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Informist, Wednesday, Jul. 22, 2026

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended off lows on robust demand for bonds from state-owned banks and foreign portfolio investors, with the five-year and 15-year benchmark gilts the biggest beneficiaries of these purchases, dealers said. Even so, prices of most bonds ended lower Wednesday as Brent crude futures rose to a six-week high, topping $95 per barrel intraday.

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 100.97, down from INR 101.02 Tuesday but off the day's low of INR 100.80 hit at the open. Its yield rose to 6.8012% Wednesday from 6.7938% the previous day. The five-year benchmark 6.36%, 2031 bond ended 1 paisa lower at INR 99.56, while the 15-year benchmark 6.68%, 2040 gilt recovered all losses to end 1 paise higher, closing at INR 97.06.

 

FPIs net bought gilts worth INR 14.77 billion Wednesday, according to Clearing Corp. of India data at 1715 IST, a day after a marginal net sale. Nearly the entire sum was invested in the 2040 gilt, the outgoing 15-year benchmark which will be replaced by a new bond at the auction Friday. This increased the total holdings of foreign investors in the bond to INR 101 billion, up by 17% in a single day. Traders speculated the purchases were from a passive investor looking to track the movement of India's index-eligible bonds, a group to which the 6.68%, 2040 gilt was added in June.

 

Meanwhile, asset-liability managers across banks continued to pick up gilts maturing in three to five years to best deploy foreign currency non-resident deposits. Most banks had set up internal procedures to offer leverage to non-residents by now, with the expectation that inflows would ramp up in the coming weeks. This made current levels attractive to lock in yields at levels above the policy repo rate of 5.25%, with the war in West Asia seen subsiding soon and leading to relief in the bond market, dealers said. 

 

"The strength will continue for some time. There are real money flows that are coming in and will only pick up pace," a dealer at a primary dealership said. "So it is very difficult to see yields going up in spite of the war, which is not seen sustaining, while demand is going to exceed supply till September quite easily."

 

The strong positive sentiment on demand for domestic gilts has helped offset the impact of adverse global cues. Both the US and Iran have downplayed mediations after tit-for-tat attacks over the past two weeks. The threat to shipping in the Strait of Hormuz has effectively shut the vital waterway again. This pushed up Brent crude for September delivery to a six-week high above $95 per barrel intraday and $94.60 a barrel at the close of Indian market hours Wednesday, up over 4% from the same time Tuesday. The 10-year US Treasury yield also rose to 4.64% at 1700 IST from 4.59?ay ago.

 

Traders continue to fear higher crude prices will push up domestic inflation in the coming months, putting pressure on the Reserve Bank of India's Monetary Policy Committee to hike rates, dealers said. However, traders see a chance of a repo rate hike from the current 5.25% at the policy review in October, with status quo likely at the upcoming monetary policy meeting on Aug. 3-5. 

 

Meanwhile, several traders continued to bet on India's inclusion in Bloomberg's flagship Global Aggregate Index, which also kept them from selling too many bonds under the fully accessible route. Earlier, traders had built up their portfolios in anticipation of the inclusion being announced in June and then July. With uncertainty persisting over the timing of the announcement, some traders had hit stop losses on those holdings as bond prices tumbled following the outbreak of the conflict in West Asia. Most traders continued to favour intraday trades due to a lack of conviction to hold positions overnight, dealers said.

 

"The price action shows a clear picture: we opened at the lowest level and then constantly there was buying from across the market," a dealer at a state-owned bank said. "We were expecting it (the 10-year) to reach 6.85% (yield), but that did not happen, so we had to buy at lower prices." 

 

Total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 589.05 billion, up from INR 536.75 billion Tuesday. There were no trades using the central bank's e-rupee pilot Wednesday, as has been the case for some time.

 

OUTLOOK

On Thursday, bond prices are likely to remain volatile as strong demand for domestic bonds offsets concerns over the escalating conflict in West Asia, dealers said. Crude oil prices and US Treasury yields will continue to guide the direction of gilt prices, although the negative impact may be cushioned by purchases from banks, they said.

 

Towards the latter half of the day, traders may trim their holdings to make room for the fresh supply of gilts at the weekly auction 1030-1130 IST Friday. The government will sell INR 170 billion of a new 2041 gilt and INR 110 billion of the 7.43%, 2076 bond. Demand for the new 15-year benchmark gilt is seen firm, though traders have mixed views on how the 50-year paper would fare at auction, dealers said. 

 

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. FCNR(B) deposits alone brought in $17.41 billion since the concessional swap window for banks was rolled out on Jun. 8, the RBI said. Short-term bonds are expected to remain in favour with the pace of these inflows seen increasing in the coming days, even if longer-term bonds are more sensitive to global triggers, dealers said. The yield on the 10-year benchmark 6.94%, 2036 gilt is seen in a range of 6.72-6.84% Thursday. 

 

Demand for bonds maturing in under three years is not seen as robust, as the foreign exchange inflows have come in without a corresponding rise in rupee liquidity with banks, despite their conversion of the funds using the concessional swap windows provided by the RBI. The total inflow number under the schemes suggests an increase in banking system rupee liquidity by nearly INR 2.0 trillion, while the frictional liquidity remains below INR 1.5 trillion on most days. 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 the monsoon, 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 crude oil prices. Traders now look to gauge whether the RBI's Monetary Policy Committee will raise the repo rate in October to curb inflation.

 

	WEDNESDAY		TUESDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	100.9675	6.8012%	101.0200	6.7938%
6.48%, 2035	97.8200	6.8006%	97.8900	6.7901%
6.36%, 2031	99.5600	6.4714%	99.5700	6.4688%
6.68%, 2040	97.0600	7.0132%	97.0500	7.0143%
7.24%, 2055	97.7000	7.4336%	97.8800	7.4181%

 

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India Gilts: Off lows on FPIs', PSU bks' buys even as Brent crude at $94/bbl

 

	1437 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	100.95	101.00	100.80	100.80	101.02
YTM (%)	6.8036	6.797	6.8247	6.8247	6.7938

 

	1437 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.68%, 2040
PRICE (INR)	97.02	97.15	96.87	97.00	97.05
YTM (%)	7.0178	7.0028	7.0352	7.0201	7.0143

 

MUMBAI--1437 IST--Prices of government bonds were off lows even as the near-month Brent crude oil contract rose further intraday to hit $94 per barrel. Foreign portfolio investors and state-owned banks purchased bonds, with the latter buying bonds for their investment books, dealers said. Volumes were concentrated in the 10-year benchmark 6.94%, 2036 bond and the 6.68%, 2040 bond, with the yield spread between the two getting compressed slightly to 21 basis points after having stayed at 22 bps for about a week. As of 1437 IST, FPIs net purchased gilts worth INR 14.10 billion through the Fully Accessible Route Wednesday, according to data from the Clearing Corp. of India Ltd. The data are updated with a lag. FPIs also purchased Treasury bills at the weekly auction Wednesday, dealers said.

 

Brent crude climbed close to $95 a barrel, gaining nearly 4% on the day, but the decline in bond prices was capped as public-sector banks stepped in to buy bonds at levels considered attractive, dealers said. "The market is still expecting Bloomberg inclusion, (and inflows) due to FCNR(B) deposits," a dealer at a private-sector bank said. "Currently, it's just crude that is jeopardising everything... it's at $94 per barrel, it's quite high... there is a fear that it might rise to $100 also." The aggressive purchases by investors forced traders with short positions to cover these bets, dealers said. With bets of foreign inflows boosting demand for gilts and possible index inclusion, any rise in bond yields is seen contained this quarter, dealers said.

 

The spread between the yield of the benchmark five-year 6.36%, 2031 bond and the five-year overnight indexed swap rate was flat and on the cusp of inverting with the five-year OIS seen rising, tracking a rise in crude oil prices. FPIs are likely to have bought the five-year bond, dealers said. Banks with inflows from foreign currency non-convertible bank deposits also deployed funds into short-term gilts, they said. Traders refrained from exiting long positions in the bond market due to expectations of foreign inflows and the possible inclusion of India in Bloomberg's Global Aggregate Index. Instead, they chose to hedge their positions in gilts by paying fixed rates in swaps. However, with a rise in OIS, some received the five-year OIS while selling the five-year bond, dealers said. 

 

Traders do not expect the yield on the 6.94%, 2036 bond to rise above the crucial 6.85% level due to aggressive purchase by investors, dealers said. However, any significant rise in Brent crude oil price could push the yield above 6.85% to 6.92-6.93%, dealers said. The total trade volume in the government securities market at 1437 IST was INR 404.90 billion, as against INR 384.80 billion at 1430 IST Tuesday, CCIL data showed. The 10-year benchmark 6.94%, 2036 bond is seen trading in the 6.78-6.85?nd through the day.  (Janwee Prajapati and Cassandra Carvalho)

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India Gilts: Off lows on likely public sector bk buys; rise in oil weighs

 

	1200 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	100.92	101.00	100.80	100.80	101.02
YTM (%)	6.8086	6.7970	6.8247	6.8247	6.7938

 

MUMBAI--1200 IST--Prices of government bonds were off lows due to likely purchases by public sector banks as the yield on the 10-year benchmark 6.94%, 2036, remains above 6.80%, dealers said. Bond prices remained down due to a sharp rise in Brent crude oil prices to $93 per barrel, dealers said. The fall in bond prices was contained despite an escalation in West Asia, as foreign currency non-resident bank deposits raised so far were higher than expected, dealers said.

 

"PSUs (public sector banks) are buying because they are light, they have space," a dealer at a public sector bank said. "They (public sector banks) are likely buying for their NDTL (net demand and time liabilities) requirements." Public sector banks likely continued their purchases after they bought INR 26.08 billion of bonds Tuesday. According to data from Clearing Corp. of India Ltd., these banks net bought over INR 95 billion of gilts so far this week.     

 

Brent crude oil prices rose to $93 per barrel from $92 per barrel at 0900 IST and $90.44 per barrel at the end of Indian trading hours Tuesday. Moreover, the rise in the 10-year benchmark US Treasury yield also weighed on bond prices as it rose to 4.64%, up from 4.60% at 1700 IST Tuesday. 

 

Bond prices were also supported after RBI data showed its foreign capital attraction measures, rolled out in early June, had brought in $20.72 billion by Friday, which was higher than market expectations, dealers said. Some traders now see another $20 billion of foreign inflows by the first week of August. Most traders expect at least $60 billion of FCNR(B) inflows by Sept. 30, with many pegging it above $75 billion. Any inflow figure over $60 billion could push bond prices up sharply, dealers said. These inflows have also kept hopes alive for India's inclusion in Bloomberg's Global Aggregate index, despite no announcement yet, dealers said.

 

Dealers said the cut-off yields on Treasury bills are likely to be higher than the cut-off set last week due to the escalating tensions in West Asia. Tighter systemic liquidity, despite foreign inflows of over $20 billion seen since Jun. 8, also put upward pressure on cut-off yields, dealers said. However, some traders expect the systematic liquidity to ease going ahead due to month-end inflows which will likely lower the yield on the T-bills, dealers said. 

 

The government aims to raise INR 90 billion through the 91-day T-bill, INR 80 billion through the 182-day T-bill, and INR 70 billion through the 364-day T-bill through the auction Wednesday. The expected cut-off yield on the 91-day T-bill is 1 basis point higher than the cut-off set at the auction last week. The cut-off yield on the 182-day T-bill is seen 2 bps higher, while the cut-off yield on the 364-day T-bill is seen 3 bps higher than the cut-off set on Jul. 15. 

 

The total trade volume in the government securities market at 1200 IST was INR 230.25 billion, higher than INR 235.30 billion at 1230 IST Tuesday, 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.  (Janwee Prajapati)

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India Gilts: Off lows on PSU bks' buys, short covering; rise in crude weighs

 

	1020 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	100.94	100.99	100.80	100.80	101.02
YTM (%)	6.8057	6.7987	6.8247	6.8247	6.7938

 

NEW DELHI--1020 IST--Government bond prices were off lows on a combination of purchases by state-owned banks and short covering as the yield on the 10-year benchmark 6.94%, 2036 gilt topped the psychologically crucial 6.80% mark, dealers said. Bond prices fell sharply at the open, tracking an overnight rise in Brent crude futures after escalation in the conflict between the US and Iran, they said.

 

"There are a lot of factors at play: PSU banks are active at these levels, traders who went short are covering in every 5 paise movement," a dealer at a private sector bank said. "But since the global situation is worsening day by day, I think it is only a matter of time before we test 6.85% (yield on the 10-year gilt)."

 

Brent crude for September delivery rose more than 2% overnight and was at a six-week high above $92 per barrel as the US and Iran continued to trade strikes, effectively continuing the war in West Asia despite talks with mediators to return to a ceasefire. With the Strait of Hormuz effectively shut once again, dealers are worried higher imported inflation and government spending to prop up the economy will prove to be negative for gilt prices.

 

Amid the uncertainty on the global front, traders avoided taking large bets but were constantly taking small, intraday trades to capture the volatility in bond prices, dealers said. The 6.94%, 2036 gilt traded in a 26-paisa band on Tuesday and had already seen a range of 19 paise by 1015 IST Wednesday. While global factors were negative, traders were optimistic on robust demand for gilts due to an influx of foreign currency non-resident bank deposits and hopes of India's inclusion in Bloomberg's flagship Global Aggregate Index, dealers said.

 

Bets were being placed on both whether bond prices would rise or fall, leading to an increase in the trading volumes, dealers said. Private sector banks and primary dealers are likely to place fresh short positions if the 10-year gilt falls below 6.80% yield, they said.

 

The total trade volume in the government securities market at 1020 IST was INR 115.40 billion, higher than INR 99.60 billion at 1030 IST Tuesday, data from Clearing Corp. of India Ltd. showed. The 10-year benchmark 6.94%, 2036 bond is seen trading in a 6.76-6.85?nd through the day.  (Aaryan Khanna)

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India Gilts: Seen down as Brent crude rises over $92/bbl, US yields rise

 

MUMBAI – Government bond prices are likely to open lower Monday, tracking a rise in Brent crude oil and higher US Treasury yields, dealers said. Brent crude prices climbed above $92 per barrel in early trade on escalations in West Asia and no progress on a US-Iran deal. The fall in bond prices is likely to remain limited, as traders expect India's inclusion in Bloomberg's Global Aggregate index soon which will boost foreign inflows into Indian bonds.

 

The 10-year benchmark 6.94 36bond is expected to open around 6.81% Wednesday and trade between 6.80% and 6.85% through the day, dealers said. The yield on the bond is likely to fall below 6.80% only if Brent crude oil prices ease intraday. With no clarity yet on a West Asia peace deal, traders are expected to avoid taking aggressive positions, which will keep trade volumes subdued, dealers said. Yields are unlikely to rise above the key 6.85% level as there will be buying around this level. Public sector banks are likely to continue their purchases after they bought INR 26.08 billion of bonds Tuesday. According to data from Clearing Corporation of India Ltd., these banks net bought over INR 95 billion of gilts so far this week. State-owned banks have been picking up bonds whenever the yield on the 6.94 36bond has moved above 6.78%.

 

Tuesday, the 6.94%, 2036 bond had ended at INR 101.02, down from INR 101.14 Monday. The yield on the bond was 6.7938% Tuesday, up from 6.7770% Monday. Bonds ended lower Tuesday as Brent crude prices rose nearly 2% during the session and were above $90 per barrel by the end of Indian market hours, dealers said.

 

Brent crude oil futures for September delivery rose to $92.55 per barrel, up from $90.44 at the end of Indian trading hours Tuesday. Brent crude prices rose for a fourth straight session as the US and Iran continued attacks on each other. President Donald Trump said the US has no interest in talks until Iran agrees to meet "in a meaningful way," which lowered hopes for a quick resumption of negotiations. Meanwhile, newly sworn-in UK Prime Minister Andy Burnham has reportedly approved the use of British military bases by the US for strikes on Iran, as Trump escalates the conflict. At 0800 IST, the yield on the 10-year benchmark US Treasury note was 4.63%, up from 4.60% at 1700 IST Tuesday.

 

Short-term bonds are likely to remain in favour after data from the Reserve Bank of India showed its measures to attract foreign capital, launched in early June, had garnered $20.72 billion in inflows by Friday. FCNR (B) deposits accounted for $17.41 billion of this, after the concessional swap facility for banks was introduced on Jun. 8, the data showed. Banks' collections under FCNR (B) deposits so far have exceeded market expectations. This has pushed asset-liability managers to chase government securities maturing in less than five years, which led short-term papers to outperform long-term bonds Tuesday, dealers said. 

 

The government is scheduled to sell INR 240 billion of Treasury bills at the auction Wednesday. Dealers said the cut-off yields on these papers are likely to be higher than the cut-off set last week due to the escalating tensions in West Asia. The ongoing US-Iran conflict and rising energy prices have raised concerns of a rate hike by the Reserve Bank of India at its October Monetary Policy meeting, dealers said. The one-year interest rate swap rate is currently pricing in close to three repo rate increases over the next 12 months. Tighter systemic liquidity, despite foreign inflows of over $20 billion seen since Jun. 8, will also put upward pressure on cut-off yields, dealers said.  (Janwee Prajapati)  End

 

US$1 = INR 96.57

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

 

Edited by Saji George Titus

 

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