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Informist, Friday, May 22, 2026

By Diksha Tripathy

MUMBAI – Prices of government bonds ended off the day's high, wrapping up a volatile week Friday. Bond prices gave up some gains after the Reserve Bank of India's surplus transfer came in lower than market expectations, dealers said. However, prices were supported as the surplus amount was still at a record high, they said.      

The Reserve Bank of India will transfer a record surplus of INR 2.87 trillion to the government for 2025-26 (Apr-Mar), the central bank said in a release Friday. The transfer was at the lower end of market expectations of INR 2.7 trillion-INR 3.4 trillion, though dealers said it would still support the government's revenues, which are seen being under pressure due to the war in West Asia. The surplus transfer was higher than the INR 2.69 trillion transferred for FY25. 

The benchmark 10-year 6.48%, 2035 bond ended at INR 95.86, higher than INR 95.71 Thursday. Its yield settled at 7.0917%, down from 7.1134% Thursday. The yield on the benchmark 10-year bond has ended above the crucial 7.00% level for the past two weeks. Traders expect yields to remain around current levels unless there is a significant breakthrough in the peace talks between the US and Iran. Even if a peace deal is reached, the 10-year gilt's yield are unlikely to fall below 6.85% as inflationary pressures triggered by the war are likely to warrant repo rate hikes later in FY27, dealers said.

"I think it (the yield on the 10-year benchmark bond) will remain near 7% for some time," a dealer at a private-sector bank said. "Even if the war ends, or at least a peace deal between the US and Iran is agreed upon, the yield may fall only to around 6.90%. Some damage has already been done on the inflation front since the war began, and it will take time to reverse that impact. Won't happen immediately."

Bond prices had opened sharply higher Friday, tracking an overnight decline in Brent crude oil prices after media reports said US President Donald Trump had agreed to wait for Iran's response to a peace proposal, fuelling hopes of a deal between the two nations. Brent crude oil prices largely remained near $105 per barrel and were at $105.59 per barrel at 1700 IST, down from over $107 per barrel at the end of Indian trading hours Thursday. The yield on the benchmark 10-year US Treasury note also eased on hopes of a peace deal and was at 4.56% at 1700 IST, compared with 4.61% at the end of Indian gilt trading hours Thursday.

The hopes of a peace agreement also improved the risk appetite in the domestic market, which supported bond prices, dealers said. However, trading volumes remained low and traders awaited the release of the RBI surplus and a conclusive end to the West Asia war. The recent volatility also prompted traders to limit the size of their portfolios, they said. The total turnover in the government securities market was INR 435.30 billion, sharply down from INR 612.50 billion Thursday. 

"Nobody is entering the market with conviction at this point," a dealer at a state-owned bank said. "The market has been extremely volatile this week. Most participants are in a wait-and-watch mode and are simply holding on to existing positions."

Traders were also thrown off by conflicting reports on the RBI's thinking on using a repo rate hike to defend the rupee, one of the worst performers among peers since the West Asia war began. Before market hours, CNBC-TV18 reported the central bank was not planning an off-cycle rate hike, citing sources that said the RBI did not plan on using interest rates to defend the rupee. The report led to a sharp rise in gilt prices in early trade.

A Reuters report during market hours doubled down on this report. These contradicted a Bloomberg report Thursday that said the RBI was considering all measures, including a rate hike, to support the rupee amid its sharp depreciation. With conflicting signals from the central bank through the media, traders remained divided over the timing of a potential rate hike. Overnight indexed swap rates have priced in a 25-basis-point rate hike in the Monetary Policy Committee's June meeting, while most bond traders expect repo rate increases only starting in August.

"I think all this talk about a June rate hike is just noise," a dealer at another state-owned bank said. "I still believe the MPC will wait until August to assess the inflation trajectory and developments in the war before deciding on a hike."

Bond prices showed little reaction to the weekly gilt auction Friday, despite cut-off prices for some securities coming in lower than market expectations, dealers said. For the 30-year 7.24%, 2055 bond, the RBI set a cut-off price of INR 94.82, lower than the Informist poll estimate of INR 95.00. Meanwhile, the cut-off prices for the 3-year 6.03%, 2029 bond and the 7-year 6.68%, 2033 bond were set at INR 98.30 and INR 97.94, respectively. These were broadly in line with market expectations. Dealers said banks' asset-liability management desks and long-term investors were active at the auction, with traders giving the illiquid securities a wide berth.

OUTLOOK

Gilts are not traded Saturday. Monday, bond prices are likely to take cues from developments related to the West Asia war and movements in Brent crude oil prices over the weekend, dealers said. The yield on the benchmark 6.48%, 2035 bond is seen in the 7.02-7.14% range Monday. However, any sign of escalation in the US-Iran war over the weekend could push the benchmark 10-year yield above 7.14%, dealers said. On other hand, if the peace deal is signed between the two warring nations over the weekend, the 10-year benchmark yield could fall to 6.90%, dealers added. Traders will focus on offshore factors such as US yields and crude oil prices amid absence of any domestic trigger, dealers said.  

The yield on the 10-year benchmark bond is unlikely to breach the crucial 7.15% level Monday as state-owned banks are expected to buy bonds when the 10-year benchmark bond yield goes up to 7.14%, dealers said. On the lower side, profit booking by traders, who bought the 6.48%, 2035 bond when the yield was above 7.10%, is expected to keep the benchmark yield from falling below 7.00%, dealers said.

India Gilts: Give up gains as RBI surplus to govt lower-than-expected

MUMBAI--1622 IST--Goverment bond prices gave up some earlier gains as the Reserve bank of India's surplus transfer to the government for 2025–26 (Apr-Mar) was lower than expected, dealers said. Bond prices had fallen to the day's low of INR 95.65 but recovered losses to trade higher. Most traders pared bets on a repo rate hike by the Reserve Bank of India's Monetary Policy Committee in the June meeting, which also supported bond prices, they said. Gilt auction price cut-off was broadly in line with expectations, dealers said.

"I think its not that bad...its near the lower end of the market expectations but not that down," a dealer at a private sector bank said. "...And the cut in risk buffer is also a positive."  

Some market participants had expected the RBI surplus transfer between INR 3.0 trillion and INR 3.5 trillion, while others had expected the amount to be higher than INR 3.75 trillion, dealers said. The RBI surplus transfer of INR 2.87 trillion to the government for FY26 was the highest ever, which limited losses. The central bank also cut the risk buffer due to current macroeconomic factors.

At the weekly gilt auction, the RBI sold 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 cut-off prices largely in line with market expectations, dealers said. Traders were focused on the cut-off price set on the 3-year paper as they had expected lower cut-off prices due to fears of a policy rate hike, dealers said. Some traders also covered short bets in the secondary market which they had placed due to expectations of a fall in bond prices following higher cut-off yields, which did not materialise, dealers said. 

The seven-year paper was bought by banks for their held-to-maturity books as the yield on the 2033 bond was higher than the yield on the 10-year benchmark bond, dealers said. Some banks also bought the bond for their asset liability management books, dealers said. "The cut-off on the seven-year bond was higher than the 10-year bond because it's fairly illiquid, you cannot build aggressive positions in that bond," a dealer at a private bank said. 

The long-term 7.24%, 2055 bond, on the other hand, gave up some gains after the cut-off price was lower than the secondary market price. The RBI set a cut-off of INR 94.82, lower than the expected cut-off of INR 95.00 according to the median of an Informist poll.  

Traders were divided on whether the central bank will hike rates in the next policy meeting in June with some expecting the RBI's Monetary Policy Committee to hike the repo rate by 25-50 basis points amid the likelihood of a sharp rise in headline inflation due to elevated crude oil prices stemming from the West Asia war, dealers said. whereas others only expect a rate hike in the second half of the current year, dealers said.  

"I think the yield on the 6.48%, 2035 bond would have been higher...I do not think G-sec market is completely pricing in a rate hike," a dealer at a small finance bank said. "I do not expect any major change in policy (stance and repo rate) this time...but traders will track commentary closely, it will be very important."

At 1622 IST, the turnover in the gilt market was INR 402.70 billion, lower than INR 578.25 billion at 1530 IST Thursday, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching platform showed. (Janwee Prajapati)  

India Gilts: Remain sharply up; demand for 3-year gilt seen weak at auction

MUMBAI--1255 IST--Prices of government bonds remained sharply higher due to improved risk appetite on the likelihood of a peace deal between the US and Iran, dealers said. However, volume in the market was muted as traders remained on the sidelines ahead of the result of the weekly gilt auction, they said. 

At 1255 IST, the turnover in the gilt market was INR 209.55 billion, significantly lower than INR 302.55 billion at 1235 IST Thursday, data from the Reserve Bank of India's Negotiated Dealing System–Order Matching platform showed. Traders expect the total turnover in the government securities market to go up after the result of the weekly gilt auction as traders will likely cover short positions in the secondary market. Some traders will likely buy fresh stock in the secondary market on improved risk appetite, dealers said. 

The government invited bids to 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 for the 3-year 6.03%, 2029 bond was likely dampened by bets of a hike in the RBI repo rate, dealers said. Market participants expect the RBI's Monetary Policy Committee to hike the repo rate by 25-50 basis points amid the likelihood of a sharp rise in headline inflation due to elevated crude oil prices stemming from the West Asia war. Traders said if the rate is not raised in the June policy meeting, scheduled for Jun. 3-5, they strongly expect the hike at the August policy meeting.

For the 3-year 6.03%, 2029 bond, banks and primary dealerships likely bid at the auction. However, they were not aggressive while placing bids, dealers said. The cut-off price is likely to be lower than the market expectations, which is likely to weigh on bond prices in the secondary market, they said. The RBI is likely to set a cut-off of INR 98.33 on the 6.03%, 2029 gilt at the auction Friday, according to the median of an Informist poll.

Demand for the 7-year 6.68%, 2033 bond and the 30-year 7.24%, 2055 bond at the auction was robust from across market participants, dealers said. Insurers and pension funds were aggressive in placing bids for the long-term paper at the auction, dealers added. The cut-off prices for the 7-year and the 30-year bonds are seen at INR 97.93 and INR 95.00, respectively, as per the Informist poll.

"For short-term paper, demand will be very less," a dealer at a state-owned bank said. "Last time when the 6.03% bond came at the (weekly gilt) auction, it was trading at 6.25%. Now, it is trading almost 50 bps higher just because of rate hike expectations, and that was visible at the auction."    

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 above 7.10%, dealers said. The announcement of a peace deal between the US and Iran could pull down the yield below 7.00%, they said. (Diksha Tripathy)

India Gilts: Sharply up on fall in oil prices, report of no rate hike

MUMBAI--0925 IST--Prices of government bonds rose sharply Friday due to an overnight fall in Brent crude oil futures and US Treasury yields, dealers said. Sentiment in the market also remained positive after a CNBC-TV18 report, citing sources, that the Reserve Bank of India's Monetary Policy Committee is not considering an off-cycle hike in the repo rate, dealers said. 

Some traders remained on the sidelines ahead of the expected announcement of the RBI's surplus transfer Friday, because of which the volume in the market was muted despite positive sentiment, dealers said. At 0925 IST, the turnover in the gilt market was INR 56.05 billion, lower than INR 93.60 billion at 0930 IST Thursday, data from the RBI's Negotiated Dealing System–Order Matching platform showed.  

On Friday, the 10-year benchmark 6.48%, 2035 bond opened 15 paise higher than Thursday at INR 95.86 and then surged another 6 paise to the day's high of INR 95.92. Dealers attributed the rise in bond prices to improved risk sentiment in the market amid signs of a peace deal between the US and Iran, dealers said.  

Bond prices were also supported by a fall in crude oil prices, which fell below $105 per barrel after media reports said US President Donald Trump was ready to wait for a few days to get Iran's response on the peace deal. At 0925 IST, Brent crude oil futures for July delivery were at $104.24 per barrel, down from $106.80 per barrel at 1700 IST Thursday. A similar overnight fall in US yields also helped bond prices, dealers said. The yield on the benchmark 10-year US Treasury note was 4.57% at 0925 IST, down from 4.61% at the end of Indian gilt market hours Thursday. 

Market sentiment was also supported Friday by expectations of a higher surplus transfer by the RBI to the government, dealers said. 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, this could 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% band in FY25, dealers said. 

"We're waiting for the RBI dividend," a dealer at a state-owned bank said. "The market is seeing it as a positive, and other factors are also positive today (Friday), but once the number (amount of the RBI surplus transfer) is out, there will be some action."   

Traders will also track the result 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.

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 the yield down below 7.00%, they said. (Diksha Tripathy)

India Gilts: Seen tad up on hope of US-Iran peace-deal, fall in oil, US ylds

MUMBAI – Prices of government bonds are likely to open slightly higher Friday following an overnight easing in Brent crude oil prices as traders build hopes of a peace deal between the US and Iran, dealers said. The 10-year US Treasury benchmark yield fell overnight, which will further help bond prices. Traders are likely to remain on the sidelines ahead of the Reserve Bank of India's surplus transfer and the INR-320-billion gilt auction result, which may keep trade volumes muted in early trade, they said. 

The yield on the 10-year benchmark Indian government 6.48%, 2035 bond is expected to open near 7.11% and is seen in the 7.05-7.10% range during the day as traders will assess the market sentiment after a volatile trading session Thursday, dealers said. Thursday, this bond had ended at INR 95.71, or 7.1134% yield. Bond prices ended sharply lower Thursday in volatile trade, due to an intraday rise in Brent crude oil prices. Moreover, traders trimmed risk positions amid fear of an escalation in the West Asia war and a repo rate hike by the RBI's Monetary Policy Committee. The lack of a peace deal and a fragile ceasefire will continue to keep the market on edge, dealers said.

Globally, traders are pricing in a de-escalation in the West Asia war after reports that Iran is reviewing a US peace proposal. The US President Donald Trump said he's willing to wait "a few days" for Tehran's response, according to media reports. US Secretary of State Marco Rubio noted "some good signs" for a deal with Iran and said he expects Pakistani mediators to head to Tehran. Meanwhile, Iranian President Masoud Pezeshkian said Iran "will never back down" in the talks. Following these developments, Brent crude oil futures for July delivery fell to over $104 per barrel, down from near $107 per barrel at the end of Indian trading hours Thursday. At 0730 IST, US Treasury yields eased to 4.58% from 4.61% at 1700 IST Thursday. 

On Friday, traders will focus on the RBI board meeting's decision on the surplus transfer to the government for 2025–26 (Apr-Mar), which should help limit any fall in bond prices, dealers said. Most expect the transfer to be between INR 2.70 trillion and INR 3.50 trillion, though some see it closer to INR 4 trillion due to fiscal pressure. Even so, dealers noted that the boost from the surplus transfer is likely to be short-lived, with global developments driving the movement in bond prices.

Later in the day, traders will also 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, they said. Traders expect the cut-off on the three-year paper to be impacted by the hopes of a repo rate hike and the amount of surplus transfer from the RBI, dealers said. On the other hand, the cut-off on the seven-year bond is likely to remain under pressure. Some traders expect the cut-off on this paper to track the yield on the 10-year benchmark bond with a spread of at least 2 basis points, dealers said. The long-term bond will be well bid by insurers and pension funds, dealers said. 

Post-market hours Thursday, the RBI announced it would conduct a three-day variable-rate repo auction for INR 1.00 trillion Friday. The auction is likely to be well subscribed if the tri-party repo rate is on the higher side. Traders expect the Reserve Bank of India to maintain comfortable liquidity in the sytem to ease pressure on bond yields amid uncertainties hovering around the US-Iran peace deal, dealers said.  (Janwee Prajapati)  End

US$1 = INR 95.69

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

Edited by Akul Nishant Akhoury

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