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Informist, Monday, Sept. 7, 2026

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended steady after closely tracking crude oil prices through the day, which were up sharply from Friday as the US and Iran stepped up attacks on each other in West Asia, dealers said. However, the Reserve Bank of India's decision to avoid durable measures to drain the record systemic liquidity surplus improved sentiment around bond prices and offset the global trigger, they said. 

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 99.84 from INR 99.83 Friday. The bond's price traded in the INR 99.77-INR 99.95 band as Brent crude futures for November delivery oscillated between $96 and $98 per barrel. The yield on the bond fell slightly to 6.9607% from 6.9625% at the end of the previous session.

 

At the end of Indian market hours, the near-month Brent contract was at $97.45 a barrel, up 2.4% from the same time Friday. Concerns over the West Asia war scaled up in intensity after US-Iran strikes over the weekend pointed to further constrained oil supply. The inflationary pressures emanating from high oil prices are seen prompting the RBI's Monetary Policy Committee to hike the repo rate as early as October, dealers said. Even after Bloomberg reported Iran and Oman were close to an agreement to jointly administer the Strait of Hormuz, the fall in oil prices was temporary and Brent crude for November delivery remained well above the psychologically crucial $95-a-barrel mark.

 

"Oil is really becoming a big problem now, it is not falling and the situation (in West Asia) is becoming worse and worse," a dealer at a foreign bank said. "In such a case, if the RBI had shown any intent for a durable liquidity measure like what people were discussing on Friday, the market would have tanked. It's very good for bonds that he's only doing a VRRR (variable rate reverse repo auction)."

 

Traders had feared Friday that the RBI would take steps such as buy-sell dollar-rupee swaps, issuance of securities under the market stabilisation scheme, or outright bond sales through open market operations. Banking system liquidity surplus topped INR 10 trillion Thursday and continued to rise by Sunday, hitting fresh records since the central bank began publishing the net liquidity absorbed data in January 2019. All these measures were seen as bad for bonds, either due to a durable liquidity removal or additional supply, dealers said.

 

Instead, the central bank opted to conduct only a 30-day, INR-7.00-trillion variable rate reverse repo auction Monday, a transient liquidity drain that was optional for banks to subscribe to. While this was the longest tenure of a VRRR auction since January 2020, it was seen as the least disruptive step that the RBI could have taken with respect to both gilts and foreign exchange markets, dealers said.

 

"It really was the best thing they could do," a dealer at a private-sector bank said. "At least for bonds, the sentiment would have turned quite a bit if they had taken any durable measures. The market is not too bothered by VRRRs because they are not moving up funding costs for everyone, which could have happened if he (RBI) had done forex swaps or MSS (market stabilisation scheme)."

 

Some dealers still saw this as a sign that a repo rate increase is likely at the October policy meeting as inflation continues to rise in the coming months, a fear that members of the rate-setting panel shared in the minutes of the August policy meeting. Others were also worried that the RBI will announce additional measures to absorb liquidity from the banking system. The weighted average call rate, the operating target of monetary policy, remained below the Liquidity Adjustment Facility corridor Monday.

 

FCNR(B) flows continued to find their way to gilts maturing in up to the five years, though the 6.36%, 2031 gilt failed to convert its intraday outperformance into gains by the end of trade. State-owned banks stepped up purchases early in the day and traders covered short sales as the 10-year benchmark yield around 6.97% was seen as attractive, dealers said. With the global and domestic factors cancelling each other out in terms of price movement and US markets shut for Labor Day, trade volumes remained dull.

 

Total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 426.15 billion Monday, up from an unusually low INR 381.25 billion Friday. As has been the case since February, no trades using the RBI's wholesale e-rupee pilot took place.

 

OUTLOOK

Gilts may take cues from movements in crude oil prices at Tuesday's opening, and from the change in US Treasury yields in Asian trade after a long weekend, dealers said. The impact of the RBI's liquidity measures to prop up overnight money market rates amid a record surplus banking system liquidity is also being closely watched.

 

Given the expectations of a rate hike, some traders expect the central bank to announce additional 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 warranting measures to drain durable liquidity beyond the variable rate reverse repo operations the RBI is currently conducting, 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 RBI Monetary Policy Committee's repo rate decision 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 plans from October onwards, with heavy supply expected from both.

 

Traders await the release of the borrowing calendar for state and central government bond issuances for the next quarter and for the second half of the current financial year, respectively. Traders will also focus on the proportion of different bond tenures in the calendar, dealers said. The RBI has begun meetings with market participants to discuss the Centre's borrowing calendar, they said. 

 

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.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	99.8425	6.9607%	99.8300	6.9625%
6.48%, 2035	97.0775	6.9178%	97.0300	6.9249%
6.36%, 2031	99.4850	6.4940%	99.4200	6.5111%
7.06%, 2041	99.4950	7.1144%	99.5025	7.1135%
7.24%, 2055	96.1000	7.5737%	96.1100	7.5728%

 

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India Gilts: Reverse all losses on intraday fall in Brent crude oil prices

 

	1517 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.87	99.95	99.77	99.80	99.83
YTM (%)	6.9567	6.9456	6.9711	6.9668	6.9625

 

MUMBAI--1517 IST--Government bond prices reversed all losses to trade higher, tracking an intraday fall in Brent crude oil futures prices, dealers said. However, Brent crude oil futures prices continued to trade over the crucial $95 per barrel level, which dampened market sentiment, dealers said. Traders also refrained from building aggressive positions as they expect the Reserve Bank of India to announce measures to absorb excess liquidity from the system, which will likely weigh on bond prices, dealers said.   

 

"Intraday people are just trading in crude (tracking Brent crude oil prices)," a dealer at a private-sector bank said. "Nobody wants to take any significant position now, because prices can go either way... If the war stops, it will be positive for bonds, but if the RBI announces some liquidity measures (measures to absorb liquidity from the banking system), then that will weigh on bond prices." 

 

Brent crude oil futures for November delivery hit the day's low of $95.67 per barrel, which led to a rise in bond prices. However, it rose again to $96.67 per barrel, up from $95.21 per barrel Friday.

 

The five-year benchmark 6.36%, 2031 bond continued to outperform other tenors, likely due to inflows from foreign currency non-resident (bank) deposits into the bond, dealers said. The 6.36%, 2031 bond was at INR 99.50 or 6.49%, up eight paise from Friday. Some traders also picked up the 15-year, 7.06%, 2041 bond as they considered the spread between the 15-year bond and the 10-year benchmark bond attractive, dealers said. The spread between the two bonds was at 15 basis points. Traders said the current steepening in the yield curve is temporary, and the curve is most likely to flatten, dealers said.  

 

At Tuesday's auction of state government bonds, traders expect spreads between state bonds and central government bonds to remain unchanged. Demand for state bonds is likely to remain firm as the auction size is smaller than indicated in the calendar and yields on these bonds are attractive, dealers said. Banks are expected to pick up state bonds at the auction for their investment books, dealers said. Eight states are looking to raise INR 169 billion in total on Tuesday. The quantum is 35% lower than the INR 260 billion scheduled for this week in the indicative borrowing calendar for Jul-Sept. 

 

Traders await the release of the borrowing calendar for both state and central government bond issuances for the next quarter and second half of the current financial year, respectively. Traders will also focus on the proportion of different bond tenures in the calendar, dealers said.

 

The total traded volume in the government securities market at 1517 IST was INR 360.00 billion, higher than INR 274.80 billion at 1530 IST Friday, according to data from the Clearing Corp. of India Ltd. The yield on the 10-year gilt is seen in a range of 6.94–6.98% during the day, dealers said.  (Janwee Prajapati) 

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India Gilts: Tad down on rise in Brent crude oil prices, escalation in W Asia

 

	1130 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.78	99.92	99.77	99.80	99.83
YTM (%)	6.9704	6.9496	6.9711	6.9668	6.9625

 

MUMBAI--1130 IST--Government bond prices were slightly down as an intraday rise in Brent crude oil prices weighed, dealers said. Escalations in the war in West Asia weighed on market sentiments due to which traders avoided any aggressive bets, dealers said. Some traders likely bought bonds at levels seen as attractive, which limited the fall in bond prices, dealers said.

 

"Brent (crude oil prices) is higher, which is weighing. There was some buying interest initially at around 6.97% levels...some people might have covered some short bets," a dealer at a private sector bank said. "... Apart from these, we are only tracking crude. There are only normal traders in the market today. I do not see the yields going above 6.98% today (Monday)."

 

Brent crude oil futures for November delivery were at $97.93 per barrel, up from $95.21 per barrel Friday at the end of Indian gilt trading hours.

 

The total traded volume in the government securities market at 1130 IST was INR 139.25 billion, higher than INR 85.10 billion at the same time Friday, according to data from the Clearing Corp. of India Ltd. The yield on the 10-year gilt is seen in a range of 6.95–6.98% during the day, dealers said. Traders expect the yield on the 10-year benchmark 6.94%, 2036 bond to rise to 7% if Brent crude oil prices rise to $100 per barrel, dealers said. However, the rise in yield is unlikely to sustain at 7% and is likely to fall on firm demand from public sector banks, dealers said. The levels can rise beyond this crucial level only if the chances of an interest rate hike by the Reserve Bank of India's rate-setting panel increases, dealers said. Along with escalations in the war, traders will also track the US Federal Open Market Committee's decision on monetary policy, dealers said. 

 

The rise in US Treasury yields is likely to weigh on Indian bond prices, dealers said. Fed funds futures are now pricing in a 58.4% probability of a 25-basis-point increase in interest rate at the US Federal Reserve's two-day meeting ending Sept. 16, compared with a 44.4% probability a month earlier, according to the CME Group's FedWatch tool. US markets are shut Monday on account of Labor Day.

 

Some traders are also cautious as they expect the RBI to announce measures to absorb excess liquidity from the banking system which will likely pull up bond prices, dealers said. The net liquidity absorbed by the RBI, a proxy for the liquidity surplus, rose to INR 10.73 trillion Friday from INR 10.31 trillion Thursday.  (Janwee Prajapati)

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India Gilts: Up on PSU banks' buys; Brent crude above $97/bbl caps gains

 

	0946 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.91	99.92	99.80	99.80	99.83
YTM (%)	6.9510	6.9496	6.9668	6.9668	6.9625

 

MUMBAI--0946 IST--Government bond prices rose Monday as state-owned banks likely bought bonds when the yield on the 10-year benchmark 6.94%, 2036 bond remained near 6.97%, dealers said. Traders also attributed some optimism in the market to the fact that the Reserve Bank of India refrained from announcing a durable measure to drain surplus liquidity, dealers said. However, a rise in prices of Brent crude oil capped gains in bond prices, dealers said.

 

Brent crude oil futures for November delivery traded well above the psychologically crucial level of $95 per barrel, and were up over 2% at 0930 IST, from 1700 IST Friday. Oil prices rose as the US and Iran launched fresh strikes, which increased concern about supply disruption in the West Asia.

 

Market sentiment remained slightly positive despite oil prices going up, as the RBI announced a 30-day variable rate reverse repo auction Friday, contrary to a durable measure, dealers said. The RBI is likely to set a cut-off of 5.24% at the 30-day VRRR auction Monday for a notified amount of INR 7.00 trillion, according to an Informist Poll.

 

Monday, bond prices were also supported on purchases from state-owned banks with usually a higher risk appetite, dealers said. These banks bought bonds when the yield on the 10-year bond remained near 6.96-6.97%, dealers said.

 

"PSUs are active at the moment and will be there in the market today (Monday) at these levels," a dealer at a state-owned bank said. "Crude is up, again, and that is impacting the prices." 

 

The total trading volume in the government securities market at 0930 IST was INR 54.20 billion, higher than INR 19.70 billion at 0930 IST Friday, 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, dealers said. The yield on the 10-year gilt is seen in a range of 6.92–6.98% during the day, dealers said.  (Diksha Tripathy)

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India Gilts: Seen down as escalation in US-Iran war lifts Brent crude prices

 

MUMBAI – Government bond prices are seen opening lower Monday, tracking a rise in prices of Brent crude oil following fresh strikes between the US and Iran, dealers said. However, bond prices are likely to be supported as the Reserve Bank of India Friday refrained from conducting permanent measures to drain surplus liquidity in the banking system, contrary to expectations, dealers said. 

 

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 6.97% Monday and move between 6.92% and 7.00% during the day, dealers said. Friday, the bond ended at INR 99.83, or a yield of 6.9625%. Trading volume is likely to remain low as most traders are may maintain caution amid US-Iran strikes. State-owned banks with higher risk appetite are expected to buy bonds Monday if the yield on the benchmark 10-year bond rises past 6.98%, which is likely to support bond prices and that would also lead to a higher volume, dealers said. 

 

A rise in Brent crude oil prices is expected to weigh on the market sentiment, dealers said. Brent crude oil prices rose well above the psychologically crucial level of $95 per barrel and were at $96.83 per barrel at 0800 IST, up nearly 2% from the end of Indian gilt market hours Friday.

 

Oil prices inched higher as the latest US-Iran strikes heightened concerns about energy supplies and shipping through the Strait of Hormuz. The US said it had struck three Iranian oil tankers over the weekend, destroying one, after accusing Iran of launching ballistic missile attacks against US Navy warships, according to media reports. Iran subsequently said it would establish a new restricted zone outside the Strait of Hormuz. The proposed area would begin at the US Navy blockade line and extend into parts of the Persian Gulf, according to a Press TV report. Iran also said it had targeted three tankers in response to the US strikes, according to media reports. The escalation has added to uncertainty over the future of energy shipments through the strategic waterway, with investors watching for signs that the war could lead to a prolonged disruption in global oil flows.

 

On the domestic front, traders are likely to actively keep an eye out for any durable measures by the RBI to drain surplus liquidity. The central bank, post market hours Friday, said it would conduct a 30-day variable rate reverse repo operation with the option of premature reversal Monday. However, reception of the VRRR is mixed, with several dealers not expecting full subscription due to its long-tenure despite the option of premature reversal, they said. Mutual funds are also not allowed to participate in VRRRs, and currently sit on hefty cash and deploy it at extremely low rates. 

 

Moreover, the RBI's proactive management to drain surplus liquidity is also seen as a sign of imminent hikes in the repo rate, according to some market participants. Others believe that the 30-day VRRR sets the stage for permanent measures to drain liquidity surplus at the RBI's Monetary Policy Committee meeting outcome in October, which is the same date as the reversal of the 30-day VRRR. 

 

Focus will also be on the US Federal Open Market Committee's rate decision on Sept. 16, dealers said. The FOMC decision will be a key trigger for the RBI MPC's repo rate decision in October, dealers said. As September nears its end, focus will also be on the Centre's and states' borrowing plans October onwards, with heavy supply expected from both.  (Diksha Tripathy)  End

 

US$1 = INR 94.48

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

 

Edited by Rajeev Pai

 

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