India Gilts Review
Down on hawkish MPC stance; rise in US yield, crude weighs
This story was originally published at 19:13 IST on 7 October 2026
Register to read our real-time news.Informist, Wednesday, Oct. 7, 2026
By Janwee Prajapati
MUMBAI – Government bond prices ended sharply lower Wednesday after the Reserve Bank of India hiked the repo rate by 25 basis points and changed its stance to "calibrated tightening" from "neutral", which weighed on bond prices, dealers said. The rise in Brent crude oil prices along with higher US Treasury yields also pulled down Indian bond prices, dealers said. However, the fall in bond prices was limited due to lack of an announcement of widely expected liquidity absorption measures, they said. Further, some traders picked up bonds at levels seen as attractive which also helped limit the fall, dealers said.
The 10-year benchmark 6.94%, 2036 bond ended at INR 97.94, or 7.2410% yield, the highest closing since Dec. 13, 2023. The bond had ended at INR 98.26 or 7.1928% Tuesday. The bond moved between 7.21% and 7.27% Wednesday.
At 1700 IST, the trade volume nearly doubled to INR 744.2 billion from INR 372.15 billion at the end of Indian gilt market hours Tuesday, data from the Clearing Corp. of India showed. Trade volume rose after uncertainty over the rate-setting panel's decision on policy rate subsided. There were no trades using the RBI's wholesale e-rupee pilot, as has been the case for months.
"Almost everything in policy was in line with expectations, just the stance change weighed on bond prices,' a dealer at a state-owned bank said. "...And there was no announcement of liquidity absorption measures, but they will give OMO (bond sales through open market operation auction) sales auction by today (Wednesday) or tomorrow (Thursday)."
Some traders continue to expect an announcement of an OMO sale auction after RBI Governor Sanjay Malhotra did not rule out the possibility of the central bank taking steps to absorb excess liquidity from the banking system, dealers said. The RBI has taken measures to absorb excess liquidity from the banking system and will continue to use an appropriate mix of liquidity management tools to align the weighted average call rate with the policy repo rate, he said.
Some traders expect the auction size to be between INR 1 trillion and INR 2 trillion, with the announcement likely this week, dealers said. The RBI's net liquidity absorbed--a proxy for the banking system liquidity surplus--was INR 4.99 trillion Tuesday, down from INR 5.3 trillion Monday. "The central bank would like to maintain the durable liquidity somewhere between (INR) 7–8 trillion," a dealer at a private sector bank said. The net durable liquidity was at a record high of INR 13.94 trillion as of Sept. 15, according to RBI data.
Following the repo rate hike and change in monetary policy stance, the yield on the 10-year bond rose to 7.2655%, the highest level in nearly three years. However, it failed to rise past this level as traders considered the level attractive to purchase bonds, they said. Traders now expect the yield on the bond to rise to 7.30% and gradually rise towards 7.40%. In the current week, the yield on the 10-year bond is likely to trade between 7.18–7.30%, dealers said.
On the yield curve, some traders preferred to place short bets on short-term bonds as they expect the yield on these bonds to rise, dealers said. Traders see the five-year benchmark 6.36%, 2031 bond rising to 7.05% given supply concerns. Traders expect the central bank to sell bonds maturing in up to five years through open-market sales, which will weigh on bond prices, dealers said. Long-term bonds are likely to remain in favour of long-term investors and some banks as they added these papers to their held-to-maturity books citing attractive yields, dealers said.
"The short end of the yield curve seems attractive because I think there is some scope for gap widening there (widening of the spread between the 10-year benchmark bond and the 5-year benchmark bond)," a dealer at a primary dealership said. "The long end does not have much movement left...I do not see the 30- 40-year paper to rise beyond 8%."
The spread between the 6.36%, 2031 bond and the 6.94%, 2036 bond was at 26 bps and the spread between the 7.24%, 2055 bond and the 10-year benchmark bond was at 44 bps. Traders largely expect the yield curve to flatten.
On the auction front, the influence of the repo rate hike was seen on T-bill cut-off yields, which were up 5 bps, 14 bps, and 11 bps for the 91-day, 182-day and 364-day bills, respectively. The RBI set a cut-off of 5.5747%, 6.0999%, and 6.2869% on the 91-day T-bill, 182-day T-bill, and 364-day T-bill, respectively. The cut-off yield on the 91-day T-bill was the highest since Jun. 4, 2025, while yields on the 182-day and 364-day T-bills were the highest since Apr. 2, 2025.
"Overall, today's policy was a non-event for markets as the outcome is largely on expected lines," Sachin Bajaj, chief investment officer at Axis Max Life Insurance Ltd., said. Going forward, we expect the MPC to be in wait-and-watch mode and wait for clarity on inflation outlook and future policy actions that are contingent on the evolving growth-inflation dynamics. Traders now await the release of India's September CPI scheduled for Oct. 12, which will lend cues to bond prices, dealers said.
In addition to significant domestic cues, fears of escalation in the war in West Asia continued to weigh on prices, dealers said. Brent crude oil futures for December delivery were at $102.10 per barrel, up from $101.49 per barrel at 0900 IST and $98.23 at the end of Indian trading hours Tuesday. Along with the rise in oil prices, the yield on the 10-year benchmark US Treasury also rose to 5.34%, up from 5.31% at 0900 IST and significantly up from 5.27% at 1700 IST Tuesday, which also weighed on prices.
OUTLOOK
With the completion of the RBI's MPC meeting, bond prices are likely to turn to global scenarios for cues, dealers said. Thursday, bond prices will track developments in the war in West Asia and its impact on crude oil prices. Significant overnight movement in US Treasury yields may also lend direction to gilt prices, dealers said. Any significant movement in the rupee and swap rates will also lend cues, they said.
Traders also await the likely announcement of OMO sales this week. Some traders expect the auction size to be between INR 1 trillion and INR 2 trillion, concentrated on the bonds maturing up to five-to-seven years, dealers said. Traders will also await the release of India's September CPI due Monday which will lend cues to bond prices, dealers said.
| WEDNESDAY | TUESDAY | |||
| PRICE | YIELD | PRICE | YIELD | |
| 6.94%, 2036 | 97.9350 | 7.2410% | 98.2600 | 7.1928% |
| 6.48%, 2035 | 95.1600 | 7.2209% | 95.4500 | 7.1751% |
| 6.36%, 2031 | 97.7000 | 6.9784% | 97.8600 | 6.9344% |
| 7.06%, 2041 | 96.5525 | 7.4465% | 96.8200 | 7.4157% |
| 7.24%, 2055 | 94.8800 | 7.6825% | 94.8600 | 7.6843% |
India Gilts: Remain dn on intraday rise in oil, US ylds; OMO sales expected
| 1519 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.94%, 2036 | |||||
| PRICE (INR) | 98.07 | 98.18 | 97.77 | 98.15 | 98.26 |
| YTM (%) | 7.2210 | 7.2055 | 7.2655 | 7.2095 | 7.1928 |
MUMBAI--1519 IST--Government bond prices were little changed after the cut-off yields at the Treasury bill auction were broadly in line with market expectations, dealers said. However, bond prices remained sharply lower as an intraday rise in Brent crude oil prices and US Treasury yields weighed on bonds, they said.
The fall in bond prices was contained even after the Reserve Bank of India's Monetary Policy Committee changed the policy stance to "calibrated tightening" from "neutral" and hiked the repo rate by 25 basis points, as it did not announce any liquidity measures, dealers said. However, most traders expect the central bank to hold an open-market auction as early as Wednesday. Some traders expect the announcement to come this week.
Brent crude oil futures for December delivery were at $101.97 per barrel, up from 101.49 per barrel at 0900 IST and $98.23 at the end of Indian trading hours Tuesday. Though bond prices reacted sharply to domestic cues, fears of escalation in the war in West Asia continued to weigh on prices, dealers said. Along with the rise in oil prices, the yield on the 10-year benchmark US Treasury also rose to 5.33%, up from 5.31% at 0900 IST and significantly up from 5.27% at 1700 IST Tuesday, which also weighed on prices.
At the auction, the RBI set a cut-off of 5.5747%, 6.0999%, and 6.2869% on the 91-day T-bill, 182-day T-bill, and 364-day T-bill, respectively. Traders said the cut-off yields were broadly in line with market expectations, although the cut-off yield on the 182-day T-bill was higher than the expected cut-off of 6.02%, according to an Informist Poll. Dealers said demand for the T-bills was driven primarily by insurance companies and mutual funds.
The cut-off yield on the 91-day T-bill was the highest since Jun. 4, 2025, while yields on the 182-day and 364-day T-bills were the highest since Apr. 2, 2025.
The total turnover in the government securities market at 1519 IST was INR 603.10 billion, significantly higher than INR 282.70 billion at 1530 IST Tuesday, data from the Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 7.18-7.30% during the day, dealers said. (Janwee Prajapati)
India Gilts: Recover some losses on value buying; MPC stance change weighs
| 1421 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.94%, 2036 | |||||
| PRICE (INR) | 98.09 | 98.18 | 97.77 | 98.15 | 98.26 |
| YTM (%) | 7.2180 | 7.2055 | 7.2655 | 7.2095 | 7.1928 |
MUMBAI--1421 IST--Government bonds recovered some losses as traders likely bought bonds at levels considered attractive, dealers said. The absence of widely expected liquidity measures, which did not materialise, was also taken positively by market participants, they said. At the Reserve Bank of India's policy meeting, the Monetary Policy Committee delivered a 25-basis-point repo rate hike, which was largely anticipated by market participants. However, the change in stance to "calibrated tightening" from "neutral" weighed on bond prices. Traders now await Treasury bill auction results for further cues, dealers said.
"Policy was hawkish, as expected, but the market was also expecting OMO sales (bond sales through open market operations auction), which were not announced ...that is why there was not much difference in prices," a dealer at a private sector bank said.
Some traders continue to expect an announcement of an OMO sale auction after RBI Governor Sanjay Malhotra did not rule out the possibility of the central bank taking steps to absorb excess liquidity from the banking system, dealers said. The RBI has taken measures to absorb excess liquidity from the banking system and will continue to use an appropriate mix of liquidity management tools to align the weighted average call rate with the policy repo rate, he said. Some traders expect the auction size to be between INR 1 trillion and INR 2 trillion, with the announcement likely this week, dealers said. The RBI's net liquidity absorbed--a proxy for the banking system liquidity surplus--was INR 4.99 trillion Tuesday, down from INR 5.30 trillion Monday.
Some traders likely covered their short positions while others made fresh purchases at levels seen as attractive, 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 1421 IST showed trades worth INR 150.00 billion in the 6.94%, 2036 gilt, down from INR 162.77 billion Tuesday.
Traders also await the result of the INR-240-billion T-bill auction. Demand for the 91-day T-bill is expected to be driven by primary dealers to meet their "success ratio," as they are required to maintain a minimum success ratio for Treasury Bills. Demand for the 182-day T-bill is seen firm, as traders consider the risk-adjusted return on the six-month paper attractive. The one-year T-bill is likely to see a higher cut-off due to expectations of further rate hikes, dealers said. The Reserve Bank of India is likely to set a cut-off of 5.60% on the 91-day Treasury bill at the auction Wednesday, according to the median in an Informist poll. The cut-off on the 182-day T-bill is seen at 6.02% and that on the 364-day T-bill is seen at 6.23%.
The total turnover in the government securities market at 1421 IST was INR 530.45 billion, significantly higher than INR 215.90 billion at 1230 IST Tuesday, data from the Clearing Corp. of India Ltd. showed. Trade volume rose after the uncertainty hovering over the rate-setting panel's decision on policy rate subsided. The yield on the 10-year gilt is seen in a range of 7.18-7.30% during the day, dealers said. (Janwee Prajapati)
India Gilts: Remain sharply down; 10-yr yield hits near 3-year high of 7.26%
| 1220 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.94%, 2036 | |||||
| PRICE (INR) | 97.95 | 98.18 | 97.77 | 98.15 | 98.26 |
| YTM (%) | 7.2388 | 7.2055 | 7.2655 | 7.2095 | 7.1928 |
MUMBAI--1220 IST--Government bond prices remained sharply down during the day after the Reserve Bank of India's Monetary Policy Committee changed the policy stance to "calibrated tightening" from "neutral", dealers said. The repo rate was hiked by 25 basis points to 5.50% by the MPC, which was in line with traders' view. The yield on the 10-year benchmark 6.94%, 2036 bond hit 7.2655%, marking its highest level since December 2023, following the policy announcement by RBI Governor Sanjay Malhotra. However, purchases from traders at levels seen as attractive helped bond prices trim some losses, dealers said.
"These are definitely good levels to buy, and the market was waiting for the MPC. Now that the outcome is out, that action can be seen in the market and in volume also," a dealer at a state-owned bank said. "More or less, policy was on the expected lines, but stance change was something that market was maybe not expecting."
While announcing the policy decisions, Malhotra attributed the hardening of bond yields to geopolitical uncertainties, elevated crude oil prices, and higher US Treasury yields. Till date, the yield on the 10-year benchmark 2036 bond has risen nearly 61 bps since the beginning of the US-Iran war on Feb. 28, 2026.
Bond prices recovered some losses amid the lack of an announcement of liquidity tightening measures at the MPC, which the market had widely expected on the back of high liquidity surplus, dealers said. Traders continued to track commentary on liquidity and guidance on the trajectory of a rate hike at the RBI's post-policy press conference.
Bond prices remained down as Brent crude oil futures continued to trade above the psychologically crucial level of $100 per barrel, dealers said. Futures for December delivery were at $101.40 at 1220 IST, up from $98.26 at the end of Indian gilt market hours Tuesday.
Wednesday, bond prices may also take cues from the Treasury bill auction results later in the day, dealers said. The RBI will auction INR 80 billion of 91-day Treasury bills, INR 80 billion of 182-day T-bills, and INR 70 billion of 364-day T-bills between 1230 IST and 1330 IST. The auction timing was changed because of the Governor's address at 1000 IST. The auction cut-off yields may lend some cues to the market, dealers said.
The total turnover in the government securities market at 1220 IST was INR 365 billion, significantly up from INR 137.6 billion at 1230 IST Tuesday, data from the Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 7.20-7.28% during the day, dealers said. (Diksha Tripathy)
India Gilts: Fall sharply as MPC changes stance; rate hike in line with view
--Dealers: Gilts fall sharply as MPC hikes repo rate by 25 bps
| 1020 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.94%, 2036 | |||||
| PRICE (INR) | 97.95 | 98.18 | 97.77 | 98.15 | 98.26 |
| YTM (%) | 7.2395 | 7.2055 | 7.2655 | 7.2095 | 7.1928 |
MUMBAI--1020 IST--Government bond prices fell sharply after the Reserve Bank of India's Monetary Policy Committee changed the policy stance to "calibrated tightening" and raised the repo rate by 25 basis points to 5.50%, dealers said. The market soon recovered some of the losses amid no announcement of additional measures on liquidity such as open market operations or an increase in cash reserve ratio, dealers said.
RBI Governor Sanjay Malhotra, while announcing the policy decisions, said the policy action ahead could either be a rate hike or a pause. However, Malhotra said the MPC underscored that rate cuts are off the table in the near term. The 10-year benchmark 6.94%, 2036 bond yield breached the technical 7.25% level following the key announcement by the RBI Governor and hit a high of 7.2655% during the day. The overnight indexed swap rates rose significantly, following the announcement of the rate hike and stance change in the October policy meeting.
"The rate hike was in line with the expectations, but the stance change was a little surprising and that is why the market reacted," a dealer at a primary dealership said. "No major announcement on liquidity such as OMOs or CRR (cash reserve ratio) hike was a positive for the market, so there was some recovery also."
The total turnover in the government securities market at 1020 IST was INR 154.60 billion, up from INR 36.45 billion at 1030 IST Tuesday, data from the Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 7.18-7.28% during the day, dealers said. (Diksha Tripathy)
India Gilts: Down as oil rises above $100/bbl; market eyes MPC outcome
| 0921 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.94%, 2036 | |||||
| PRICE (INR) | 98.13 | 98.18 | 98.10 | 98.15 | 98.26 |
| YTM (%) | 7.2117 | 7.2055 | 7.2166 | 7.2095 | 7.1928 |
MUMBAI--0921 IST--Government bond prices fell Wednesday, tracking a rise in Brent crude oil prices above the psychologically crucial $100-per-barrel level, dealers said. Most traders maintained caution ahead of the Reserve Bank of India's Monetary Policy Committee decisions, dealers said.
The volume in the market was relatively higher Wednesday. The total turnover in the government securities market at 0921 IST was INR 23.10 billion, up from INR 13.10 billion at 0930 IST Tuesday, data from the Clearing Corp. of India Ltd. showed.
"Crude is the factor that's impacting the (bond) prices for now," a dealer at a state-owned bank said. "Mostly there is caution before MPC, everyone is waiting for that."
All eyes are now on RBI Governor Sanjay Malhotra, who will announce the policy decisions at 1000 IST, dealers said. Traders expect RBI to raise the repo rate by 25 basis points. Some traders also expect a change in the policy stance. Malhotra's commentary on inflation, GDP growth, and liquidity will be closely watched, dealers said.
Bond prices came under pressure as Brent crude futures traded above $101 per barrel amid supply-related concerns stemming from the war in West Asia and the likelihood of a storm which may hit oil refineries. At 0921 IST, Brent crude oil futures for December delivery were at $101.58 per barrel, up over 3% from the end of Indian gilt market hours Tuesday. Traders will closely monitor movements in oil prices and developments in the US-Iran war as they may lend further cues to the market during the day. The yield on the 10-year gilt is seen in a range of 7.15-7.25% during the day, dealers said. (Diksha Tripathy)
India Gilts: Seen steady before MPC decision; Brent above $100/bbl may weigh
MUMBAI – Government bond prices are expected to open steady amid caution ahead of the Reserve Bank of India's Monetary Policy Committee decision Wednesday, dealers said. An overnight rise in Brent crude oil prices and US Treasury yields is likely to weigh on bond prices during the day, dealers said.
The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 7.19% and move between 7.15% and 7.25% during the day, dealers said. Tuesday, it ended at INR 98.26, or a yield of 7.1928%. Trade volume is likely to remain low ahead of RBI Governor Sanjay Malhotra's address to announce policy decisions at 1000 IST, dealers said. Turnover in the government securities market is likely to pick up after the announcement, as it is expected to lend direction to the market, dealers said.
While most traders expect a 25-basis-point rate hike Wednesday, the market remains divided on a change in policy stance. A rate hike, if announced, may not lead to a sharp reaction from market participants. However, the rate-setting panel's views on inflation, GDP growth, and liquidity management may trigger a market reaction, dealers said. Most traders expect cumulative rate hikes of only 50-75 bps by February, while others see higher inflation leading to four repo rate hikes.
An overnight rise in Brent crude oil prices is likely to weigh on bond prices Wednesday, dealers said. Brent crude oil futures for December delivery climbed above the psychologically crucial $100-per-barrel level amid increased supply concerns about supply disruptions from a storm heading for US oil-producing regions. The storm forming in the Gulf of Mexico may become the first Atlantic hurricane of 2026 within two days and is likely to hit oil- and gas-producing facilities, Reuters reported, citing US forecasters. At 0800 IST, Brent crude oil prices were up over 3% at $101.43 per barrel, from $98.26 per barrel at the close of Indian gilt market hours Tuesday.
A rise in oil prices pushed US Treasury yields higher overnight, which may pull down Indian bond prices, dealers said. The yield on the 10-year US Treasury note was at 5.31% at 0800 IST, up from 5.27% at 1700 IST Tuesday. The release of the minutes of the US Federal Reserve's September meeting, due at 2330 IST Wednesday, may lend further cues to US yields.
Wednesday, bond prices may also take cues from the Treasury bill auction results, dealers said. The RBI will auction INR 80 billion of 91-day Treasury bills, INR 80 billion of 182-day T-bills, and INR 70 billion of 364-day T-bills between 1230 IST and 1330 IST. The auction timing was changed because of the Governor's address at 1000 IST. The auction cut-off yields may lend some cues to the market later in the day, dealers said. (Diksha Tripathy)
End
US$1 = INR 96.77
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Shubhayan Bhatacharya
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