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Informist, Tuesday, Jun. 16, 2026

By Janwee Prajapati

MUMBAI – Government bond prices ended slightly higher Tuesday as the price of Brent crude oil fell to a three-month low after the US and Iran agreed to a peace deal, dealers said. However, traders refrained from taking aggressive positions ahead of a decision from the US Federal Open Market Committee on policy rates, they said. The cut-off yields at the INR 216-billion state bond auction were slightly higher than market expectations, which capped gains. Traders also await the signing of the peace agreement between the warring nations Friday, they said. As a result, trade volumes were low Tuesday.

The benchmark 10-year 6.94%, 2036 bond ended at INR 100.53, up slightly from INR 100.49 Monday. Its yield settled at 6.8644%, down from 6.8704% Monday. The yield on the 6.94%, 2036 bond oscillated between 6.8725% and 6.8574% during the day. The 10-year benchmark bond yield has fallen over 15 basis points so far in June. The total turnover in the gilt market was INR 450.80 billion, down over 36% from INR 704.85 billion Monday.

At the state bond auction, banks bought paper maturing between seven and 15 years for their asset-liability-management and available-for-sale books, dealers said. Some traders also picked up state bonds maturing in up to seven years, dealers said. Long-term bonds were mostly picked up by provident funds, they said.

The Reserve Bank of India set a cut-off of 7.66% on Assam's 10-year paper, a spread of 79 bps over the 6.94%, 2035 gilt. Punjab and Uttarakhand accepted only a partial amount of bids for their seven-year and nine-year bonds, respectively. Gujarat did not accept any bids for its 12-year bond issuance at the auction. 

"The cut-off on Assam's 10-year paper was slightly higher than expected, but for the state, 7.66% is a good cut-off," a dealer at a primary dealership said. "(The cut-off yield for) some states is better than expected. Some are in line with expectations. Only a few papers are a bit bad... but it also depends on the state."

Volumes in the secondary market were subdued as traders continued to monitor developments relating to the US-Iran peace deal, dealers said. Some market participants view recent comments by Israel as a potential threat to the peace agreement, which could lead to a rise in Brent crude oil price and, in turn, exert pressure on bond prices. Traders are likely to wait until Friday before building any aggressive positions, dealers said.

In the current week, traders will closely track the US FOMC's decision on policy rates and the tone of commentary from newly appointed Federal Reserve Chair Kevin Warsh, dealers said. Traders widely expect the FOMC to hold the policy rate steady at its meeting Wednesday. The odds of an October hike also bslipped following the announcement of a possible peace pact between the US and Iran, to be finalised Friday.

On optimism about the peace agreement, traders pared bets of a rate hike by the RBI's Monetary Policy Committee in August. While some traders expect a policy rate hike in August, others do not expect a hike in the current calendar year, dealers said. "If crude remains around the $80 per-barrel level, then we can expect a (repo rate) hike around December," a dealer at a private-sector bank said.

The yield on the 6.94%, 2036 bond is likely to encounter good resistance at 6.86% as traders are likely to take profits at 6.85% yield on the 10-year bond, dealers said. "I am expecting a reversal from 6.80% (yield on the 6.94%, 2036 bond)," a dealer at a state-owned bank said. "The 10-year 6.94%, 2036 bond can go to 6.60% only if there is a final peace deal and crude falls further. People are expecting crude oil to fall to $50 per barrel because it is a long technical level."

Some traders are also concerned about the presence of a strong El Nino weather pattern, which is likely to result in below-normal rainfall over India from July to September, and chances of below-normal precipitation over the country from October to December. This will also weigh on market sentiment, dealers said. 

"Some people (traders) are feeling that the 10-year bond is likely to see a reversal suddenly because the delayed monsoon is a negative," a dealer at a primary dealership said. "If monsoon is too late, then it will definitely weigh on market sentiments and people (traders) will start expecting rate hikes."

Traders expect the spread between the 6.48%, 2035 bond and the 6.94%, 2036 bond to start widening next week, dealers said. Some traders expect the spread to be 3–4 bps while others expect a spread of only 2–3 bps, dealers said. Most traders have covered their outstanding short positions in the 6.48%, 2035 bond, which has also kept the yield on the bond lower, 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 1750 IST showed trades worth INR 78.78 billion in the 6.48%, 2035 gilt, down from INR 79.50 billion Monday. The data showed INR 202.84 billion worth of trades in the 6.48%, 2035 bond ahead of the Monetary Policy Committee's decision. Traders covered their short positions after the RBI held the repo rate steady on Jun. 5.

Domestic banks have raised interest rates on foreign currency non-resident dollar-denominated bank deposits for tenures ranging from 3-5 years by as much as 487 bps over the past week in a bid to attract foreign inflows. Some traders expect foreign flows to be around $50 billion while others expect the flows to go over $100 billion, dealers said. Foreign portfolio investors are likely to have bought INR 4 billion to INR 5 billion of bonds Tuesday, dealers said.

OUTLOOK

On Wednesday, gilt prices are expected to track the price of crude oil, with traders cautious about whether the US-Iran peace deal will be signed Friday. Traders don't expect Brent crude to stay below $80 a barrel for long, even if a peace agreement between the US and Iran is reached, as supply disruptions are likely to persist. The 10-year benchmark gilt yield is also unlikely to hold below 6.80%. Traders expect the bond yield curve to steepen further, with strong demand expected at the shorter end.

Traders will also track the outcome of the first US FOMC meeting under new Fed Chair Warsh Wednesday, wherein a status quo on interest rates is expected. Commentary on inflation in the wake of the war in West Asia will also be watched, dealers said. 

Wednesday, the government will sell INR 240 billion of Treasury bills at auction. Some traders expect the cut-off yields at the auction to be similar to the cut-off yields set last week. Others expect the cut-off yields to be slightly lower.

Market sentiment is expected to remain positive, given the likelihood that FPI flows will be sustained for at least two weeks, dealers said. The FPI inflows are expected to increase the liquidity in the banking system, which is likely to support the market, they said. Demand for short-term gilts in the secondary market is expected to rise as well, with more inflows, they added. If the US-Iran peace deal holds, traders are likely to pare bets of a rate hikes by the RBI's panel in 2026.

India Gilts: Remain tad up as crude oil down at over 3-month low

MUMBAI--1626 IST--Prices of government bonds remain slightly higher as Brent crude oil fell to an over-three-month low of $80.89 per barrel as the US and Iran announced they had agreed to a memorandum of understanding to end the war in West Asia, dealers said. The cut-off yield set on state bonds at the day's auction was slightly higher than market expectations, which weighed on bond prices, dealers said.
 

At the state government bond auction, Gujarat did not accept any bids for the 12-year security as participants must have bid at higher yields of around 7.66%, dealers said. "Usually there is good demand for Gujarat, but I think bids could be at a higher level. So they didn't take it," a dealer at a state-owned bank said.

The Reserve Bank of India set a cut-off yield of 7.66% on Assam's 10-year bond, higher than market expectations of 7.62% in an Informist Poll. Punjab's seven-year security and Uttarakhand's nine-year security were also partially allotted as yields must have been on the higher side, dealers said. Punjab accepted INR 9.34 billion against the notification of INR 10 billion and set the cut-off at 7.55%. Uttarakhand accepted INR 4.27 billion, against INR 5 billion notified, at a cut-off yield of 7.62%. Insurance companies and provident funds bought longer-term paper at the auction Tuesday.

Some dealers said market participants were not "very aggressive" at the state government bond auction Tuesday due to the liquidity crunch with banks and mutual funds. "These 2-3 days we have seen buying in secondary and other markets because of MPC (Monetary Policy Committee) and peace deal," a dealer at a large state-owned bank said. "Liquidity could be tight with banks, mutual funds which is why we did not see aggressive bidding this time." 

The total volume in the government securities market at 1626 IST was INR 406.55 billion, sharply lower than INR 615.95 billion at 1630 IST Monday, according to data from the RBI's Negotiated Dealing System. The 6.94%, 2036 bond is likely to be in the range of 6.85–6.88% for the week unless there are new triggers for the market.  (J. Navya Sruthi)

India Gilts: Tad up as oil prices ease slightly; auction result to lend cues

MUMBAI--1327 IST--Prices of government bonds were a tad up as Brent crude oil prices eased slightly intraday, dealers said. Bond prices were largely stable as traders await the result of the INR-216-billion state bond auction which will lend cues to the market, dealers said. Traders were also uncertain about the US-Iran peace deal ahead of the signing of the final agreement Friday, which kept trade volumes low, they said.     

"Trade volume is subdued today (Tuesday)...prices are pretty range-bound between 7–8 paise," a dealer at a private sector bank said. "People (traders) are waiting for some trigger...if SDL (state bond auction result) is some positive, then the prices will move."

At the state bond auction, banks likely bought bonds for their asset liability management and available for sale, dealers said. Traders expect the cut-off to be slightly better than the market expectations, they said. However, demand from investors is likely to be subdued for the long-term state bonds, dealers said. Some traders are likely to pick up state bonds maturing in up to seven years, dealers said. According to an Informist poll, the Reserve Bank of India is likely to set a cut-off of 7.62% on Assam's 10-year paper. Nine states are in line to raise INR 216 billion of state bonds at the state bond auction Tuesday.

The total volume in the government securities market at 1327 IST was INR 213.55 billion, lower than the volume of INR 395.60 billion at 1340 IST Monday, according to data from the RBI's Negotiated Dealing System. The 6.94%, 2036 bond is likely to be in a range of 6.83–6.90% for the rest of the day. Traders expect the 6.86% level on 6.94%, 2036 bond to hold. However, any significant positive deviation in the state auction result from expectations could likely lead to a fall in the 10-year bond yield to below 6.85%, dealers said. Traders also expect the trade volume to pick up post state auction results, they said.

For the rest of the week, traders will await significant global cues before building aggressive positions, dealers said. Though the impact of the policy rate hike by the Bank of Japan was muted, traders expect the decision of the US Federal Open Market committee on policy rates to impact Indian bond prices, they said. "The market has largely priced in a global rate hike scenario," a dealer at a state-owned bank said. "... But the FOMC is important on Wednesday, we (traders) will track the FOMC decision. Then we also have the US-Iran deal signed on Friday."  (Janwee Prajapati)

India Gilts: Remain steady on lack of new cues; volume sharply down

MUMBAI--1135 IST--Prices of government bonds were in a thin band as market participants refrained from taking fresh positions amid a lack of new triggers as they cautiously awaited the signing of the US-Iran peace deal Friday, dealers said. Volumes in the gilt market were less than half of that seen Monday. Traders also await the state bond auction result for further triggers, they said. 

At 1135 IST, the total volume in the government securities market was INR 99.00 billion, significantly lower than the volume of INR 302.35 billion at 1130 IST Monday, according to data from the RBI's Negotiated Dealing System. The volume in the 10-year benchmark 6.94%, 2036 gilt was INR 79.15 billion, also sharply down from INR 182.20 billion at 1130 IST Monday. 

"...There are no new cues for market to move now," a dealer at a small finance bank said. "Market is waiting for Bloomberg index inclusion and monitoring (foreign capital) inflows through FCNR (B) (foreign currency non-resident dollar-denominated bank deposit) scheme," the dealer said. Domestic banks have raised interest rates on foreign currency non-resident dollar-denominated bank deposits for tenures ranging from three to five years by as high as 487 basis points over the past week in a bid to attract foreign inflows.

Traders are now waiting for the reopening of the Strait of Hormuz Friday following the scheduled signing of the agreement, though some are wary that the deal may not hold, dealers said. 

Meanwhile, banks and insurance companies participated in the state government bond auction Tuesday, with yields on longer-tenure papers seen as attractive, dealers said. "Banks' ALM (asset liability management) part and insurance companies were there at the auction because of longer-term issuances," a dealer at a private sector bank said.

Dealers expect the volume in the government securities market to improve during the day, especially once the state bond auction result is published, but remain lower from Monday's level due to caution. During the day, they expect the yield on 10-year benchmark to move in a thin range of 6.85-6.90%. "If SDL (state government bond auction) result comes better, then it will be positive for market," the dealer quoted above said. 

According to the median of estimates of 13 bond dealers polled by Informist, the cut-off yield on Assam's 10-year bond at auction is seen at 7.62%. The cut-off yield on 15-year and 30-year state bonds are seen at 7.78% and 7.79%, respectively.  (J. Navya Sruthi)  

India Gilts: Steady on lack of global triggers; auction result to lend cues

MUMBAI--0932 IST--Prices of government bonds opened steady on lack of any fresh triggers as the price of Brent crude oil remained largely unchanged overnight, dealers said. Traders refrained from placing aggressive bids ahead of the auction of state government securities. The auction results are expected to lend cues to the market, dealers said.

Amid uncertainty over details of the US-Iran peace deal and the signing of an accord to reopen the Strait of Hormuz, traders remained cautious, which kept volumes in the market significantly down, dealers said. The total turnover in the government securities market at 0932 IST was INR 19.75 billion, against INR 119.20 billion at 0930 IST Monday, according to the Clearing Corp. of India Ltd. 

"Today (Tuesday), there are no major cues," a dealer at a state-owned bank said. "The market has been tracking crude (oil prices) and it's largely unchanged, so (bond) prices are flat."

The Brent crude oil futures contract for August delivery was at $82.91 per barrel at 0930 IST, largely unchanged from $82.86 per barrel at the end of Indian gilt trading hours Monday. Meanwhile, the yield on the 10-year US Treasury note rose to 4.48% at 0930 IST, from 4.45% at 1700 IST Monday, which weighed on Indian bond prices, dealers said. US yields are likely to have risen on fears of a rate hike by the US Federal Reserve after the Bank of Japan hiked its policy rate to 1%, the highest in over 30 years, amid a rise in energy prices, dealers said. 

Traders will closely track the results of the state bond auction where nine states aim to raise INR 216 billion, dealers said. The auction is expected to sail through as the auction size is lower than the INR 230 billion indicated in the borrowing calendar for the June quarter. Demand is likely to exceed supply, which will lead to aggressive bidding at the auction, dealers said. Demand for state bonds is expected from banks, insurers, and pension funds. Banks are likely to pick short-term bonds for their held-to-maturity books, dealers said. 

The volume in the market is expected to rise later in the day after the auction results, dealers said. The 10-year benchmark 6.94%, 2036 bond is expected to move in a range of 6.83%-6.90%, they said.  (Diksha Tripathy)

India Gilts: Seen steady on caution over sustainability of US-Iran peace deal

MUMBAI – Prices of government bonds are seen opening steady as traders assess the sustainability of the peace deal signed between the US and Iran, dealers said. However, some traders might book profits, continuing the momentum from the previous day, which is likely to put pressure on bond prices, dealers said. Traders will also refrain from placing aggressive bets ahead of the auction of state government securities, the result of which is likely to lend cues to the market, dealers said.  

The Reserve Bank of India Friday said nine states will raise INR 216 billion through the sale of bonds Tuesday. The auction is expected to sail through as the auction size is lower than the INR 230 billion indicated in the borrowing calendar for the June quarter and demand may exceed supply, leading to aggressive bidding, dealers said. Demand for state bonds is expected from banks, insurers, and pension funds. 

The yield on the benchmark 6.94%, 2036 gilt is expected to open near 6.87% and trade in a range of 6.83-6.90% during the day, dealers said. The benchmark 10-year 6.94%, 2036 bond ended at INR 100.49, up from INR 100.31 Friday, but off the day's high of INR 100.63. Its yield settled at 6.8704%, below 6.8957% on Friday, but higher than 6.8501% in early trade. The 10-year benchmark bond yield has fallen 13 basis points so far in June.  

Traders will continue to monitor developments surrounding the US-Iran peace deal, dealers said. Some market participants view recent comments by Israel as a potential risk to the peace agreement, which could lead to a rise in Brent crude oil prices and, in turn, exert pressure on bond prices. Israel's Prime Minister Benjamin Netanyahu said "our struggle has not yet ended" and pledged to remain in "security zones" in Lebanon. According to an Al Jazeera report, Netanyahu said at a press conference Monday that Israeli forces would remain in Lebanon, where they currently occupy around 570 sq km of territory.

Bond prices are expected to track movements in crude oil prices through the day, dealers said. Brent crude futures for August delivery were at $83.35 per barrel at 0700 IST, compared with $82.86 per barrel at 1700 IST on Monday. Most traders do not expect crude prices to remain below $80 a barrel in the near term despite the peace deal, as supply-chain disruptions are likely to persist, dealers said.

Market participants will also remain cautious ahead of the outcome of the first US Federal Open Market Committee meeting under new Chair Kevin Warsh on Wednesday, dealers said. While most expect the committee to leave interest rates unchanged, comments on inflation and the economic impact of the West Asia conflict will be closely watched, dealers said.

Despite the cautious undertone, market sentiment is expected to remain positive due to expectations that foreign portfolio investor inflows will continue for at least the next two weeks, dealers said. Such inflows are expected to improve liquidity conditions in the banking system and support the bond market. Demand for short-term gilts in the secondary market is also likely to strengthen as inflows increase, dealers said. If the US-Iran peace deal holds, traders could further pare expectations of rate hikes by the Monetary Policy Committee this year, after bets of an August rate increase were already reduced on Monday.  (Diksha Tripathy)  End

US$1 = INR 94.56

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

Edited by Rajeev Pai

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