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Informist, Thursday, Jun. 18, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended sharply higher Thursday as foreign banks covered short bets in paper maturing in 10 years or more, dealers said. Hopes of India's Fully Accessible Route bonds being included in Bloomberg's Global Aggregate Index supported the prices. The price of Brent crude oil continued to be below the key $80 per-barrel level as the US and Iran signed an interim peace deal ahead of schedule, which kept market sentiment positive, they said. Some traders made space in their portfolios ahead of the fresh supply of gilts at the weekly auction Friday, which capped bond prices, dealers said.

"It looks like FPI (foreign portfolio investor) flows, and crude (price) is also lower," a dealer at a private-sector bank said. "Such move in prices were not seen for quite some time... we see such volumes when FPIs are there."

The benchmark 6.94%, 2036 bond ended at INR 100.71, up from INR 100.54 Wednesday. Its yield settled at 6.8387%, down from 6.8626% Wednesday. The yield on the 6.94%, 2036 bond moved between 6.8261% and 6.8731% during the day. The total turnover in the gilt market was INR 850.90 billion, up almost 52% from INR 561.15 billion Wednesday.

Volumes were higher Thursday as traders speculated that FPIs were purchasing gilts ahead of a potential inclusion of India's Fully Accessible Route bonds in the Bloomberg Global Aggregate Index. Some dealers expected the announcement to come Thursday or later in the week. If the inclusion does take place, dealers expect the weight of India's Fully Accessible Route bonds in the Bloomberg Global Aggregate Index to be 0.8-1.0%. In its consultation note in September, Bloomberg had said a weightage of 0.7% was under consideration. FPIs net bought gilts worth INR 3.52 billion through the Fully Accessible Route Thursday, taking their total gilt holdings through this route to INR 3.57 trillion, according to data from Clearing Corp. of India Ltd. at 1700 IST.

At 1700 IST, the Brent crude oil futures contract for August delivery was at $78.71 per barrel, down from $79.36 per barrel at the end of Indian trading hours Wednesday. The yield on the 10-year benchmark US Treasury note was 4.46%, up from 4.44% at 1700 IST Wednesday.

At the US Federal Open Market Committee meeting, the rate-setting panel left the policy rate unchanged with a "hawkish" commentary. The "hawkish" tone of US Federal Reserve Chair Kevin Warsh at his first FOMC meeting upped bets of a rate hike this year, which weighed on market sentiment, dealers said. Following this, US Treasury yields rose overnight, which also pulled bond prices down, dealers said.

A more hawkish Fed commentary could have dampened the risk-on mood sparked by a possible US–Iran deal. However, Indian markets reacted positively to the interim deal between the belligerents, which drove crude oil prices sharply lower. The outlook was also supported by recent steps by the Reserve Bank of India to draw in foreign inflows, including the easing of FPI rules. Taken together, these factors provided support to the rupee, facilitated FPI inflows, and kept overall market sentiment positive.

At Friday's auction, traders expect firm demand for all the bonds on offer. The 6.03%, 2029 bond and the 6.68%, 2033 bond are likely to be picked up by mutual funds and banks for their asset-liability-management books, dealers said. The 7.24%, 2055 bond and the 7.50%, 2056 green bond are likely to see robust demand from investors, they said. The government will sell INR 110 billion of the 6.03%, 2029 bond, INR 110 billion of the 6.68%, 2033 bond, INR 50 billion of the 7.24%, 2055 bond, and INR 50 billion of the 7.50%, 2056 green bond.

On the yield curve, traders prefer the long-term bonds as they expect to be able to book capital gains on their holdings, dealers said. Traders largely expect the longer end of the yield curve to perform better as the downside risks remain limited, particularly after bets on a potential rate hike were pared, they said. Moreover, traders expect the slew of measures announced by the RBI and the government to improve foreign inflows, which will also pull bond prices up, they said.

Though traders expect the yield curve to steepen, the scope for a fall in short-term bond yields is limited as most positives are priced in, they said. Some traders expect good demand for the short-term bonds as liquidity in the banking system appears to be comfortable, they said. The net liquidity absorbed by the RBI from the banking system Wednesday was INR 47.72 billion, down from INR 238.81 billion Tuesday. The net liquidity absorbed is an indication of the liquidity surplus in the system. The surplus fell Wednesday as cash balances with the RBI rose to INR 8.26 trillion, up from INR 8.04 trillion Tuesday. But traders expect it to stabilise with all the variable rate repo auctions being conducted by the central bank. 

"Demand for bonds below five-year and above 15-year seems good," a dealer at a state-owned bank said. "Supply of short-term and long-term bonds are comfortable... most of the supply is on the belly of the curve which is weighing" on prices. 

Traders broadly expect the RBI's Monetary Policy Committee to keep the repo rate steady in the current calendar year, similar to Citigroup Inc. economists, who, Bloomberg reported, do not expect a single rate hike by the central bank in the financial year 2026-27 (Apr-Mar). Until recently, traders were expecting a rate hike by the RBI in August, but after the prospects of a peace deal between the US and Iran brightened, they thought the earliest the central bank would raise the rate was October. Now, however, after the US and Iran signed the interim deal Wednesday, there is only a 60% chance of a rate hike by the RBI in October. Some traders now expect the rate-setting panel to hike rates at its December meeting, dealers said.

Traders remain cautious, however, of inflation rising in subsequent months as they expect the impact of higher energy prices to show up in the next inflation print, dealers said. They are also concerned about the delayed monsoon, which could fuel food inflation, they said.   

Traders also await the release of the state borrowing calendar for the September quarter as higher-than-expected borrowing quantum will pull bond prices down, dealers said. Traders are divided on the size of state borrowing in Jul-Sept. Some expect the quantum to be broadly in line with the borrowing quantum in the June quarter, dealers said. Others expect it to be slightly higher than the borrowing in the September quarter a year ago. Traders expect the borrowing calendar to be released in the last week of June. "I am expecting the borrowing to be nearly 10% higher than the quantum in the year-ago quarter," a dealer at a state-owned bank said.

Traders expect the yield on the 6.94%, 2036 bond to fall to 6.60% if India's Fully Accessible Route bonds are included in the Bloomberg Global Aggregate Index and foreign inflows continue, dealers said. Others, however, expect the yield on the 10-year benchmark bond to reverse from 6.80% as it is a psychologically crucial level at which traders are likely to take profits, they said. Traders expect the yield on the 10-year benchmark bond to move in the range of 6.80-6.85% Friday.

OUTLOOK

Friday, gilt prices will track overnight movement in crude oil prices, dealers said. Even with a US-Iran peace deal, many traders think Brent crude is unlikely to remain below $80 per barrel due to continuing supply disruptions. The 10-year benchmark gilt yield is also seen as unlikely to fall below 6.80%. 

Later in the day, bond prices will take cues from the results of the weekly gilts auction, dealers said. Traders widely expect the demand to be firm. The government will sell INR 110 billion of the 6.03%, 2029 bond, INR 110 billion of the 6.68%, 2033 bond, INR 50 billion of the 7.24%, 2055 gilt, and INR 50 billion of the 7.50%, 2056 green bond at the auction.

Market sentiment is expected to remain positive, given the likelihood that FPI flows will be sustained for at least two weeks, dealers said. The FPI inflows are expected to increase the liquidity in the banking system, which is likely to support bond prices, they said. If the US-Iran peace deal holds, traders are likely to pare bets of a rate hike by the RBI's Monetary Policy Committee in 2026.

India Gilts: Remain up; foreign banks cover short positions

MUMBAI--1531 IST--Prices of government securities remained up and volumes doubled over Wednesday as foreign banks covered their short bets in papers maturing in 10 years or more, dealers said. Private sector banks were also buying bonds maturing in 10 years or more at levels seen attractive, as a fall in crude oil prices led to traders unwinding bets of rate hikes this year, they said.  

The total turnover in government securities at 1530 IST was INR 735.10 billion, as against INR 455.90 billion at the same time Wednesday, data from Clearing Corp. of India showed. Market participants were also speculating that the much-awaited inclusion of India's Fully Accessible Route bonds to the Bloomberg Global Aggregate Index could be announced Thursday. "If that happens, then we can see yield (on the 10-year benchmark bond) falling to 6.80% today (Thursday)," a dealer at a private sector bank said. If included, dealers expect the weight of India's Fully Accessible Route bonds in the Bloomberg Global Aggregate Index to be at 0.8-1.00%. In its consultation note in Sept. 2025, Bloomberg had said a weightage of 0.7% was being considered. 

The prices of longer-term bonds such as the 15-year benchmark 6.68%, 2040 bond and the 6.90%, 2065 bond were up more than 40 paise over Wednesday. The five-year benchmark 6.36%, 2031 bond underperformed gilts of other tenures and largely traded flat as short-term positives on the outlook for gilts were already priced in, dealers said. "We saw some rally in five-year last week after RBI and government's measures and not as much in longer-tenure bonds," a dealer at a state-owned bank said. "Now there are no new cues for short-term papers. We need the FCNR (B) deposits to start for us to see some movement here," the dealer said. The RBI's move to remove the interest rate ceiling on fresh foreign currency non-resident bank deposits of three to five years supported positive market sentiment, dealers said.    

Public sector banks and some mutual funds were selling government securities Thursday, dealers said. "PSU (state-owned) banks bought bonds when the yield (10-year bond) was over 7% and now it is a good level for them to sell," the dealer at the private sector bank said.  (J. Navya Sruthi) 

India Gilts: Up on likely FPI buys, fall in crude price

MUMBAI--1216 IST--Prices of government bonds were sharply up, reversing early losses due to likely purchases by foreign portfolio investors, dealers said. Volumes jumped, and traders speculated that FPIs were purchasing gilts to front-run a possible inclusion of India's Fully Accessible Route bonds to the Bloomberg Global Aggregate Index, with some dealers expecting an announcement on Thursday or later this week. The total turnover in government securities at 1216 IST was INR 516.75 billion, as against INR 241.65 billion at 1230 IST Wednesday, data from Clearing Corp. of India showed. The rupee also rose sharply. Data on FPI activity under the Fully Accessible Route Thursday was yet to be updated on CCIL as of 1216 IST.

A fall in Brent crude oil prices to the day's low of $77.10 per barrel, the lowest since Mar. 2, also drove the rise in prices, dealers said. On the domestic front, the Reserve Bank of India's temporary withdrawal of the interest rate ceiling on fresh foreign currency non-resident bank deposits of three- to five-year tenures also helped, they said. 

"Bonds have priced in a peace deal and low crude oil prices. Now, there is further room left for upside (in bond prices) because of FCNR (B) (deposits)," a dealer at a private sector bank said. "Deposits have started, but in two months, we can expect liquidity through this way to rise," the dealer said. 

Traders favoured gilts maturing in 10 years or more as the possibility of rate hikes this fiscal year by the RBI's Monetary Policy Committee has been reduced with a further fall in crude oil prices, dealers said, making the capital gains on these tenures attractive at current levels, they said. The 10-year 6.94%, 2036 gilt yield hit 6.8261% Thursday, the lowest since Mar. 24. The 10-year benchmark bond is seen moving in a range of 6.80%-6.87% during the rest of the day, dealers said.  (J. Navya Sruthi)

India Gilts: Reverse early gains as traders place short bets; US ylds weigh

MUMBAI--0935 IST--Prices of government bonds gave up early gains to trade lower Thursday as traders placed short bets ahead of the weekly gilt auction Friday, dealers said. The hawkish tone of US Federal chair Kevin Warsh at his first Federal Open Market Committee meeting and bets of a rate hike this year weighed on market sentiment, dealers said. 

The US Federal Reserve kept interest rates steady at 3.50-3.75%, but policymakers signalled borrowing costs could rise later this year as inflation remains above the central bank's 2% target, which pushed up US Treasury yields. The overnight rise in US treasury yields also weighed on bond prices, dealers said. The 10-year benchmark US Treasury yield was at 4.46% at 0930 IST, up from 4.44% at the end of Indian gilt market hours Wednesday.

"There is a sell-off in the market and people are shorting (short-selling) before the (weekly gilt) auction," a dealer at a primary dealership said. "The FOMC (US Federal Open Market Committee) commentary also suggested that there might be rate hike so that is another reason for the sell-off today (Thursday)."

Bond prices were supported by a fall in Brent crude oil prices, dealers said. At 0930 IST, Brent crude oil futures for August delivery were at $78.22 per barrel, down from $79.24 at 1700 IST Wednesday. Oil prices had fallen after media reports said the US and Iran signed the peace agreement. 

Traders made space in their portfolios for the fresh supply of bonds at the weekly auction Friday, which also pulled down bond prices on Thursday. The government will sell INR 110 billion of 6.03%, 2029 bonds, INR 110 billion of 6.68%, 2033 bonds, INR 50 billion of 7.24%, 2055 bonds, and INR 50 billion of 7.50%, 2056 green bonds at an auction Friday.

The total turnover in government securities at 0935 IST was INR 56.70 billion, as against INR 58.10 billion at the same time Wednesday, data from Clearing Corp. of India showed. The volume is likely to pick up later in the day as traders might buy bonds at levels seen as attractive, dealers said. The 10-year benchmark bond is seen moving in a range of 6.83%-6.90% during the rest of the day, dealers said.  (Diksha Tripathy)           

India Gilts: Seen up as US, Iran sign peace deal; rise in US yields to weigh

MUMBAI – Prices of government bonds are seen opening higher Thursday, supported by improved market sentiment after media reports said the US and Iran signed a peace agreement ahead of schedule, dealers said. However, an overnight rise in US Treasury yields may cap the rise in bond prices, they said.

The yield on the 10-year benchmark, 6.94%, 2036 gilt, is expected to open near 6.85% and move in a range of 6.83-6.88% during the day, dealers said. The benchmark 6.94%, 2036 bond ended at INR 100.54 on Wednesday, up slightly from INR 100.52 Tuesday. Its yield settled at 6.8626%, down from 6.8651% Tuesday. 

Government bond prices are likely to closely track movements in crude oil prices during the day, dealers said. Brent crude oil futures for August delivery were at $78.37 a barrel at 0730 IST, down from $79.24 at the close of Indian gilt market hours on Wednesday. Oil prices declined in early trade after the US and Iran signed an interim agreement aimed at ending the war, reopening the Strait of Hormuz, and waiving US sanctions on Iranian oil exports, easing concerns about supply disruptions stemming from the West Asia war.

According to media reports, US President Donald Trump signed a memorandum of understanding on the sidelines of the G7 summit in Versailles, while Iran signed the agreement remotely. As part of the initial steps under the agreement, Iran will reopen the Strait of Hormuz immediately and the US will lift its naval blockade on Iranian ports, Pakistan Prime Minister Shahbaz Sharif said in a post on X.

Back home, market sentiment is also expected to be supported by the Reserve Bank of India's decision to remove the interest rate ceiling on fresh foreign currency non-resident (bank) dollar-denominated deposits of three- to five-year maturities, dealers said.

The announcement, made after market hours Wednesday, allows banks to offer higher rates on such deposits, potentially boosting overseas inflows. The move follows the RBI's decision earlier this month to provide a swap facility covering the full hedging cost for banks mobilising fresh three- to five-year FCNR(B) deposits until Sept. 30. The facility, which became effective on Jun. 8, will remain available until Oct. 16 for deposits raised between Jun. 8 and Sept. 30.

Market sentiment is expected to remain positive as the RBI's latest measures could attract foreign inflows and improve liquidity conditions in the banking system, dealers said. Demand for government securities, particularly at the shorter end of the yield curve, is likely to benefit from the additional liquidity, they said. The RBI's latest announcement is expected to support short-term bonds during the day.

Meanwhile, at its first policy meeting under new Chair Kevin Warsh, the US Federal Reserve kept interest rates unchanged at 3.50%-3.75%. However, policymakers signalled borrowing costs could rise later this year as inflation remains above the central bank's 2% target.

Updated projections showed that nine Fed officials now expect at least one rate hike by the end of 2026. The policy statement also removed language that had previously indicated the possibility of rate cuts this year. In a notable shift under Warsh, the statement eliminated forward guidance on future rate moves altogether and instead reiterated the Fed's commitment to maintaining "ample reserves in the banking system". The rise in US Treasury yields following the Fed's policy outcome may limit the rise in domestic bond prices, dealers said.

Back home, traders said demand at Friday's weekly gilt auction is likely to be influenced by the Fed's policy outcome. At the auction, the government will sell INR 110 billion of 6.03%, 2029 bonds, INR 110 billion of 6.68%, 2033 bonds, INR 50 billion of 7.24%, 2055 bonds, and INR 50 billion of 7.50%, 2056 green bonds. Traders expect demand to remain firm for shorter-tenor securities at the auction. Long-term bonds are also likely to find buyers given the relatively small quantum on offer, dealers said. (Diksha Tripathy)  End

US$1 = INR 94.33

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

Edited by Rajeev Pai

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