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Informist, Tuesday, Jul. 28, 2026

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices reversed early gains and ended on a mixed note. Most bonds ended slightly lower on profit-taking as traders trimmed their holdings on caution ahead of the US interest rate decision on Wednesday, dealers said. The 10-year benchmark 6.94%, 2036 bond was out of favour before its auction Friday. On the other hand, the five-year benchmark 6.36%, 2031 bond ended slightly higher.

 

The 2036 bond ended at INR 101.14, a tad down from INR 101.16 on Monday. The 10-year benchmark gilt yield rose to 6.7774% Tuesday from 6.7739% the previous day. The bond's price had risen to INR 101.30 in early trade due to an overnight fall in Brent crude, though traders eventually did not track the intraday movement in oil prices, dealers said.

 

"The biggest drag is that FOMC is happening tomorrow (Wednesday) and there is a chance of a rate hike or at least an adverse reaction in US yields," a dealer at a private-sector bank said. "Not only foreign banks, even  private (sector) banks are trimming their positions heading into the US decision."

 

The US Federal Open Market Committee's two-day meeting will begin Tuesday with the rate decision at 2330 IST Wednesday. The CME FedWatch tool reflects a 36% chance for a rate hike at the meeting. Recently appointed Chair Kevin Warsh has reiterated his intention to control inflation and bring it back to the target of 2%, with his comments following the policy expected to signal policy tightening. This reduced traders' risk appetite to hold onto bonds before the US rate decision, with the sharp rise in prices on Monday and earlier Tuesday providing an attractive exit to lighten portfolios, dealers said.

 

Brent crude futures contract for October delivery eased to near $83 a barrel intraday from $86.06 per barrel at 1700 IST Monday as the US and Iran continued their pause on fighting in West Asia. After the initial reaction to crude, some of it due to short sales being covered, trader demand faded, dealers said. Profit sales were initially led by state-owned banks as the 10-year gilt's yield fell to 6.7550%. Dealers said the incremental fall in oil did not decrease the risk of a rate hike in India in October, with the outcome of the FOMC more crucial as long as crude futures stayed above $80 per barrel.

 

Most market participants did not expect the benchmark gilt's yield to fall below the psychologically crucial 6.75% mark this week without a fresh positive trigger, such as Bloomberg announcing India's inclusion on its Global Aggregate Index. However, due to the delay in the announcement – which has been expected since June – and geopolitical uncertainty, gilt prices no longer reflected the potential positives from the inclusion, dealers said. 

 

"The delta (potential price rise) has increased if Bloomberg makes the announcement now, the market is no longer pricing it in," a dealer at a primary dealership said. "It is better for them to also get it over and done with, rather than uncertainty running through the market for the past month."

 

The results of the state bond auction and gilt buyback were both on expected lines and did not have an impact on secondary market prices, dealers said. Seven states raised INR 192.80 billion at the debt sale, while the government bought back INR 126.04 billion of four bonds maturing in 2026-27 (Apr-Mar). However, some traders did turn their focus to the upcoming INR 340-billion supply of the 6.94%, 2036 gilt at the weekly auction Friday. A negative reaction to the US Fed decision may get amplified ahead of the large supply of the benchmark gilt coming up, dealers said. 
 

The five-year benchmark 6.36%, 2031 gilt ended slightly higher despite no changes in the rate view. Some banks picked up the five-year gilt to deploy foreign currency non-resident deposits as its spread over the five-year overnight indexed swap rate widened to nearly 8 basis points from an inversion last week. Others covered their short bets on the bond while paying the five-year OIS rate, which has seen a sharper fall as crude prices have eased this week due to the pause in the war in West Asia. This was a reversal of the opposite trade last week, when the spreads had been near zero, dealers said.  

 

The lack of trading appetite is reflected in the volume. Total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 462.45 billion Tuesday, sharply down from INR 666.70 billion Monday. There were no trades using the central bank's e-rupee pilot Tuesday, as has been the case for months.

 

OUTLOOK

On Wednesday, gilt prices will take direction from the overnight movement in crude oil prices and US Treasury yields at the opening, dealers said. Traders may avoid aggressive bets on caution before the US Federal Open Market Committee's rate decision at 2330 IST Wednesday. 

 

The pressure on the RBI to tighten monetary policy is seen mounting later in the year as the US FOMC is expected to raise policy rates in 2026, with a tightening interest rate differential seen pressuring the rupee. However, the US rate-setting panel is expected to stand pat on rates at its upcoming policy decision Wednesday, dealers said. The CME FedWatch tool shows a 64% expectation that the Fed funds target rate will remain unchanged at 3.50-3.75% Wednesday, with a 91% expectation of a rate hike in the US by December. 

 

Continued inflows from FCNR(B) deposits may limit the negative impact if the global situation worsens and investors may also look to capture higher yields, dealers said. The central bank's schemes to attract foreign capital launched in early June had drawn inflows of $32 billion by Sunday since the concessional swap window for banks was rolled out on Jun. 8, RBI Governor Sanjay Malhotra said. Short-term bonds are expected to be 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. 

 

Dealers also remained 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 yield on the 10-year benchmark 6.94%, 2036 gilt is seen in a range of 6.70-6.83% Tuesday.  

 

Traders will also track the progress of the monsoon, as deficient 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	101.1350	6.7774%	101.1600	6.7739%
6.48%, 2035	98.0200	6.7711%	97.9900	6.7755%
6.36%, 2031	99.7825	6.4148%	99.7400	6.4256%
6.68%, 2040	97.2300	6.9936%	97.3200	6.9832%
7.24%, 2055	97.7500	7.4295%	98.0000	7.4080%

 

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India Gilts: Retreat on profit sales before fresh supply of 10-year bond

 

	1604 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.1325	101.30	101.12	101.24	101.16
YTM (%)	6.7778	6.755	6.7802	6.7627	6.7739

 

MUMBAI--1604 IST--Prices of government bonds gave up intraday gains near the end of trade due to profit sales by banks after the yield on the benchmark 10-year bond hit a low of 6.7550?rlier in the session. Traders dismissed a fall in crude oil prices, with several dealers wary that the fall would be short-lived. Bond prices were supported when crude oil prices rose last week and traders who had bought bonds then took profits Tuesday, dealers said. Fresh supply of INR 340-billion of the 10-year benchmark 6.94%, 2036 gilt Friday also weighed on prices, they said.

 

"Crude (oil price) is hovering here and there in a temporary easing situation. The 10-year (bond) is the same where it was when crude had risen," a dealer at a mutual fund said. "Crude has to sustain below ($90 per barrel) for some confidence to come into market." State-owned banks were selling bonds at a profit, dealers said. Some traders switched bonds by purchasing the 10-year benchmark and selling the erstwhile 10-year benchmark 6.48%, 2035 bond, they said. Foreign portfolio investors sold ultra-short-term bonds, dealers said. Bond prices were little changed after the results of the state bond auction and bond buyback auctions were within view. 

 

Traders were also cautious ahead of two key monetary policy decisions, with the US Federal Open Market Committee decision due Wednesday, wherein commentary from Fed Chair Kevin Warsh is expected to be restrictive. The Reserve Bank of India's Monetary Policy Committee will meet next week, with some traders fearing a greater focus on inflation by the rate-setting panel. Before that, traders also have to make up for the large supply of the 10-year benchmark gilt, they said. The total traded volume in the government securities market at 1604 IST was INR 419.65 billion, lower than INR 606.85 billion at 1630 IST Monday, data from Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 6.75–6.80% during the day.  (Cassandra Carvalho) 

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India Gilts:Remain up as oil falls; buyback, state bond auction to lend cues

 

	1225 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.22	101.30	101.18	101.24	101.16
YTM (%)	6.7655	6.7550	6.7718	6.7627	6.7739

 

MUMBAI – Government bond prices remained up as Brent crude oil prices were down on hope of a potential peace agreement between the US and Iran, dealers said. Traders await the result of the INR 181 billion state bond auction and INR 200 billion buyback auction for further cues, dealers said. Traders refrained from aggressive bets ahead of the Federal Open Market Committee meeting decision, dealers said.

 

Traders expect the INR 181 billion weekly state bond auction to sail through as the notified amount is significantly lower than the INR 224 billion indicated in the indicative borrowing calendar for the Jul-Sept period. Some traders expect the demand to be subdued as they do not want to build aggressive positions in the middle of ongoing conflicts in West Asia, dealers said. "Demand for the state bonds is likely to be dicey," a dealer at a private sector bank said. "... I think they (participants) will require some further indications on the West Asia front, currently the halt (in the West Asia war) feels very tricky." 

 

The cut-off yield on Gujarat's nine-year bond reissue at auction Tuesday is seen at 7.40%, according to the median of estimates of 14 bond dealers polled by Informist. Pension funds and insurers are likely to pick up state bonds since more than 83% of the state bond supply is in the 10-year-plus segment, similar to last week. 

 

At the INR 200 billion gilt buyback auction, cut-off prices are expected to be broadly in line with indicative prices released by Financial Benchmarks India Ltd. Monday, dealers said. Some traders expect the cut-off prices to be slightly lower. Participation from private sector banks was likely subdued as they no longer hold these securities after the government had bought back the same bonds at a buyback auction last month, dealers said. A few state-owned banks also stayed away since the papers on offer have less than a year to maturity. Some traders expect short-term bond prices to stay supported as long as foreign currency non-resident (banks) deposit inflows continue.

 

Traders also remain cautious ahead of the FOMC decision on policy rates, dealers said. Traders largely expect the Fed Reserve to hold rates steady at its meeting Wednesday. However, guidance is likely to be limited under the new chair, Kevin Warsh. Domestically, traders will also watch the Fed's decision closely. Given the war in West Asia and concerns that it could fuel inflation, it could also impact the policy decision of the Reserve Bank of India's Monetary Policy Committee meeting next week, dealers said.  

 

Foreign participants likely continued their buying momentum after foreign banks net bought INR 58.71 billion worth of gilts on the secondary market Monday. However, the rise in bond prices remained capped as public sector banks considered the levels attractive to book profits, dealers said. These banks sold INR 33.67 billion of gilts on Monday.  

 

The total trade volume in the government securities market at 1225 IST was INR 245.30 billion, lower than INR 279.45 billion at 1230 IST Monday, data from Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 6.72–6.80% during the day.  (Aaryan Khanna) 

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India Gilts: Up as crude eases below $85/bbl; caution before auctions

 

	1005 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	101.26	101.30	101.24	101.24	101.16
YTM (%)	6.7606	6.7550	6.7627	6.7627	6.7739

 

NEW DELHI--1005 IST--Government bond prices rose tracking a fall in crude oil prices as the effective pause in fighting between the US and Iran continued, dealers said. Traders avoided taking large bets ahead of two auctions at 1030-1130 IST and on caution before the US Federal Open Market Committee's rate decision on Wednesday, which is seen influencing domestic monetary policy as well, they said.

 

"For the last two days we have been tracking crude only," a dealer at a primary dealership said. "But whether there is going to be a rate hike or not (in October), we will have to see what the FOMC says before there is a strong view on India's interest rate." 

 

Brent crude for October delivery, the most-traded contract, eased below $85 a barrel from $86.06 per barrel at the end of Indian market hours Monday. Several traders who had short sold bonds over the past week as Brent rose covered their bets, though fresh purchases were limited as they did not expect the 10-year benchmark 6.94%, 2036 bond's yield to fall below 6.75% without further positive triggers, dealers said. Profit taking from state-owned banks also prevented the yield falling below the psychologically crucial level, they said.

 

Traders do not expect the Reserve Bank of India's Monetary Policy Committee to take action on the repo rate at its meeting next week but fear rising inflation and higher US interest rates may prompt a repo rate increase from the current 5.25% in October. This kept bond prices in check, even though demand for bonds across maturities was robust, dealers said.

 

Banks were buying bonds due to a significant rise in foreign currency non-resident bank deposits, with total inflows, including offshore foreign currency borrowing, reaching $32 billion by Sunday from the special schemes launched on Jun. 8, according to RBI Governor Sanjay Malhotra. Some traders were also hopeful of Bloomberg's announcement to potentially include India's bonds on its flagship Global Aggregate Index this week. Others said they had avoided picking up gilts based on the index inclusion as foreign investor inflows are not seen robust immediately after the announcement and due to the delay and uncertainty from the initial expectation of the announcement in June.

 

Traders also awaited the results of the INR-200-billion gilt buyback auction and the INR-181-billion sale of state government securities. The impact on the auctions on secondary market gilt prices is not seen as significant, though the state bond auction cut-offs may guide prices later in the day, dealers said.

 

The total trade volume in the government securities market at 1005 IST was INR 110.85 billion, lower than INR 164.05 billion at 1030 IST Monday, data from Clearing Corp. of India Ltd. showed. The yield on the 10-year gilt is seen in a range of 6.72-6.80% during the day.  (Aaryan Khanna) 

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India Gilts:Seen tad up as oil prices fall; buyback, state bond auction eyed

 

MUMBAI – Government bond prices are expected to open slightly higher Tuesday, helped by an overnight fall in Brent crude oil prices and hopes that the ongoing talks between the US and Iran could lead to a peace deal, dealers said. Traders are likely to stay cautious and avoid aggressive bets until there is more clarity on a potential US-Iran agreement, they added. Later in the day, results of the INR-200-billion gilt buyback auction and the INR-181-billion auction of state government bonds will lend cues to the market, dealers said.

 

The 10-year benchmark 6.94 36bond is expected to open around 6.76% Tuesday and trade between 6.75% and 6.82% through the day, dealers said.

Monday, the 6.94%, 2036 bond had ended at INR 101.16, up from INR 100.80 Friday. The yield on the bond was 6.7739% Monday, down from 6.8253% Friday.

 

Near-month Brent crude oil futures were at $87.63 per barrel, down from $89.51 per barrel at the end of Indian trading hours Monday. Brent crude oil prices fell more than $6 per barrel Monday. Crude oil prices are down on optimism around a possible US-Iran ceasefire after US President Donald Trump said the two sides were having "good talks" and a resolution was possible. However, Trump warned that US strikes would resume if negotiations break down. Iran made similar remarks, saying it would retaliate if talks fail.

 

The yield on the 10-year benchmark US Treasury note was at 4.64%, unchanged from 1700 IST Monday. Markets have largely factored in the US Federal Reserve keeping rates unchanged at this week's meeting, though the chances of a hike have edged up. Some traders expect a hold, followed by hawkish remarks. However, guidance is likely to be limited under the new chair Kevin Warsh. Locally, traders will also watch the Fed's decision closely, given the war in West Asia and concerns that it could fuel inflation, dealers said.

 

Traders are also eyeing the buyback auction Tuesday, where the government will buy back INR 200 billion of four securities. Participation at the auction is expected to be strong as most of the bonds are currently trading "in-the-money", dealers said. Short-term bond prices gained after the Reserve Bank of India announced measures to boost foreign inflows, and these inflows have been largely invested in short-term papers. This is the second time the government is buying back these bonds after the first auction on Jun. 29. The bonds on offer are the 7.33 26, the 5.74 26, the 8.15 26, and the 8.24 27bond. The 7.33 26bond is likely to see the most selling interest and traders will watch the cut-off yield on this bond at the buyback auction.

 

Alongside the buyback auction, seven states plan to raise INR 181 billion through bond sales. Traders expect the state bond auction to sail through smoothly, as the borrowing amount is over 19% lower than what was outlined in the indicative calendar for the September quarter. Two of the seven states have green shoe options, which will allow them to raise an additional INR 16.50 billion at the auction if needed. Dealers don't expect any significant shift in the spread between state bonds and central government bonds at the auction. The cut-off yield on the state bonds is also likely to be in line with the auction last week. Pension funds and insurers are likely to pick up state bonds since more than 83% of the state bond supply is in the 10-year-plus segment, similar to last week. Demand is expected to remain strong, particularly from banks looking to deploy foreign currency non-resident (banks) deposit inflows into higher-yielding state government securities, dealers said.

 

Dealers also remained expectant of further inflows on the view that Bloomberg will announce the inclusion of Indian sovereign bonds in its flagship Global Aggregate Index soon.  (Janwee Prajapati)

 

End

 

US$1 = INR 95.85

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

 

Edited by Saji George Titus

 

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