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Informist, Wednesday, May 27, 2026

 

By Diksha Tripathy

 

MUMBAI – Prices of most government bonds ended slightly lower as traders took profits at the highest prices seen in over two weeks, dealers said. Bond prices had risen during the day tracking an intraday fall in crude oil prices and Brent crude for July delivery remaining below $100 per barrel, dealers said. Some traders covered short positions and also bought bonds in the hope of a peace deal between the US and Iran and bets of no hike in the repo rate at the June meeting of the Reserve Bank of India's Monetary Policy Committee, dealers said.

 

The 10-year benchmark 6.48%, 2035 bond ended at INR 96.49, down from INR 96.50 Tuesday. Its yield settled at 6.9960%, up from 6.9943%, though it ended below the psychologically crucial 7.00% mark for the second day. Traders do not expect the benchmark yield to rise much above the key level as the hope of a peace deal between the US and Iran remains strong. Bets that the Monetary Policy Committee will not raise the repo rate at its policy meeting next week have also helped. However, traders were consistently booking profits when the yield fell below 7.00%, after the yield on the 6.48%, 2035 bond had climbed to 7.14% thrice this month.

The total turnover in the government securities market was INR 432.30 billion at the end of Indian gilt market hours Wednesday, lower than INR 464.00 billion Tuesday. The volume in the market remained low amid uncertainty over the end of the US-Iran war, dealers said. There was no trade through the RBI's wholesale e-rupee pilot Wednesday. The instrument has remained unused since February.

Bond prices had risen during the day as traders covered short positions on bets that the Monetary Policy Committee would refrain from raising the repo rate at the June policy meeting, dealers said. Expectations of a rate hike have eased with Brent crude oil prices remaining below the psychologically crucial $100-per-barrel mark. Traders expect crude oil prices to be sustained around the $95-$100 per-barrel range on hopes of the Strait of Hormuz being reopened. Widespread speculation that the RBI would take non-interest-rate measures to curb the rupee's depreciation have also improved the appetite for bonds, dealers said.

"They (the rate-setting panel) are unlikely to go for a rate hike in June," a dealer at a private-sector bank said. "Crude prices have cooled off and are sustaining at these levels despite the attacks (by the US on Iran Monday). The market is factoring in that a peace deal is likely, so the RBI may assess the situation further. If the war persists till August and inflation spirals higher, then we could see a rate hike."

 

While state-owned banks were likely net sellers Wednesday, taking profits when the yield on the 10-year benchmark bond fell to 6.98%, private-sector banks likely built positions when the benchmark yield rose to the 7.00% level. This kept the movement in bond prices in check despite Brent crude falling slightly intraday to $97.11 per barrel at 1700 IST.

 

Some traders also placed short bets in the 6.68%, 2040 bond, looking to cover these positions at the weekly gilts auction Friday, which weighed on bond prices Wednesday, dealers said. The 6.68%, 2040 bond ended at INR 94.10, or 7.3581%. A proxy for tracking short sales in a bond is the volume of trades in the security in the special repo segment of the Clearcorp Repo Order Matching System. Data at 1700 IST showed trades worth INR 184.01 billion in the 6.68%, 2040 bond, similar to INR 184.50 billion Tuesday. The government will sell INR 170 billion of the 6.68%, 2040 bond and INR 110 billion of the 7.43%, 2076 bond at Friday's auction.

 

With trade activity in the 2040 gilt rising, the new 10-year 6.94%, 2036 gilt slipped one spot to be the third most-traded bond Wednesday. Trade volumes in the paper were INR 49.70 billion, according to data from the RBI's Negotiated Dealing System. Traders expect the bond to become more liquid after its next auction on Jun. 5, when its outstanding will rise to INR 680 billion. Usually, the bond may become more liquid and be considered the 10-year benchmark when its outstanding rises to around INR 700 billion-INR 900 billion, dealers said. However, trade volumes have already turned healthy as mutual funds tracking local bond market indices have added the bond to their portfolios and are tracking its movement as the benchmark 10-year gilt, they said.

 

TREASURY BILLS

Bond prices hardly moved despite higher-than-expected cut-off yields at the Treasury bill auction. Traders placed bids at elevated yields due to tight liquidity conditions in the banking system, dealers said. Some traders expect the RBI to announce open market operations in the September quarter to provide durable liquidity support, as opposed to the transient liquidity injected so far through multiple variable rate repo auctions. The RBI absorbed INR 544.65 billion from the banking system Tuesday, according to the latest available data. The absorption indicates that surplus liquidity in the banking system is lower than the INR 2-trillion level at which banks are comfortable in increasing investments into money market insruments, dealers said. 

Mutual funds, typically major buyers of Treasury bills, accumulated the 91-day paper, dealers said. The cut-off yield on the 91-day T-bill was broadly in line with market expectations as mutual funds are likely to have bought the paper for portfolio rebalancing, dealers said. Portfolio rebalancing refers to adjusting holdings to maintain the desired mix of short-term and long-term assets to align with investment goals.

 

Banks largely stayed away from the 364-day T-bill as they are already holding statutory liquidity ratio reserves of over 22%, well above the mandated 18% of net demand and time liabilities, dealers said.

"Banks completely ignored the 364-day paper, based on my understanding," a dealer at a primary dealership said. "They are already sitting on 22-25% SLR holdings, so there was little incentive for them to buy more. That is why we saw a higher cut-off yield."

The cut-off yield on the 364-day T-bill crossed 6.00%, against market expectations of around 5.94%. Primary dealerships also bought the 182-day and 364-day Treasury bills, though bidding was not aggressive, dealers said. The RBI set cut-off yields of 5.56%, 5.73%, and 6.03% on the 91-day, 182-day, and 364-day Treasury bills, respectively, at Wednesday's auction, the highest in a year. 

 

OUTLOOK

The gilt market is shut Thursday for Bakri Id. Friday, bond prices are likely to open higher after Iranian media reported Tehran had received an initial framework for a memorandum of understanding to end the war with the US, dealers said. Under the framework, Iran would allow commercial shipping through the Strait of Hormuz, Al Jazeera reported. This is seen to ease global crude oil prices and inflationary pressures in India, dealers said.

 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 6.90-7.02% range Friday. A finalised peace deal between the US and Iran could pull the benchmark yield towards the 6.85% level, dealers said. Traders widely expect the 10-year benchmark gilt yield to remain below the 7.05% yield level unless there is a major setback in the talks to end the war in West Asia. 

 

The buying momentum may be slightly muted ahead of the weekly gilts auction at 1030-1130 IST, they said. The government will sell INR 170 billion of the 6.68%, 2040 bond and INR 110 billion of the 7.43%, 2076 bond at the auction. Traders expect demand for both securities to be robust. The 7.43%, 2076 bond is likely to attract life insurers and pension funds. Traders are expected to cover short positions in the 6.68%, 2040 bond at the debt sale.

Traders will also track any announcements by the RBI to support the rupee, dealers said. If, as is expected, the central bank announces measures to attract foreign inflows, bond prices could rise sharply on expectations of a recovery in the rupee. It would also reduce the pressure on the Monetary Policy Committee to raise interest rates to curb the recent weakness in the domestic currency, dealers said.

 

	WEDNESDAY		TUESDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	96.4900	6.9960%	96.5000	6.9943%
6.33%, 2035	96.3100	6.8890%	96.4900	6.8609%
6.36%, 2031	98.12	6.8299%	98.1675	6.8173%
6.68%, 2040	94.1000	7.3581%	94.1500	7.3519%
6.90%, 2065	90.2500	7.6910%	90.4000	7.6777%

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India Gilts: Remain up on intraday easing in oil prices, short covering

 

	1502 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	96.60	96.65	96.43	96.59	96.50
YTM (%)	6.9794	6.9719	7.0050	6.9809	6.9943

 

MUMBAI--1502 IST--Prices of government bonds continued to be higher as Brent crude oil prices eased intraday, dealers said. Traders also covered their short positions on hopes of a peace agreement between the US and Iran, they said. Some traders refrained from placing aggressive bets ahead of the market holiday on Thursday, they said.      

 

"People (traders) are covering their positions because they expect some kind of peace deal (between US and Iran)," a dealer at a primary dealership said. "... And amid crude falling continuously, they do not want to place any short (bets) as it might be difficult to cover." Traders expect the yield on the 10-year benchmark 6.48%, 2035 bond to fall to 6.90% if the two warring nations strike a peace deal, dealers said. Banks are likely to start buying bonds if the Brent crude futures for July delivery continue to trade below the key level of $100 a barrel or ease further, dealers said.  

 

Bond prices were little moved despite higher than expected cut-off yields on Treasury bills. Traders placed their bids at higher yields due to less liquidity in the banking system, dealers said. Some traders expect the Reserve Bank of India to announce open market operations auction in the Jul-Sept quarter to provide comfortable, durable liquidity in the banking system. However, some traders said liquidity is likely to rise near the end of the month on government spending after the central bank transferred a surplus of INR 2.87 trillion to the government, dealers said.     

 

"T-bill cut-off are higher than market expectations, but it is more of a tight liquidity hangover than a rate signal," a dealer at a private sector bank said.

 

The cut-off yield on the 364-day T-bill crossed 6%, contrary to traders' expectation of 5.94%. The cut-off yield on the 91-day T-bill was broadly in line with market expectations as mutual funds likely bought these papers for rebalancing their portfolios, dealers said. Primary dealerships bought the 182-day and 364-day T-bills, dealers said. The RBI set cut-off yields of 5.56%, 5.73% and 6.03% on 91-day, 182-day and 364-day T-bills, respectively, at the auction Wednesday.

 

At the weekly gilt auction Friday, traders expect demand for the two bonds to be robust. The long-term 7.43%, 2076 bond is likely to be bid by investors. Traders are also likely to cover short bets, placed ahead of the auction, on the 15-year 6.68%, 2040 bond. A proxy for tracking short sales on a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1434 IST showed trades worth INR 52 billion in the 6.68%, 2040 gilt, up from INR 38.91 billion on Tuesday. The government will sell INR 170 billion worth of the 6.68%, 2040 bond and INR 110 billion worth of the 7.43%, 2076 bond at the weekly gilt auction Friday.

 

The total turnover in the gilt market stood at INR 350 billion at 1502 IST, higher than INR 260.15 billion at 1530 IST Tuesday, according to data from the RBI's Negotiated Dealing System. Market activity remained subdued amid uncertainty about the trajectory of the US-Iran conflict, dealers said. The yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 6.97–7.02% range for the rest of the day. Traders expect the closing level to be near 6.99% on the 10-year benchmark 6.48%, 2035 bond.  (Janwee Prajapati)

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India Gilts: Reverse all losses on short-covering amid view of no rate hike

 

	1321 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	96.53	96.59	96.43	96.59	96.50
YTM (%)	6.9899	6.9809	7.0050	6.9809	6.9943

 

MUMBAI--1321 IST--Prices of government bonds reversed all earlier losses as traders covered short positions and private sector banks likely stepped up purchases on expectations that the Reserve Bank of India's Monetary Policy Committee may keep the repo rate unchanged at its June meeting, dealers said. Bond prices also remained supported as Brent crude oil prices stayed below the crucial $100-per-barrel level, they said.

Traders' expectations regarding a rate hike have likely shifted amid hopes of a peace deal in West Asia and Brent crude trading below $100 per barrel, dealers said. Now, most traders do not expect a rate hike at the June MPC meeting, which has driven buying activity in the market, they said. Traders, especially from private sector banks, were seen building positions when the yield on the 10-year 6.48%, 2035 bond went up to 7.00%. Private sector banks were net buyers Tuesday, with purchases worth INR 7.22 billion, according to data from Clearing Corp. of India Ltd.

However, the rise in bond prices was capped as some traders continued to book profits at levels seen as attractive, dealers said. State-owned banks, which had bought bonds when the yield on the 10-year benchmark bond had surged to 7.14-7.15%, were now booking profits, putting pressure on bond prices, they said.

Some traders also placed short bets in the 6.68%, 2040 bond, looking to cover these positions at the weekly gilt auction on Friday, which weighed on bond prices Wednesday, dealers said. The government will sell INR 170 billion of the 6.68%, 2040 bond and INR 110 billion of the 7.43%, 2076 bond at the auction.

The market turnover gradually picked up amid buying activity and was at INR 208.15 billion at 1321 IST, up from INR 185.15 billion at 1230 IST Tuesday, according to data from the Reserve Bank of India's Negotiated Dealing System.

"There is uncertainty in the market right now," a dealer at a private sector bank said. "Some profit booking is happening due to the levels. And buying activity is driven by bets of no rate hike." 

At the Treasury bill auction, the government invited bids to raise INR 120 billion through the 91-day T-bill, INR 60 billion through the 182-day T-bill, and INR 60 billion through the 364-day T-bill. Demand at the auction was seen firm from mutual funds, dealers said. Bond prices are likely to fall if the cut-off yields on the T-bills are significantly higher than traders' expectations, dealers said.

Mutual funds likely bid aggressively for the 91-day T-bill due to portfolio rebalancing requirements, a dealer at a state-owned bank said. Dealers expect the cut-off yield on the 91-day T-bill to come in at least 2-3 basis points lower than prevailing market levels. The 91-day T-bill was quoted in a range of 5.46-5.50% in the secondary market at 1319 IST.

According to an Informist poll, the RBI is likely to set a cut-off of INR 98.6425, or a yield of 5.52%, on the 91-day Treasury bill at Wednesday's auction. The cut-off on the 182-day T-bill is seen at INR 97.2222, or a yield of 5.73%, while that on the 364-day T-bill is expected at INR 94.4076, or a yield of 5.94%.

 

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 6.97–7.02% range for the rest of the day. Profit-booking by traders is likely to put pressure on bond prices and could take the yield to 7.02% levels.  (Diksha Tripathy)

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India Gilts: Erase early gains as traders book profits, volumes low

 

	0925 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	96.49	96.59	96.46	96.59	96.50
YTM (%)	6.9960	6.9809	7.0005	6.9809	6.9943

 

MUMBAI--0925 IST--Prices of government bonds erased early gains as traders booked profits at levels seen attractive, dealers said. State-owned banks, which had bought bonds when the yield on the benchmark 10-year 6.48%, 2035 bond had risen to 7.14-7.15%, offloaded some holdings as the yield eased to 6.98-6.99%, putting pressure on bond prices, dealers said.

The benchmark 10-year 6.48%, 2035 bond opened at INR 96.59, nearly 9 paise higher than Tuesday's close, tracking a fall in crude oil prices to below $98 per barrel at 0925 IST. Crude prices had climbed above $100 per barrel after Indian market hours Tuesday following Iran's warning of retaliation against US strikes, dealers said. However, oil prices later declined as the ceasefire continued and there was no official confirmation of any strike, dealers added.

"Market is trading based on crude oil prices," a dealer at a state-owned bank said. "If crude goes down, people start to sell and vice versa."

The total turnover in the gilt market stood at INR 35 billion at 0925 IST, lower than INR 46.70 billion at 0930 IST Tuesday, according to data from the Reserve Bank of India's Negotiated Dealing System. Market activity remained subdued amid uncertainty about the trajectory of the US-Iran conflict, dealers said.

Bond prices were also supported by an overnight decline in US Treasury yields, dealers said. The yield on the benchmark 10-year US Treasury note fell to 4.48% at 0925 IST from 4.51% at the close of Indian gilt market hours Tuesday.

     

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 6.97–7.02% range for the rest of the day. Profit-booking by traders is likely to put pressure on bond prices and could take the yield to 7.02% levels.  (Diksha Tripathy)

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India Gilts: Seen steady on lack of significant cues; profit sales to weigh

 

MUMBAI – Prices of government bonds are seen opening at the same level as Tuesday due to the lack of any significant domestic and global cues, dealers said. A slight overnight fall in Brent crude oil prices, which had firmed up to $100 post Indian trading hours Tuesday, will help bond prices, dealers said. Moreover, traders are likely to cover their short positions as the yield on the 10-year benchmark 6.48%, 2035 bond fell below the crucial 7% level Tuesday, they said.

 

Public sector banks will likely look to book profits on bonds bought at higher yields and this will weigh on prices, dealers said. Later in the day, traders will make space in their portfolios ahead of the fresh supply at the weekly gilt auction Friday, which will limit gains, dealers said. The government will Friday sell INR 170 billion of the 6.68%, 2040 paper and INR 110 billion of the 7.43%, 2076 bond. This will weigh on the bond prices and the yield on the 10-year benchmark bond will firm up again over 7%, dealers said. Markets will remain shut Thursday on account of Bakri Id (Id-ul-Zuha). 

 

The yield on the 10-year benchmark Indian government 6.48%, 2035 bond is expected to open near 6.99% and is seen in the 6.97-7.02% range during the day, dealers said. The yield on the said benchmark bond fell below 7% Tuesday for the first time in over two weeks. Traders had not expected this bond yield to fall below 7.00% unless a peace deal was signed between the US and Iran. Public sector banks have been net sellers for two straight sessions during which the yield on the 10-year benchmark bond fell below 7.10%. On Tuesday alone, these banks net sold bonds worth INR 19.47 billion, according to latest data. 

 

Tuesday, the bond had ended at INR 96.50, or 6.9943% yield, as traders hit stop losses near the 7.02% yield on the 6.48%, 2035 bond and covered their short bets, dealers said. Some traders also covered short positions on expectations of new non-interest-rate measures by the Reserve Bank of India to defend the rupee, dealers said. 

On the West Asia war front, Iran said the US violated the ceasefire with strikes in southern Iran. Despite the escalation, Tehran signalled the strikes wouldn't derail ongoing negotiations and US Secretary of State Marco Rubio reiterated it may still "take a few days," to confirm the terms of a potential peace agreement. This dampened market sentiment and pushed Brent crude oil prices higher Tuesday to above $100 a barrel for July delivery. However, this rise was short-lived and prices fell back to just over $98 per barrel, the same level as at the end of Indian trading hours Tuesday. The US Treasury 10-year benchmark note yield fell to 4.48?ter nearly two weeks, down from 4.51% at 1700 IST Tuesday. Earlier this month, the 10-year US Treasury yield had risen to a high of 4.69%, the highest in over a year.  (Janwee Prajapati)

 

End

 

US$1 = INR 95.69

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

 

Edited by Rajeev Pai

 

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