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Informist, Tuesday, Aug. 25, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended higher Tuesday, tracking a fall in Brent crude oil futures prices below the psychologically crucial $90-per-barrel level, dealers said. Some traders also covered short bets, supporting bond prices. However, gains were contained as traders awaited clarity on the US-Iran war, dealers said. Some traders also made room in their portfolios ahead of the fresh supply of the 10-year benchmark bond at Friday's auction, which also weighed on bond prices, dealers said.  

The 10-year benchmark 6.94%, 2036 bond ended at INR 100.63, against INR 100.47 Monday. The yield on the bond fell to 6.8488% from 6.8708% at the end of the previous session. Traders expect the yield on the 10-year benchmark bond to remain in the range of 6.80%-6.90%, as Brent crude oil prices continue to hover between $80 and 90 per barrel, dealers said. Some traders expect the bond yield to rise to 7% next month. However, they do not expect the yield to hold at these levels and expect it to fall towards the key level of 6.92%, as public sector banks will step up purchases at these levels. 

"The market was weak in early trade, but then crude fell after news about Pakistan facilitating US-Iran talks," a dealer at a public sector bank said. "Crude fell, then we saw strengthening in the rupee... swap rates also came down quite a bit." 

Brent crude oil futures for October delivery fell below the psychologically crucial level of $90 per barrel and traded at $89.55 per barrel at 1700 IST, down from $93.27 per barrel at the end of Indian trading hours Monday. Brent crude oil prices likely fell on media reports saying Pakistan and Iran made "significant progress" in talks focused on the war in West Asia and the path to peace, Pakistan's interior minister said Tuesday after concluding a visit to Tehran. According to a statement from Pakistan's military, discussions between Army Chief Asim Munir and Iran's leadership centred on preventing further escalation, reopening the Strait of Hormuz, and expediting an end to the conflict.

At the auction of state government bonds, seven states raised INR 201 billion, below the INR 233 billion indicated for this week in the state borrowing calendar for Jul-Sep. The auction results were in line with market expectations, with the cut-off yield on a few papers lower than expected, dealers said. Apart from lower supply, demand for the state bond was also helped by foreign currency non-resident (bank) deposits, dealers said. Banks bought the short-tenure state bonds, while pension funds and provident funds likely picked up the long-term state bonds at the auction, dealers said.    

The Reserve Bank of India set a cut-off yield of 7.47% on Gujarat's 10-year bond issue and 7.54% on Tamil Nadu's 7.49%, 2036 bond re-issue, against 7.50% and 7.53% respectively, in an Informist poll. However, some traders said the state bond result had no material impact on central government securities prices.

Some traders made room in their portfolios ahead of the INR 340 billion supply of the 6.94%, 2036 bond at Friday's weekly gilt auction. Traders also placed short bets on the bond, expecting to cover their positions at the auction, dealers said. A proxy for short sales of a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. Data at 1700 IST showed trades worth INR 92.33 billion in the 6.94%, 2036 gilt, up from INR 87.48 billion Monday.    

"People had placed a decent amount of short bets earlier," a dealer at a small finance bank said. "But as soon as Brent fell, everybody covered their shorts, which also led to a rise in bond prices."     

Trade volumes were low in early trade but surged after Brent crude oil prices fell. Total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 578.25 billion Tuesday, higher than INR 331.90 billion Monday. There were no trades using the central bank's e-rupee pilot Tuesday, as has been the case in recent months. 

OUTLOOK

Financial markets administered by the Reserve Bank of India are shut Wednesday for Id-e-Milad. On Thursday, gilts will track developments in the war in West Asia and near-month Brent crude oil futures, dealers said. 

The 10-year benchmark bond yield is seen rising to 6.90% this week, particularly due to the INR 340 billion supply of the bond at Friday's auction. Some traders expect the yield to rise to 6.93% if GDP data comes in above expectations and the Brent crude oil futures continue to trade over $90 per barrel, dealers said. Gilts will also track movement of US Treasury yields, which are pricing in heavy supply along with inflation fears, dealers said. Traders will also track the Jackson Hole Economic Policy Symposium to gauge the comments of Fed Chair Kevin Warsh on the economy and long-term US bond yields, dealers said. 

A rise in yields could be tempered by banks deploying foreign inflows into gilts, dealers said, especially in short-term bonds this week, with expectations of some purchases from foreign banks. Once the RBI's swap window for FCNR(B) deposits closes, however, the bond yield curve is seen flattening as the focus shifts to the likelihood of rate hikes.

Traders will also track India's GDP estimates for the June quarter, scheduled for release on Aug. 31. According to the median of an Informist Poll of 14 economists, India's economic growth is expected to moderate to a one-year low of 7.2% in the June quarter. Expectations of rate hikes in 2026 are seen increasing after the RBI's rate-setting panel focused on the potential for the same at its meeting earlier in the month. The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.85% and 6.92%, dealers said. Any significant movement in the rupee and swap rates will also lend cues, they said.

India Gilts: Reverse losses on fall in crude oil, US-Iran war fear looms

--Dealers: Gilts rise as oil falls on reports of progress in US-Iran talks 

MUMBAI-–1526 IST--Prices of government bonds recovered earlier losses to trade higher, tracking an intraday fall in Brent crude oil price, dealers said. However, the rise in bond prices was limited as fears of an escalation in the US-Iran war weighed on market sentiment, dealers said. Some traders also made space in their portfolios for the fresh supply of the 10-year benchmark 6.94%, 2036 bond auction Friday as markets are shut Wednesday, dealers said. The state bond auction result was in line with market expectations, dealers said.

Brent crude oil futures for October delivery fell below the psychologically crucial level of $90 per barrel to trade at $89.91 per barrel, down from $92.42 at 0900 IST and $93.21 per barrel at the end of Indian trading hours Monday. Brent crude oil prices likely fell on media reports saying Pakistan and Iran made "significant progress" in talks focused on the US-Israeli war on Iran and the path to peace, Pakistan's interior minister said Tuesday after concluding a visit to Tehran. According to a statement from Pakistan's military, discussions between Army Chief Asim Munir and Iran's leadership centred on preventing further escalation, reopening the Strait of Hormuz, and expediting an end to the conflict.

"(Bond) Prices are up only because of crude (rise in Brent crude oil prices)," a dealer at a primary dealership said. "The state bond result was in line with market expectations...banks were in the shorter segment and EPFOs (employees' provident fund organisation) went for the longer tenure." 

On the auction front, the cut-off yield set on the state government bonds was on the lower end of market expectations, dealers said. The Reserve Bank of India set a cut-off yield of 7.47% on Gujarat's 10-year bond issue and 7.54% on Tamil Nadu's 7.49%, 2036 bond re-issue, against 7.50% and 7.53% respectively, according to the median of an Informist poll. However, some traders said there was no material impact of the state bond result on the prices of the central government securities.

Some traders made space in their portfolio ahead of the fresh supply of the 10-year benchmark 6.94%, 2036 bond ahead of its supply at the weekly gilt auction, traders said. Some traders also placed some short bets as they looked to cover these bets at the INR 340 billion worth of weekly gilt auction Friday. A proxy for tracking short sales on a particular bond is the number of trades on the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1530 IST showed trades worth INR 92.33 billion in the 6.94%, 2036 gilt, up from INR 87.48 billion Monday. 

The yield on the 10-year gilt is seen in a range of 6.83–6.88% during the day, dealers said. The total trading volume in the government securities market at 1526 IST was INR 498.10 billion, lower than INR 268.40 billion at 1530 IST Monday, according to data from the Clearing Corp. of India Ltd. Trade volume picked up in the second half of the trading session, tracking a fall in crude oil prices, dealers said. (Janwee Prajapati)

India Gilts: Remain in thin band; demand at state bond auction seen firm

MUMBAI-–1200 IST--Prices of government bonds remained in a thin band Tuesday as traders refrained from placing aggressive bets, awaiting the result of the auction of state government securities, dealers said. A total of seven states had invited bids to raise INR 201 billion through the sale of bonds Tuesday.

Traders expect the auction to sail through smoothly as the supply was less than the INR-233-billion mentioned in the indicative calendar for state borrowing for Jul-Sept. Demand from banks will be firm at the auction, dealers said. Some market participants expect banks to deploy flows from foreign currency non-resident deposits into shorter-term securities at the auction, which is likely to support cut-off prices of short-term papers at the auction, dealers said. 

The cut-off yield on Gujarat's 10-year bond at auction is seen at 7.50% and the cut-off yield on Tamil Nadu's 2036 bond re-issue is seen at 7.53%, according to the median of estimates of 11 bond dealers polled by Informist. Andhra Pradesh, Gujarat, Haryana, Maharashtra, Punjab, Rajasthan, and Tamil Nadu are the seven states which invited bids to raise funds at the auction Tuesday.

"Except Punjab, almost all the states are good states and therefore, demand will be decent despite higher yields in the secondary market," a dealer at a state-owned bank said. "Gujarat and Maharashtra may see better cut-offs (prices) because of good demand."   

Bond prices were also supported by an intraday fall in prices of Brent crude oil, dealers said. Near-month Brent crude oil futures were at $91.33 per barrel at 1200 IST, down from $92.42 per barrel at 0900 IST. Traders will closely monitor any development in the war and its impact on Brent crude oil prices as it can lend direction to the market, dealers said. 

The yield on the 10-year gilt is seen in a range of 6.83–6.88% during the day, dealers said. The total trading volume in the government securities market at 1200 IST was INR 108.90 billion, lower than INR 138.95 billion at 1230 IST Monday, according to data from the Clearing Corp. of India Ltd.  (Diksha Tripathy)

India Gilts: Steady as traders maintain caution over US-Iran war escalation

MUMBAI--0945 IST--Prices of government bonds were steady as most traders maintained caution over fears of further escalation in the US-Iran war, dealers said. Some traders also placed short bets ahead of the fresh supply of the 10-year 6.94%, 2036 bond at an auction Friday, which weighed on prices, they said. 

Bond prices were also supported as Brent crude oil prices and US Treasury yields largely remained stable, dealers said. Near-month Brent crude oil futures did not react much and remained largely stable despite US sanctions on Iran, which was seen as a positive cue by the market, dealers said. However, crude oil prices continued to trade above the psychologically crucial level of $90 per barrel, which weighed on bond prices, dealers said. At 0945 IST, Brent crude oil futures for October delivery traded at $92.52 per barrel, down from $93.21 per barrel at the end of Indian gilt market hours Monday. Meanwhile, the yield on the benchmark 10-year US Treasury note was 4.72%, largely unchanged from 1700 IST Monday.

The 10-year 2036 Indian government bond remained under pressure as traders placed short positions before a fresh supply of INR 340 billion at the auction Friday, dealers said. Some traders also trimmed positions ahead of the holiday Wednesday, they said. The money markets are shut Wednesday for Id-e-Milad.

"There are two factors playing out in the market: crude (oil) and the 10-year (bond) auction," a dealer at a private-sector bank said. "There is pressure on prices as people are trimming positions ahead of the holiday tomorrow (Wednesday). Not a lot of people would want to carry positions due to war-related uncertainties."

Bond prices are likely to take cues from the result of the INR-201-billion auction of state government securities, dealers said. A total of seven states will raise INR 201 billion through the sale of bonds Tuesday.

The total trading volume in the government securities market at 0945 IST was INR 38.6 billion, higher than INR 24.75 billion at 0930 IST Monday, according to data from the Clearing Corp. of India Ltd. Traders will closely monitor any development in the war and its impact on Brent crude oil prices as it can lend direction to the market, dealers said. The yield on the 10-year gilt is seen in a range of 6.83–6.88% during the day, dealers said.  (Diksha Tripathy)

India Gilts: Seen down as US-Iran war dampens risk appetite; auction eyed

MUMBAI – Prices of government bonds are seen opening lower Tuesday as traders are likely to trim positions amid weak risk appetite due to the ongoing war in West Asia, dealers said. A rise in Brent crude oil prices in early trade, following fresh economic sanctions by the US on Iran, is also likely to weigh on bond prices, dealers said.

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 6.88% Tuesday and move between 6.82% and 6.90% through the day, dealers said. Monday, the bond ended at INR 100.47, or a yield of 6.8708%. Traders are likely to make heavy purchases near the 6.90% yield level, which is expected to provide support to the bond, they said.

Trading volumes are likely to remain weak in the first half of the session amid uncertainty stemming from the war, dealers said. Market participants will track the movement in crude oil prices during the day after US President Donald Trump's administration warned countries to cut business ties with Iran or face secondary sanctions, as part of what it billed as an "economic D-Day" against Tehran.

As the war with Iran nears its six-month mark, US Treasury Secretary Scott Bessent said Washington was launching an "economic onslaught" against Iran's financial connections around the globe, as per media reports. Bessent said the US was expanding the scope of commercial activities that could be subject to secondary sanctions in five sectors of the Iranian economy: digital assets, gold, technology, aviation, and shipping.

The escalation in the war and a lack of a resolution to the conflict has increased expectations of a sell-off in bond prices, dealers said. The 10-year benchmark bond yield is seen rising to 6.90%, particularly given the INR 340 billion of its fresh supply, dealers said.

The rise in yields could, however, be tempered by banks deploying foreign inflows into government bonds, particularly short-term securities, dealers said. Foreign banks are also expected to make some purchases this week, dealers said. Once the Reserve Bank of India's swap window for foreign currency non-resident deposits closes, the yield curve is seen flattening as market focus shifts towards the likelihood of interest rate hikes.

RBI Monetary Policy Committee member Saugata Bhattacharya, in an interview with Business Standard, said there was a need to take a re-look at the repo rate of 5.25% amid an uptick in CPI. This has increased expectations of an interest rate hike among market participants, dealers said. "I am not suggesting that the next policy move is a hike, but there is a need to re-look," Business Standard quoted him as saying. Expectations of rate hikes in 2026 have also increased after the RBI's rate-setting panel focused on the possibility of such a move at its meeting earlier this month.

Some traders are also likely to trim positions ahead of the holiday, as money markets will be shut Wednesday for Id-e-Milad, which is likely to weigh on bond prices.

Traders will closely watch the results of the INR-201-billion auction of state government securities, which are expected to provide cues to the market during the day, dealers said. A total of seven states will raise INR 201 billion through the sale of bonds Tuesday. Traders expect the auction to sail through, although views on cut-offs remain mixed. Some expect demand for state bonds to remain strong, resulting in cut-offs being in line with market expectations, while others expect cut-offs to be higher amid changing fundamentals, they said.  (Diksha Tripathy)  End

US$1 = INR 95.41

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

Edited by Saji George Titus

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