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Informist, Tuesday, May 26, 2026

 

By Diksha Tripathy

 

MUMBAI – Prices of government bonds ended sharply higher Tuesday, reversing an earlier fall, as traders covered short positions on expectations of new non-interest-rate measures by the Reserve Bank of India to defend the rupee, dealers said. Traders also covered short bets after stop-losses were triggered when the yield on the 10-year benchmark bond fell below 7.02%, dealers said. An intraday decline in crude oil prices also supported bond prices, dealers added. Results of the state bond auction, which were largely in line with market expectations, also helped bond prices, dealers said.

The 10-year benchmark 6.48%, 2035 bond ended at INR 96.50, sharply higher than INR 96.28 Monday. Its yield settled at 6.9943%, down from 7.0270% Monday. Traders had expected the yield on the benchmark bond to remain above the 7.00% mark unless a peace deal between the US and Iran was signed or the Strait of Hormuz was reopened, easing concern of oil supply disruptions. However, Tuesday's close at 6.99% snapped a streak of over two weeks during which the benchmark yield had remained above 7.00%.

Some dealers said expectations of a possible positive announcement from the RBI may have triggered the rally in bond prices in the last hour of the day's trading session. "It looks like some announcement by the RBI got leaked and people are jumping on to that," a dealer at a state-owned bank said. "We are expecting some measures to support the rupee by the RBI, which is why I think the market moved."

The new 10-year 6.94%, 2036 gilt was the second most traded security Tuesday, although its trade volume was only INR 53.45 billion, according to data from the RBI's Negotiated Dealing System. Traders expect the bond to become more liquid after at least two auctions, when its outstanding stock rises to around INR 700 billion-INR 900 billion, eventually replacing the current 10-year benchmark bond, dealers said.

The 6.68%, 2040 bond was also actively traded ahead of Friday's auction, where the government will sell INR 170 billion of the paper and INR 110 billion of the 7.43%, 2076 bond. Traders had also expected the government to introduce a new 15-year benchmark bond at Friday's auction, as the outstanding stock of the current paper is nearing INR 2 trillion. However, the government did not announce a new bond at the weekly gilts auction. Following the weekly gilt auction announcement after market hours Monday, traders bought the bond Tuesday, dealers said. The government typically introduces a new bond once the outstanding stock of the current paper of similar maturity exceeds INR 2 trillion to avoid the burden of large one-time repayments.

At 1700 IST, the total turnover in the gilts market was INR 464.75 billion, largely unchanged from INR 465.25 billion Monday. Volumes remained subdued through most of the day amid uncertainty over the US-Iran war, dealers said. However, turnover picked up sharply in the final hour of trade as traders covered short positions. There was no trade through the RBI's wholesale e-rupee pilot Tuesday. The instrument has remained unused since February.

Bond prices had opened slightly lower Tuesday after reports of US strikes on Iran dampened market sentiment, dealers said. However, prices found support as Brent crude oil remained below the psychologically crucial $100-per-barrel mark. Intraday, Brent crude briefly touched the $100-per-barrel level, weighing on bond prices temporarily. Some state-owned banks, which were net sellers of gilts in the secondary market Monday, likely continued to take profits as the yield fell below 7.02%, dealers said.

 

 

"Likelihood of a peace deal (between the US and Iran) is what is keeping the market positive," a dealer at a private-sector bank said. "But the uncertainty is what is looming as a dark cloud. In case things go wrong, and the war suddenly escalates, it will have an impact on everything, because crude (oil prices) will move up sharply."

 

Bond prices were also supported by the result of the state bond auction, which was largely in line with the market view, dealers said. A total of eight states raised INR 116.25 billion, lower than the notified amount of INR 134.50 billion, at the auction Tuesday. Gujarat and Uttarakhand did not accept any bids for their respective 10-year bonds at the auction, reducing the already small borrowing quantum. The RBI set a cut-off yield of 7.78-7.79% on the 10-year state bonds at the auction, in line with the Informist Poll median of 7.74-7.80%. Banks likely bid for relatively shorter tenure paper at the auction to add to their available-for-sale books and held-to-maturity portfolios, while insurers and pension funds bought the longer tenure paper for their investment books, dealers said.

 

OUTLOOK

Wednesday, bond prices are likely to take cues from developments related to the US-Iran war and movement in Brent crude oil prices, dealers said. The yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 6.95-7.05% range. If the RBI announces a measure to support the rupee, bond prices could see a rally on the likely recovery of the domestic currency. Announcement of a peace deal between the US and Iran could also pull the benchmark yield towards the 6.85% level, dealers said. On the other hand, a setback in peace negotiations and a rise in crude oil prices could move the 10-year gilt yield above 7.05%, dealers said.

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 6.95%, they said.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	96.5000	6.9943%	96.2825	7.0270%
6.33%, 2035	96.4900	6.8609%	96.2500	6.8981%
6.36%, 2031	98.1675	6.8173%	98.02	6.8546%
6.68%, 2040	94.1500	7.3519%	94.1600	7.3506%
6.90%, 2065	90.4000	7.6777%	90.2000	7.6955%

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India Gilts: Up on intraday fall in crude; auction result in line with view

 

	1550 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	96.28	96.29	96.18	96.23	96.28
YTM (%)	7.0271	7.0263	7.0426	7.0350	7.0270

 

MUMBAI-–1550 IST--Prices of government bonds recovered from the earlier fall and moved up on an easing in Brent crude oil prices intraday from over $100 per barrel, dealers said. The result of the INR-134.50-billion state bond auction was largely in line with market expectations, dealers said. However, gains were limited as public-sector banks likely took profits at levels seen to be attractive, they said.   

 

At the weekly state bond auction, Gujarat and Uttarakhand did not accept any bids for their respective 10-year bonds, which reduced the already small borrowing quantum, dealers said. The Reserve Bank of India set a cut-off of 7.78-7.79% on the 10-year state bonds at auction. Eight states raised INR 116.25 billion, lower than the notified amount of INR 134.50 billion. 

 

"...I think Gujarat was expecting the yield to be lower than 7.70% on the 10-year bond," a dealer at a state-owned bank said. "Overall, demand at the auction was good, only a few states are a bit higher (cut-off yields)."  

 

Public-sector banks likely bought state bonds for their available-for-sale books and held-to-maturity books, dealers said. Long-term investors such as pension funds and insurers also bought state bonds, they said. Mutual funds, on the other hand, were largely absent from the market, dealers said.

 

Public-sector banks also likely took profits as the yield on the 10-year benchmark 6.48%, 2035 bond hit 7%, which limited the rise in bond prices, dealers said. These banks had sold nearly INR 31 billion worth of gilts Monday. Some traders also placed short bets as they expected the bond yields to rise further in the short term. Traders do not expect the yield on the 10-year benchmark bond to fall below 7.00% unless a peace deal is signed between the US and Iran.

 

At 1550 IST, the turnover in the gilts market stood at INR 286.30 billion, down from INR 372.15 billion at 1535 IST Monday, according to data from the Reserve Bank of India's Negotiated Dealing System. Dealers said trading activity remained lower amid uncertainty over the end of the US-Iran war. Trading volume remained muted as traders refrained from building aggressive positions amid the fragile ceasefire between the US and Iran and ahead of the Reserve Bank of India's Monetary Policy Meeting next week.  (Janwee Prajapati)

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India Gilts: Remain dn on uncertainty on W Asia war; auction demand seen firm  

 

	1230 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	96.25	96.27	96.19	96.23	96.28
YTM (%)	7.0324	7.0290	7.0418	7.0350	7.0270

 

MUMBAI-–1230 IST--Prices of government bonds remained lower amid uncertainty over the trajectory of the US-Iran war and the possibility of a peace deal between the two nations, dealers said. Traders also largely remained on the sidelines ahead of the result of the auction of state government securities, they said.

A total of eight states invited bids to raise INR 134.50 billion through the sale of bonds Tuesday. The auction size was lower than the INR 239.50 billion indicated in states' borrowing calendar for Apr-Jun of 2026-27 (Apr-Mar). Dealers said the lower supply likely resulted in demand outpacing supply, which prompted aggressive bidding by investors. Banks likely bought bonds to add to their held-to-maturity portfolios, while insurers and pension funds likely bid aggressively for long-term securities to add to their investment books, dealers said.

According to an Informist poll, the cut-off yields for 10-year state bonds are expected in the range of 7.74-7.80%. However, traders expect the cut-off yield on Gujarat's 10-year bond to be lower at 7.72-7.75%, compared with other 10-year state bonds at the auction, due to stronger demand, dealers said.

"Gujarat is a good state, there will be more demand for it, and therefore, we expect a lower cut-off on it," a dealer at a state-owned bank said. "Overall demand (at the state bond auction) will be firm because it's a very small supply."

Dealers said the relatively lower supply at the auction reflects a broader trend usually seen in the first half of the financial year. State governments typically increase borrowing in the second half as funding requirements rise to support higher spending, dealers said.

At 1230 IST, the turnover in the gilts market stood at INR 147.55 billion, significantly lower than INR 233.10 billion at 1230 IST Monday, according to data from the Reserve Bank of India's Negotiated Dealing System. Dealers said trading activity remained lower amid uncertainty over the end of the US-Iran war.

 

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

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India Gilts: Tad down amid uncertainty on US-Iran peace deal; volumes low

 

	0930 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	96.25	96.27	96.19	96.23	96.28
YTM (%)	7.0324	7.0290	7.0418	7.0350	7.0270

 

MUMBAI--0930 IST--Prices of government bonds were slightly lower amid uncertainty around a potential peace deal between the US and Iran, dealers said. Reports of US strikes on Iran dampened market sentiment and weighed on bond prices, dealers said. However, losses were capped as Brent crude oil prices remained below the psychologically crucial $100-per-barrel mark, dealers added.

At 0930 IST, the turnover in the gilts market was INR 45.45 billion down from INR 60.55 billion at 0930 IST Monday, according to data from the Reserve Bank of India's Negotiated Dealing System. Market activity remained low amid uncertainty over the trajectory of the US-Iran war, dealers said.

Traders await domestic triggers such as the result of the auction of the state government securities, a recovery of the rupee, or any positive developments on the peace deal between the US and Iran before taking fresh positions, which could lift market volumes, dealers said.

"One day, US President (Donald Trump) says they are close to a peace deal, and the next day there are strikes on Iran, so there is no clarity on what will happen," a dealer at a private-sector bank said. "The market will wait for more clarity before taking positions."

Traders will monitor the outcome of auction of state government securities Tuesday, in which eight states are set to raise INR 134.50 billion through bond sales. The auction size is lower than the INR 239.50 billion indicated in the borrowing calendar for the June quarter and, therefore, demand may exceed supply, which is expected to prompt aggressive bidding by investors, dealers said. Demand for state bonds is expected from banks, insurers, and pension funds. The cut-off yields on these bonds are likely to be 5-6 basis points lower than those seen at the previous auction, dealers added. These 10-year bonds are expected to be subscribed at a cut-off yield of 7.75-7.77%.

 

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

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India Gilts: Seen steady on lack of triggers; state bond sale to lend cues

 

MUMBAI – Prices of government bonds are seen opening steady due to a lack of significant domestic cues and relative calm on the geopolitical front, dealers said. Brent crude oil prices firmed up slightly overnight. However, these are below the psychologically crucial level of $100 per barrel and also down from the $110 level seen last week. This will improve market sentiment, dealers said. The yield on the 10-year benchmark US Treasury note fell nearly 5 basis points from 1700 IST Friday, which will also help bond prices, dealers said. Later in the day, the result of the state bond auction will likely lend cues to bond prices, they said.

 

The yield on the 10-year benchmark Indian government 6.48%, 2035 bond is expected to open near 7.03% and is seen in the 7.00-7.07% range during the day, dealers said. This will be second day bond yields will be in this range, as expected by market participants. Traders do not expect the yield on the 10-year benchmark bond to fall below 7.00% unless a peace deal is signed between the US and Iran. They expect trade volumes to remain subdued ahead of the state bond auction result. Some traders are likely to make space in their portfolios ahead of the weekly state bond auction, which will weigh on bond prices, dealers said.

 

On Monday, the bond ended at INR 96.28, or 7.0270% yield. Bond prices ended sharply higher Monday on improved risk appetite amid signs of a peace deal between the US and Iran. This eased July Brent crude oil prices below the key $100 per barrel mark. These futures traded at $98.16 per barrel at 0730 IST, only slightly higher than $97.75 per barrel at the end of Indian trading hours Monday. At 0730 IST, the benchmark 10-year US Treasury yield was 4.51%, down from 4.56% at 1700 IST Monday. 

 

On the war front, the US and Iran are discussing a plan to reopen the Strait of Hormuz about 30 days after a peace deal is reached, according to media reports. Under the proposal, Iran would clear all mines from the waterway in 30 days to allow ships to pass safely and would also suspend transit fees.

 

However, the US launched fresh strikes on Iranian targets on Tuesday, citing efforts to "protect our troops" from "threats" amid a fragile ceasefire between the two warring nations. The development came days after US President Donald Trump and other key American leaders said a deal had "largely" been negotiated, boosting hopes for a resolution soon.

 

Later in the day, gilt prices will also closely track the result of the auction of state government securities Tuesday, wherein states will raise INR 134.50 billion through bonds, dealers said. The auction size is lower than the INR 239.50 billion indicated in the borrowing calendar for the June quarter and hence 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 the previous auction, they said.  

 

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

 

US$1 = INR 95.68

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

 

Edited by Rajeev Pai

 

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