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Informist, Tuesday, Sept. 15, 2026

 

--India's 5-yr benchmark gilt yield ends at 6.7914%, highest since May 22

--India's 10-yr benchmark gilt yield ends at 7.0727%, highest since May 22 

 

By Aaryan Khanna

 

NEW DELHI – Yields on government bonds rose Tuesday after the Reserve Bank of India announced it would conduct its first open market operation auction to sell bonds in nearly five years, dealers said. With additional supply in the segment and increasing fears that the central bank's Monetary Policy Committee will hike the repo rate in October, short-term yields jumped. A fall in Brent crude prices near the end of trade limited the rise in the 10-year gilt yield, as did consistent purchases by state-owned banks at psychologically crucial levels, they said. 

 

The 10-year benchmark 6.94%, 2036 gilt ended at INR 99.07, against INR 99.41 Friday. The bond's yield rose to 7.0727%, up from 7.0233% at the end of the previous session. The benchmark yield topped 7.10% intraday. Meanwhile, the yield on the 6.36%, 2031 gilt rose over 17 basis points Tuesday to 6.7914%, the biggest jump in a five-year benchmark yield since Jun. 10. Both benchmark gilts ended at their highest levels since May 22.

 

"Obviously, the main theme today is the OMO sale. I don't think there was any trader who didn't see it coming," a dealer at a primary dealership said. "The RBI seemed out of options and when the governor mentioned it on Friday, that was the telltale sign that he was preparing the market, but it still obviously took a bad hit."

 

In an interview aired during market hours Friday, RBI Governor Sanjay Malhotra said the central bank could use bond sales and dollar-rupee sell-buy swaps, among other measures, to drain rupee liquidity in the banking system, which had swollen to over INR 10 trillion over the past week. After market hours Friday, the RBI announced it would sell INR 1 trillion of gilts through OMO auctions in September, with the first tranche of INR 500 billion on Thursday.

 

The six bonds chosen for the first OMO sale auction since September 2021 mature between 2029 and 2032, pushing up yields sharply in gilts of these tenures, dealers said. Subsequent auctions are also expected to be in bonds maturing in three to six years to coincide with the maturity of banks' foreign currency non-resident (banks) deposits under the RBI's special scheme that ended Aug. 31, they said. The influx of over $127 billion is the primary reason for the near-record liquidity surplus and the central bank likely expects banks to buy bonds at the OMO sales to match those liabilities with assets of similar tenures, dealers said.

 

After a sharp rise in early trade, gilt yields steadied near psychologically crucial levels of 6.80% on the five-year gilt and 7.10% on the 6.94%, 2036 bond. Further selling was limited as traders avoided fresh short sales at those levels, despite widespread expectations that gilt yields would rise further in the coming days, dealers said. Banks expect the RBI to sell bonds at the OMO auction even at significantly higher yields, a bargain for the bidders, to ensure liquidity is mopped up, they said. 

 

There was limited impact of rising CPI inflation directly on gilt prices as the reading was in line with expectations, dealers said. Data released Monday – when markets were shut for Ganesh Chaturthi – showed India's CPI inflation rose to a 20-month high of 4.82% in August due to rising food inflation, in line with the median of an Informist poll. However, signs of more generalised price pressures have led to economists at Deutsche Bank and ICICI Securities Primary Dealership changing their base case to a rate hike of 25 basis points at the MPC's next meeting in October. They join SBI Research, which on Friday said in a note that it sees 50 bps of repo rate increases to 5.75% by December.

 

The government bond yield curve flattened significantly Tuesday and short-term yields rose much more sharply than those on long-term gilts. While the five-year gilt yield rose over 17 bps Tuesday, the yield on the 30-year benchmark 7.24%, 2055 bond only rose 4 bps. The spread of the 10-year gilt over the five-year bond also narrowed by 12 bps.

 

"More and more people are expecting a rate hike in October now, it is not a mixed view anymore. High crude is making an impact on CPI," a dealer at a state-owned bank said. "In this environment, it really doesn't make too much sense to protect yields all the way through, though some buying will keep coming in at these levels."

 

The rise in yields was stark after a three-day weekend as Brent crude futures for November delivery topped $108 per barrel during the day due to further escalation in the West Asia war between the US and Iran. Moreover, there were no signs of peace negotiations between the two countries. The 10-year US Treasury yield hit an over 19-year high of 5.05% during market hours, which likely prompted foreign portfolio investors to sell gilts, dealers said. Clearing Corp. of India data at 1900 IST showed FPIs sold nearly INR 25 billion of fully accessible route gilts Tuesday, the sixth straight session of sales.

 

However, the 10-year gilt yield ended near the day's low as the near-month Brent crude contract fell to near $106 per barrel at the end of Indian market hours. Trade volumes, which were subdued in the first half of the day, picked up as crude oil prices fell, dealers said. Traders attributed the fall to reports from Russian officials that it may begin winding down the war in Ukraine. The fall in yields was restricted to the 10-year gilt and longer-term bonds, with short-term gilt still more affected by the OMO sale announcement and the likelihood of repo rate increases, dealers said.

 

The total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 500.75 billion, slightly higher than INR 469.45 billion Friday. There were no trades using the RBI's wholesale e-rupee pilot Tuesday, as has been the case for several months.

 

OUTLOOK

On Wednesday, bond prices are seen taking cues from the overnight movement in crude oil prices and US Treasury yields, along with developments in the West Asia war. The RBI's upcoming OMO auction Thursday to sell INR 500 billion of six gilts will continue to weigh on prices, dealers said. The RBI will sell the 7.59%, 2029 bond, the 6.79%, 2029 bond, the 7.61%, 2030 bond, the 5.77%, 2030 bond, the 6.68%, 2031 bond, and the 8.28%, 2032 bond at the auction.

 

Before that, the US Federal Open Market Committee's rate decision late Wednesday is being closely watched for domestic rate cues. There are widespread expectations that the US rate-setting panel will raise its policy rate, which is likely to put pressure on the RBI's MPC to tighten monetary policy and raise the repo rate as well, dealers said. However, no rate hike in the US could lead to a significant fall in short-term US yields and benefit gilts maturing in up to five years, which are seen out of favour until the decision at 2330 IST Wednesday. 

 

Traders are also waiting for the release of the borrowing calendar for state and central government bond issuances for the next quarter and the second half of the current financial year, respectively. The proportion of different bond tenures in the calendar will lend cues to the shape of the gilt yield curve, dealers said. The RBI has held several meetings with market participants this month 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 6.98% and 7.15%, dealers said.

 

	TUESDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	99.0700	7.0727%	99.4100	7.0233%
6.48%, 2035	96.2650	7.0440%	96.6800	6.9798%
6.36%, 2031	98.3700	6.7914%	99.0100	6.6202%
7.06%, 2041	98.7100	7.2014%	99.2500	7.1414%
7.24%, 2055	95.2575	7.6487%	95.7200	7.6073%

 

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India Gilts: Near day's high as Brent slips below $107/bbl; still sharply dn

 

	1620 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.02	99.12	98.88	98.91	99.41
YTM (%)	7.0807	7.0654	7.1004	7.0960	7.0233

 

	1620 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.36%, 2031
PRICE (INR)	98.38	98.85	98.33	98.85	99.01
YTM (%)	6.7887	6.6629	6.8021	6.6629	6.6202

 

NEW DELHI--1620 IST--The price of the 10-year benchmark 6.94%, 2036 gilt neared the day's high as Brent crude futures for November delivery slipped below $107 per barrel. However, bond prices remained sharply down after the Reserve Bank of India's announcement of open market operation sales through auctions, dealers said.

After rising sharply over the extended weekend in India, Brent crude prices and US Treasury yields eased from intraday highs, leading to a small recovery in bond prices, dealers said. Brent crude for November eased to $106.66 per barrel at 1615 IST from over $108 a barrel an hour earlier. The 10-year US yield was at 5.01%, against a high of 5.05%.

 

Higher bond supply from the RBI's INR-1-trillion OMO sales in the next two weeks, combined with mounting expectations of a repo rate increase at the Monetary Policy Comittee's next meeting in October, continued to weigh on the market, dealers said. However, short sales had been limited as state-owned banks' purchases kept the five-year benchmark gilt's yield capped at 6.80% and the 10-year benchmark yield at 7.10% Tuesday, both psychologically crucial levels, they said. 

 

The impact of less adverse global triggers was not significant on short-term bonds, which will bear the brunt of additional supply, dealers said. At its first OMO sale since 2021, the RBI Thursday will sell INR 500 billion worth of six gilts maturing in 2029 to 2032. 

 

"The market knows that the RBI has to sell INR 500 billion as part of its liquidity measures, whether banks tender it at a 5 basis point tail or 15 bps," a dealer at a private sector bank said. "So whatever levels the market is making is temporary until the (OMO) auction, where the levels will reajust once again." 

 

The total traded volume in the government securities market at 1620 IST was INR 427.00 billion, similar to INR 425.25 billion at 1630 IST Friday, according to data from the Clearing Corp. of India Ltd. Trading volumes through the day were largely tracking crude prices rather than the significant news over the weekend, including India's inflation data, dealers said.

 

"The market had no portfolios built up so that's why such a big move has happened without significant trading volume," the trader quoted above said. The yield on the 10-year gilt is seen in a range of 7.04-7.11% for the rest of the day.  (Aaryan Khanna)

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India Gilts: Sharply dn as oil, US ylds up, on caution before FOMC decision

 

	1134 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	98.97	99.12	98.88	98.91	99.41
YTM (%)	7.0873	7.0654	7.1004	7.0960	7.0233

 

MUMBAI--1134 IST--Government bond prices remained sharply lower as Brent crude stayed above $107 a barrel and US yields edged up intraday, dealers said. The INR-500-billion bond sale through open market operations auction on Thursday also weighed on prices. Traders remained cautious ahead of the Federal Open Market Committee's policy rate decision on Wednesday, dealers said. However, the fall in bond prices was limited as traders likely bought bonds at levels seen as attractive, dealers said. Traders also await the result of the state bond auction due later in the day.

 

Brent crude oil futures for November delivery were at $107.50 per barrel, slightly up from $107.06 per barrel at 0900 IST and up from $105.12 per barrel at the end of Indian trading hours Friday. The yield on the 10-year benchmark US Treasury was at 5.02%, also slightly higher from 5.01% at 0900 IST, and up from 4.95% at 1700 IST on Friday. US Treasury yields rose due to expectations of a rate hike by the Federal Open Market Committee on Wednesday after US consumer prices rose 3.4% last month from a year earlier. Fed funds futures are now pricing in a 92.4% probability of a 25-basis-point increase in interest rate at the US Federal Reserve's two-day meeting ending Wednesday, compared with a 59.40% probability a week earlier, according to the CME Group's FedWatch tool.

 

At the state bond auction, 16 states were in line to raise INR 359 billion worth of state bond auction, which is nearly 50% higher than INR 240 billion worth of state bond sales indicated in the borrowing calendar for the September quarter. Traders expect the cut-off yield at the auction to be on the higher end of expectations driven by the large supply and a rise in central government bond yields. The spread between the state bonds and central government bond of similar maturity is likley to widen at the auction, dealers said. While traders are likely to refrain from bidding aggressively for the state bonds, some traders considered the yield on these bonds attractive to add to their portfolios, dealers said. The yield on Assam's 10-year bond is likely to be at 7.80%, while the cut-off on Tamil Nadu's 10-year paper is seen at 7.76%, according to the median of an Informist Poll. At the state government bond auction last week, the cut-off yield on states' 10-year bonds was set at 7.59-7.63%, a spread of 64-68 basis points over the gilt of similar maturity issued by the Centre.

 

"I think there will be a little bit of tail (bidding at a higher yield) at the auction," a dealer at a private sector bank said. "I think demand will be impacted due to FOMC...supply (of state bonds at auction) is also large." 

The fall in bond prices was contained as traders, especially public sector banks, likely picked up bonds near the psychologically crucial 7.10% yield, dealers said. If the Brent crude oil price rises further, the yield on the 10-year benchmark is likely to rise to 7.15% but is unlikely to sustain at this level, dealers said. Traders also avoided building aggressive positions ahead of the FOMC meeting Wednesday. 

 

The total traded volume in the government securities market at 1134 IST was INR 182.25 billion, higher than INR 163.45 billion at 1130 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 7.00-7.10% during the day, dealers said.  (Janwee Prajapati)

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India Gilts: Sharply down on OMO sale notice, rise in crude oil, US yields

 

	0940 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	98.92	99.12	98.88	98.91	99.41
YTM (%)	7.0946	7.0654	7.1004	7.0960	7.0233

 

MUMBAI--0940 IST--Government bond prices fell sharply after the Reserve Bank of India Friday said it would sell INR 1 trillion worth of bonds in three tranches through an open-market operation auction, with its first tranche on INR 500 billion scheduled for Thursday, dealers said. The sharp rise in US treasury yields along with elevated Brent crude oil prices also pulled down bond prices, dealers said. Traders will wait for the result of the heavier-than-indicated state bond auction, dealers said. 

 

In early trade, the yield on the 10-year benchmark 6.94%, 2036 bond hit 7.0960%, whereas the yield on the five-year benchmark 6.36%, 2031 bond hit 6.7673%, both the highest since May 22. The rise in yields was majorly due to the announcement of INR 1 trillion of bond sales through OMO auction, dealers said. The RBI, post-market hours Friday, said it would sell INR 1 trillion of bonds through open-market operations in three tranches, one of INR 500 billion and the remaining two of INR 250 billion, dealers said. These will be its first OMO sale auctions since the simultaneous sales, along with its last Government Securities Acquisition Programme 2.0 purchases on Sept. 30, 2021. The first tranche of the INR-1-trillion OMO auction will be conducted Thursday, when the central bank will sell six gilts worth INR 500 billion. The RBI will sell the 7.59 29bond, the 6.79 29bond, the 7.61%, 2030 bond, the 5.77 30bond, the 6.68 31bond, and the 8.28 32bond via the open market operations auction Thursday.   

 

"Everything, all the cues are negative...global cues are weighing more, I feel, as US treasury yields are over 5%," a dealer at a private sector bank said. "10-year benchmark (6.94%, 2036 bond) yield could go to 7.15%...maybe not immediately but gradually." 

 

Brent crude oil futures for November delivery were at $107.06 per barrel, up from $105.12 per barrel at the end of Indian trading hours Friday. The yield on the 10-year benchmark US Treasury was at 5.01%, up from 4.95% at 1700 IST on Friday. US Treasury yields rose due to expectations of a rate hike by the Federal Open Market Committee on Wednesday after US consumer prices rose 3.4% last month from a year earlier. Core CPI, which strips out volatile food and energy costs, rose 2.4%. Both readings reinforced the investor narrative that inflation was still too high for the Fed to keep interest rates on hold. Fed funds futures are now pricing in a 92.4% probability of a 25-basis-point increase in interest rate at the US Federal Reserve's two-day meeting ending Wednesday, compared with a 59.40% probability a week earlier, according to the CME Group's FedWatch tool.

 

Traders will also track the result of INR 359 billion worth of state bond auction, which is nearly 50% higher than INR 240 billion worth of state bond sales indicated in the borrowing calendar for the September quarter. The total traded volume in the government securities market at 0940 IST was INR 109.00 billion, higher than INR 57.65 billion at 0930 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 7.00-7.10% during the day, dealers said.  (Janwee Prajapati)

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India Gilts: Seen sharply down on rise in Brent crude prices, US yields

 

MUMBAI – Government bond prices are seen opening sharply lower Tuesday on account of a slew of negative factors, dealers said. On the global front, the ongoing war in West Asia, which has pushed Brent crude oil futures well above $100 per barrel, paired with a sharp rise in US Treasury yields, is likely to weigh on bond prices in early trade, dealers said. Domestically, the Reserve Bank of India's announcement of a 1-trillion-rupee open market operation to sell bonds and absorb excess liquidity from the banking system is also expected to weigh on bond prices, dealers said. Meanwhile, India's August CPI inflation data, though largely in line with expectations, rose to a 20-month-high, adding to the negative sentiment. Later in the day, bond prices are likely to take cues from the result of the state government bond auction, with the supply size higher than the amount indicated in the borrowing calendar, dealers said.

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 7.06% Tuesday and move between 7.00% and 7.10% during the day, dealers said. While some traders do not expect the yield to rise above the 7.10% mark on likely demand from public sector banks, others expect the yield on the 10-year benchmark bond to remain below the historically significant 7.14% mark at least till the result of the Federal Open Market Committee's decision on policy rate Wednesday. Friday, the bond ended at INR 99.41, or a yield of 7.0233%. The five-year benchmark 6.36%, 2031 bond is likely to open 6.67% and is seen rising to 6.70%, dealers said. 

 

Brent crude oil futures for November delivery were at $107.06 per barrel, higher from $104.22 per barrel at the end of Indian trading hours Friday. Oil prices rose as traders assessed risks to West Asian crude supplies, with a key Saudi pipeline still shut after attacks last week. The gains came as markets weighed the continued closure of Saudi Arabia's East-West pipeline, which transports crude across the kingdom to the Red Sea and serves as an alternative to shipments through the Strait of Hormuz. The US also imposed fresh sanctions on Russia's VTB Bank, accusing the lender of helping Iran evade Western sanctions and warning that foreign institutions that continue to do business with Russia's second-largest bank could face additional penalties.  
 

The 10-year benchmark US Treasury yield stood at 5.00%, up from 4.95% at 1700 IST on Friday. While escalating tensions in West Asia pushed Treasury yields higher, the main driver of the increase was rising expectations of a policy rate hike at the FOMC meeting on Wednesday. The bets of an interest rate hike increased after US consumer prices rose 3.4% last month from a year earlier, prompting traders to raise the odds of a Federal Reserve rate hike next week. The headline inflation figure was unchanged from the prior month and matched estimates from economists polled by The Wall Street Journal. Core CPI, which strips out volatile food and energy costs, rose 2.4%. Both readings reinforced the investor narrative that inflation was still too high for the Fed to keep interest rates on hold. Fed funds futures are now pricing in a 92.4% 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 59.40% probability a week earlier, according to the CME Group's FedWatch tool.

On the domestic front, India's retail inflation, based on the CPI, rose to a 20-month high in August due to higher food, transport, and restaurant services inflation driven by the impact of the ongoing war in West Asia. The retail inflation was seen broadening in August, according to data released Monday by the statistics ministry. Headline inflation rose to 4.82% on year in August from 4.45% in July, surpassing the Reserve Bank of India's medium-term target of 4% for the third consecutive month. CPI inflation was 2.01% in August last year. The CPI inflation print was broadly in line with economists' expectations. According to an Informist poll, headline inflation was seen at 4.8% in August. WPI inflation at 9.9%, was virtually unchanged for the third straight month.

Market sentiment was also dampened after the RBI, post-market hours Friday, said it would sell INR 1 trillion of bonds through open-market operations in three tranches, one of INR 500 billion and the remaining two of INR 250 billion, dealers said. These will be its first OMO sale auctions since the simultaneous sales, along with its last Government Securities Acquisition Programme 2.0 purchases on Sept. 30, 2021. The first tranche of the INR-1-trillion OMO auction will be conducted Thursday, when the central bank will sell six gilts worth INR 500 billion. The RBI will sell the 7.59 29bond, the 6.79 29bond, the 7.61%, 2030 bond, the 5.77 30bond, the 6.68 31bond, and the 8.28 32bond via the open market operations auction Thursday.

 
Later in the day, traders will also await the result of INR 359 billion of state bond auction, which is nearly 1.5 times higher than INR 240 billion worth of state bond sales, according to the indicative borrowing calendar for the September quarter. The large supply of these bonds is likely to pressure demand for the said bonds. Traders expect the spread between the state bond and central government bond of similar maturity to widen following the rise in gilt yields. Some traders are, however, likely to pick up these bonds due to attractive yields, dealers said. (Janwee Prajapati)

End

 

US$1 = INR 95.96

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

 

Edited by Avishek Dutta

 

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