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Informist, Monday, Oct. 5, 2026

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended steady Monday on caution before the rate decision of the Reserve Bank of India's Monetary Policy Committee Wednesday, dealers said. A slight rise in crude oil prices did not have much of an impact as US Treasury yields eased, they said.

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 98.14, or 7.2108% yield, compared with its previous close of INR 98.12, or 7.2133% Thursday. Thursday's closing yield level was the highest since April 2024. The bond's price moved in an 11-paise band Monday after a long weekend did not materially change either policy expectations or shed more light on the direction of the US-Iran war. India's financial markets were shut Friday for Gandhi Jayanti.

 

"We've largely been tracking oil prices and US yields, which have been moving sideways today, fortunately," a dealer at a primary dealership said. "With only one day to go before the big event, there is nothing much going on in the market beyond some minor position adjustments."

 

Bonds were well bid through the day as traders covered short sales on the 10-year gilt's yield near 7.22%, though most of this covering was to trim excessive negativity heading into the policy decision, dealers said. Investors were unwilling to take large bets and kept to the sidelines through the day, keeping the 10-year yield above the key 7.20% mark. A fall in US Treasury yields over the weekend also helped. At 1700 IST Monday, the 10-year US yield was 5.26%, down from 5.31% at the end of gilt market hours Thursday. 

 

Brent crude oil for December delivery traded near $102 per barrel at 1700 IST, up from $100.50 a barrel at the same time Thursday, due to reports of an attack on Saudi Arabia's oil facilities. Earlier media reports suggested an increase in energy supplies flowing out of West Asia, with the Group of Seven also agreeing to release additional oil stocks to meet global demand.

 

Traders almost universally expect the rate-setting panel to hike the policy repo rate by 25 basis points to 5.50% at the end of its three-day meeting that began Monday. Some traders said there were signs of generalisation of inflation in the latest CPI reading, where retail inflation rose to a 20-month high of 4.82% in August. The committee members had said in their previous meeting that they were looking for signs of generalisation of food and fuel prices shocks to the rest of the consumer basket. 

 

Others said persistently high crude oil prices would eventually pass-through to retail product pricing over the coming quarters, requiring a rate increase to curb eventual price pressures. The central bank forecasts Oct-Dec CPI inflation at 5.9%, just within its 2-6% comfort band and well above the 4% target. The pass-through could lead to CPI inflation overshooting the RBI's forecasts by 20-40 bps in the coming quarters, dealers said. 

 

"The market certainly feels the RBI is behind the curve, whether that is true or not," a dealer at a private-sector bank said. "So really everybody expects a rate hike, that is a foregone conclusion. Whether he (RBI) will change the (policy) stance or not will be the key for the market to react to."

 

Currently, bonds as pricing in a quarter percentage point repo rate increase, along with more RBI measures to absorb durable liquidity from the banking system after it hit a record high near INR 14 trillion on Sept. 15. Some sections of the market even expect a jumbo 50-basis-point repo saying it would not be "out of turn" to curb inflation while also drawing into foreign investment to shore up the weak rupee, dealers said. The concern over more durable liquidity outflows, after the RBI's open market operation auctions to sell gilts worth INR 1 trillion in September, weighed on the price of the five-year benchmark 6.36%, 2031 gilt Monday.

 

Dealers are split on whether the policy stance would change from neutral to "withdrawal of accommodation" or "calibrated tightening", with bond prices likely to react both ways depending on the decision. Regardless of the stance, RBI Governor Sanjay Malhotra is widely expected to focus on curbing inflation rather than boosting growth in his comments at the meeting, dealers said.

 

Meanwhile, traders had mixed views on the indicative calendar for state borrowing in the December quarter. States will raise INR 3.61 trillion through bonds in Oct-Dec, according to an RBI release after market hours Thursday. The notified amount is in the middle of market estimates of INR 3.25 trillion to INR 3.75 trillion. While the announcement did not weigh on gilts Monday, the relatively limited calendar may open the door for states to issue INR 5 trillion of bonds in the March quarter, dealers said. This may lead to a consistent fall in gilt prices from auction to auction, especially with the net gilt supply also higher in Oct-Mar, they said. 

 

"The problem will be when week by week the state bond yields start going higher, after which public-sector banks will move entirely to SDL (state bonds) from gilts," the dealer from the primary dealership quoted above said.

 

The total turnover in the government securities market dropped to INR 325.95 billion Monday from INR 488.90 billion Thursday, data from Clearing Corp. of India showed. There were no trades using the RBI's wholesale e-rupee pilot, as has been the case for months.

 

OUTLOOK

Gilts are likely to open steady Tuesday on caution before the MPC's rate decision, where the panel is widely expected to hike the repo rate by 25 bps, dealers said. Though the rate hike may not lead to a sharp reaction, Governor Malhotra's comments and the RBI's policy stance and measures to drain liquidity will be closely watched, they said.

 

Gilts are pricing in repo rate increases of around 100 bps from current levels and a convincing argument from central bank officials on a shallower rate hike cycle despite high crude oil prices and US yields may lead to a sharp increase in bond prices, dealers said. Most traders expect a maximum rate hike cycle of only 50-75 bps by February while others see higher inflation causing four repo rate increases.

 

"The MPC may also shift its stance from 'neutral' to 'calibrated tightening' or 'withdrawal of accommodation'," Goldman Sachs said in a note Friday. "With growth surprising above expectations, core inflation broadening and El Nino-related food inflation risks likely to intensify in 2027, we now expect a further 50bp of tightening in H1 2027 (25bp each in Q1 and Q2), taking cumulative hikes in this cycle to 100bp."

 

A major development in the war in West Asia and its impact on crude oil prices and US Treasury yields may also lend direction to gilt prices Tuesday, dealers said. However, gilts will have a lower sensitivity to offshore triggers as they are not likely to influence the MPC's rate decision this week. Foreign portfolio investors are also expected to remain on the sidelines until the rate decision, dealers said.

 

Any significant movement in the rupee and swap rates will also lend cues, dealers said. The yield on the 10-year benchmark 6.94%, 2036 bond is expected to move between 7.15% and 7.25%, dealers said.

 

	MONDAY		THURSDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	98.1375	7.2108%	98.1200	7.2133%
6.48%, 2035	95.3000	7.1986%	95.3500	7.1905%
6.36%, 2031	97.8300	6.9423%	97.8500	6.9365%
7.06%, 2041	96.7700	7.4214%	96.7700	7.4214%
7.24%, 2055	94.7500	7.6943%	94.7700	7.6925%

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India Gilts: Remain in thin band; intraday rise in crude oil prices weighs

 

	1515 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	98.11	98.19	98.08	98.14	98.12
YTM (%)	7.2145	7.2038	7.2193	7.2101	7.2133

 

 

MUMBAI--1515 IST--Government bonds prices continued to move in a thin band as traders remained cautious ahead of the Reserve Bank of India's Monetary Policy Committee decision Wednesday, dealers said. An intraday rise in crude oil prices also weighed on bond prices amid fears of an escalation in the war in West Asia, dealers said. An intraday rise in US Treasury yields also weighed on Indian government bonds.

 

"Bond prices are tracking every move in US Treasury yields and Brent crude oil," a dealer at a private-sector bank said. "Twenty-five basis-point rise in (repo rate) is priced in ... everybody will focus on how many rate hikes are possible in this financial year."

 

The Brent crude futures contract for December delivery was at $102.67 per barrel, up from the day's low of $100.65 per barrel and from $99.91 per barrel at the end of Indian trading hours Thursday, which weighed on bond prices, dealers said. Bonds are likely to closely track movements in crude oil prices till the monetary policy decision Wednesday, dealers said. The yield on the 10-year benchmark US Treasury note was at 5.28%, up from 5.26% at 0900 IST but down from 5.31% at 1700 IST Thursday. 

 

Traders widely expect the Monetary Policy Committee to raise the repo rate by 25 bps while keeping its stance unchanged. However, the focus will be on RBI Governor Sanjay Malhotra's comments and forward guidance, dealers said. Some traders expect the Governor to also announce bond sales through open market operation auctions worth INR 500 billion to INR 1 trillion to absorb excess liquidity from the banking system. Traders will also await India's CPI inflation data for September, to be released Oct. 12, dealers said.

 

Some traders covered some short bets as bond prices fell to near the day's low, dealers said. Some traders expect the 10-year benchmark 6.94%, 2036 bond to close near 7.20% if crude oil prices remain near the current levels, dealers said. "I think it will hold near 22-23 (7.22%-7.23%)," a dealer at a private-sector bank said. "However, if it (the yield on the 10-year benchmark bond) rises above 24 (7.24%) then traders who had entered near 7.18% will likely hit stop-losses."

 

The RBI indicated gross state government securities issuance of INR 3.6 trillion in Oct-Dec in its auction calendar released Oct. 1. Though this was sharply higher by 24% than the INR 2.9 trillion raised by states in Jul-Sept, traders said it was in line with expectations. They do not expect any sharp rise in the spread between state government securities and central government bonds of similar maturity, with some expecting the spread to remain at 60–70 bps.

 

Monday, the total turnover in the government securities market remained low as traders refrained from taking positions ahead of the monetary policy decision. At 1515 IST, the total trade volume was INR 240.85 billion, down nearly 34% from INR 363.85 billion at 1530 IST Thursday, according to data from the Clearing Corp. of India Ltd. Indian financial markets were shut Friday for Gandhi Jayanti.  (Janwee Prajapati)

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India Gilts: Remain in thin band on lack of cues; market awaits MPC decision

 

	1330 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	98.15	98.19	98.10	98.14	98.12
YTM (%)	7.2090	7.2038	7.2160	7.2101	7.2133

 

MUMBAI--1330 IST--Government bond prices moved in a narrow band Monday amid lack of significant global or domestic cues, dealers said. Traders remained on the sidelines as they await the decision of the Reserve Bank of India's Monetary Policy Committee Wednesday. Market participants widely expect a 25-basis-point increase in the repo rate to 5.50%, from 5.25% currently, amid rising inflationary pressure due to elevated oil prices stemming from the US-Iran war, they said.  

 

Traders said a 25 bps hike may not have a significant impact on bond yields as the market has already priced in such a hike. However, a higher-than-expected hike may push bond yields higher, with the 10-year benchmark 6.94%, 2036 bond yield rising above the technical 7.25% level, dealers said. Some traders also expect the inflation projections to be revised upwards due to the ongoing war in West Asia. A report by State Bank of India said the RBI's rate-setting panel may raise its inflation forecast by 20 bps and GDP growth forecasts by 30 bps. 

 

"While India need not press the panic button as of now, policy makers and regulators would do well to brace for an eventuality where evolving macros force resorting to some unconventional rate measures to safeguard broader interests," the SBI pre-MPC research report said. 

 

Monday, the total turnover in the government securities market remained low as traders refrained from taking positions before the policy outcome. However, some traders covered short positions near 7.22% yield on the 10-year 2036 bond, which supported bond prices Monday, dealers said. At 1330 IST, the total trade volume was INR 148.95 billion, significantly lower than INR 234.30 billion at 1330 IST Thursday, data from the Clearing Corp. of India Ltd. showed. Indian financial markets were shut Friday for Gandhi Jayanti.

 

"The volume in the market is really low today and till MPC this trend is likely to continue," a dealer at a state-owned bank said. "Crude and UST (US Treasury yields) are the two factors that the market has been tracking, but today (Monday) there is no major movement in these two as well."  

 

Traders continued to monitor developments in the war in West Asia as it could lend cues to Brent crude oil prices and US yields, which in turn could impact bond prices. However, with no significant triggers in the market Monday, the yield on the 10-year gilt is seen in a range of 7.18-7.22% for the rest of the day, dealers said.  (Diksha Tripathy)

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India Gilts: Steady on caution before MPC outcome Wed; trade volumes low

 

	0940 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	98.15	98.19	98.12	98.14	98.12
YTM (%)	7.2094	7.2038	7.2134	7.2101	7.2133

 

MUMBAI--0940 IST--Government bond prices were steady Monday as traders remained cautious ahead of the Reserve Bank of India's Monetary Policy Committee decision Wednesday. A fall in US Treasury yields likely supported Indian bond prices Monday, dealers said. However, oil prices traded above $101 per barrel, weighing on bond prices Monday, dealers said.     

 

Brent crude oil prices fell Monday from a high of $103.40 per barrel but still traded above the psychologically crucial $100 per barrel level, pulling down bond prices, dealers said. Brent crude oil futures for December delivery were at $101.48 per barrel at 0940 IST, up from $100.61 per barrel at the end of Indian gilt market hours Thursday. India's financial markets were shut Friday for Gandhi Jayanti.   

 

Meanwhile, US yields fell over the weekend as traders paused the sell-off, dealers said. The yield on the 10-year benchmark US Treasury note was at 5.27%, down from 5.31% at 1700 IST Thursday. The fall in yields is likely to support domestic bond prices throughout the day. However, a rise would weigh on bond prices. Traders will closely monitor developments in the US-Iran war and its impact on US yields and Brent crude oil prices, which could lend further cues to the market. 

 

Traders maintained a cautious stance Monday and refrained from taking positions as they await the MPC's decision on the repo rate, they said. Most traders expect a 25-basis-point rate hike at Wednesday's meeting, along with an announcement of some liquidity-related measures. Traders will also closely track comments on inflation and GDP growth amid uncertainty stemming from the war in West Asia and elevated oil prices. 

 

"Mostly the market will trade at the current levels only till Wednesday at least, because everyone is now waiting for the MPC," a dealer at a primary dealership said. "In this rate hike cycle, we are expecting a 100–125 bps rate hike, starting this week." 

 

The total turnover in the government securities market at 0940 IST was INR 23.30 billion, down from INR 31.70 billion at 0930 IST Thursday, data from the Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 7.18-7.25% during the day, dealers said.  (Diksha Tripathy)

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India Gilts: Seen steady before MPC decision; Brent above $101/bbl may weigh

 

MUMBAI – Government bond prices are expected to open steady as traders likely remain cautious ahead of the Reserve Bank of India's Monetary Policy Committee's decision on the repo rate Wednesday. However, Brent crude oil prices staying above $101 per barrel are likely to put pressure on Indian bond prices Monday, dealers said.  

 

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 7.21% and move between 7.15% and 7.25% during the day, dealers said. Thursday, it ended at INR 98.12, or a yield of 7.2133%. Indian financial markets were shut Friday for Gandhi Jayanti. Most traders are likely to refrain from placing aggressive bets ahead of the MPC outcome, which is likely to keep trading volume lower on Monday. 

 

Traders widely expect the RBI's rate-setting panel to begin a shallow rate-hiking cycle with a 25-basis-point interest rate increase Wednesday. They are awaiting comments from RBI officials after the rate decision, including Governor Sanjay Malhotra's assessment of growth and inflation. Malhotra's speech at the Kautilya Economic Conclave was seen as hawkish, with the market now expecting rates to remain higher for longer, dealers said.  

 

Speaking about bond yields, the RBI Governor had said Indian yields have risen only partially, thanks to the government's continued fiscal consolidation. With global bond yields rising, he said global interest rates could affect India's real interest rates.  

 

At the conclave, Economic Affairs Secretary Anuradha Thakur also highlighted that the bond market has emerged as a key source of capital globally. However, she recognised that rising global yields amid global uncertainties and imbalances pose a huge challenge for emerging markets such as India, because the global bond markets have an opportunity cost of capital.

 

On Monday, bond prices are also likely to take cues from global factors such as oil prices and US Treasury yields, dealers said. Brent crude oil prices rose over the weekend as Iran refused to lift restrictions on the Strait of Hormuz until its conditions set out in a June interim agreement with the US ‌are met, reported Reuters, citing Iranian media. However, oil prices fell slightly Monday after the Group of Seven nations decided to release oil stocks amid supply concerns, Reuters reported. Despite some positive developments, oil prices traded above the psychologically crucial $100 per barrel level on Monday. At 0810 IST, Brent crude oil futures for December delivery were at $101.43 per barrel, up from $100.61 per barrel at the end of Indian gilt market hours Thursday. 

 

Meanwhile, a fall in US yields is likely to support Indian bond prices Monday, dealers said. The yield on the 10-year benchmark US Treasury note fell to 5.26?ter a recent selloff in global bonds ‌hit pause Monday. A lower-than-expected US job growth in September dampened market sentiment over the weekend. The Labor Department's closely watched employment report on Friday also showed the unemployment rate increased to 4.2% last month from 4.1% in August. Monday, traders will closely track developments in the war in West Asia and its impact on crude oil prices and US Treasury yields.  (Diksha Tripathy)

 

End

 

US$1 = INR 96.29

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

 

Edited by Shubhayan Bhattacharya

 

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