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Informist, Wednesday, Jun. 3, 2026

By Cassandra Carvalho

MUMBAI – Prices of government bonds largely recovered Wednesday after the Reserve Bank of India rejected all bids for the 182-day and 364-day Treasury bills at auction. Fears of a repo rate hike by the RBI's Monetary Policy Committee Friday cooled as a result. The rejection of bids is seen as a sign that the central bank is uncomfortable with high yields, dealers said. A Bloomberg report, citing sources, that the government plans to cut the taxes paid by foreign investors and remove limitations on ownership of some bonds to attract foreign bond buyers also helped the recovery, dealers said. However, an intraday rise in crude oil prices tempered the recovery, they added.

"Sentiment has turned positive," a dealer at a state-owned bank said. "First the news came regarding FAR (fully accessible route bonds) and then the T-bill auction cancellation, but again crude is going up, it has risen $2 during market hours today and its unpredictable, it's going both ways."

The 10-year benchmark 6.48%, 2035 bond ended at INR 96.31, down from INR 96.38 Tuesday but off the day's low of INR 96.16. Its yield settled at 7.0240%, compared with 7.0129% at the previous close. The newer 6.94%, 2036 bond ended at INR 99.40, sharply down from Tuesday's close of INR 99.59 as traders made room for INR 340 billion of fresh supply of the bond Friday. Its yield rose nearly 3 basis points to 7.0240%, same as the 10-year benchmark, from 6.9977% Tuesday. Some traders expect the spread between the two 10-year bonds to widen to at least 2 basis points. The total turnover in the government securities market was INR 468.35 billion, up slightly from INR 423.95 billion Tuesday.

Both the Bloomberg report and the Treasury bill auction result were published at about the same time, making the trade in gilts in the afternoon choppy. Trade in the morning was lacklustre, with bond prices moving sharply down, tracking an overnight rise in crude oil price and US yields, dealers said. Brent crude oil futures for delivery in August rose to $97.99 a barrel at 1700 IST from $96.81 at 0900 IST and $93.84 per barrel at the end of gilt market hours Tuesday but off Wednesday's high of $98.99.

Overall, as has been the case this week, traders have been refraining from taking aggressive bets before Friday's monetary policy decision. However, with the new 10-year 2036 bond auction lined up, and GDP data also due Friday after the policy decision, traders played on spreads across the yield curve. While they placed short bets on the 2036 bond Wednesday, after the auction they will sell the current 10-year benchmark bond as the 2036 bond is seen gradually replacing it, dealers said.

The view on short-term bonds--which are more sensitive to immediate policy changes--remains mixed, depending on traders' policy expectations, dealers said. Some traders expect the yield spread between the five-year 6.36%, 2031 gilt and the 10-year benchmark to get compressed, as rate hikes seem inevitable. The 2031 bond ended 3 paise down at INR 98.14, off the day's low of INR 98.05 as traders digested the possibility that there would be no rate hike Friday.

"After 10-year auction (Friday) would be a good time to enter a 5x10, short the five-year and buy 10-year," a dealer at a private-sector bank said. "The spread had compressed to 10 bps but now it has come to around 20. It can go to 10 bps again."

OUTLOOK

Government bond prices are seen steady Thursday ahead of the Monetary Policy Committee's rate decision Friday, dealers said. Short sales before the INR 340-billion gilt auction Friday could weigh on 10-year bonds. Crude oil prices and US Treasury yields may provide direction to gilt prices intraday, but dealers are likely to square off by the close. Some traders expect yields to soften on bets that the policy decision will be less restrictive than expected.

As for the fresh developments Wednesday, the addition of more gilts under the fully accessible route is unlikely to bring foreign inflows as bonds under this method are already available to purchase, dealers said. However, a tax cut on FPIs' bond purchases would be beneficial for bond prices, they said. The yield on the 10-year benchmark bond could fall to 6.95% if such a tax cut is announced, or if concessions related to foreign exchange to bring in capital flows are given, dealers said. The 10-year benchmark yield is seen in the range of 6.90-7.20% Friday, depending on the tone of the policy and the measures the central bank announces.

Traders widely expect the rate-setting panel to keep status quo on the repo rate in June. Rate hikes are expected to begin in August or October, dealers said. Bond yields are pricing in a rate hike later in the year and could rise by 3 to 5 bps if the Monetary Policy Committee hikes the repo rate Friday, dealers said.

RBI Governor Sanjay Malhotra's commentary is expected to set the stage for monetary policy tightening. The RBI is also expected to trim its FY27 GDP growth estimate to around 6.5% from 6.9% and focus on keeping inflationary expectations in check for the next few months. Any diversion from this expectation could see yields falling, dealers said.

Globally, an overnight US-Iran peace deal would drive the 10-year gilt yield down to 6.90% while a return of the two countries to outright hostilities could push it as high as 7.10%. Thursday, the 10-year benchmark 6.48%, 2035 bond yield is seen in the range of 6.98%-7.05%.

After the policy decision Friday, dealers will have the auction of the 6.94%, 2036 gilt to focus on, with several traders already making room for the fresh supply. Immediately after that is the scheduled release of India's GDP data for the March quarter, at 1600 IST. An Informist poll of 16 economists expects the GDP at 7.3%, down from 7.8% in the December quarter.

India Gilts: Remain down; briefly recover losses post T-bill auction result

--Dealers: Gilts recover losses as RBI rejects bids for 182-,364-day T-bills 

--Dealers: Gilts recover losses on report govt to cut tax on FPIs' bond buys 

--Dealers: Gilts recover losses on report RBI to increase bonds under FAR 

MUMBAI--1634 IST--Prices of government bonds remained lower as Brent crude oil futures climbed intraday. Prices had briefly recovered after the Reserve Bank of India rejected bids for the 182-day and 364-day Treasury bills at the auction Wednesday, dealers said. A Bloomberg report that the government plans to cut taxes paid by foreign investors and remove limitations on ownership of some bonds to attract foreign bond buyers had also supported the rise in prices, dealers said. 

Prices were down mainly due to a intraday rise in near-month Brent crude oil futures to near $99 per barrel and a rise in US Treasury yields, dealers said. Even as sentiment turned positive after the media report and the T-bill auction result, demand for government bonds was low Wednesday as traders avoided placing bets ahead of the Monetary Policy Committee's decision on Friday, they added.

Brent crude for delivery in August hit $98.99 a barrel intraday, up from $96.81 at 0900 IST. The 10-year US Treasury yield was at 4.49%, up from 4.44% at 0900 IST, dealers said.

Government bond prices recovered losses after the result of the Treasury bill auction was published as the RBI rejected bids for 182-day and 364-day T-bills at the auction, dealers said. The RBI accepted bids for only the 91-day T-bill, at a cut-off rate of 5.56%, higher than the expectation of 5.55% as per an Informist poll of 14 market participants. The central government invited bids to raise INR 240 billion through Treasury bills Wednesday.

"Only those who were short are covering their positions in the market, and most traders are just waiting for the commentary from the MPC (meeting)," a dealer at a public sector bank said. "The policy (meeting) is the reason behind the low volumes in the (bond) market."

The total volume in the government securities market at 1634 IST was INR 445.50 billion, up from INR 387.10 billion at 1630 IST Tuesday, according to data from the RBI's Negotiated Dealing System. The yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 7.01–7.05% range for the rest of the day.  (Durgesh Nandan)

India Gilts: Remain down in thin trade as Brent crude oil prices rise

MUMBAI--1238 IST--Prices of government bonds remained lower in thin volume as traders were spooked by the rise in Brent crude oil prices to near $98 per barrel, dealers said. Moreover, the escalations in the West Asia conflict also soured market sentiment, they said. Trade volume in the secondary market remained muted as traders refrained from building aggressive positions and preferred a "light" portfolio ahead of the uncertainty hovering around the Reserve Bank of India's Monetary Policy decision Friday, dealers said.

The total volume in the government securities market at 1238 IST was INR 140.85 billion, down significantly from INR 201.80 billion at 1230 IST Tuesday, according to data from the RBI's Negotiated Dealing System. The yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 7.00–7.05% range for the rest of the day. 

"Market is negative because of a rise in crude (oil prices) and some escalations in the Middle East," a dealer at a private sector bank said. "I think we will be in this (7.00-7.05%) range till MPC and further movement will depend on the kind of narrative RBI sets and commentary on forward outlook." 

At the MPC meeting Friday, traders will focus on the tone of the commentary, which is likely to set the stage for a policy rate hike in the subsequent meetings, dealers said. Traders expect the RBI governor to announce measures to support the rupee which will likely help ease bond yields below the sticky 7% level, dealers said. Traders also expect the central bank to announce measures which will facilitate higher foreign inflows, they said.

Some traders also expect the central bank to announce some liquidity measures to maintain comfortable liquidity in the banking system, dealers said. Lack of comfortable liquidity and continued escalation in West Asia led to expectations of a higher cut-off yield on Treasury bills at its auction Wednesday, dealers said.

Traders expect the RBI to set cut-off yields of 5.55%, 5.74%, and 6.03% on the 91-day, 182-day, and 364-day T-bills, respectively, according to the median of an Informist poll. However, some traders expected the cut-off yield on the 364-day T-bill to be near 6.06%. Estimates for the cut-off yield on the 91-day T-bill are in the range of 5.48-5.56%. The estimates for the 182-day T-bill is 5.68-5.76%, and for the 364-day T-bill are in a range of 5.99-6.06%. Mutual Funds likely picked up T-bills at its auction Wednesday, dealers said.

Ahead of the policy decision Friday, traders may prefer to place their trades at the short end of the curve, dealers said. Some traders covered their short positions as they pared bets on a rate hike in the upcoming monetary policy, which limited losses, they said. Most market participants preferred to keep their portfolios "light" and refrained from any aggressive bets in the secondary market, which kept the trading volumes muted, dealers said.  (Janwee Prajapati)

India Gilts: Dn on rise in crude oil, US yields; volume thin before MPC Fri

MUMBAI--0930 IST--Prices of government bonds were down as Brent crude oil prices rose to near $97 per dollar in early trade tracking escalations in the West Asia conflict, dealers said. An overnight rise in US Treasury yields also weighed on market sentiment, they said.

Brent Crude oil futures for August delivery rose to $96.84 per barrel, up almost $3 per barrel from the end of the Indian trading session Tuesday. The US Treasury yield also firmed up to 4.46% at 0920 IST, up from 4.43% at the end of the Indian trading hours Tuesday.

Some traders also likely made space in their portfolios for the fresh supply of INR 340 billion of 6.94%, 2036 bond at auction Friday, dealers said. Losses were limited after some traders covered short bets placed on the 6.48%, 2035 bond in the run-up to the Reserve Bank of India's Monetary Policy Committee meeting decision Friday, as they do not expect the rate-setting panel to hike policy rate, dealers said. 

"I think people will cover shorts (short bets), they would want to wind up their positions before the MPC," a dealer at a primary dealership said. "Everybody is expecting a pause with 'hawkish' commentary, so that is priced in."

Some traders also placed short bets on the 6.94%, 2036 paper as they expect the bond to become liquid after its auction Friday. 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 Clearcorp Repo Order Matching System. At 0930 IST, data showed trades worth INR 8.84 billion in the 6.94%, 2036 gilt, more than double from INR 4.40 billion Tuesday. At 0930 IST, the trading volume for the new 10-year 6.94%, 2036 bond was at INR 2.45 billion.

Trade volume remained thin in early trade. The total volume in the government securities market at 0930 IST was INR 16.90 billion, down from INR 20.25 billion at the same time Monday, according to data from the RBI's Negotiated Dealing System. The yield on the 10-year benchmark 6.48%, 2035 bond is seen in the 7.00–7.10% range for the rest of the day.  (Janwee Prajapati)

India Gilts: Seen dn as oil above $95/bbl, mkt cautious before MPC decision

MUMBAI – Government bond prices are likely to inch lower as Brent crude oil prices rose past the key level of $95 per barrel but remained below the psychologically crucial level of $100 per barrel, dealers said. Traders will practice caution and will likely remain on the sidelines as the Reserve Bank of India's Monetary Policy Committee's three-day meeting begins, and ahead of the rate decision on Friday, dealers said. Some traders will likely make space in their portfolios for the fresh supply of the new 10-year 6.94%, 2036 gilt at its auction Friday, which will also weigh on the bond prices, they said.    

The yield on the 10-year benchmark Indian government 6.48%, 2035 bond is expected to open near 7.02% and is likely to move between 7.00% and 7.05% during the day, dealers said. Tuesday, the 10-year benchmark bond ended higher at INR 96.38, or 7.0129% yield. Bond prices ended off the day's high as traders took profits towards the end of the day, wiping out most gains amid caution ahead of the Reserve Bank of India's three-day Monetary Policy Committee meeting, starting Wednesday.

Brent crude oil futures for August delivery rose to $96.77 per barrel at 0800 IST, higher from $93.88 per barrel at the end of Indian trading hours Tuesday. US Treasury yields on 10-year benchmark note rose to 4.49% at 0800 IST, higher from 4.43% at 1700 IST Tuesday. Both US Treasury yields and Brent crude oil prices rose following the escalation in the West Asia war.

US forces intercepted several Iranian ballistic missiles and drones aimed at regional allies and launched defensive strikes on Iran's Qeshm Island after attacks across the West Asia were attempted, according to media reports. The US State Department spokesperson Tommy Pigott said Israeli and Lebanese delegations had finished another round of direct talks in Washington, focused on a broader security and political deal. US President Donald Trump said he's still hopeful about reaching an interim peace agreement, and pushed back on Iranian state media claims that talks were stalled due to the fighting in Lebanon. He noted that both sides have stayed in "continuous" contact.

Back home, dealers expect the central bank to announce measures to curb the rupee's depreciation, weakening the case for a policy repo rate hike. Some dealers expect more dollar-rupee buy-sell swap auctions to be conducted after the RBI held one last week.

Traders expect the rate-setting panel to keep the status quo on the repo rate in June. An Informist poll showed that 19 of 24 economists and market participants expect the rate-setting panel to keep the repo rate unchanged, while the remainder expect a repo rate hike.

RBI Governor Sanjay Malhotra's commentary is expected to set the stage for monetary policy tightening, as CPI inflation is seen averaging 5.0% in 2026-27 (Apr-Mar), above the central bank's April forecast of 4.6% and its 4% retail inflation target. The RBI is also expected to trim its FY27 GDP growth estimate to around 6.5% from 6.9%.

Traders also expect the RBI to lower its GDP growth forecast for FY27 by 20 to 30 basis points. At the same time, the FY27 CPI inflation estimate could be raised from 4.6% to above 5%, according to dealers. If the inflation forecast goes up by 50 basis points, the rate hike cycle may move faster, they added.

Following the rate decision, attention will shift to the INR-340-billion auction of the 6.94% 2036 government bond, with some traders already adjusting positions for the new supply. India's GDP figures for the March quarter are set to be released at 1600 IST, Friday.  (Janwee Prajapati)

End

US$1 = INR 95.7050

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

Edited by Rajeev Pai

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