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Informist, Thursday, Aug. 20, 2026

 

--India's 10-year benchmark gilt yield ends at 6.8709%, highest since Jun 12 

--India's 5-year benchmark gilt yield ends at 6.5206%, highest since Jun 10 

 

By Cassandra Carvalho

 

MUMBAI – Government bond yields rose Thursday, marking the second sharp single-day jump this week, after minutes of the August meeting of the Reserve Bank of India's Monetary Policy Committee showed that the rate-setting panel was more focused on curbing elevated inflation than was apparent at the policy outcome, taking traders by surprise, dealers said. The rise was further supported by an intraday increase in Brent crude oil prices toward the end of trade. The yield curve flattened slightly, with short-term yields rising more as traders raised bets of a rate hike in India to as early as October. Some traders hit stop-losses when the yield on the 10-year benchmark bond hit about a three-week high of 6.86%, they said. 

 

"All this time, it was just crude (not imminent rate hikes) which was the worry, but the outlook has changed now. An October (rate) hike does look possible if crude continues like this," a dealer at a private sector bank said. "A further sell-off (in bond prices) is possible, but in the recent past whenever we've neared these levels (yields), we've fallen back to 6.70-6.75% (yield on the 10-year benchmark bond)." 

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 100.47 from INR 100.85 Wednesday. Its yield rose to 6.8709% – the highest close since Jun. 12 – from 6.8170% at the end of the previous session. During the day, the 10-year benchmark bond moved in a range of 6.84-6.87%. The five-year benchmark 6.36%, 2031 bond yield ended over 7 basis points higher at 6.5206%, its highest in 10 weeks, having risen 16 basis points so far this week. In comparison, the 10-year benchmark yield has risen 11 bps. The spread between the two bonds reduced to 35 bps Thursday from 37 bps the previous session and 40 bps Friday. 

 

In the minutes, RBI Deputy Governor Poonam Gupta said high inflation in the December quarter may merit a rate hike. The RBI has forecast the Oct-Dec headline inflation print at 5.9%, just short of 6.0%, the ceiling of its target range. The external members of the MPC also expressed concern about inflation, even in media interactions after the release of the minutes, which was a sharp contrast to the 'slightly dovish' tone the RBI governor set at the policy outcome, dealers said.  

 

Traders expect the bond yield curve to flatten, with short-term bond yields seen rising more. Albeit, the shift from a steepening yield curve to a flattening yield curve has been limited by banks deploying inflows received through foreign currency non-resident (banks) deposits into short-term gilts, dealers said, and is likely to continue until the FCNR(B) swap window closes, dealers said. Gilt supply is higher in short-term bonds this financial year, though demand may be able to match it, dealers said. State-owned banks have also been purchasing bonds across the yield curve, dealers said.

 

"Shorters (short-sellers) can't comfortably short. They get stopped out whenever someone deploys flows," a dealer at another private sector bank said. "And as general liquidity increases, the flows will be deployed across the curve, not just the short-end."

 

Volumes rose in the secondary market, as traders exited positions, but refrained from aggressively placing fresh bets. The total turnover in the government securities market was INR 622.75 billion, sharply up from INR 370.25 billion Wednesday, data from Clearing Corp. of India Ltd. showed. Traders had mixed views on the impact of the US Treasury's decision to double its buyback of long-term bonds, with some not seeing it as a sustained solution to cap rising long-term yields. The yield on the 10-year US Treasury note rose intraday, tracking a rise in oil prices, despite tumbling a few hours earlier on the buyback announcement.  

 

OUTLOOK

Friday, gilts are expected to track overnight movements in crude oil prices and US Treasury yields. Traders expect the yield on the 10-year benchmark bond to hit 6.92% in the near-term, though aggressive purchases are seen at around 6.89%, they said. Demand at the INR-280-billion gilt auction Friday is expected to be tepid, dealers said. The government will sell INR 170 billion of the 7.06%, 2041 bond and INR 110 billion of the 7.43%, 2076 bond. The yield spread of the 7.06%, 2041 bond over the 10-year benchmark has compressed to 17 bps, which is too aggressive, dealers said. 

 

Expectations of rate hikes are seen increasing, after the rate-setting panel focused on the potential for the same. Traders will watch foreign inflows and their impact on systemic liquidity, and whether these flows are deployed into gilts, with expectations of at least $15 billion in flows over the fortnight. The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.80% and 6.92%, dealers said. Any significant movement in the rupee and swap rates will also lend cues, they said.

 

	THURSDAY		WEDNESDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	100.4700	6.8709%	100.8500	6.8170%
6.48%, 2035	97.5600	6.8424%	97.8875	6.7928%
6.36%, 2031	99.3825	6.5206%	99.6600	6.4482%
7.06%, 2041	100.1600	7.0417%	100.5775	6.9963%
7.24%, 2055	97.3400	7.4654%	97.9800	7.4103%

 

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India Gilts: Fall more on oil price rise; some hit stop-losses near 6.86% yld

 

	1604 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	100.55	100.71	100.47	100.60	100.85
YTM (%)	6.8595	6.8375	6.8709	6.8524	6.817

 

	1604 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.36%, 2031
PRICE (INR)	99.42	99.50	99.35	99.50	99.66
YTM (%)	6.5108	6.4899	6.5291	6.4899	6.4482

 

MUMBAI--1604 IST--Prices of government bonds fell more, as some traders hit stop-losses near the 6.86% yield on the 10-year benchmark 6.94%, 2036 bond when Brent crude oil prices rose intraday, dealers said. Traders began to price in the likelihood of a rate hike by the Reserve Bank of India's Monetary Policy Committee as early as October, given the rise in crude oil prices and its impact on inflation, dealers said, though as of now an imminent hike in October looks unlikely, some said. Traders closely tracked the movement of Brent crude prices, with $95 per barrel seen as a crucial level at which it could either reverse, or rise further above $100 per barrel, dealers said. Brent crude oil futures for delivery in October hit $94.08 per barrel Thursday, the highest since Jul. 24. Several traders expect the 10-year benchmark yield to rise to 6.90-6.92% in the near term, with lack of incentive to buy bonds after the minutes of the MPC's recent meeting leaned more towards policy tightening than the policy statement had, dealers said. 

 

At the day's high, the spread of the 10-year benchmark yield over the five-year benchmark 6.36%, 2031 gilt yield was 34 basis points, against 37 bps Wednesday. Even as the yield curve flattened, the 2031 bond price was off the day's low on purchases from banks deploying funds received via foreign currency non-resident (bank) deposits, dealers said. State-owned banks purchased gilts across the yield curve, dealers said, while private sector banks and some foreign banks exited positions, they said. Some traders preferred selling gilts to receive fixed rate contracts in swaps, they said. Traders had mixed views on the trajectory of the 2031 bond yield, with its yield about 125 basis points above the repo rate of 5.25%. 

 

"There's a fear around the FCNR (deposits), how will banks get their leverage in such a short time," a dealer at a state-owned bank said. "The MPC and FOMC minutes are also there, but the focus is on commodities, on crude. No one wants to buy or sell at this level, but PSUs (state-owned banks) have the freedom to buy and build their banking books."

 

Demand for INR 170 billion of supply of the 7.06%, 2041 bond at the weekly gilt auction Friday from traders is seen tepid, they said. Some traders expect demand for investment books, but the bidding price is seen much lower than secondary market levels, they said. The total trading volume in the government securities market at 1604 IST was INR 546.45 billion, higher than INR 325.65 billion at 1630 IST Wednesday, according to data from the Clearing Corp. of India Ltd.  (Cassandra Carvalho)

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India Gilts: Remain sharply down; Brent at three-week high dents demand

 

	1345 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	100.60	100.71	100.54	100.60	100.85
YTM (%)	6.8527	6.8375	6.8609	6.8524	6.8170

 

	1345 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.36%, 2031
PRICE (INR)	99.43	99.50	99.35	99.50	99.66
YTM (%)	6.5095	6.4899	6.5291	6.4899	6.4482

 

MUMBAI-–1345 IST--Prices of government bonds remained sharply down, tracking an intraday rise in prices of Brent crude oil to the day's high level of $93.30 per barrel, dealers said. However, purchases from state-owned banks near 6.85% yield on the 10-year benchmark 6.94%, 2036 bond provided support to the market, dealers said. Bond prices remained sharply lower Thursday as traders trimmed positions amid increased bets of a rate hike by the Reserve Bank of India's Monetary Policy Committee in 2026-27 (Apr-Mar) following the release of the minutes of the August policy meeting, dealers said.

 

Traders expect bond yields to rise further as a rise in oil prices has dampened the risk sentiment, they said. Brent crude oil prices hit a three-week-high Thursday and were at $93.08 per barrel at 1330 IST. The yield on the 10-year 2036 bond is seen rising to 6.86% during the day, with some anticipating that state-owned banks will step up their purchases to limit the rise, dealers said. 

 

"PSUs (state-owned banks) are trying to defend these levels, but crude is not allowing that to happen," a dealer at a primary dealership said. "If it (yield on the 10-year 6.94%, 2036 bond) goes above 6.85%, the next key level is 6.90%, and PSUs will incur big losses at those levels."

 

The increased bets of a rate hike weighed heavily on prices of short-term papers Thursday, dealers said. While most traders said chances of an immediate rate hike in October are mild, some strongly opined the central bank's rate-setting panel may opt for a 25-basis point rate hike in its next policy meeting. At 1330 IST, India's 6.36%. 2031 gilt was down nearly 24 paise to INR 99.43. 

 

Traders will actively monitor developments in the West Asia war and its impact on crude oil prices as they could lend further cues to the market, they said. The total trading volume in the government securities market at 1345 IST was INR 376.95 billion, higher than INR 166.55 billion at 1330 IST Wednesday, according to data from the Clearing Corp. of India Ltd.  (Diksha Tripathy)

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India Gilts: Sharply dn on increased FY27 rate hike bets; PSU bks' buys help

 

--India's 6.36%, 2031 gilt yield hits 6.5082%, highest since Jul 24 

--Gilt prices fall, swaps rise on higher bets of rate hikes by MPC FY27 

 

	1000 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	100.65	100.70	100.54	100.60	100.85
YTM (%)	6.8453	6.8382	6.8609	6.8524	6.8170

 

	1000 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.36%, 2031
PRICE (INR)	99.42	99.50	99.35	99.50	99.66
YTM (%)	6.5121	6.4899	6.5291	6.4899	6.4482

 

MUMBAI--1000 IST--Prices of government bonds were sharply down Thursday as traders trimmed positions amid increased bets of a rate hike by the Reserve Bank of India's Monetary Policy Committee in 2026-27 (Apr-Mar) following the release of the minutes of the August policy meeting, dealers said. However, purchases by state-owned banks near 6.85% yield on the 10-year benchmark 6.94%, 2036 bond helped limit the fall in bond prices, they said. 

 

The MPC minutes were seen as more "hawkish" or restrictive than RBI Governor Sanjay Malhotra's speech by the market participants, which weighed on bond prices, especially on the short-term papers, dealers said. The 6.36%, 2031 bond opened at INR 99.50 or 6.4899% yield Thursday, against Wednesday's close of INR 99.66 or 6.4482%, and fell further in initial trade to the day's low of INR 99.35 or 6.5291%. Its yield hit the highest level since Jun. 12.         

 

"This kind of fall was expected in the five-year paper (6.36%, 2031 bond) today (Thursday)," a dealer at a state-owned bank said. "In 10-year (6.94%, 2036 bond) losses may be limited on PSU (state-owned banks) buying, but 5-year will fall further because nobody wants to build these positions in a situation when rate hike is expected and now FCNR (foreign currency non-resident (banks) deposits by the RBI) deadline has also been cut short."

 

An overnight fall in US Treasury yields supported bond prices, dealers said. At 1000 IST, the yield on the 10-year US Treasury note was 4.64%, down from 4.69% at 1700 IST. Wednesday, US yields fell sharply after the US Treasury Department announced that it would double the size of its buyback operations of 10- to 30-year bonds to $4 billion per operation between September and November. 

 

Thursday, Brent crude oil prices continued to hover near $92 per barrel, which weighed on bond prices, dealers said. Traders will actively monitor developments in the West Asia war and its impact on crude oil prices as they could lend further cues to the market, they said. The total trading volume in the government securities market at 1000 IST was INR 167.85 billion, higher than INR 77.40 billion at 1030 IST Wednesday, according to data from the Clearing Corp. of India Ltd.  (Diksha Tripathy)

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India Gilts: Seen dn on 'hawkish' MPC minutes; short-term seen worst hit

 

MUMBAI – Government bond prices are seen opening lower Thursday, tracking the minutes of the Monetary Policy Committee meeting held earlier this month, which market participants viewed as more "hawkish", or restrictive, than RBI Governor Sanjay Malhotra's policy statement, dealers said. Short-term bonds may be the worst hit during the session on bets of an increased possibility of a rate hike in 2026-27 (Apr-Mar), dealers said. A slight overnight rise in Brent crude oil prices may also weigh on bond prices, they added. Meanwhile, traders see the yield curve flattening, tracking the US Treasury yield curve after the US Treasury Department said it will double the size of its buyback operations of 10- to 30-year bonds to $4 billion per operation between September and November.

 

The 10-year benchmark 6.94 36bond is expected to open around 6.83% Thursday and move between 6.76% and 6.85% during the day, dealers said. The bond ended at INR 100.85, or a 6.8170% yield, on Wednesday. Prices were up for most of the session Wednesday, tracking an overnight fall in US Treasury yields, while ample liquidity surplus aided demand, dealers said. 

 

On Thursday, bond prices, particularly short-term securities, may come under pressure following the release of the MPC minutes after market hours Wednesday, which market participants viewed as hawkish, dealers said. Rate-sensitive gilts maturing in under five years are seen as the worst hit, they said. The 5-year 6.56%, 2031 bond is seen opening near 6.47% yield. The bond ended at INR 99.66, or a 6.4482% yield Wednesday. This may lead to a 'bull flattening' of the government bond yield curve, where long-term gilt yields fall more than short-term yields.

 

Expectations of a rate hike have increased after the rate-setting panel focused on the potential need to combat high inflation. Deputy Governor Poonam Gupta said "a case for a hike may emerge during the course of the year" because headline inflation is projected at 5.9% in the December quarter. However, several traders had already priced in a difference in commentary from the policy statement, and bets on an immediate rate hike in October remain low, they said.

 

Bond prices will also track an overnight fall in US Treasury yields, dealers said. On Wednesday, long-term US yields fell sharply after the US Treasury Department announced that it would double the size of its buyback operations of 10- to 30-year bonds to $4 billion per operation between September and November. Domestic traders believe US Treasury Secretary Scott Bessent wanted to keep long-term bond yields in check. At 0745 IST, the 10-year US Treasury yield was at 4.64%, down from 4.69% at 1700 IST.

 

The minutes of the US Federal Open Market Committee's recent meeting drew little market reaction, despite showing that inflation concerns had deepened at the Federal Reserve's meeting last month. "Several" policymakers were ready to raise interest rates, while "many" said a hike in borrowing costs would be needed if inflation does not decline to the US central bank's 2% target.

 

Policymakers who favoured a rate increase at the meeting said price pressures appeared broad-based and that the policy-setting committee should adopt a more restrictive stance to meet its price-stability and maximum-employment goals on a sustained basis, the minutes of the July 28-29 meeting said. They argued that failing to do so would risk a steeper and potentially more costly sequence of tightening moves later. The Fed had voted at that meeting to hold its benchmark interest rate in the current 3.50%-3.75% range, but three policymakers dissented in favour of a quarter-percentage-point hike.

 

On the domestic front, traders will watch foreign inflows and their impact on systemic liquidity, as well as whether these flows are deployed into gilts, with expectations of at least $15 billion of inflows in the fortnight ending Aug. 31. In an interview with Financial Express, RBI Governor Sanjay Malhotra described the advanced closure of the measure as a well-thought-out and calibrated action. "It will not be correct to call it a U-turn; it is rather a calibration," Malhotra was quoted as saying. The governor also highlighted the use of the words "as of now" in response to criticism that he had denied the possibility of an early closure when asked about it after the monetary policy meeting. The RBI expects the deposits from FCNR(B), external commercial borrowing, and overseas foreign currency borrowing to be at least $80 billion, the governor said. 

 

Indian bond prices are also expected to track a slight overnight rise in Brent crude oil prices Thursday, dealers said. Near-month Brent crude oil futures traded above the psychologically crucial level of $90 per barrel and were at $92.01 per barrel at 0750 IST, up from $91.62 per barrel at 1700 IST Wednesday. (Diksha Tripathy)

 

End

 

US$1 = INR 95.7050

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

 

Edited by Saji George Titus

 

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