrough in US-Iran negotiations could trigger a sharp move in the Indian market, as reopening of the Strait of Hormuz would ease inflationary pressures and reduce the case for rate hikes by the Reserve Bank of India's Monetary Policy Committee.

 

Bond prices were also supported due to easing of US Treasury yields amid hopes of a peace deal between the US and Iran, dealers said. At 0925 IST, the yield on the benchmark 10-year US Treasury note was 4.59%, 5 basis points down from 4.64% at 1700 IST Wednesday.

 

On Thursday, the recovery of the rupee also helped bond prices, dealers said. The rupee opened at 96.30 a dollar, tracking a fall in Brent crude oil prices. The recent buy-sell swap announced by the RBI on May 29 is expected to support the rupee, dealers said. 

 

However, bond prices were down as traders booked profits at levels seen as attractive, dealers said. Traders who had bought bonds when the yield on the 10-year benchmark touched 7.15% level booked profits, dealers said. Also, traders placed short positions aggressively, which weighed on bond prices, dealers said.  

 

For the rest of the day, the yield on the 10-year benchmark 6.48%, 2035 bond, is seen in the 7.00–7.10% range. Any major escalation in the West Asia war could push the yield on the 10-year benchmark bond to above 7.10%, dealers said. The announcement of a peace deal between the US and Iran could pull down the yield to below 7.00%, they said.  (Diksha Tripathy)

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India Gilts: Seen up on US-Iran peace deal hopes, easing crude oil prices

 

MUMBAI – Prices of government bonds are likely to open higher Thursday due to heightened expectations of a peace deal between the US and Iran, dealers said. Following the developments in West Asia war, Brent crude oil prices continued to trade below the crucial level of $110 per barrel for July delivery, but remained sharply above pre-war levels. US Treasury yields, on the other hand, firmed up slightly in early trade after falling sharply overnight.

 

The yield on the 10-year benchmark Indian government 6.48%, 2035 bond is expected to open lower near 7.03% and is seen in the 7.00-7.07% range during the day, dealers said. Wednesday, this bond had ended at INR 95.96, or 7.0761% yield. Bond prices were supported Wednesday as Brent crude oil prices eased below the $110 per barrel level in late trade along with a slip in US Treasury yields.

 

Following the rise in local bond prices, traders are likely to cover their short bets on hopes of a potential peace deal between the two warring nations, which will keep prices firm Wednesday. However, some traders are likely to book profit on purchases made when the yield on the 10-year benchmark bond rose to a near two-year high of 7.1435% which will keep gains limited, dealers said.

On the war front, US President Donald Trump said talks with Iran were in the final stages and that the US might have to strike harder, but would hold off to see if a deal could be reached. Iran said it was reviewing a new US proposal to end the Middle East conflict, with Trump calling the negotiations on the "borderline" between an agreement and renewed strikes. Iran's foreign ministry spokesperson added that messaging between Tehran and Washington was ongoing.

 

Brent Crude futures for July delivery fell to $103.24 per barrel in late trade Wednesday, but firmed up to over $105 a barrel at 0730 IST Thursday. However, these were lower than $108 a barrel at the end of Indian market hours Wednesday. Dealers said the long-awaited breakthrough in US-Iran negotiations could trigger a sharp move in the Indian market, as reopening of the Strait of Hormuz would ease inflationary pressures and reduce the case for rate hikes by the RBI's Monetary Policy Committee.

On the other hand, the minutes from the US Federal Reserve's last meeting, released Wednesday post Indian market hours, showed more officials saying the central bank should start preparing for a possible rate hike. After the release, bets on a December rate hike in the US were volatile. At 0730 IST, the benchmark 10-year US Treasury yield was 4.58%, marginally up from over 4.57% in early trade but down 7 basis points from 4.64% at 1700 IST Wednesday.

Indian gilt prices are also expected to rise, tracking the likely gain of the rupee against the dollar after the RBI announced a $5 billion three-year dollar-rupee buy-sell swap auction for Tuesday. Traders have been waiting for such measures from the central bank to support the rupee and inject durable liquidity into the banking system.  (Janwee Prajapati)

 

End

 

US$1 = INR 96.20

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

 

Edited by Saji George Titus

 

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