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Informist, Monday, Jul. 20, 2026

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended on a mixed note Monday. Most bonds recovered sharp early losses and ended steady as Brent crude prices fell from intraday highs and fears over further escalation in the West Asia conflict eased, dealers said. Purchases from foreign portfolio investors helped offset the impact of high crude oil prices, with long-term gilts ending lower as traders avoided increasing the average duration of their portfolios, they said. 

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 101.14, marginally up from INR 101.12 Friday, after falling to a low of INR 100.75 intraday. The yield on the bond ended at 6.7770% from 6.7799% at the end of the previous session. During the day, the 10-year benchmark yield hit 6.8315%, its highest since Jun. 23. The 30-year benchmark 7.24%, 2055 bond ended 10 paise lower at INR 97.98

 

Traders had placed intraday short sales and aggressively trimmed their positions in the first half of the day as Brent crude for September delivery rose to an over one-month high of $91 per barrel, up nearly 4% since Friday's settlement, with rhetoric and attacks pointing to further military escalation likely between the US and Iran. These sales were covered as Brent futures slipped to $87 per barrel by the end of Indian market hours on reports that Tehran had reiterated its commitment to a diplomatic solution. This was less than a day after Iranian officials said the memorandum of understanding to end the war had effectively collapsed 

 

"There are reports that Iran has spoken to mediators and is favouring a diplomatic solution again," a dealer at a private-sector bank said. "The market had overreacted in the morning and had a lot of fresh (short-selling) positions that got covered when crude fell." 

 

With crude prices moving upwards, some traders began to shed gilts on the view that the RBI's Monetary Policy Committee could hike the repo rate by October, against the current consensus of December. Even as some traders had anticipated rate hikes earlier, there was no broad-based selling of bonds maturing in 3-5 years. Although these bonds are typically more sensitive to interest rate movements, dealers said they are likely to remain in demand for asset-liability management as foreign currency non-resident bank deposit inflows in these maturities pick up over the coming weeks.

 

Most traders expected the yield on the five-year benchmark 6.36%, 2031, to react less to a rise in crude prices than overnight indexed swap rates and favoured buying the gilt while paying swap rates. Moreover, comments from RBI Governor Sanjay Malhotra after the June monetary policy meeting seemed to suggest he favoured keeping interest rates lower for an extended period, dealers said. 

 

Purchases initially linked to state-owned banks and then foreign banks, on behalf of foreign portfolio investors, limited the losses in gilt prices, dealers said. Clearing Corp. of India data at 1930 IST showed FPIs net bought INR 5.20 billion of fully accessible bonds Monday, despite the volatility in crude prices. Traders continued to expect index-eligible gilts to be included in Bloomberg's flagship Global Aggregate Index, though views on the timing of the announcement ranged from this week to September. 

 

"We saw demand coming in for the five-year bond (6.36%, 2031 gilt) even when the 10-year was being sold off," a dealer at a primary dealership said. "From the size, it looked like FPI demand. Even if there is nothing on Bloomberg, the fact that FPIs are buying when crude is up, and US yields are up, is helping the market keep confidence."

 

With most of the action in changing rate expectations, volumes in long-term bonds were limited. Some mutual funds likely trimmed their holdings of bonds maturing in 15 years and longer, which see bigger falls in price per basis point of yield, fearing further escalation in West Asia. Some traders also made room for the fresh supply of higher duration securities at the weekly gilt auction Friday. The government is scheduled to sell a 15- and 50-year gilt at the auction.

 

Meanwhile, the result of the gilt switch auction did not have an impact on secondary market bond prices, dealers said. The government switched six gilts worth INR 144.98 billion at the auction with eight long-term bonds. Traders had expected a similar amount as some of the source securities were profitable to sell back to the issuer, but they were wary of buying gilts of longer tenures, dealers said. 

 

The total turnover in the RBI's Negotiated Dealing System – Order Matching platform was INR 623.10 billion on Tuesday, up from INR 387.35 billion on Monday, data from Clearing Corp. of India showed. There were no trades using the e-rupee pilot on Monday as the instrument remained unused for months.

 

OUTLOOK

On Tuesday, gilt prices will take cues from overnight developments in West Asia, especially the movement in crude oil prices, dealers said. Traders may cover short sales in the 15-year benchmark 6.68%, 2040 bond after the government said post-market hours that it would issue a new bond maturing in 2041 on Friday. 

 

Data released by the RBI showed that its schemes to attract foreign capital launched in early June had drawn inflows of $20.72 billion by Friday. Foreign currency non-resident bank deposits alone brought in $17.41 billion since the concessional swap window for banks was rolled out on Jun. 8, the RBI said. This may lead to traders stepping up purchases of short-term bonds in the coming days. The yield on the 10-year benchmark 6.94%, 2036 gilt is seen in a range of 6.73-6.84% Tuesday. 

 

However, traders remain unsure how the inflows have come in without a corresponding rise in rupee liquidity with banks, as they converted the funds using the concessional swap windows. The total inflow number suggests an increase in banking system rupee liquidity by nearly INR 2.0 trillion. Dealers also remain expectant of further flows on the view that Bloomberg will announce the inclusion of Indian sovereign bonds in its flagship Global Aggregate Index soon. 

 

The depreciation of the rupee against the dollar is a concern for some traders, as the fall comes despite the RBI deploying various measures to prevent it. Traders will also track the progress of monsoon rainfall, as deficient southwest monsoon rainfall will contribute to higher inflation, they said. However, domestic inflation is largely in check as of now, dealers said, barring the imported inflation from a rise in oil prices. Traders now look to gauge whether the RBI's Monetary Policy Committee will raise the repo rate in October to curb inflation and stabilise the depreciating rupee. 

 

The result of the state government bond auction Tuesday may lend cues in the second half of trade, dealers said. Twelve states will raise INR 217 billion at 1030-1130 IST Tuesday, against INR 225 billion indicated in the calendar for Jul-Sept. Banks and insurers would prefer picking up state bonds, which offer higher yields, for their investment portfolios, dealers said.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	101.1400	6.7770%	101.1200	6.7799%
6.48%, 2035	97.9800	6.7765%	97.9750	6.7772%
6.36%, 2031	99.6000	6.4609%	99.6100	6.4583%
6.68%, 2040	97.1350	7.0045%	97.1550	7.0022%
7.24%, 2055	97.9800	7.4095%	98.0800	7.4009%

 

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India Gilts: Recover some losses as Brent crude price falls below $90/bbl 

 

	1335 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	100.98	100.99	100.75	100.90	101.12
YTM (%)	6.7995	6.7981	6.8315	6.8107	6.7799

 

MUMBAI--1335 IST--Government bond prices recovered some earlier losses as Brent crude oil prices fell below $90 per barrel, dealers said. However, bond prices remained sharply down due to escalation in the West Asia war and uncertainty about a peace deal between the US and Iran, dealers said. The fall in bond prices was contained as traders covered their short positions and public sector banks likely bought gilts at levels seen as attractive, dealers said.

 

Brent crude oil futures for September delivery fell to $88.58 per barrel from the day's high of $91.42 per barrel, but up from $85.85 per barrel at the end of Indian trading hours Friday. The fall in bond prices was contained as traders covered their short bets, tracking a fall in Brent crude oil prices, dealers said. Public sector banks likely bought bonds as the yield on the 6.94%, 2036 bond rose over the 6.80%, which also pushed up bond prices, dealers said. These banks net bought INR 45.78 billion worth of gilts on Friday as the yield on the 10-year benchmark rose over 6.78%, dealers said.

 

Optimism around Indian bonds' inclusion in Bloomberg's Global Aggregate Index and steady foreign inflows, a trend seen through the current month, also supported bond prices, dealers said. Some traders are worried about delay in the announcement, saying it could dent market sentiment and eventually pull down bond prices. "We will see a fall in bond prices if there is too much delay because foreign inflows will eventually reduce," a dealer at a primary dealership said. "Bond prices were supported because the foreign participants were front running Bloomberg index inclusion." 

 

Trade volume in the secondary market was higher as traders likely covered short positions, dealers said. Out of the total trade volume, 67% of the trades were concentrated in the most liquid 10-year benchmark bond amid uncertainty over the US-Iran peace deal. The total trade volume in the government securities market at 1335 IST was INR 337.60 billion, as against INR 146.15 billion at 1330 IST Friday, data from Clearing Corp. of India Ltd. showed. The 6.94%, 2036 bond is seen trading in a 6.78-6.83?nd through the day.

 

"Trade volume is up because of intraday short covering and value buying," a dealer at a small finance bank said. "Most of the movement is due to crude oil. If it rises, we see a fall in prices...it is very difficult to predict the movement in crude oil these days."  (Janwee Prajapati)

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India Gilts: Dn more on intraday rise in crude; switch auction to lend cues

 

	1225 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	100.77	100.92	100.75	100.90	101.12
YTM (%)	6.8290	6.8079	6.8315	6.8107	6.7799

 

MUMBAI--1225 IST--Government bond prices fell to the day's low, tracking an intraday rise in Brent crude oil prices, dealers said. Traders turned their focus on the INR 300 billion worth of switch auction as they expect the results to lend cues to the market, dealers said. The fall in bond prices was limited due to likely purchases by public sector banks and hopes of Indian sovereign bond inclusion in Bloomberg's Global Aggregate Index, dealers said.     

 

Brent crude oil futures for September delivery rose to $90.91 per barrel, up nearly 6% from the end of Indian trading hours Friday. Renewed escalation in the West Asia war weighed on market sentiment as traders fear that a persistent rise in Brent crude oil prices would nudge the Reserve Bank of India's June Monetary Policy Committee to contain the rise in inflation, dealers said.

 

At the INR-300-billion switch auction, traders expect the Reserve Bank of India to set cut-off prices broadly in line with the indicative prices published by Financial Benchmarks India Pvt. Ltd. Friday, according to an Informist poll. Some traders expect INR 120 billion of the source securities to be switched out of the total INR 300 billion at the auction. However, participation at the auction is likely to be firm and most securities chosen for the switch auction are "in-the-money" or profitable for the banks, dealers said. Traders are likely to focus on the cut-off set on the switch between the 7.17%, 2028 bond, the 7.06%, 2028 bond, and the 7.10%, 2029 bond, dealers said. Out of these securities, the 7.10%, 2029 bond is likely to be switched the most. On the other hand, some traders complained about the selection of similar bonds at every switch auction as they likely did not have these securities in their portfolio, dealers said.

 

"I expect the cut-off to be near FBIL level," a dealer at a private sector bank said. "People had bought these bonds pre-policy (ahead of the Reserve Bank of India's June Monetary Policy Committee meeting) and yields have compressed since then." From the closing level Friday, the yield on the 10-year benchmark 6.94%, 2036 bond has fallen 22 basis points since the central bank held its policy meeting on Jun. 5, dealers said.

 

The government has offered to switch eight gilts totalling INR 300 billion on Monday with six longer-term gilts. In the past three switch auctions conducted in 2026-27 (Apr-Mar), the government has switched gilts totalling INR 464.92 billion.

 

Traders remained hopeful of the inclusion of Indian sovereign bonds in Bloomberg's flagship Global Aggregate Index, which also limited the fall in bond prices, dealers said. Such an inclusion could pull down the yield on the 6.94%, 2036 bond to 6.65%, dealers said. Some traders expect the announcement of such an inclusion this week, while others expect it in August or September, dealers said. 

 

The total trade volume in the government securities market at 1200 IST was INR 201.11 billion, as against INR 125.35 billion at 1230 IST Friday, data from Clearing Corp. of India Ltd. showed. The 6.94%, 2036 bond is seen trading in a 6.78-6.83?nd through the day. (Janwee Prajapati) 

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India Gilts: Sharply down as Brent crude over $90/bbl stokes rate hike fears

 

	0940 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	100.91	100.92	100.85	100.90	101.12
YTM (%)	6.8100	6.8079	6.8174	6.8107	6.7799

 

NEW DELHI--0940--Government bond prices were sharply lower at the open after Brent crude futures rose above $90 per barrel for the first time in over a month, dealers said. This led to fear of repo rate hikes in India as early as the next monetary policy review in August, especially with uncertainty on whether the West Asia war would escalate further.

 

Brent crude for September delivery was up at $90.23 a barrel in Asian trade Monday after hostilities between the US and Iran escalated. The US declared a fresh wave of strikes on Iran, with recent military actions effectively closing the vital Strait of Hormuz again. Over the weekend, Tehran declared its June ceasefire with the US had effectively ended, targetting energy-production and storage facilities of US allies in the region.

 

Concerns about fiscal slippage in 2026-27 (Apr-Mar) due to a higher subsidy burden would also resurface if the war continued, dealers said. Immediately, traders expected imported inflation would rise in the coming months after comfort on that front since June due to the memorandum of understanding signed between the US and Iran to end the war and open the Strait of Hormuz, which used to carry nearly a fifth of the world's oil. However, most traders were not expressing their views on interest rates in bonds maturing in 3-5 years. These bonds are generally more rate-sensitive but are expected to be in demand for asset-liability management as foreign currency non-resident bank deposit inflows in these tenures pick up in the coming weeks, dealers said. 

 

Buoyed by expectations of FCNR (B) inflows and hopes of India's inclusion on the Bloomberg Global Aggregate index, losses were limited after the initial adverse reaction in the bond market, dealers said. State-owned banks were on the buying side in early trade while traders kept to the sidelines amid the geopolitical uncertainty. While private sector banks had also bought gilts the last time yields rose to these levels last week, the delay in the index inclusion announcement by Bloomberg may discourage hefty purchases, dealers said.

 

"We believe there is strong demand in the market at 6.82-6.84% levels (yield on the 6.94%, 2036 bond) from PSU banks," a dealer at a state-owned bank said. "For a day or so at least bonds could be protected even if crude is at these levels, but nobody can afford to go short (place short sales) in case that is an announcement from Trump."

 

The total trade volume in the government securities market at 0940 IST was INR 58.45 billion, sharply higher than INR 24.55 billion at 0930 IST Friday, data from Clearing Corp. of India Ltd. showed. The 10-year benchmark 6.94%, 2036 bond is seen trading in a 6.78-6.85?nd through the day.  (Aaryan Khanna)

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India Gilts: Seen dn as Brent crude oil above $90/bbl; switch auction eyed

 

MUMBAI – Government bond prices are likely to open lower Monday tracking the rise in Brent crude oil prices, which rose above $90 per barrel, dealers said. Traders are likely to refrain from building aggressive positions as the conflict in West Asia escalated, dealers said. Some traders will likely cover short bets which will limit the fall in bond prices, dealers said. Traders will also await the result of the INR 300 billion switch auction, which is likely to lend cues to the market, the dealer said.

 

Brent crude oil futures for September delivery rose to $90.39 per barrel, up over 5% from the end of Indian trading hours Friday. Crude oil prices rose due to the latest escalations in the West Asia war after two US army personnel were killed. A week of back-and-forth strikes has expanded beyond strictly military targets to include bridges, utilities, and port facilities, raising fears of a prolonged conflict in the Middle East.

 

The 10-year benchmark 6.94 36bond is seen opening around 6.80% Monday and is expected to trade in a 6.78%-6.83% range during the day, dealers said. Public sector banks are likely to ramp up their bond purchases near the crucial 6.80% yield level on the 6.94%, 2036 bond, which will likely prevent a sharp fall in bond prices, dealers said. These banks net bought INR 45.78 billion worth of gilts Friday as the yield on the 10-year benchmark rose over 6.78%, dealers said. Some traders who had expected Brent crude oil prices to rise past $90 per barrel are also likely to cover their short bets at an attractive level, dealers said. Friday, the 6.94%, 2036 bond had ended at INR 101.12, down from INR 101.35 Thursday. The yield on the bond was 6.7799% Friday, up from 6.7478% Thursday. 

 

The yield on the 10-year benchmark US Treasury note was unchanged at 4.55% from 1700 IST Friday. US yields remained largely stable due to signs of softer US consumer and producer inflation that have dampened the US Federal Reserve rate-hike bets.

 

Despite macroeconomic headwinds, traders are likely to refrain from aggressive short positions on the expectation that Bloomberg will include Indian sovereign bonds in its flagship Global Aggregate Index. Several traders have pushed back expectations of the Bloomberg review being published this month to August or even September, whereas some traders expect it in the current week. Demand from banks due to inflows from foreign currency non-resident deposits is also likely to support demand for gilts, along with purchases by foreign portfolio investors.

 

Traders will also track the result of the INR 300 billion switch auction Monday, dealers said. Some traders expect participation at the auction to be firm, as banks likely hold the selected securities in their portfolios. Most of the securities chosen are in-the-money or profitable for these banks, given the recent rise in bond prices after the West Asia war had simmered down, dealers said. 

 

The depreciation of the rupee against the dollar is also a concern for some traders as the fall in the rupee comes despite the RBI deploying various measures to prevent it, though optimism about FCNR(B) deposits picking up may keep a lid on this worry, dealers said. The escalations in West Asia will weigh on market sentiment as some traders expect the RBI's Monetary Policy Committee may raise the repo rate in October to curb inflation and stabilise the depreciating rupee.  (Janwee Prajapati) 

 

End

 

US$1 = INR 96.49

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

 

Edited by Saji George Titus

 

 

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