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Informist, Monday, May 25, 2026

 

By Diksha Tripathy

 

MUMBAI – Prices of government bonds ended sharply higher on improved risk appetite amid signs of a peace deal between the US and Iran, dealers said. Brent crude oil price remaining below the psychologically crucial level of $100 per barrel also helped bond prices, they said. Bond prices were also supported as traders covered short positions, they said. However, gains were limited as some traders took profits at levels seen to be attractive, dealers said.

 

The 10-year benchmark 6.48%, 2035 bond ended at INR 96.28, up sharply from INR 95.86 Friday. Its yield settled at 7.0270%, down from 7.0917% Friday. The yield on the 10-year benchmark bond was the lowest in seven sessions and recorded its biggest fall since May 6. The yield on the 10-year benchmark bond has remained above the crucial 7.00% level over the past two weeks, and traders expect it to remain above that mark until there is a full-fledged peace deal between the two warring nations, dealers said.

Bond prices had opened sharply higher Monday on hopes of a peace deal between the US and Iran and rose nearly 10 paise in early trade to the day's high of INR 96.35 as traders covered short positions, dealers said. Primary dealerships, which had been net sellers of gilts over the previous two sessions, likely covered their short positions Monday, they said. Meanwhile, state-owned banks, which had been net buyers of gilts in the secondary market when the 10-year benchmark yield rose to the 7.14-7.15% level, likely sold bonds to take profits, dealers said, capping the rise in bond prices.

 

Bond prices also drew support from the sharp fall in Brent crude oil price over the weekend, dealers said. Brent crude futures for July delivery fell over 7% to $97.75 per barrel at 1700 IST. 

"There was slight selling and much of it was profit booking actually today," a dealer at a private-sector bank said. "I think after many days, today we saw a slightly stable market. A full-fledged peace deal will certainly help the yield on the 10-year benchmark bond fall to maybe 6.80-6.85%, but for now just the hopes of it are keeping the yield lower."

Traders expect the positive momentum in the market to continue amid signs that the US and Iran are moving closer towards a peace deal, dealers said. Supported by improved risk appetite, total turnover in the government securities market was INR 466.85 billion at 1700 IST, against INR 432.15 billion at the end of the trading session Friday.

The new 10-year 6.94%, 2036 gilt was the second most traded security Monday, with total trading volume at INR 50.20 billion, according to data from the Reserve Bank of India's Negotiated Dealing System. Traders expect the bond to become "fairly liquid" and eventually replace the current benchmark after at least one more auction of the paper, dealers said. There was no trade through the RBI's wholesale e-rupee pilot Monday. The instrument has remained unused since February.

 

 

Yields on short-term bonds fell more than those on long-term bonds as fears of a repo rate hike by the Monetary Policy Committee in June diminished. However, the possibility was not completely ruled out. Concerned about policy tightening in June, some traders placed short positions, dealers said. While some expect the committee to raise the repo rate by 25-50 basis points, others believe the panel may hold rates steady as inflation has remained within the RBI's 2-6% comfort band despite rising crude oil prices. Inflationary pressures may also reduce once the US and Iran agree on a peace deal, dealers said.

"The chances of a (rate) hike in June look thin, but can't be ruled out," a dealer at a primary dealership said. "It all depends on the situation. If the (US-Iran war) situation escalates, the hike has to happen. But if the situation remains the same as it is today, or if a peace deal is announced, then we might not see a hike."

 

Traders widely expect the RBI to revise its GDP growth forecast downwards by 40 bps to 6.5% for the financial year 2026-27 (Apr-Mar) and estimate CPI inflation to average around 5.0% in the year. "Inflation fears are there, so they (the rate-setting panel) might just revise the inflation target for this (financial) year," the dealer said. 

Traders said short-term bonds could gain more if the rate-setting panel refrains from raising rates in June, as the market has already priced in the possibility of a rate hike. A status quo would be a positive for the market as it would trigger fresh buying in shorter-term securities due to which short-term yields will come down, dealer said. The yields on these rate-sensitive securities have risen more sharply than the 10-year benchmark gilt yield since the financial year began in April.

The impact of the increase in retail fuel prices remained muted as traders had already factored in such a move, dealers said. Indian Oil Corp. Ltd. Monday raised diesel and petrol prices by INR 2.71 per litre and INR 2.61 per litre, respectively. This marked the fourth price increase in May as oil companies seek to offset losses from high crude oil prices. Higher retail fuel prices are expected to push CPI inflation up in the coming months after wholesale price inflation rose to a 42-month high of 8.30% in April.

OUTLOOK

Bond prices are likely to take cues from developments related to the US-Iran war and movement in Brent crude oil prices Tuesday, dealers said. The yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 6.90-7.10% range. If a peace deal is signed between the two countries, the benchmark yield could fall towards the 6.90% level, dealers said. On the other hand, a setback in peace negotiations and rise in crude oil prices could move the 10-year gilt yield close to 7.10%.

If there are no fresh developments on the West Asia front, state-owned banks are expected to step up purchases if yields rise, dealers said. On the lower side, profit taking by traders who bought the 6.48%, 2035 bond when the yield was above 7.10% is expected to prevent the benchmark yield from falling below 7.00%, they added.

Traders will also closely track the result of the auction of state government securities Tuesday, wherein states will raise INR 134.50 billion through sales of bonds, dealers said. The auction size is lower than the INR 239.50 billion indicated in the borrowing calendar for the June quarter and demand may exceed supply, causing aggressive bidding, dealers said. Demand for state bonds is expected from banks, insurers, and pension funds. The cut-off yields are likely to be 5-6 basis points lower than at previous auction, they said.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	96.2825	7.0270%	95.8550	7.0917%
6.33%, 2035	96.2500	6.8981%	95.7525	6.9755%
6.36%, 2031	98.02	6.8546%	97.7	6.9358%
6.68%, 2040	94.1600	7.3506%	93.7600	7.3985%
6.90%, 2065	90.2000	7.6955%	89.8000	7.7312%

 

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India Gilts: Remain sharply up as crude remains below $100/bbl

 

	1450 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	96.25	96.35	96.18	96.25	95.86
YTM (%)	7.0319	7.0168	7.0433	7.0319	7.0917

 

MUMBAI--1450 IST--Prices of government bonds remained sharply higher as Brent crude oil prices continued to trade below $100 per barrel, dealers said. Brent crude oil prices fell below the psychological level of $100 per barrel for the first time after 23 trading sessions. However, gains were limited as traders booked profits on purchases made at higher yields, they said.      

 

"There is nothing going on in the market... overall sentiment is slightly positive," a dealer at a state-owned bank said. "... These are good levels to book profit. Even if you (a trader) had bought bonds on Friday at around 7.09%, 7.02-7.03% is a very good level to sell."

 

The total turnover in the government securities market was at INR 333.70 billion till 1450 IST, compared with INR 259.50 billion at 1430 IST Friday. Nearly 70% of the total trade volume was recorded in the most liquid 10-year benchmark 6.48%, 2035 bond as traders built intraday positions, dealers said. The new 10-year 6.94%, 2036 bond was the second most-traded bond with a total trade volume of INR 35.45 billion at 1450 IST. 

 

Traders remained cautious ahead of the Reserve Bank of India's Monetary Policy Committee meeting next week. Traders have mixed views on a rate hike at the June meeting, with most expecting no change in current repo rates, dealers said. Some traders expect that if the central bank does not hike rates, yield on short-term bonds will likely fall, leading to a steepening in the yield curve, dealers said.  

 

A few traders also expect the central bank to announce an open market operation auction to infuse durable liquidity in the banking system, dealers said. However, very few traders are likely to have securities "in the money" or profitable at these levels, dealers said. Moreover, an OMO auction will be contrary to the central banks' focus on supporting the rupee from falling.

 

"If an OMO (auction) is announced, there will be a rally in the market, definitely," a dealer at a private sector bank said. "However, that will be contrary to the view that the RBI is likely to hike rates to protect the rupee from falling."    

 

On Tuesday, eight states will raise INR 134.50 billion, over 72% of which will be raised through the re-issue of bonds. States are issuing more reissues following the introduction of the benchmark issuance strategy. The higher quantum of state bond reissuance will improve liquidity in the state bonds, dealers said. Traders are likely to prefer state bonds over gilts due to higher yields, dealers said. At the state bond auction Tuesday, traders expect the cut-off yields to be lower than the last auction following an ease in gilt yields, they said.  (Janwee Prajapati) 

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India Gilts: Give up some gains as traders book profits, place short bets

 

	1250 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	96.22	96.35	96.20	96.25	95.86
YTM (%)	7.0361	7.0168	7.0395	7.0319	7.0917

 

MUMBAI--1250 IST--Prices of government bonds pared some early gains as traders booked profits at levels seen as attractive, dealers said. Some traders also placed short positions amid slim chances of a rate hike by the Reserve Bank of India's Monetary Policy Committee in June, which weighed on bond prices, they said. However, bond prices remained sharply higher as Brent crude oil prices stayed below the psychologically crucial $100-per-barrel mark.

Traders remain divided over the possibility of a rate hike at the June MPC meeting. While some expect the panel to raise the repo rate by 25-50 basis points, others believe the RBI will hold rates steady as inflation has remained within the central bank's 2-6% comfort band despite elevated crude oil prices amid the West Asia war.

Amid concerns that yields could harden due to rate hike expectations and uncertainty about an end to the US-Iran war, traders booked profits when the yield on the benchmark 6.48%, 2035 bond neared 7.02%, dealers said. Some traders also placed short positions, which weighed on bond prices, they added. 

"With inflation being within the RBI's comfort band, I don't think they will hike rates," a dealer at a private sector bank said. "Inflation is definitely a concern because oil prices have remained elevated since the war started. But I don't see any reason for the RBI to hike rates, at least in the June MPC."

The total turnover in the government securities market stood at INR 239.80 billion till 1250 IST, compared with INR 201.90 billion at 1230 IST Friday. Traders attributed the higher volumes to improved risk appetite amid likely ongoing negotiations between the two warring nations, which could potentially lead to reopening of the Strait of Hormuz, dealers said.

 

The recovery of the rupee also supported bond prices Monday, dealers said. A further recovery could help bond yields soften to 7% as well, they said. Traders expect the yield on the benchmark 10-year bond to remain above 7% until a peace deal between the US and Iran is announced or the rupee recovers to below 95 against the dollar, 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 below 7.00%, they said.  (Diksha Tripathy)

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India Gilts: Surge as Brent crude oil price falls below $100/bbl

 

	0925 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	96.25	96.35	96.20	96.25	95.86
YTM (%)	7.0315	7.0168	7.0395	7.0319	7.0917

 

MUMBAI--0925 IST--Prices of government bonds surged after Brent crude oil prices fell sharply below the psychologically crucial $100-per-barrel level on hope of a peace deal between the US and Iran, which could potentially lead to the reopening of the Strait of Hormuz, dealers said. However, traders booked profits, which weighed on bond prices Monday, they said. 

Over the weekend, Brent crude oil prices fell over 7% to $97.83 per barrel as of 0925 IST, supporting bond prices. Sentiment in the bond market improved amid positive developments related to the West Asia conflict. The market volume was similar to that of the previous session. However, traders expect the volume to go up on improved risk appetite as the US and Iran near a peace deal, dealers said. At 0925 IST, the total turnover in the gilt market was INR 59.40 billion, similar to INR 57.85 billion at 0930 IST Friday, data from the Reserve Bank of India's Negotiated Dealing System showed. 

The benchmark 10-year 6.48%, 2035 bond opened at INR 96.25 and rose to INR 96.35 in early trade amid easing concerns about the West Asia war, dealers said. However, when the yield on the benchmark 10-year bond reached 7.01-7.02%, traders booked profits, which weighed on bond prices. Amid profit-booking, the 10-year benchmark bond price went to the day's low of INR 96.20.   

 

"This is a very good level for traders to book profit, and they are definitely on it," a dealer at a private sector bank said. "Imagine, what a good level it is for a dealer who bought a bond at 7.14% to book profit today (Friday), when the yield is at 7.01-7.02%."     

The impact of the increase in retail fuel prices remained muted as traders had already factored in such a hike, dealers said. Indian Oil Corp. Ltd. on Monday raised diesel and petrol prices by INR 2.71 per litre and INR 2.61 per litre, respectively. This was the fourth increase in May as the government seeks to offset losses arising from elevated crude oil prices due to supply concerns linked to the West Asia conflict. Higher retail fuel prices are expected to push consumer price index-based inflation higher, which could prompt the RBI to raise the repo rate, 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 below 7.00%, they said.  (Diksha Tripathy)

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India Gilts: Seen higher as Brent crude falls below $100/bbl

 

MUMBAI – Government bond prices are seen opening higher as Brent crude oil prices fell overnight to trade below the psychologically crucial level of $100 per barrel Monday, dealers said. However, the rise in Indian retail fuel prices for the fourth time in a span of two weeks is likely to weigh on bond prices, they said. With no major domestic cues lined up, traders are now likely to remain cautious ahead of the Reserve Bank of India's Monetary Policy Meeting scheduled in the first week of June. 

 

The yield on the 10-year benchmark Indian government 6.48%, 2035 bond is expected to open near 7.05% and is seen in the 7.03-7.07% range during the day as traders will refrain from building aggressive positions ahead of the policy rate decision, dealers said. On Friday, the bond ended at INR 95.86, or 7.0917% yield. Bond prices ended off highs on Friday after the Reserve Bank of India's surplus transfer came in lower than market expectations. 

 

The US and Iran are reportedly nearing an agreement to reopen the Strait of Hormuz. Senior US officials say progress has been made, whereas US President Donald Trump warned against moving too fast. Negotiations are still underway over the exact key points, and any deal would need final approval from both countries, according to multiple media reports.

 

Trump, on his social media, said the agreement was "largely negotiated" and that only the final details were left. However, Iranian media pushed back, denying that the Strait of Hormuz would fully reopen after the deal is signed. They maintain that Tehran will retain control over the strategic waterway.

 

Back in India, state-owned fuel retailers have raised diesel prices by INR 2.71 per litre and petrol by INR 2.61 per litre. This marks the fourth increase in May as the government tries to offset losses from rising crude costs tied to the US-Israel conflict with Iran. In Delhi, petrol now costs INR 102.12 per litre, up from INR 99.51 Saturday, while diesel has climbed to INR 95.20 per litre from INR 92.49 Saturday.
 

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. Others only expect a rate hike in the second half of the current year, dealers said.  

 

Traders will also track the movement of overnight indexed swap rates and the rupee, dealers said.  (Janwee Prajapati)  

 

US$1 = INR 95.23

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

 

With inputs from Janwee Prajapati

Edited by Rajeev Pai

 

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