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Informist, Wednesday, Aug. 5, 2026

 

By Janwee Prajapati

 

MUMBAI – Government bond prices ended sharply higher Wednesday, tracking an overnight fall in Brent crude oil prices amid hopes of a ceasefire between the US and Iran, dealers said. Although the Reserve Bank of India's Monetary Policy Committee's policy decision was the headline event, Brent crude oil prices were the main driver of bond prices Wednesday. This was largely because the rate-setting panel left the policy rate unchanged at 5.25%, in line with market expectations, dealers said.

 

Trade volumes also picked up as uncertainty surrounding the policy decision subsided, dealers said. However, gains in bond prices were capped as traders booked profits on their holdings at levels seen as attractive, dealers said.      

 

Brent crude oil prices for October delivery were trading at $80.45 per barrel at the end of Indian trading hours Wednesday, down from $83.64 per barrel at 1700 IST Tuesday. During Wednesday's trading session, crude oil prices fell to $78.41 per barrel, down more than 6% from the close of Indian trading hours Wednesday. Oil prices fell after US Treasury Secretary Scott Bessent said that a deal with Iran for open navigation through the Strait of Hormuz may be signed by Wednesday.

The 10-year benchmark 6.94%, 2036 bond ended at INR 101.17, up from INR 100.87 Tuesday. Its yield ended at 6.7722%, down from 6.8152% the previous day. Wednesday, the 10-year benchmark gilt traded between INR 101.02 and INR 101.23. The rise in prices was limited as traders booked profits on the bond near 6.77-6.78%, dealers said. Trade volumes on the RBI's Negotiated Dealing System–Order Matching platform rose to INR 793.40 billion, up almost 82% from INR 436.75 billion Tuesday. Trade volumes were subdued for over a week as traders were cautious ahead of the monetary policy, dealers said. 

 

Wednesday, the RBI's Monetary Policy Committee unanimously decided to keep the repo rates unchanged at 5.25% and retained the policy stance at neutral, in line with market expectations, dealers said. The central bank cut its CPI inflation forecast for 2026-27 (Apr-Mar) by 10 basis points to 5.0%, while it raised its GDP growth forecast for the year by 10 basis points to 6.7%. Most traders had expected the central bank to leave its inflation and growth forecasts unchanged. 

 

"Policy was dovish, even though the governor said he was neither dovish nor hawkish," a dealer at a state-owned bank said. "Even the revised inflation numbers were positive for the market... so now nobody expects a rate hike in October unless something major happens globally."

 

On the liquidity front, Malhotra said the current surplus in the banking system is not "extraordinarily" high and is expected to persist only in the short-term. Banking system liquidity has risen since Friday to the highest level since Apr. 20, driven mainly by Foreign Currency Non-Resident (Bank) deposit inflows. The net liquidity absorbed by the RBI – a proxy for liquidity surplus – was at INR 3.34 trillion Tuesday, sharply up from INR 2.44 trillion Monday.  

 

Short-term bond prices rose following the governor's comments on liquidity. The five-year benchmark 6.36%, 2031 bond closed at INR 100.18 or 6.3130 yield, down 9 basis points, the most in a day since the previous MPC on Jun. 5. The yield on the 5-year benchmark bond was lowest since Mar. 12. 

 

"I think these are final levels on the 5-year bond (6.36%, 2031 bond)... we won't see a fall beyond 6.30%," a dealer at a state-owned bank said. "The yield on the bond will range from 6.30-6.40%... It will not go beyond 6.40% also." Prior to Wednesday's monetary policy, traders had not expected the 5-year benchmark bond yield to fall below the 6.40% level. 

 

The rise in short-term bond prices was limited as Malhotra said the central bank would conduct "two-way operations" to manage liquidity, effectively setting the stage for variable rate reverse repo operations amid ample surplus liquidity. However, most traders have priced in the possibility of VRRRs being conducted as early as this week, dealers said.

 

Following Malhotra's comments, traders also pared bets of a rate hike in the October meeting, dealers said. Some traders do not see a rate hike in the current calendar year, given there is no major escalation in West Asia and Brent crude oil prices remain in the $75–$85 per barrel range. A rate hike by the Federal Open Market Committee can also prompt the RBI's MPC to hike rates, dealers said.

 

Earlier in the day, the government conducted Treasury bill auctions worth INR 240 billion. The cut-off yield set on the 91-day T-bill was at 5.28%, 6 basis points lower than the cut-off set at the auction last week. The cut-off yield on the 182-day T-bill was 5.55%, down 5 bps, while that on the 364-day T-bill was at 5.70%, 4 bps lower than the cut-off set on Jul. 29.

 

Wednesday, there were no trades using the RBI's wholesale e-rupee pilot, which has been the case now for several months.  

 

OUTLOOK

On Thursday, gilt prices may take direction from the developments in the West Asia war and their impact on crude oil prices and US Treasury yields, dealers said. Government bond prices are likely to open higher if Brent crude oil prices are below $80 with no escalation in the West Asia war, dealers said. However, the rise in bond prices will likely remain limited as traders will likely make space in their portfolio for the fresh supply of INR 320 billion at the weekly gilt auction on Friday, dealers said. Traders will also track the result of the INR 200 billion bond buyback auction, dealers said.  

 

The government will buy back four securities maturing in 2026–27 (Apr-Mar). The gilts to be bought back include the 7.33%, 2026 bond, the 5.74 26bond, the 8.15%, 2026 bond, and the 8.24%, 2027 bond. These were the same papers the government had bought back in the previous auction. In the last auction, the maximum buyback was in the 7.33 26 gilt and the smallest was in the 8.24 27 gilt. The cut-off prices in the auction were broadly in line with levels published by Financial Benchmarks India Ltd.

 

Any significant movement in the rupee and swap rates will also lend cues, dealers said.  

 

	WEDNESDAY		TUESDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	101.1700	6.7722%	100.8650	6.8152%
6.48%, 2035	98.0500	6.7672%	97.7600	6.8107%
6.36%, 2031	100.1800	6.3130%	99.8150	6.4069%
6.68%, 2040	97.3825	6.9760%	97.1925	6.9980%
7.24%, 2055	97.5200	7.4495%	97.3150	7.4672%

 

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India Gilts: Off highs on intraday rise in Brent crude oil over $80/bbl

 

	1340 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.07	101.23	101.02	101.10	100.87
YTM (%)	6.7870	6.7638	6.7933	6.7821	6.8152

 

MUMBAI--1340 IST--Prices of government bonds came off the day's high tracking an intraday rise in Brent crude oil price to more than $80 per barrel, dealers said. Brent crude oil futures for October delivery rose at $80.20 per barrel, up from $78.41 per barrel at 0900 IST. Some traders also took profits on their holdings at levels seen to be attractive, dealers said. Bond prices, however, remain sharply up from Tuesday's close on hopes of a possible peace deal between the US and Iran, which had lead to an overnight fall in crude oil prices, dealers said.

 

"(RBI) Policy was on expected lines... I don't think there will be any immediate rate hike in October. It could be one mostly later this calendar year," a dealer at a private-sector bank said. "...people mostly focused on comments on liquidity and growth and inflation projections, which were also positive."

 

The total trade volume in the government securities market at 1340 IST was INR 577.70 billion, up sharply from INR 208.05 billion at 1330 IST Tuesday, data from Clearing Corp. of India Ltd. showed. The trade volume in the secondary market rose as the uncertainty subsided after the Monetary Policy Committee's decision was in line with market expectations along with rising expectations of a potential peace deal between the US and Iran, dealers said. 

 

Short-term bond prices rose after RBI Governor Sanjay Malhotra said liquidity is likely to remain in surplus in the third quarter of the current financial year. The net liquidity absorbed by the RBI, an indication of the liquidity surplus, was INR 3.34 trillion Tuesday, sharply up from INR 2.44 trillion Monday.

 

Inflows through foreign currency non-resident (banks) deposits will also help the liquidity in the banking system, which will lead to a further rise in short-term bond prices, dealers said. Malhotra also said the central bank would conduct "two-way operations" to manage liquidity, effectively setting the stage for variable rate reverse repo operations amid ample surplus liquidity. The governor expects the rise in systemic liquidity only in the short term. The 6.31%, 2031 bond price rose to the day's high of INR 100.20 after the governor's comments.  

 

Some traders took profits on their holdings as the 10-year benchmark 6.94%, 2036 bond yield fell close to 6.77%, dealers said. The yield on the gilt is seen in the range of 6.75–6.82% during the day.  (Janwee Prajapati)

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India Gilts: Little changed on neutral policy; Oct rate hike bets lower

 

	1130 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.135	101.23	101.02	101.10	100.87
YTM (%)	6.7772	6.7638	6.7933	6.7821	6.8152

 

MUMBAI--1130 IST--Prices of government bonds remained sharply up, little changed during the entirety of Reserve Bank of India Governor Sanjay Malhotra's monetary policy statement which began at 1000 IST. Prices briefly inched higher in several instances during the governor's address, but erased those incremental gains on profit sales. The tone of the governor's commentary was neutral, in line with traders' expectations. The RBI's Monetary Policy Committee left the repo rate and policy stance unchanged at 5.25% and "neutral", respectively, as traders had expected. The central bank slightly lowered its 2026-27 (Apr-Mar) CPI inflation forecast to 5.0% from 5.1?rlier, while it raised its FY27 GDP growth forecast by 10 basis points to 6.7%, which is what some traders were expecting. Most traders had expected the central bank to leave its inflation and growth forecasts unchanged. 
 

"I think more than neutral to hawkish, it was neutral to positive. What they've done with inflation and GDP also looks good," a dealer at a state-owned bank said.

 

Post the policy statement, traders see little to look forward to on the domestic policy front, with focus now on the global outlook in terms of oil prices, US Treasury yields and rate action by the US Federal Reserve. Malhotra's statement effectively lowered expectations of the rate-setting panel hiking the repo rate in October, with some traders now expecting no rate hike by the MPC at least this calendar year unless the US Federal Open Market Committee raises interest rates. Malhotra's commentary on inflation was also reassuring to some, while lowering the CPI inflation forecast for FY27 also indicated lesser need for measures to drain durable liquidity, dealers said. Some traders said the governor's commentary was less "hawkish" or restrictive than they had expected, while some noted the governor's "watchful" approach to policy. Bond yields are expected to trade in a sticky range of about 10 basis points in the near-term, while short-term yields could be anchored due to deployment of foreign inflows, they said. The 10-year benchmark bond yield is unlikely to fall below 6.75% unless Brent crude oil prices near $70 per barrel, dealers said. "I think more than policy, crude is having an impact because it (MPC) was a non-event," a dealer at a private sector bank said.

 

Spreads across the yield curve were little changed post the policy decision compared to Tuesday, with the spread between the 10-year benchmark and 6.68%, 2040 bond widening slightly. The shorter-end of the curve could see a slight rise in yields after Malhotra said the central bank would conduct "two-way operations" to manage liquidity, effectively setting the stage for variable rate reverse repo operations amid ample surplus liquidity. However, most traders have priced in the possibility of VRRRs being conducted as early as this week, with funds received through foreign currency non-resident bank deposits being deployed into short-term gilts also limiting any rise in yields, dealers said. Traders now await the post-policy press conference at 1200 IST for further commentary by central bank officials. 

 

The total trade volume in the government securities market at 1130 IST was INR 390.15 billion, higher than INR 70.95 billion at 1130 IST Tuesday, data from Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 6.75–6.82% during the day.  (Cassandra Carvalho)

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India Gilts: Remain up as MPC decision in line with view; fall in oil helps

 

	1029 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.11	101.23	101.02	101.10	100.87
YTM (%)	6.7814	6.7638	6.7933	6.7821	6.8152

 

MUMBAI--1029 IST--Prices of government bonds remained higher after Brent Crude oil prices continued to trade well below the key $80 per barrel, dealers said. Moreover, the rise in bond prices was sustained after the Reserve Bank of India's Monetary Policy Committee unanimously decided to keep the repo rate unchanged with a "neutral" stance Wednesday, dealers said. However, the rise in bond prices was contained as the MPC's decision was in line with market expectation, dealers said.

 

"It is very neutral that they have taken a neutral stance because of the uncertainty hovering around in West Asia," a dealer at a state-owned bank said. "There were no comments on the liquidity which the market was expecting, which is a negative for the market I think."

 

At the monetary policy decision, RBI's Governor Sanjay Malhotra said the uncertainties in the war in West Asia and volatile crude oil prices were the major contributors to keeping the policy rate unchanged at 5.25%. The rate-setting panel expects inflation to rise in the subsequent quarters as a result of supply side disruptions. However, inflation is likely to see a decline from the first quarter of financial year 2027-28 (Apr-Mar). The panel expects the growth to remain supported by domestic demand. The panel expects the GDP to be at 6.7% while inflation is likely to be at 5% in the current financial year. 

 

The total trade volume in the government securities market at 1029 IST was INR 327.65 billion, higher from INR 54.20 billion at 1530 IST Thursday, data from Clearing Corp. of India Ltd. showed. Nearly 66% of the total trade was concentrated in the 6.94%, 2036 bond. The yield on the 10-year gilt is seen in a range of 6.75–6.83% during the day.  (Janwee Prajapati)

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India Gilts: Sharply up as Brent falls below $80/bbl, profit-booking weighs

 

--Gilts sharply up as Brent crude oil price falls below $80/bbl

 

	0952 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.12	101.14	101.02	101.10	100.87
YTM (%)	6.7793	6.7765	6.7933	6.7821	6.8152

 

MUMBAI--0952 IST--Prices of government bonds opened sharply higher tracking an overnight fall in prices of Brent crude oil, dealers said. Some traders also booked profits when the yield on the 10-year benchmark 6.94%, 2036 bond was near 6.78%, which capped gains on bond prices, dealers said. 

 

Brent crude oil futures for October delivery traded at $78.33 per barrel at 0940 IST, down from $83.54 per barrel at the end of Indian gilt trading hours Tuesday. Oil prices fell to a three-week low after US Treasury Secretary Scott Bessent told CNBC that a deal with Iran for open navigation through the Strait of Hormuz may be signed soon. Any significant movement in Brent crude oil prices will lend cues to the market during the day, dealers said. 

 

"Crude oil is supporting the market," a dealer at a state-owned bank said. "The only thing that is stopping further fall in yields is MPC outcome. Once that is out and is in line with the market view, we may see yield (on the 10-year 6.94%, 2036 bond) falling to 6.75%." 

 

At 0945 IST, total trading volume in the government securities market was INR 101.90 billion, significantly higher than INR 21.45 billion at 0930 IST Tuesday, data from Clearing Corp. of India showed. Trading volume is likely to pick up further later in the day if the decisions by the Reserve Bank of India's Monetary Policy Committee are on the expected lines, dealers said. Most market participants expect the MPC to keep the RBI repo rate unchanged at 5.25%, with a 'neutral' stance. Comments on liquidity will be closely tracked by the market, dealers said. 

 

For the rest of the day, the 10-year 6.94%, 2036 bond is seen moving between 6.75% and 6.85%, dealers said.  (Diksha Tripathy)           

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India Gilts: Seen up as Brent crude falls below $80/bbl; MPC decisions eyed

 

MUMBAI – Prices of government bonds are likely to open higher tracking an overnight fall in prices of Brent crude oil after US Treasury Secretary Scott Bessent's remarks fuelled hopes of a deal with Iran for open navigation through the Strait of Hormuz, dealers said. However, most traders are likely to refrain from building aggressive positions as they await policy decisions by the Reserve Bank of India's Monetary Policy Committee, they said. This may also keep the volumes in the market low during initial trade, dealers said. 

 

The 10-year benchmark 6.94 36bond is expected to open around 6.79% Wednesday and move between 6.75% and 6.85% through the day, dealers said. Tuesday, the 6.94%, 2036 bond ended at INR 100.87, up nearly 14 paise from Monday. The yield on the bond settled at 6.82% Tuesday. Traders are likely to refrain from building aggressive positions on caution ahead of the RBI's MPC meeting decision, which will keep the yield on the 6.94%, 2036 bond in a narrow band in the early trade, dealers said. However, volumes are likely to pick up later in the day, dealers added. The yield on the 2036 bond is unlikely to rise above 6.85% as public sector banks are likely to pick up bonds at these levels, dealers said. 

 

On the policy decision front, market participants largely expect the MPC to keep the RBI repo rate unchanged at 5.25?ter June retail inflation numbers were comfortably within the RBI's target range of 2-6%, dealers said. The policy stance is also likely to stay 'neutral'. Some traders do not expect any significant impact on bond prices if the policy decision is in line with the market expectations. However, a rate hike may put pressure on bond prices, dealers said. 

 

Traders and economists will also track inflation estimates, GDP growth forecast, and comments on liquidity in RBI Governor Sanjay Malhotra's policy announcement address at 1000 IST. Retail inflation is expected to remain above 5% starting August. The pressure on the RBI to tighten monetary policy is expected to mount later in the year, as the US Federal Reserve is expected to increase policy rates in 2026, with a tightening interest rate differential pressuring the rupee.

 

Bond prices are likely to be supported by a fall in prices of Brent crude oil Wednesday, dealers said. Brent crude oil futures for October delivery were at $79.73 per barrel at 0730 IST, down from $83.54 per barrel at the end of Indian gilt trading hours Tuesday. Oil prices fell after US Treasury Secretary Scott Bessent told CNBC that a deal with Iran for open navigation through the Strait of Hormuz may be signed by Tuesday or Wednesday. Following the comments, Brent crude futures fell to a three-week, which is likely to reduce fears of imported inflation and potential rate hikes in India later in the financial year 2026-27 (Apr-Mar), dealers said. Any further developments on the geopolitical front during the day will also be keenly watched. 

 

Wednesday, the RBI will auction INR 90 billion of the 91-day Treasury bills, INR 80 billion of 182-day T-bills, and INR 70 billion of the 364-day T-bills between 1230 IST and 1330 IST. The cut-off yields set on these papers are likely to be similar to the cut-off yields set at the auction previous week as liquidity in the banking system remains comfortable, dealers said. The RBI had set a cut-off yield of 5.34% on the 91-day T-bill, 5.60% on the 182-day T-bill, and 5.74% on the 364-day T-bill at the previous T-bill auction.  (Diksha Tripathy)  End

 

US$1 = INR 95.12

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

 

Edited by Saji George Titus

 

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