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Informist, Tuesday, Jul. 21, 2026

 

By Aaryan Khanna

 

NEW DELHI – Prices of most government bonds ended lower as Brent crude futures for September delivery climbed nearly 2% during the trading session and was above $90 per barrel by the end of Indian market hours, dealers said. Short-term bonds outperformed long-term paper as banks' mop-up of foreign currency non-resident (bank) deposits so far has been higher than what the market had expected, driving demand from asset-liability managers for gilts maturing in under five years, dealers said. 

 

Volatility was a hallmark of the session as the most-traded gilts swung between gains and losses, closely tracking crude oil prices. The 10-year benchmark 6.94%, 2036 bond ended at INR 101.02, down from INR 101.14 Monday. It ended at the day's low but had risen to as high as INR 100.28 in the earlier part of the day. Its yield rose to 6.7938% Tuesday from 6.7770% the previous day.

 

The swing in prices did not lead to higher trading volumes and may even have been amplified by a lack of conviction from traders, dealers said. Total turnover on the Reserve Bank of India's Negotiated Dealing System–Order Matching system was INR 536.75 billion, down from INR 623.10 billion Monday. As usual, there were no trades using the RBI's e-rupee pilot.

 

September Brent futures rose to $90.35 per barrel at 1700 IST, up from an intraday low of $87.87 and from $88.29 a barrel at the end of gilt market hours Monday. Reports of further strikes on oil tankers in the Strait of Hormuz pushed oil prices higher, sending gilts lower and overnight indexed swap rates higher, dealers said.

 

"There was big positioning happening but not from traders, from investors," a dealer at a private-sector bank. "The market seems to have some strength at these levels, at or above 6.80% (10-year benchmark yield), but crude kept rising and so there was some risk-trimming."

 

The extended conflict in West Asia is seen as a negative for both India's inflation and the country's fiscal position, as oil imports become costlier and the government spends more to cushion the impact on the domestic economy, dealers said. Still, bond traders had renewed appetite for gilts on the expectation that demand would be greater than earlier expected after the RBI released data on its special schemes to attract foreign capital. Bond prices had risen in the first half of the day before closely tracking the movement in crude prices in the second half, dealers said.

 

Data released by the RBI after market hours Monday showed that its schemes to attract foreign capital, launched in early June, had drawn inflows of $20.72 billion by Friday. Foreign currency non-resident (bank) deposits alone brought in $17.41 billion since the concessional swap window for banks was rolled out on Jun. 8, the RBI said. Bond traders had pegged inflows so far at $10 billion-$15 billion. The inflows are likely to be deployed in bonds maturing in three to five years, matching the tenures of the deposits raised, dealers said.

 

The RBI's target of raising $90 billion through its special schemes with concessional hedging costs is seen as achievable after the initial numbers were better than expected, dealers said. Foreign banks had begun receiving sizeable deposits in July and especially over the past week and were constantly buying gilts maturing in 2033, dealers said. They were active buyers of short-term gilts Tuesday as well, which helped the three- and five-year benchmark securities outperform the rest of the market. Both asset-liability management desks at banks and traders were keen to pick up short-term gilts ahead of further inflows to lock in current yields, in spite of the risk of rate hikes in India, dealers said.

 

Traders already expect flows to pick up in the coming weeks as banks roll out leveraged deposits to attract non-residents with higher returns. The inflows are also likely to help prop up the rupee, which fell below 96.50 per dollar Monday, close to its record low of 96.96 against the greenback in May, they said.

 

Given the positivity, traders continued to pick up gilts despite adverse offshore cues, expecting India's inclusion on Bloomberg's Global Aggregate Index. Traders are avoiding trimming index-eligible bonds from their portfolios due to uncertainty about when the announcement will come, but this is also limiting fresh purchases, dealers said. Estimates on the announcement range from this week to September.

 

"You look at the volumes, it is apparent that there is a lot of buying interest in the market today (Tuesday)," a dealer at a state-owned bank said. "We would not have been sub-6.80% (on the 10-year yield) at $90 crude and 4.60% UST (10-year US Treasury yield) if you didn't have FCNR flows and bond index inclusion on the minds of the market, which is drawing buyers from all segments."

 

OUTLOOK

On Wednesday, bond prices may experience continued volatility as positivity on demand for domestic bonds counteracts the impact of increasing escalations in the West Asia conflict, dealers said. Crude oil prices and US Treasury yields will continue to guide the trajectory of gilt prices even if the negative impact is dulled by banks' purchases, they said.

 

Data released by the RBI showed that its schemes to attract foreign capital launched in early June had drawn inflows of $20.72 billion by Friday. FCNR(B) deposits alone brought in $17.41 billion since the concessional swap window for banks was rolled out on Jun. 8, the RBI said. Short-term bonds are expected to remain in favour with the pace of these inflows seen increasing in the coming days, even if longer-term bonds are more sensitive to global triggers, dealers said. The yield on the 10-year benchmark 6.94%, 2036 gilt is seen in a range of 6.72-6.84% Wednesday. 

 

Demand for bonds maturing in under three years is not seen as robust as the foreign exchange inflows have come in without a corresponding rise in rupee liquidity with banks, despite their conversion of the funds using the concessional swap windows provided by the RBI. The total inflow number under the schemes suggests an increase in banking system rupee liquidity by nearly INR 2.0 trillion, while the frictional liquidity remains below INR 1.5 trillion on most days. Dealers also remain expectant of further flows on the view that Bloomberg will announce the inclusion of Indian sovereign bonds in its flagship Global Aggregate Index soon.

 

The depreciation of the rupee against the dollar is a concern for some traders, as the fall comes despite the RBI deploying various measures to prevent it. Traders will also track the progress of the monsoon, as deficient southwest monsoon rainfall will contribute to higher inflation, they said. However, domestic inflation is largely in check as of now, dealers said, barring the imported inflation from a rise in crude oil prices. Traders now look to gauge whether the RBI's Monetary Policy Committee will raise the repo rate in October to curb inflation.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	101.0200	6.7938%	101.1400	6.7770%
6.48%, 2035	97.8900	6.7901%	97.9800	6.7765%
6.36%, 2031	99.5700	6.4688%	99.6000	6.4609%
6.68%, 2040	97.0500	7.0143%	97.1350	7.0045%
7.24%, 2055	97.8800	7.4181%	97.9800	7.4095%

 

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India Gilts: Down as oil prices rise; state auction results in line with view

 

	1603 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.10	101.28	101.05	101.19	101.14
YTM (%)	6.7826	6.7577	6.7896	6.7700	6.7770

 

MUMBAI--1603 IST--Most government bond prices fell as Brent crude rose intraday, dealers said. September Brent futures were near $90 per bbl, up from an intraday low of $87.87 and from $88.29 at Monday's Indian market close. Bond prices swung through the day in tandem with crude. The state bond auction result was largely in line with expectations, dealers said.

 

Higher Brent crude oil prices weighed on market sentiment as traders feared it could push the Reserve Bank of India's Monetary Policy Committee to raise rates to curb inflation, dealers said. "We are expecting at least 75 basis point rate hikes in the current financial year," a dealer at a private sector bank said. "If the crude keeps on rising with no peace deal in West Asia even foreign participants will start cutting positions."      

 

At the state bond auction, 12 states raised INR 214.91 billion, less than the notified amount of INR 217 billion as Jammu and Kashmir did not accept any bids for its 7.60%, 2038 bond reissue at the auction. Moreover, Assam, for its 10-year bond, accepted a partial amount of INR 9.91 billion out of the total notified amount of INR 10 billion at a cut-off of 7.56%. Traders had largely expected the cut-off on Assam's 10-year bond to be 7.53%, according to the median of an Informist poll.  

 

"Cut-off are broadly in line with market expectations," a dealer at a primary dealership said. "Whatever movement we are seeing in bond prices from the past few hours is due to crude only." 

 

Mutual funds, pension funds, and insurance companies were the most active participants at the state bond auction, dealers said. Demand from investors was firm, as 82% of the total state bond supply was concentrated in the more than 10-year segment. Banks also bought these bonds for their held-to-maturity and trading books, dealers said. However, demand from banks was not as aggressive as expected and some of these banks likely bought state bonds for their clients, dealers said.   

 

The total trade volume in the government securities market at 1603 IST was INR 478.30 billion, lower than INR 565.30 billion at 1630 IST Monday, data from Clearing Corp. of India Ltd. showed. The 10-year benchmark 6.94%, 2036 bond is seen trading in a 6.73-6.82?nd through the day. The yield failed to fall below the crucial level of 6.75% during the intraday trade as public sector banks likely booked profit on their holdings, dealers said.  (Janwee Prajapati)

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India Gilts: Tad up; give up most gains after Brent hits $89/bbl

 

	1431 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.16	101.28	101.06	101.19	101.14
YTM (%)	6.7742	6.7577	6.7889	6.77	6.777

 

	1431 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.36%, 2031
PRICE (INR)	99.70	99.75	99.60	99.60	99.60
YTM (%)	6.4366	6.4232	6.4610	6.4610	6.4609

 

MUMBAI--1431 IST--Prices of most government bonds were up a tad and closely tracked the movement of Brent crude oil prices intraday. Prices gave up most gains after Brent crude oil futures for delivery in September hit the day's high of $89.45 per barrel, but inched higher again as Brent cooled to around $88, dealers said. Short-term bonds remained up, with some asset and liability managers purchasing these bonds, they said. Broadly, data released by the Reserve Bank of India Monday showed foreign inflows were higher than expectations, which led to traders raising expectations of inflows through foreign currency non-resident bank deposits.

 

Even as the outlook on foreign inflows got a boost Tuesday, traders were wary of rising crude oil prices and US Treasury yields. This disparity between global macroeconomic triggers and the Indian bond market led to a sharp bout of sales in thin trade when near-month Brent futures hit $89 per barrel. Some traders who purchased bonds Monday were also booking profits. The INR 101.25 price on the 10-year benchmark 6.94%, 2036 bond is being closely watched after the bond largely traded at this price earlier in the session. A souring macroeconomic outlook is likely to limit a sharp rise in prices. Even if prices fall further, the fall would be capped if the 10-year yield hits 6.80%, at which banks would step up purchases, dealers said. "I feel even if it (10-year benchmark yield) goes to 6.82%, it will rebound and come back, buying will come in at those levels," a dealer at a state-owned bank said.   

 

Traders purchased the 15-year 6.68%, 2040 bond to cover short bets, ahead of supply of a new 2041 bond Friday. The bond also offered higher capital gains due to its tenure, dealers said. However, the spread of the bond over the 10-year benchmark has been largely constant the past week at about 22 basis points. Under the 'Reported Deals T+1' segment of the RBI's Negotiated Dealing System, the 2040 bond was the most traded at INR 13.50 billion, likely by mutual funds, dealers said. 

 

Foreign portfolio investors may be selling gilts in small volumes, dealers said. "If FPIs are selling, it could be related to the IPO, if they're selling equity they may be selling the debt collateral they have to keep," a dealer at another state-owned bank said. SBI Funds Management listed on BSE Tuesday, the initial public offering of which likely saw robust participation from foreign investors, who may have sold their allotted stock at a profit as the share price listed at an over 6% premium to its issue price. As of 1430 IST, foreign portfolio investors net sold gilts worth INR 4.19 billion through the Fully Accessible Route Tuesday, according to data from Clearing Corp. of India. This data is updated with a lag.  

 

The total trade volume in the government securities market at 1430 IST was INR 388.60 billion, lower than INR 428.30 billion at 1430 IST Monday, data from Clearing Corp. of India Ltd. showed. The 10-year benchmark 6.94%, 2036 bond is seen trading in a 6.73-6.82?nd through the day.  (Cassandra Carvalho)

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India Gilts: Remain up; 3-5 year bonds outperform on large FCNR(B) inflows

 

	1200 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.26	101.28	101.15	101.19	101.14
YTM (%)	6.7605	6.7577	6.7756	6.7700	6.7770

 

	1200 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.36%, 2031
PRICE (INR)	99.74	99.75	99.60	99.60	99.60
YTM (%)	6.4251	6.4232	6.4610	6.4610	6.4609

NEW DELHI--1200 IST--Government bond prices remained higher on optimism over investor demand increasing in the coming weeks after foreign currency non-resident bank deposits raised so far were higher than expected, dealers said. The rise was helped by Brent crude for September delivery falling to near $88 per barrel, the day's low. Bonds maturing in 2029 to 2031 outperformed peers with the deposit accretion in those tenures likely to translate to 3-5 year gilts first, they said.

 

The Reserve Bank of India got $17.32 billion of inflow by Friday into its concessional swap window for 3-5 year FCNR(B) deposits that was launched on Jun. 8, higher than bond traders' estimates of $10 billion-$15 billion. The yield on both the three-year benchmark 6.03%, 2029 gilt and five-year benchmark 6.36%, 2031 bond was down by around 4 basis points at 1155 IST Tuesday. Meanwhile, the yield on the 10-year benchmark 6.94%, 2036 bond fell by less than 2 bps on the day.

 

"Traders are much more constructive on (the) five-year (gilt) now that the RBI has released the numbers," a dealer at a primary dealership said. "People have always had the view that the curve would steepen but now we should get to see it in actions as ALMs (asset-liability management desks) deploy some cash and traders try to get their timing right."

 

Some dealers said they received enquiries from traders in off-the-run securities in these tenures as well, with higher yielding non-benchmark securities likely to gain favour later. Banks may hold these bonds to maturity to match the FCNR(B) inflow, which is a liability for them, dealers said. Investors were also keen to pick up state bonds at auction Tuesday, with cut-off yields expected to be higher than last week. With trading gains seen limited in the near term, most institutions were looking to lock in higher yields, dealers said. Twelve states offered to sell INR 217 billion through bonds at auction at 1030-1130 IST, with the result likely to lend cues to gilt prices as well, they said. 

 

The 10-year benchmark yield is seen struggling to fall below 6.75% Tuesday in the face of heightened tensions in West Asia as the US and Iran keep trading attacks. Traders expect both profit booking and fresh short-selling at the psychologically crucial level, dealers said. With anticipation of India's inclusion on Bloomberg's Global Aggregate bond index already heavy, some traders do not see significant positive in gilt prices even on the day of the announcement. While traders are avoiding trimming index-eligible bonds from their portfolios, the index inclusion hope has not translated to fresh purchases by traders this week, dealers said.

 

The total trade volume in the government securities market at 1200 IST was INR 208.50 billion, higher than INR 200.90 billion at 1230 IST Monday, data from Clearing Corp. of India Ltd. showed. The 10-year benchmark 6.94%, 2036 bond is seen trading in a 6.73-6.82?nd through the day.  (Aaryan Khanna)

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India Gilts: Up on bets of improved demand after FNCR(B) inflows top view

 

NEW DELHI--1000 IST--Government bond prices rose as traders picked up bonds, anticipating higher demand for gilts from investors in the coming weeks after higher-than-expected inflows into foreign currency non-resident bank deposits, dealers said. The optimism insulated bond prices from adverse global cues as US Treasury yields and crude oil prices rose overnight, with continued armed conflict between the US and Iran. 

 

Data released by the Reserve Bank of India after market hours Monday showed that its schemes to attract foreign capital launched in early June had drawn inflows of $20.72 billion by Friday. Foreign currency non-resident bank deposits alone brought in $17.41 billion since the concessional swap window for banks was rolled out on Jun. 8, the RBI said. Bond traders had pegged inflows so far at $10 billion-$15 billion. The additional money is likely to be deployed in bonds maturing in three to five years, matching the tenures of the deposits raised, dealers said.

 

"The logic is simple. Once one part of the curve becomes anchored, another starts to follow," a dealer at a state-owned bank said. "If there is more demand at the shorter end, people will start hunting for carry in seven-year (benchmark 6.68%, 2033 gilt) and then 10-year (benchmark 6.94%, 2036 gilt)." Carry refers to the additional return against the cost of funding for an investor.

 

Moreover, the RBI's target to raise $90 billion through its special schemes with concessional hedging costs is seen achievable after the initial data was better than expected, dealers said. Traders already expected flows to pick up in the coming weeks as banks roll out leveraged deposits to attract non-residents with higher returns. The inflows are also likely to help prop up the rupee, which fell below 96.50 per dollar Monday, close to its record low of 96.96 against the greenback in May, they said.

 

Traders were also almost universally expecting that Bloomberg Index Services would include India's fully accessible route gilts to its flagship Global Aggregate Index, which is expected to draw in over $25 billion of passive inflows in 2027-28 (Apr-Mar). Views on the timing of the announcement ranged from this week to September, with traders avoiding trmming their portfolios as the announcement, which is seen an immediate boost for bond prices. The optimism on demand outweighed the impact of a rise in Brent crude for September delivery to near $88.50 per barrel, up 1.5% overnight, and the rise in the 10-year US Treasury yield to 4.59% from 4.56% at 1700 IST Friday.

 

Some traders covered short bets in the 15-year 6.68%, 2040 bond since the government will issue INR 170 billion of a new 15-year bond maturing in 2041 maturing at the weekly gilt auction on Friday. The 2040 has an outstanding of INR 2.28 trillion. While some expected this to lead to its outperformance Monday, others said there was reason for caution.

"It's a great place to be, where you have an existing short (sale) on the 6.68%, 2040 (bond) and go in for the new 2041 bond (at the auction, so I don't there is any need for people to cover shorts," a dealer at a private-sector bank said. "Anyway, it is only Monday and since there has been so much volatility in the market, I doubt too many people will be taking a view on the auction as yet."

 

The total trade volume in the government securities market at 1000 IST was INR 85.85 billion, lower than INR 105.40 billion at 1030 IST Monday, data from Clearing Corp. of India Ltd. showed. The 10-year benchmark 6.94%, 2036 bond is seen trading in a 6.73-6.82?nd through the day.  (Aaryan Khanna)

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India Gilts: Seen tad up as crude firm; West Asia fears ease, auction eyed

 

MUMBAI – Government bond prices are likely to open slightly higher Tuesday tracking Brent crude oil prices that are firm but subdued and the lack of further escalation in the West Asia war, dealers said. Traders will likely cover their short bets on hopes of a potential US-Iran peace deal as fears over further escalation in the West Asia conflict eased, which will support bond prices, dealers said. Traders said they will also await the result of the auction of state bonds worth INR 217 billion for further cues.

 

Brent crude oil futures for September delivery were at $88.65 per barrel, just marginally up from $88.29 per barrel at the end of Indian trading hours Monday. Brent crude oil prices fell from nearly $91 per barrel Monday on hopes of a fresh US-Iran ceasefire that could ease concerns over potential supply disruptions in the Middle East. Mediators are reportedly working to bring both sides to a new truce.

 

The 10-year benchmark 6.94 36bond is seen opening around 6.76% Tuesday and is expected to trade in a 6.75%-6.82% range during the day, dealers said. Public sector banks are likely to book profit on their holdings near 6.75%, which will limit the yield from falling below 6.75%, dealers said. These banks net bought INR 24.77 billion worth of gilts Monday when the yield on the 10-year benchmark bond traded over the 6.80% level. A rise in the yield over 6.80% is unlikely Tuesday if Brent crude oil prices continue to trade lower, dealers said. In case of a rise in crude oil prices, the yield on the bond could rise to 6.83%, dealers said. Monday, the 6.94%, 2036 bond had ended at INR 101.14, slightly up from INR 101.12 Friday. The yield on the bond was 6.7770% Monday, down from 6.7799% Friday.

 

Traders are also likely to cover short sales in the 15-year benchmark 6.68%, 2040 bond after the government post-market hours said it would issue a new bond maturing in 2041 on Friday. A proxy for tracking short sales on a particular bond is the number of trades on the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 0730 IST showed trades worth INR 88.14 billion in the 6.68%, 2040 gilt, up from INR 68.36 billion Monday. The 15-year benchmark bond has been one of the most actively traded securities in the secondary market as several foreign participants ramped up purchases of the 6.68 40bond after it was added to the Fully Accessible Route for foreign investors last month, dealers said.

 

Data released by the Reserve Bank of India showed its measures to attract foreign capital launched in early June had drawn inflows of $20.72 billion by Friday. Foreign currency non-resident bank deposits alone brought in $17.41 billion since the concessional swap window for banks was rolled out on Jun. 8, the RBI said. This may lead to traders stepping up purchases of short-term bonds in the coming days. Dealers also expect further inflows as they expect Bloomberg will announce the inclusion of Indian sovereign bonds in its flagship Global Aggregate Index soon. 

 

Later in the day, the result of the state government bond auction Tuesday will lend cues, dealers said. At 1030-1130 IST Tuesday, 12 states will raise INR 217 billion, slightly lower than the INR 225 billion indicated in the calendar for Jul-Sept. Banks and insurers would prefer picking up state bonds, which offer higher yields, for their investment portfolios, dealers said. Demand for the state bonds is likely to be firm as has been the case for previous auctions, dealers said.  (Janwee Prajapati)  End

 

US$1 = INR 96.23

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

 

Edited by Rajeev Pai

 

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