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Informist, Tuesday, Sept. 1, 2026

 

By Janwee Prajapati

 

MUMBAI – Government bond prices ended down Tuesday, tracking Brent crude oil futures, which rose overnight and intraday amid an escalation in the war in West Asia, dealers said. Lack of clarity over a potential peace deal between the US and Iran weighed on market sentiment, dealers said. However, purchases from public sector banks and a stronger rupee against the dollar limited losses, dealers said.   

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 99.86, against INR 99.95 Monday. The yield on the bond rose to 6.9581% from 6.9452% at the end of the previous session. This was the highest closing level for the 10-year benchmark yield since Jun. 5, the day of the Reserve Bank of India's June monetary policy. Yield on the bond moved between 6.9398% and 6.9653% during the session. The fall in bond prices was limited as the rupee rose to a two-month high and closed at 94.95 per dollar. The Indian currency hit an intraday high of 94.7925 per dollar.

 

Trade volume was subdued as traders refrained from building aggressive positions amid geopolitical uncertainty, while expectations of rate hikes by the Federal Open Market Committee and the RBI's Monetary Policy Committee soured market sentiment, dealers said. Total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 443.30 billion Tuesday, down from INR 499.50 billion Monday. The yield on the 6.94%, 2036 bond failed to sustain a rise above 6.96% for the second consecutive session as public sector banks likely bought bonds at levels seen as attractive, dealers said. These banks have been net buyers of gilts for the past three consecutive sessions, with total purchases worth INR 144.79 billion, data from Clearing Corp. of India Ltd. showed.   

 

"If PSUs had not bought for the past few days, we would have fallen even more," a dealer at a small finance bank said. "Prices had recovered earlier (in the day) because of the rupee and media reports of a possible ceasefire between the US and Iran."  

 

Brent crude oil futures for November delivery fell to $91.95 per barrel at 1700 IST, down from a day's high of $92.55 at 1422 IST, but remained higher than $91.19 at the close of Indian trading hours Monday. Crude oil prices eased slightly intraday after media reports said Iran would "immediately" reciprocate if the US fulfils its commitments under ‌an interim deal signed in June to end the six-month war and open the Strait of Hormuz. However, oil prices remained above the psychologically crucial $90-per-barrel level following renewed escalation in fighting in West Asia.

 

US President Donald Trump threatened further strikes against Iran Monday after the first exchange of direct attacks between the two sides in a month, escalating tensions in a conflict that had recently shifted towards an economic standoff. Iran launched missiles overnight at two US air bases in Jordan in response to a US attack on Iran's Larak Island, where Washington said it had targeted Iranian launchers, according to media reports. The escalation fuelled concerns over potential disruptions to crude oil supplies from the region, pushing oil prices higher and raising fears of renewed inflationary pressures.

 

The rise in crude oil prices, combined with expectations of a policy rate hike in the US, pulled US Treasury yields. The 10-year US benchmark Treasury note was at 4.78% at 1700 IST, up from 4.72% at the same time on Monday. US traders see an over 66% probability of a rate hike by the Fed at its September meeting, up from 40% a week ago, according to the CME FedWatch tool. Traders have shifted their focus to the US FOMC meeting and maintained caution ahead of the panel's decision on policy rates, dealers said.  

 

On the yield curve, the five-year 6.36%, 2031 bond performed better than the other tenures as traders bet on foreign currency non-resident (banks) deposit inflows reaching as much as $100 billion by the Aug. 31 deadline, despite the early closure of the RBI's swap window. Some traders, however, expect flows to be between $80-$90 billion dollars, dealers said. The RBI's measures to boost foreign capital inflows had attracted $72.85 billion as of Aug. 21, the central bank had said last month. Of this, nearly 90%, or $65.40 billion, came through FCNR(B) deposits. 

 

Meanwhile, traders also placed short bets on the five-year benchmark bond, betting on a rise in yields amid expectations of a rate hike by the RBI's rate-setting panel, which weighed on bond prices, dealers said. Some traders also placed short bets ahead of the weekly gilt auction Friday, dealers said. Traders were divided on the demand for the new five-year bond being issued. Some traders expect the coupon to be near 6.60% on the new five-year bond. 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 1700 IST showed trades worth INR 102.23 billion in the 6.36%, 2031 gilt, up from INR 99.03 billion Monday. 

 

"I think demand for the bond will be good for the five-year bond at the auction, though the coupon could be slightly on the tail (higher coupon)," a dealer at a state-owned bank said. "The market was not expecting a new bond because there is only INR 1.20 trillion outstanding in the bond."

 

At the state bond auction, public-sector banks likely bought bonds maturing in up to 13 years for their held-to-maturity portfolios, dealers said. The central bank set a cut-off of INR 99.15, or a 7.6123% yield, on Tamil Nadu's 7.49%, 2036 bond reissue, against 7.60% yiled expected in an Informist Poll. Fifteen states invited bids to raise a total of INR 270 billion Tuesday, of which 14 raised INR 265.90 billion. Uttarakhand did not accept any bids for the reissue of its 7.64%, 2038 bond. 

 

There were no trades using the central bank's e-rupee pilot Monday, as has been the case in recent months.

 

OUTLOOK

Gilt prices Wednesday are likely to track developments in the war in West Asia and movements in Brent crude oil prices at the open, dealers said. They will also track movements in US Treasury yields, which are under pressure from heavy supply and inflation fears, dealers said. The central bank will auction INR 240 billion worth of Treasury bills on Wednesday.

 

Traders have shifted their attention to the FOMC decision scheduled for Sept. 15–16, which will be a key trigger for the MPC's decision on the repo rate hike, dealers said. Some traders expect the yield on the 10-year benchmark bond to rise above 7% in the next few months if the RBI raises repo rates, dealers said. In such a scenario, some traders expect the yield on the 10-year benchmark to rise to 7.20% in the current calendar year.

 

Given the expectation of a rate hike, some traders expect the central bank to announce measures to absorb excess liquidity from the banking system to set the stage for a smooth transmission of rate hikes, dealers said. Traders now expect the yield curve to flatten. The supply of government securities for the second half of the current financial year will also play a key role in the movement of the yield curve, dealers said. Some traders expect the state government borrowing calendar for the December quarter to be similar in size to the same period last year. 

 

The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.85% and 6.98%, dealers said. Any significant movement in the rupee and swap rates will also lend cues, they said.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	99.8600	6.9581%	99.9500	6.9452%
6.48%, 2035	97.0450	6.9220%	97.1000	6.9135%
6.36%, 2031	99.1350	6.5861%	99.1500	6.5821%
7.06%, 2041	99.5000	7.1139%	99.6000	7.1029%
7.24%, 2055	96.3400	7.5526%	96.3000	7.5561%

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India Gilts: Down on intraday rise in crude oil; rise in rupee supports

 

	1604 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.89	99.99	99.81	99.84	99.95
YTM (%)	6.9538	6.9398	6.9653	6.9610	6.9452

 

MUMBAI--1604 IST--Government bond prices were down tracking an intraday rise in Brent crude oil price, dealers said. Moreover, the lack of clarity on a peace deal between the US and Iran soured market sentiment, dealers said. The sharp rise in US Treasury yields sparked fears of a policy rate hike by the US Federal Open Market Committee, which also led to traders ramping up their bets on a repo rate hike by the Reserve bank of India's Monetary Policy Committee, dealers said. However, the fall in bond prices was contained as the rupee strengthened against the dollar. Public-sector banks bought bonds which kept bond yields from rising over the day's high of 6.9653%, they added.

 

Brent crude oil futures for November delivery came down to $92.17 per barrel from the day's high of $92.55, reached at 1422 IST, but still up from $91.19 at the end of Indian trading hours Monday. Brent crude oil futures rose following renewed escalation in the war in West Asia. The rise in crude oil prices, combined with expectations of a policy rate hike in the US, pulled US Treasury yields to 4.79%, up almost 0.8% since the close of Indian trading hours Monday. US traders see an over 66% probability of a rate hike by the Fed at its September meeting, up from 40% a week ago, according to the CME FedWatch tool.

 

The fall in bond prices was limited as the rupee rose to a two-month high and closed at 94.95 per dollar. The Indian currency hit a high of 94.7925 per dollar intraday. Moreover, public-sector banks bought gilts at levels seen to be attractive, dealers said. These banks net bought INR 39.66 billion worth of gilts Monday.

 

"Today we are holding up because the rupee has strengthened, which is also why we are not rising to 7% (yield on the 10-year benchmark 6.94%, 2036 bond) either," a dealer at a state-owned bank said. "Public-sector banks are also on buying side... they bought SGS (state government securities at the auction) today (Tuesday) as well."

 

At the auction, public-sector banks likely bought bonds maturing in up to 13 years for their held-to-maturity books, dealers said. The central bank set a cut-off of INR 99.15 or 7.6123% yield on Tamil Nadu's 7.49%, 2036 bond reissue against the market's expectation of 7.60% as per the median in an Informist Poll. Fifteen states invited bids to raise INR 270 billion in total Tuesday, out of which 14 raised INR 265.90 billion. Uttarakhand did not accept any bids for the reissue of its 7.64%, 2038 bond.

 

The total trading volume in the government securities market at 1604 IST was INR 398.80 billion, lower than INR 456.70 billion at 1630 IST Monday, according to data from the Clearing Corp. of India Ltd. Trade volume remained subdued as traders have switched their attention to the US FOMC meeting and maintained caution ahead of the panel's decision on policy rates, dealers said. The yield on the 10-year gilt is seen in a range of 6.90–7.00% during the day, they said.  (Janwee Prajapati)

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India Gilts: Recover all losses on PSU banks' buys; auction demand seen firm

 

	1215 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.95	99.98	99.81	99.84	99.95
YTM (%)	6.9452	6.9409	6.9653	6.9610	6.9452

 

MUMBAI--1215 IST--Government bond prices recovered early losses Tuesday as state-owned banks stepped up purchases at 6.95% yield on the 10-year benchmark 6.94%, 2036 gilt, dealers said. However, elevated levels of US Treasury yields and Brent crude oil price above $90 per barrel continued to weigh on bond prices, dealers said. Traders also await the result of the auction of state government securities, which is expected to lend further cues to the market.

 

A total of 15 states had invited bids to raise INR 270 billion through the sale of bonds between 1030 IST and 1130 IST. Demand at the auction was likely firm, dealers said. While banks bid aggressively for the short-term papers at the auction to add to their asset-liability management books, pension funds likely bid aggressively for the longer-tenure papers, dealers said. 

 

Some traders expect the cut-off yields to be slightly higher due to an increased auction size. The indicative calendar for state borrowing for Jul-Sept showed states would borrow INR 242.16 billion Tuesday, however, the notified auction amount was higher, which may impact the cut-off yields. The cut-off yield on Tamil Nadu's 7.49%, 2036 bond re-issue at auction is seen at 7.60%, according to an Informist Poll.

 

Assam, Bihar, Chhattisgarh, Himachal Pradesh, Jharkhand, Kerala, Madhya Pradesh, Manipur, Odisha, Sikkim, Tamil Nadu, Telangana, Uttar Pradesh, Uttarakhand, and West Bengal are the 15 states which invited bids to raise INR 270 billion in total Tuesday. At the state government bond auction last week, the cut-off yields on 10-year papers were set at 7.47-7.54%, a spread of 62-69 basis points over the gilt of similar maturity issued by the Centre.

 

"The cut-offs might be slightly higher than the last auction, but it will sail through, that won't be a problem," a dealer at a state-owned bank said. "For some states, like West Bengal, we might see some tail."  

 

Tuesday, bond prices were also supported on purchases from state-owned banks, dealers said. State-owned banks were net buyers Monday with purchases worth INR 39.66 billion, data from Clearing Corp. of India Ltd. showed. Some traders also covered short positions which fuelled a recovery in bond prices. The total trading volume in the government securities market at 1215 IST was INR 190.45 billion, lower than INR 231.80 billion at 1230 IST Monday, according to CCIL data.

 

Brent crude oil prices continued to trade above $91 per barrel, which weighed on bond prices, dealers said. Traders will closely monitor developments in the US-Iran war and its impact on Brent crude oil prices, as it will lend direction to the market, dealers said. The yield on the 10-year gilt is seen in a range of 6.90–7.00% during the day, dealers said.  (Diksha Tripathy)

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India Gilts: Down as W Asia fighting dampens risk appetite; high US ylds weigh

 

--Gilts fall on renewed tensions in West Asia war, high US yields 

 

	0946 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.87	99.88	99.81	99.84	99.95
YTM (%)	6.9574	6.9552	6.9653	6.9610	6.9452

 

MUMBAI--0945 IST--Government bond prices were down, tracking an overnight escalation in US-Iran fighting, dealers said. The escalation in tensions between the two countries kept Brent crude prices above the crucial $ 90-per-barrel level, dealers said. US Treasury yields also rose sharply overnight, weighing on bond prices Tuesday, dealers said. 

 

At 0946 IST, the yield on the 10-year benchmark US Treasury note was at 4.79%, up from 4.73% at the end of Indian gilt market hours Monday. The yield on the 10-year US Treasury note topped the crucial 4.75% level for the first time since January 2025 amid rising expectations of an interest rate hike by the Federal Reserve, which weighed on Indian bond prices Tuesday, dealers said. 

 

Brent crude oil prices have also remained above $90 per barrel, which fuelled further losses in bond prices, dealers said. Brent crude oil futures for November delivery were at $91.19 per barrel at 0946 IST, largely similar to its level at 1700 IST Monday. 

 

"Crude and UST (US Treasury yields) are the two factors playing out in the market today (Tuesday)," a dealer at a private-sector bank said. "PSUs are on-screen, so that is helping the prices, but no aggressive buying because of war-related uncertainties."

 

Some state-owned banks likely bought bonds when the yield on the 10-year benchmark 6.94%, 2036 bond remained near 6.95%, which helped bond prices, dealers said. State-owned banks were net buyers Monday with purchases worth INR 39.66 billion, data from Clearing Corp. of India Ltd. showed. 

 

The total trading volume in the government securities market at 0946 IST was INR 41.85 billion, lower than INR 54.85 billion at 0930 IST Monday, according to data from the CCIL. Traders will closely monitor developments in the war and its impact on Brent crude oil prices, as it will lend direction to the market, dealers said. The yield on the 10-year gilt is seen in a range of 6.90–7.00% during the day, dealers said.  (Diksha Tripathy)

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India Gilts: Seen dn as Brent, US ylds stay high on renewed W Asia fighting

 

MUMBAI – Government bond prices are seen opening lower Tuesday as Brent crude oil prices stayed above $91 per barrel amid renewed escalations in the war in West Asia, dealers said. US Treasury yields inched higher, likely putting pressure on Indian bond prices Tuesday, dealers said. The escalation is likely to dampen market participants' risk appetite, which is expected to keep trading volume low, dealers said. 

 

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 6.96% Tuesday and move between 6.90% and 6.98% during the day, dealers said. Monday, the bond ended at INR 99.95, or a yield of 6.9452%. Trading volumes are expected to remain low amid the likelihood of further escalations in the war in West Asia, dealers said. However, state-owned banks are likely to buy bonds above the 6.95% yield on the 10-year 2036 bond, which will likely support bond prices, dealers said. Some traders are also likely to cover short positions, which will likely help bond prices, dealers said.

   

Bond prices are likely to remain under pressure through the session unless there is a positive development on the West Asian war front, dealers said. Brent crude oil prices stayed above $91 per barrel at 0750 IST. US President Donald Trump threatened further strikes against Iran Monday after the first exchange of direct attacks between the two sides in a month, escalating tensions in a conflict that had recently shifted towards an economic standoff. Iran launched missiles overnight at two US air bases in Jordan in response to a US attack on Iran's Larak Island, where Washington said it had targeted Iranian launchers, according to media reports. The escalation fuelled concerns over potential disruptions to crude oil supplies from the region, pushing oil prices higher and raising fears of renewed inflationary pressures.

 

The renewed hostilities triggered a broad risk-off move across markets, which pushed up US yields. The yield on the benchmark 10-year US Treasury note was 4.78% at 0750 IST, up from 4.73% at the end of Indian gilt market hours Monday. This is the first time since January 2025 that the 10-year US Treasury yield has gone up above 4.75%. Markets have also increased bets on a September rate hike by the Federal Reserve after Fed Chair Kevin Warsh reiterated his focus on bringing inflation under control at last week's Jackson Hole gathering. Investors are now turning attention to this week's US employment report for further clues to the central bank's policy path.

 

In India, expectations of rate hikes in 2026 are seen increasing after the Reserve Bank of India's rate-setting panel focused on the possibility of such hikes at its meeting earlier in August. Some traders expect the yield on the 10-year benchmark bond to rise above 7% in the next few months if the MPC raises the repo rate, dealers said. In that scenario, some traders expect the yield on the 10-year benchmark to halt at 7.20% in 2026(Jan-Dec). 

 

Given the expectation of a rate hike, some traders expect the central bank to announce measures to absorb excess liquidity from the banking system to set the stage for a smooth transmission of rate hikes, dealers said. Traders have pared bets on a steepening of the yield curve after the RBI advanced the closure of Foreign Currency Non-Resident (Bank) deposits. Traders now expect the curve to flatten. The supply of government securities for the second half of the 2026-27 (Apr-Mar) will also play a key role in the movement of the yield curve, dealers said. Some traders expect the state government borrowing calendar for the December quarter to be similar in size to the same period last year.  

 

Bond prices are likely to track the outcome of the state government securities auction as well, dealers said. A total of 15 states will raise INR 270 billion by selling bonds on Tuesday. The auction will take place between 1030 IST and 1130 IST. The demand for the auction is seen as firm. However, dealers said cut-off yields may be higher at the auction.  (Diksha Tripathy)  End

 

US$1 = INR 94.87

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

 

Edited by Saji George Titus

 

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