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Informist, Monday, Jul. 27, 2026

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended sharply higher Monday as Brent crude futures tumbled nearly 10% from Friday and US Treasury yields fell as hostilies between the US and Iran eased, dealers said. Most traders bet on demand for gilts exceeding supply in the September quarter due to a better-than-expected inflows into foreign currency deposits by banks, they said. After surging in early trade, bonds traded in a relatively narrow band, with gains capped on profit booking.

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 101.36, up from INR 100.80 Friday. It opened at INR 101.07, which was the day's low, before climbing as Brent for September delivery continued its overnight fall and was below $90 a barrel by the end of Indian market hours. The 10-year benchmark gilt yield fell to 6.7739% Monday from 6.8253% the previous day, its biggest single-day fall in over a month. 

 

Crude oil futures slumped as the conflict in West Asia escalated over the past two weeks but comments from both the US and Iranian officials Friday and over the weekend suggested. The US has stopped bombing Iran after nearly two weeks of constant airstrikes. Both the sides said they would once again engage in diplomacy to end the nearly five-month war that began with the US and Israel killing Tehran's top leader. Brent crude for September delivery was at $89.56 per barrel at 1700 IST from $97.76 per barrel at the same time Friday.

 

"The way that crude was going today, probably we are going to see more of a fall tomorrow if things remain quiet (on the war)," a dealer at a primary dealership said. "In g-sec, people had positioned and there are positions that will be getting unwound. The real impact is being seen in swaps."

 

The five-year overnight indexed swap rate ended 13 basis points lower at 6.36% Monday. The five-year benchmark 6.36%, 2031 bond's yield ended nearly 7 bps lower Monday at 6.43%. The larger fall in the OIS rates helped push up bond prices after the open, especially with crude oil prices falling intraday, dealers said. Traders expect the yield on the 10-year benchmark bond to fall to 6.72% in the near term if the West Asia conflict continues to de-escalate, with the five-year bond's yield potentially easing to around 6.32%. 

 

With the war effectively paused, the 10-year US Treasury yield also eased from a six-month high of 4.72% hit Friday to fall to 4.64% by the end of Indian market hours Monday. Most traders had expected the escalation in the war in West Asia to calm and had picked up the 10-year gilt as its yield neared 6.85% last week. However, even with the thaw, traders did not completely discard their bets on a rate hike by the Reserve Bank of India's Monetary Policy Committee in October. Dealers said there was some divergence in the market on when the first repo rate hike would take place, though most traders do not see an increase at MPC's rate decision next week.

 

RBI Governor Sanjay Malhotra's comments in an interview with financial daily Hindu BusinessLine did not lend significant cues to the rate view, with the top central banker saying inflation was the top priority while reiterating policymakers did not yet see broad-based price pressures. More importantly, traders took note that India was able to attract around $32 billion in flows through the RBI's special schemes between Jun. 8 oad Sunday, Malhotra said. The previous RBI update pegged inflows at $20.72 billion as on Jul. 17, meaning the concessional schemes on foreign currency non-resident bank deposits and offshore borrowing had attracted over $11 billion last week alone.

 

The quantum was likely boosted by banks finally getting their internal guidelines underway and offering leverage to customers, dealers said. This influx of deposits was being deployed by banks in bonds maturing up to 15 years, rather than only in bonds maturing in 3-5 years, where the deposits were coming, they said. Dealers expect a similar pace of inflows to persist for at least two more weeks, boosting demand for gilts and state bonds. 

 

The 6.94%, 2036 gilt was helped by purchases from foreign portfolio investors Monday. Clearing Corp. of India data at 1840 IST showed FPIs had increased their holdings of the 10-year benchmark gilt on Monday by INR 7.10 billion. Persistent hopes of the addition of India's fully accessible route bonds to Bloomberg's Global Aggregate index also kept bonds in favour, with some dealers expecting a favourable decision would come this week.

 

"The market has been constantly disappointed by the Bloomberg announcement, which has delayed so much," a dealer at a foreign bank said. "Now we are hearing again that the announcement could come this week, but that was true for mid-June, end-June, mid-July and now at the end of July also."

 

Trade volumes surged early but eased off as prices rose and the 10-year yield traded in the 6.75-6.80?nd. Total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 666.70 billion Monday, lower than INR 704.15 billion Friday. There were no trades using the central bank's e-rupee pilot Monday, as has been the case for months.

 

OUTLOOK

On Tuesday, gilt prices will take direction from the overnight movement in crude oil prices and US Treasury yields at the opening, dealers said. The state bond auction and gilt buyback auction, both at 1030-1130 IST, may lend further cues, they said. 

 

Continued inflows from FCNR(B) deposits may limit the negative impact if the global situation worsens and investors may also look to capture higher yields, dealers said. The central bank's schemes to attract foreign capital launched in early June had drawn inflows of $32 billion by Sunday since the concessional swap window for banks was rolled out on Jun. 8, RBI Governor Malhotra said Sunday. Short-term bonds are expected to be 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. 

 

Dealers also remained 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 yield on the 10-year benchmark 6.94%, 2036 gilt is seen in a range of 6.70-6.83% Tuesday.  

 

Seven states will raise INR 181 billion through the sale of bonds Tuesday, lower than the indicated amount of INR 224 billion in the Jul-Sept. Demand for the fresh supply is expected to be firm, especially from banks looking to deploy FCNR(B) deposit inflows into higher-yielding government securities, dealers said.

 

Meanwhile, traders had mixed views on the buyback auction, with several banks not having the securities on hand, dealers said. The government has offered to buy back INR 200 billion in total of the 7.33%, 2026 bond, the 5.74%, 2026 bond, the 8.15%, 2026 bond, and the 8.24%, 2027 bond. All four gilts are set to mature later in 2026-27 (Apr-Mar). The four bonds have a total outstanding of INR 1.79 trillion.

 

Traders will also track the progress of the monsoon, as deficient 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.

 

The pressure on the RBI to tighten monetary policy is seen mounting later in the year as the US Federal Open Market Committee is expected to raise policy rates in 2026, with a tightening interest rate different seen pressuring the rupee. However, the US rate-setting panel is expected to stand pat on rates at its upcoming policy decision Wednesday, dealers said.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	101.1600	6.7739%	100.7950	6.8253%
6.48%, 2035	97.9900	6.7755%	97.6700	6.8235%
6.36%, 2031	99.7400	6.4256%	99.4875	6.4906%
6.68%, 2040	97.3200	6.9832%	96.9200	7.0295%
7.24%, 2055	98.0000	7.4080%	97.5400	7.4475%

 

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India Gilts: Rise more on fall in crude oil prices, FCNR(B) inflows

 

	1515 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.1875	101.24	101.07	101.07	100.80
YTM (%)	6.7701	6.7631	6.7866	6.7866	6.8253

 

	1515 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.36%, 2031
PRICE (INR)	99.78	99.78	99.63	99.63	99.49
YTM (%)	6.4154	6.4154	6.4540	6.4540	6.4906

 

MUMBAI--1515 IST--Prices of government bonds rose more due to an intraday fall in Brent crude oil prices, and some banks also deployed inflows received through foreign currency non-resident bank deposits into gilts, dealers said. Traders expect the yield on the 10-year benchmark bond to fall to 6.72% in the near term if the West Asia conflict continues to de-escalate. A fall in swap rates also helped the rise in bond prices, dealers said. Foreign portfolio investors also likely purchased gilts, they said. As of 1515 IST, foreign portfolio investors net purchased gilts worth INR 2.98 billion through the Fully Accessible Route Monday, according to data from Clearing Corp. of India. This data is updated with a lag.  

 

Bond prices rose sharply across the bond yield curve, with some banks purchasing the five-year benchmark 6.36%, 2031 bond and 6.68%, 2040 bond alongside the 10-year benchmark, dealers said. Foreign portfolio investors likely purchased the benchmark 10-year gilt, dealers said, citing the 'Reported Deals T+2' segment of the Reserve Bank of India's Negotiated Dealing System – Order Matching platform. The segment showed three trades totalling INR 7 billion in the 10-year benchmark gilt. 

 

Intraday, Brent crude oil futures for delivery in September fell to $87.87 per barrel from $92.83 at 0900 IST, aiding a rise in bond prices. "The FCNR flows are supporting, but right now, the main reason for the rise is just crude," a dealer at a state-owned bank said. "Bond yields were on a downward trend only, but because of the escalation it had risen, so now we're back to moving towards 6.70% (10-year benchmark yield)," a dealer at a private sector bank said. Bond prices were helped by comments from RBI Governor Sanjay Malhotra, who said in an interview with financial daily Hindu Businessline that banks have mobilised almost $32 billion till date as a result of measures undertaken to attract foreign capital inflows. This figure is much higher than market participants' expectations. 

 

The total trade volume in the government securities market at 1515 IST was INR 549.70 billion, similar to INR 565.70 billion at 1530 IST Friday, data from Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 6.73-6.80% during the day. (Cassandra Carvalho) 

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India Gilts:Remain sharply up on intraday fall in oil; profit sales cap gains

 

	1208 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.15	101.21	101.07	101.07	100.80
YTM (%)	6.7760	6.7669	6.7866	6.7866	6.8253

 

MUMBAI--1208 IST--Government bond prices remained up, tracking an intraday drop in Brent crude oil prices, dealers said. However, Brent crude oil prices continued to trade above the crucial level of $90 per barrel, weighing on market sentiment, dealers said. The rise in bond prices was capped as public sector banks booked profits on their holdings, dealers said. Larger-than-expected foreign inflows also buoyed market sentiment, dealers said. 

 

"Now the market is only waiting for Bloomberg inclusion (inclusion of Indian sovereign bonds in Bloomberg's Global Aggregate index)," a dealer at a private sector bank said. "Inclusion is delayed, but it can be at any point...till then, the market is only based on technicals, tracking crude and rupee."

 

Brent crude oil futures for September delivery eased to $90.96 per barrel from $92.83 per barrel at 0900 IST, and from $97.76 per barrel at the end of Indian trading hours Friday. Traders refrained from building aggressive positions due to uncertainty about a potential US-Iran peace deal, dealers said. The total trade volume in the government securities market at 1208 IST was INR 268.95 billion, slightly up from INR 240.10 billion at 1230 IST Friday, data from Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 6.80–6.90% during the day.

 

The rise in bond prices was contained as traders, especially public sector banks, likely booked profits on their purchases made when the yield on the 6.94%, 2036 bond was above 6.82%, dealers said. The yield on the 10-year benchmark bond fell 10 basis points from its highest level Friday. 

 

Traders are also looking forward to the buyback auction Tuesday at which the government will buy back INR 200 billion of four securities. Traders expect participation to be robust as most of the papers are in-the-money for the banks, dealers said. Short-term bond prices rose after the Reserve Bank of India announced schemes to boost foreign inflows, which were largely confined to short-term bonds, dealers said. The government will buy back the 7.33%, 2026 bond, the 5.74%, 2026 bond, the 8.15%, 2026, and the 8.24%, 2027 bond. Traders are likely to focus on the 7.33%, 2026 bond, dealers said.

 

Along with the buyback auction, seven states are also lined up to raise INR 181 billion through bonds which traders expect to sail through. Traders do not expect any major change in the spread between the state bonds and bonds issued by the Centre at the auction, dealers said. The cut-off yield on state bonds is likely to be similar to last week's auction, dealers said.  (Janwee Prajapati)

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India Gilts: Surge on fall in crude, US yields, jump in FX inflows last week

 

	1010 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.14	101.21	101.07	101.07	100.80
YTM (%)	6.7767	6.7669	6.7866	6.7866	6.8253

 

NEW DELHI--1010 IST--Government bond prices were sharply up Monday as Brent crude futures slumped over the weekend and US Treasury yields also fell after a thaw in tensions and military activity between the US and Iran, dealers said. The larger fall in overnight indexed swap rates added to traders' appetite for gilts, while demand was seen rosy after foreign exchange inflows under the Reserve Bank of India's special schemes rose more than expected last week, they said.

 

"We didn't expect this sort of a reaction just on crude and US yields alone," a dealer at a private-sector bank said. "There are some other things playing out: OIS (overnight indexed swaps) is down 10 basis points and the FCNR (foreign currency non-resident) number is better than expected."

 

OIS rates, which had climbed sharply over the past week in line with a rise in crude prices, reacted more than gilts in initial. Both the one- and five-year swap rates were down over 10 bps since Friday to 5.88% and 6.36%, respectively. Traders had expected the differing reaction and were closing their positions where they had short-sold the five-year benchmark 6.36%, 2031 gilt while receiving the five-year OIS rate, dealers said. 

 

The US stopped bombing Iran Friday and both sides made comments suggesting a return to diplomacy in order to end the war that began at the end of February, which has come to include most of West Asia. Brent crude for September delivery was at $92.48 per barrel, down from $97.76 per barrel at 1700 IST Friday. The 10-year US yield eased to 4.64% from 4.68% at the end of Indian market hours Friday.

 

Meanwhile, RBI Governor Sanjay Malhotra said banks had attracted $32 billion in inflows till Sunday under the special schemes the central bank had launched in June, in an interview with business daily Hindu BusinessLine published Monday. RBI data showed that inflows under the concessional windows from FCNR(B) deposits, offshore foreign currency borrowing and external commercial borrowing had totalled $20.72 billion until Jul. 17. This suggested an inflow of around $12 billion in a single week, more than the $5 billion-$6 billion that traders had estimated. If the pace sustains, demand for gilts is likely to surge, especially as banks are deploying the inflows not only in three- to five-year bonds – matching the FCNR(B) deposits – but in gilts maturing up to 15 years, dealers said.

 

The rise was capped by state-owned banks likely taking profit on the 10-year 6.94%, 2036 gilt as its yield fell to near 6.75%, a psychologically crucial level, dealers said. There was some caution in the market on the potential for domestic rate hikes as Brent futures remained above $90 per barrel, they said. Some traders expect the announcement of India's inclusion in Bloomberg Global Aggregate Index this week, which is seen as a trigger potentially pulling down the 10-year gilt yield to below 6.70%.

 

The total trade volume in the government securities market at 1000 IST was INR 152.20 billion, sharply up from INR 69.30 billion at 1030 IST Friday, data from Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 6.76-6.84% during the day.  (Aaryan Khanna) 

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India Gilts: Seen higher as crude oil falls; de-escalation in West Asia

 

MUMBAI – Government bond prices are likely to open higher Monday, reversing the previous week's trend of opening lower, as Brent crude oil prices eased overnight, dealers said. Dealers also expect traders to cover short positions amid signs that the situation in West Asia is easing, with a pause in hostilities over the weekend. Some traders, particularly public sector banks, are likely to book profits at attractive levels. However, traders are likely to avoid aggressive bets ahead of the US Federal Open Market Committee's rate decision Wednesday and given the uncertainty over a potential US-Iran ceasefire, dealers added.

 

The 10-year benchmark 6.94 36bond is expected to open around 6.80% Monday and trade between 6.78% and 6.84% through the day if Brent crude oil price stays around the current level, dealers said. Friday, the 6.94%, 2036 bond had ended at INR 100.80, up from INR 100.68 Thursday. The yield on the bond was 6.8253% Friday, down from 6.8413% Thursday. Traders who had placed short bets expecting elevated crude oil prices are likely to cover their positions. However, the rise in bond prices will remain capped as public sector banks will likely book profits on their purchases made when the yield on the 6.94%, 2036 bond was above 6.82%, dealers said. Traders expect the 6.94%, 2036 bond yield to hold near 6.81% level, dealer said. 

 

Brent crude oil futures for September delivery were trading at $92.68 per barrel, down from $97.76 per barrel at the end of Indian trading hours, Friday. Brent crude oil prices slipped over 11% from their highest level Friday. At 0800 IST, the yield on the 10-year benchmark US Treasury note was 4.64%, down from 4.68% at the end of Indian trading hours Friday. 

 

Oil prices pulled back after Washington paused bombing Iran. The US Ambassador said the halt was meant to "give diplomacy some space," but noted more US military assets were being deployed to the region in case talks break down. Iran also signalled a suspension of attacks. Iranian foreign ministry spokesperson Esmaeil Baghaei said discussions with an Omani delegation were constructive and yielded some progress. An Iranian official said Tehran's stance is "attack for attack" — it will stop operations as long as the US does. 

 

Traders are expected to stay cautious and avoid taking aggressive positions ahead of the US Federal Open Market Committee meeting Wednesday, dealers said. A rate hike by the US could also influence the Reserve Bank of India's Monetary Policy Committee's decision when it meets next week to decide on the key repo rate, they said. Domestically, views on rate hikes are split. The one-year swap rate is currently pricing in more than three repo rate increases over the next 12 months, but some dealers don't expect any hikes in this calendar year, dealers said.

 

Traders will closely track inflows from foreign currency non-resident (banks) deposits, with some expecting the Reserve Bank of India to publish data on the same Monday, while others expect the data later. Market participants estimate banks received about $5 billion of such inflows this week. Traders expect a rise in foreign inflows as they ramp up bets on the inclusion of Indian sovereign bonds in Bloomberg's Global Aggregate index soon.  (Janwee Prajapati)

 

End

 

US$1 = INR 95.91

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

 

Edited by Akul Nishant Akhoury

 

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