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Informist, Thursday, Sept. 3, 2026

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended off highs Thursday as Brent crude futures rose sharply from intraday lows, dealers said. However, market sentiment on bonds improved after Reserve Bank of India's provisional data showed foreign currency non-resident (banks) deposits parked under the central bank's special window were sharply higher than even the most optimistic estimates.

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 99.82, up from INR 99.74 Wednesday. The yield on the bond fell to 6.9646% from 6.9754% at the end of the previous session. The benchmark gilt rose to a high of INR 100.04 in early trade, before profit sales and adverse global cues weighed on gilt prices across tenures, dealers said. The five-year benchmark 6.36%, 2031 bond gained more from the news of the robust inflows, rising to INR 99.38 Thursday from INR 99.23 Wednesday. However, even the five-year benchmark was well off its intraday high of INR 99.65.

 

A sustained rise in military confrontation in West Asia this week has pushed up crude oil futures to their highest in six weeks. Iran ramped up its attacks on US bases and allies in the region Thursday while Israel has threatened to attack Tehran's energy infrastructure. With dialogue seemingly on the back burner after the deadly US attacks on Iran earlier this week, dealers fear an extended rise in oil prices will push inflation and government spending, both negatives for bonds. Brent crude for November delivery was at $96.84 per barrel at 1700 IST, up from a low near $94 per barrel earlier in Indian market hours.

 

"The market has to deal with good domestic liquidity with one or more eyes on the global situation, as that could have a consequence for both the fiscal and interest rates," a dealer at a state-owned bank said. "While it is beneficial for the rupee and so a marginal positive for bonds, I don't think a major chunk of flows will make its way to G-Sec. I feel the market reaction in the morning (to the FCNR data) was overdone."

 

The central bank said Wednesday that banks raised $127.23 billion through its special window to swap FCNR(B) deposits despite the window's early closure, well above market participants' estimates of $85 billion-$100 billion. The RBI's net liquidity absorption – a proxy for the banking system liquidity surplus – rose to INR 9.70 trillion Wednesday from INR 7.76 trillion Tuesday, according to the latest data. This was the highest since the RBI began releasing data on the metric in January 2019. An abundance of liquidity typically causes a sharp rise in bond prices as banks deploy the cash into gilts and other debt instruments.

 

Some private-sector and foreign banks which had accrued large FCNR(B) deposits were consistently on the buying side, especially for gilts and state bonds maturing up to five years, dealers said. ICICI Bank, which mobilised $17.88 billion under the swap facility until Monday, and HSBC are seen as the frontrunners among lenders getting inflows, they said. The use of the RBI's concessional swap window for these deposits, open until Sept. 11, is driving higher liquidity and purchases from banks, dealers said. The liquidity surplus may rise to around INR 12 trillion by the deadline, they said.

 

However, bond traders are concerned the surplus liquidity – currently being deployed in short-term gilts – may be drained by the RBI through durable liquidity measures such as open market sales of bonds. A liquidity surplus of 4% of banks' net demand and time liabilities is not seen in line with the Monetary Policy Committee's neutral stance and ahead of potential rate hikes in October or December, dealers said.

 

The RBI could also take other steps such as introducing an incremental cash reserve ratio on recent inflows or issuing short-term bonds and bills under the market stabilisation scheme, both of which would drive up short-term borrowing costs once again by locking up liquidity with banks, dealers said. The least disruptive tool for gilt prices would be if the central bank continues its strategy of longer-term variable-rate reverse repo auctions, they said.

 

"Ideally, the long-term bonds shouldn't have moved positively at all," a dealer at a private-sector bank said. "In such an environment when liquidity is at INR 10 trillion, term premia should only rise because you know the measures they take will move the (bond) market before they can actually drive down liquidity." The 30-year benchmark 7.24%, 2055 gilt rose sharply in early trade but ended slightly lower.

 

Total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 646.05 billion Thursday, up from INR 594.00 billion Wednesday. As has been the case for several months, no trades using the RBI's wholesale e-rupee pilot took place on Thursday.

 

OUTLOOK

Friday, at the open, gilt prices may take cues from movements in US Treasury yields and crude oil prices. Thereafter, gilt prices may take cues from the result of the INR-320-billion weekly auction at 1030-1130 IST.

 

The government will sell INR 210 billion of a new five-year bond and INR 110 billion of the 7.71%, 2066 bond. Demand for the short-term gilt is expected to be robust for asset-liability management needs by banks, while long-term investors are likely to mop up the supply of the 40-year gilt, dealers said.

 

Until the window to swap FCNR(B) deposits shuts on Sept. 11, traders are unlikely to aggressively place short bets on gilts, they said. However, traders are tracking the liquidity measures the RBI will take to prop up overnight money market rates as the banking system liquidity surplus has risen to a record, dealers said.

 

Given the expectations of a rate hike, some traders expect the central bank to announce measures to absorb excess liquidity from the banking system amid such a large surplus, dealers said. The surplus liquidity in the banking system is seen as warranting measures to drain durable liquidity beyond the variable rate reverse repo operations the RBI is currently conducting. Traders expect measures that could include incremental hikes in the cash reserve ratio or sales of government bonds through open market operations, they said.

 

Focus will also be on the US Federal Open Market Committee's mid-month rate decision, dealers said. The FOMC decision will be a key trigger for the Monetary Policy Committee's decision on the repo rate in October, dealers said. Traders expect the yield on the 10-year benchmark bond to hit 7.10% in about a month. As September nears its end, focus will also be on the Centre's and states' borrowing plan from October onwards, with heavy supply expected from both.

 

Any significant movement in the rupee and swap rates will also lend cues, they said. The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.90% and 7.05%, dealers said. 

 

	THURSDAY		WEDNESDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	99.8150	6.9646%	99.7400	6.9754%
6.48%, 2035	96.9900	6.9307%	96.9600	6.9351%
6.36%, 2031	99.3800	6.5216%	99.2275	6.5617%
7.06%, 2041	99.4650	7.1177%	99.3900	7.1260%
7.24%, 2055	96.1000	7.5737%	96.1250	7.5715%

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India Gilts: Remain up on intraday fall in crude oil, firm FCNR(B) inflows

 

	1320 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.91	100.04	99.85	99.99	99.74
YTM (%)	6.9516	6.9323	6.9603	6.9394	6.9754

 

MUMBAI--1320 IST--Government bond prices were sharply up after the Reserve Bank of India's foreign currency non-resident (banks) scheme brought in significantly higher-than-expected foreign flows, dealers said. The shorter end of the curve outperformed other tenures on the back of robust FCNR(B) deposits, dealers said. The intraday fall in Brent crude oil futures also supported the rise in bond prices, dealers said. Some traders, however, locked profits on their holdings while others placed short bets due to expectations of a rise in yields, which limited the rise in bond prices, dealers said.

 

"Most (participants) are booking profits... in the earlier trade, traders covered their short positions," a dealer at a primary dealership said. "Now people are back to placing short bets because this is a temporary rise in prices. It will not last long. We will see the figure (7% on the 10-year benchmark 6.94%, 2036 bond) again soon."

 

Some traders covered their short positions as the yield on the 10-year benchmark bond slipped from the psychologically crucial 7% level after the RBI Wednesday said banks raised $127.23 billion through FCNR(B) deposits despite its early closure, sharply above the expectations of most market participants. This was paired with a fall in Brent crude oil prices as there was no significant escalation in the US-Iran war overnight, which also lifted sentiment, dealers said. Some traders who had bought gilts upwards of the 6.95% level took profits, which limited the rise in bond prices, dealers said. Some traders also placed fresh short bets as they expect the RBI's Monetary Policy Committee to hike the repo rate. Traders are pricing in at least two rate hikes in the current financial year. They are also tracking the US Federal Open Market Committee's policy rate decision, which is expected to significantly influence the RBI's rate-setting panel's call on the repo rate, dealers said.

 

To ensure smooth transmission of any rate hike, some traders expect the central bank to come up with measures to absorb excess liquidity from the system apart from variable rate reverse repo auctions, dealers said. Traders are divided on the use of a temporary incremental cash reserve ratio and open market operations for the management of liquidity in the banking system, dealers said. The RBI's net liquidity absorption--a proxy for the liquidity surplus in the banking system--jumped nearly INR 2 trillion overnight to INR 9.70 trillion Wednesday, dealers said. This is the highest level of liquidity surplus since the RBI started compiling the data in January 2019.

 

The total trading volume in the government securities market at 1330 IST was INR 369.95 billion, significantly higher than INR 358.60 billion at 1335 IST Wednesday, according to data from the Clearing Corp. of India Ltd. The yield on the 10-year gilt is seen in a range of 6.90–6.98% during the day, dealers said. At 1330 IST, the five-year benchmark 6.36%, 2031 bond was at INR 99.45 or 6.5031%, up over 22 paise from Wednesday. However, the bond's price was down from the day's high of INR 99.65 as traders placed short bets on expectations of a rise in yields, dealers said. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1330 IST showed trades worth INR 112.94 billion in the 6.36%, 2031 gilt, up from INR 106.85 billion Wednesday. The government will sell INR 210 billion of a new five-year 2031 bond at the weekly auction of gilts Friday. Some traders expect the coupon on the bond to be around 6.55%.

 

On the buyback auction front, some traders expect the cut-off to be near the indicative prices released by Financial Benchmarks India Ltd. Wednesday, while others expect it to be slightly higher. Most banks do not hold the securities selected for the buyback auction as the same securities were selected for the last three buyback auctions, dealers said. Traders, therefore, do not expect the buyback auction result to have any significant impact on bond prices in the secondary market.  (Janwee Prajapati)

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India Gilts: Up sharply on robust FCNR(B) deposits; profit-taking caps gains

 

	0940 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.96	100.04	99.94	99.99	99.74
YTM (%)	6.9438	6.9323	6.9466	6.9394	6.9754

 

	0940 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.36%, 2031
PRICE (INR)	99.51	99.65	99.34	99.34	99.23
YTM (%)	6.4873	6.4505	6.5321	6.5321	6.5617

 

MUMBAI--0940 IST--Government bond prices rose sharply Thursday, tracking robust flows into the Reserve Bank of India's swap schemes, dealers said. An overnight fall in the US Treasury yields also supported the rise in Indian bond prices Thursday, dealers said. However, Brent Crude oil prices rose above $95 per barrel, which limited gains on bond prices, dealers added. Some traders also booked profits which capped gains in bond prices, they said.

 

The five-year 6.36%, 2031 bond prices jumped Thursday based on the RBI data, released after market hours Wednesday, which showed Indian banks have attracted total foreign exchange inflows of $136.38 billion as of Monday under its special foreign exchange swap facility. The pick of the schemes, foreign currency non-resident (banks) deposits, garnered $127.23 billion, of which a whopping $54.38 billion was received in the final 10 days of the scheme. Traders expect banks to deploy some of these flows into gilts which supported bond prices Thursday.

 

An overnight fall in US Treasury yields supported a rise in bond prices, dealers said. The yield on the 10-year benchmark bond fell to 4.78% at 0940 IST, down from 4.80% at 1700 IST Wednesday. The US yields had hit multi-decade highs Wednesday, however, no fresh escalations in the US-Iran war led to some recovery in prices, dealers said. Brent crude oil prices traded above $95 per barrel which capped gains in bond prices Thursday, dealers said.

 

Some traders booked profit when the yield on the 10-year benchmark 6.94%, 2036 bond remained near 6.94%, which weighed on prices, dealers said. The total trading volume in the government securities market at 0940 IST was INR 111.65 billion, significantly higher than INR 68.45 billion at 0930 IST Wednesday, according to data from the Clearing Corp. of India Ltd. Traders will closely monitor developments in the war and its impact on Brent crude oil prices as it will lend direction to the market, dealers said. The yield on the 10-year gilt is seen in a range of 6.90–6.98% during the day, dealers said.  (Diksha Tripathy)

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India Gilts: Seen up on robust FCNR(B) deposits, no escalation in W Asia war

 

MUMBAI – Government bond prices are seen opening higher Thursday, tracking a robust collection through the foreign currency non-resident (bank) swap window, dealers said. The risk appetite in the market is likely to improve amid no fresh escalation in the US-Iran war overnight, dealers said. US Treasury yields also fell from multi-decade highs, which is likely to support bond prices Thursday, dealers said. Prices of Brent crude oil remained above the psychologically crucial level of $95 per barrel, which is likely to put pressure on bond prices, dealers said. 

 

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 6.95% Thursday and move between 6.90% and 7.00% during the day, dealers said. Wednesday, the bond ended at INR 99.74, or a yield of 6.9754%. The rise in bond prices Thursday may prompt some traders to book profit if the yield on the 10-year bond falls below 6.95% which is likely to set pressure on bond prices, dealers said. 

 

Gilt prices are likely to be strongly supported by robust FCNR (B) deposits, dealers said. Wednesday, the RBI said banks raised $127.23 billion through FCNR(B) deposits despite its early closure, sharply above the expectations of most market participants. Only some traders had expected inflows to top $100 billion comfortably. Overseas foreign currency borrowings contributed $5.26 billion while external commercial borrowings brought in $3.89 billion, data from the Reserve Bank of India showed.

 

Some of these deposits have been old FCNR(B) deposits rebooked under the scheme, dealers said, but, nonetheless, the higher-than-expected number is likely to be reflected in both systemic liquidity and in government bonds, with banks deploying some of the flows into gilts. 

 

Until the window to swap FCNR(B) deposits shuts Sept. 11, traders are unlikely to aggressively place short bets on gilts. Some traders also expect a sudden announcement of a peace deal between the US and Iran, with Brent crude oil futures trading at a crucial technical level of about $95 per barrel, at which it has usually seen a fall, dealers added.

 

Bonds will continue to track developments in the war in West Asia and movements in Brent crude oil prices, dealers said. Brent crude oil futures for November delivery traded at $95.84 per barrel at 0730 IST, up from $94.33 per barrel at the end of Indian gilt market hours Wednesday. Meanwhile, US Treasury yields fell from multi-decade highs amid no fresh escalations in the US-Iran war, which is likely to support bond prices, dealers said. US President Donald Trump said any fresh strikes on Iran were unlikely to last long and reiterated his assertion that Washington held sway over the Strait of Hormuz, a vital route for global crude shipments. The yield on the 10-year US Treasury benchmark note was 4.79% at 0730 IST, down from 4.80% at 1700 IST Wednesday.

 

Traders will keep an eye out for the US Federal Open Market Committee's rate decision mid-September, dealers said. The FOMC decision will be a key trigger for the Reserve Bank of India's rate-setting panel's decision on the repo rate in October, dealers said. Traders expect the yield on the 10-year benchmark bond to hit 7.10% in about a month. Nearing the end of September, focus will also be on the Centre's and states' borrowing plan for October onwards, with heavy supply expected from both.

 

Given the expectations of a rate hike, some traders expect the central bank to announce measures to absorb excess liquidity from the banking system amid such a large surplus, dealers said. Core liquidity in the banking system is seen at about $10 trillion by the end of this month, warranting measures to drain durable liquidity, other than the variable rate reverse repo operations the RBI is currently conducting. Traders expect measures that could include incremental hikes in the cash reserve ratio or sales of government bonds through open market operations, they said. Surplus liquidity in the banking system widened to its highest in about four years, which helped short-term bond prices, but the greater fear lay in what measures the RBI would introduce to drain durable liquidity, dealers said. 

 

Traders will also track the result of the buyback auction Thursday. The government will buy back four gilts worth INR 300 billion Thursday. All four gilts at the buyback mature in the financial year 2026-27 (Apr-Mar), which means the government is effectively pre-paying the securities rather than reducing its repayment burden in upcoming financial years. The participation is seen tepid at the auction, as these papers were auctioned at the previous buyback auctions as well, dealers said. This is the fourth buyback auction in the current financial year. The government bought back the same four gilts in the three previous auctions, totalling INR 257 billion. At the last auction on Aug. 6, the RBI accepted bids for the government to buy back INR 57.12 billion worth of the gilts, against the notified amount of INR 200 billion.  (Diksha Tripathy)  End

 

US$1 = INR 94.49

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

 

Edited by Saji George Titus

 

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