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Informist, Wednesday, Sept. 2, 2026

 

--10-year benchmark gilt yield ends at 6.9754%, highest close since Jun 5

 

By Cassandra Carvalho

 

MUMBAI – Prices of government bonds ended off the day's lows Wednesday after the yield on the 10-year benchmark 6.94%, 2036 bond had opened at 7.00%, the highest since Jun. 5, as banks picked up bonds at levels seen to be lucrative, dealers said. A fall in Brent crude oil prices, which had shot up overnight, near the end of trade helped the partial recovery, dealers said. Bond prices also ended lower as the 10-year US Treasury yield neared a three-year-high.

 

Some banks also deployed inflows received through foreign currency non-resident (banks) deposits into bonds maturing within five to seven years, dealers said. While an uptrend in bond yields is expected in the coming months, the outlook for the current fortnight is uncertain as foreign inflows limit a rise in yields while there is no clarity on when the US-Iran war can be resolved, dealers said.

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 99.74, against INR 99.86 Tuesday. The yield on the bond rose to 6.9754% from 6.9581% at the end of the previous session, but off the day's high of 7.0013% -- a psychologically crucial level. The bond yield closed at its highest since Jun. 5, recovering the entire fall seen after the Reserve Bank of India's June monetary policy meeting decision -- where the central bank and the Centre unveiled measures to boost foreign inflows.

 

"The main global triggers are showing no signs of cooling off, but it makes sense to go long (buy bonds) after hitting 7% (yield on the 10-year bond) and reversing. If there is any positive news, if crude (oil price) falls, we could see a 3-4 bps (basis points) relief," a dealer at a private-sector bank said.

 

The yield on the 10-year US Treasury note was 4.80% at 1700 IST, down from the day's high of 4.82% but up from 4.78% at the end of gilt market hours Tuesday to its highest since Nov. 2023. The Brent crude oil contract for delivery in November was at $94.33 per barrel at 1700 IST, from $95.36 per barrel at 0900 IST, hitting a high of $97 per barrel overnight. Total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 594 billion Wednesday, up from INR 443.30 billion Tuesday.

 

Some private-sector banks and foreign banks have picked up short-term gilts and state bonds this week to deploy inflows through FCNR(B) deposits while also receiving fixed rates in swaps, dealers said. The 6.36%, 2031 bond yield ended over 2 bps lower due to these purchases, cushioned by a large liquidity surplus, dealers said.

 

Surplus liquidity in the banking system widened to its highest in about four years, which helped short-term bond prices, but the greater fear lay in what measures the RBI would introduce to drain durable liquidity, dealers said. Pricing of rate hikes by the RBI's Monetary Policy Committee in October, December, and possibly February reflected in cut-off yields at the weekly Treasury bill auction, dealers said. The cut-off yield on the 364-day T-bill was 5.9090%, highest since Jun. 10, while that on the 182-day T-bill was the highest since May 27.

 

"RBI will want to keep liquidity (surplus) at 1 to 2 lakh crore (INR 1 trillion to INR 2 trillion) and three rate hikes are being priced, so there is just no demand for six-month, one-year T-bills. People are not keen," a dealer at a foreign bank said. Traders, however, refrained from aggressive short sales in the secondary gilt market due to sudden foreign inflows being deployed until the window to swap FCNR(B) deposits shuts next week, dealers said.

 

OUTLOOK

Gilt prices Thursday are seen opening sharply higher, especially if crude oil remains at the current level, after the RBI, after market hours, said banks had raised $127.23 billion through FCNR(B) deposits under its special scheme despite its early closure, sharply above most market participants' expectations, though some traders had expected inflows to top $100 billion. Some of these deposits have been old FCNR(B) deposits rebooked under the scheme, dealers said, but, nonetheless, the higher-than-expected number is likely to be reflected in both systemic liquidity and in government bonds, with banks deploying some of the flows into gilts. Until the window to swap FCNR(B) deposits shuts Sept. 11, traders are unlikely to aggressively place short bets on gilts, they said. Some traders also expect a sudden announcement of a peace deal between the US and Iran, with Brent crude oil futures currently trading at a crucial technical level of about $95 per barrel, at which it has usually seen a fall, dealers added.

 

Bonds will continue to track developments in the war in West Asia and movements in Brent crude oil prices, dealers said. They will also track movements in US Treasury yields, which are under pressure from heavy supply and inflation fears. Focus will also shift to the US Federal Open Market Committee's rate decision mid-month, dealers said. The FOMC decision will be a key trigger for the Monetary Policy Committee's decision on the repo rate in October, dealers said. Traders expect the yield on the 10-year benchmark bond to hit 7.10% in about a month. Nearing the end of September, focus will also be on the Centre's and states' borrowing plan for October onwards, with heavy supply expected from both.

 

Given the expectations of a rate hike, some traders expect the central bank to announce measures to absorb excess liquidity from the banking system amid such a large surplus, dealers said. Core liquidity in the banking system is seen at about $10 trillion by the end of this month, warranting measures to drain durable liquidity, other than the variable rate reverse repo operations the RBI is currently conducting. Traders expect measures that could include incremental hikes in the cash reserve ratio or sales of government bonds through open market operations, they said.

 

The yield on the 10-year benchmark 6.94%, 2036 bond is seen moving between 6.90% and 7.05%, dealers said. Any significant movement in the rupee and swap rates will also lend cues, they said.

 

	WEDNESDAY		TUESDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	99.7400	6.9754%	99.8600	6.9581%
6.48%, 2035	96.9600	6.9351%	97.0450	6.9220%
6.36%, 2031	99.2275	6.5617%	99.1350	6.5861%
7.06%, 2041	99.3900	7.1260%	99.5000	7.1139%
7.24%, 2055	96.1250	7.5715%	96.3400	7.5526%

 

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India Gilts: Remain down on rise in oil prices; short covering limits losses

 

	1500 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.72	99.79	99.56	99.56	99.86
YTM (%)	6.9779	6.9689	7.0013	7.0013	6.9581

 

MUMBAI--1500 IST--Government bond prices remained down tracking a rise in Brent crude oil prices and higher US Treasury yields, dealers said. Expectations of a rate hike by the Federal Open Market Committee and the Reserve Bank of India's Monetary Policy Committee loomed, which soured the market sentiment, dealers said. However, the fall in bond prices was limited as some traders covered their short positions after the yield on the 10-year benchmark bond hit 7%, dealers said. Bond prices had recovered some of the earlier losses tracking an intraday fall in crude oil prices, dealers said.

 

"The market is lower because of rising US yields and crude with no solution to the West Asia war in view," a dealer at a primary dealership said. "There is obviously an expectation of a rate hike (hike in repo rate by the RBI's MPC), which is why the longer-end (long term bonds) looks better now...shorter tenure outperformed today only because of FCNR (foreign currency non-resident (banks) deposits) flows, but it is a temporary phenomenon." The five-year 6.36%, 2031 bond was trading at INR 99.20 or 6.5703% yield, up six paise from Tuesday. 

 

Brent crude oil prices were at $94.95 per barrel, up from the day's low of $94.53 and up from $91.95 per barrel at the end of India trading hours Tuesday. Traders also attributed the fall in bond prices to the sharp rise in US Treasury yields, which remained elevated at 4.81%, up from 4.78% at 1700 IST Tuesday, dealers said. Some traders also pointed to the rise in overnight indexed swap rates which weighed on bond prices.

 

The fall in bond prices remained limited as some traders covered their short positions after the yield on the 10-year benchmark bond jumped to a nearly three-month high, dealers said. A proxy for tracking short sales on 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 1500 IST showed trades worth INR 83.05 billion in the 6.94%, 2036 gilt Wednesday.    

 

The total trading volume in the government securities market at 1500 IST was INR 456.30 billion, higher than INR 368.80 billion at 1530 IST Tuesday, according to data from the Clearing Corp. of India Ltd. The yield on the 10-year gilt is seen in a range of 6.95–7.02% during the day, dealers said. The closing yield is likely to set the range on the 10-year bond going ahead as it hit 7% in Wednesday's session, dealers said. Some traders expect the yield on the 10-year benchmark to rise to 7.10% if it breaks the 7.00% level. Traders will closely monitor developments in the war and its impact on Brent crude oil prices as it will also lend direction to the market, dealers said.  

 

The central bank set a cut off price of INR 98.7056 or 5.2599 on the 91-day T-bill, INR 97.2558 or 5.6588% on the 182-day T-bill and INR 94.4351 or 5.9090% yield on the 364-day T-bill. The cut-off yields set on the 182-day and 364-day T-bill was at a multi-month high as traders priced in rate hikes, dealers said. However, it did not have any impact on bond prices, dealers said.  (Janwee Prajapati)

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India Gilts: Sharply down on rise in Brent crude oil prices past $95/barrel

 

	1230 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.68	99.75	99.56	99.56	99.86
YTM (%)	6.9847	6.9739	7.0013	7.0013	6.9581

 

MUMBAI--1230 IST--Government bonds prices stayed sharply lower as escalations in West Asia pulled up Brent crude oil prices which weighed on market sentiment, dealers said. The fall in bond prices was, however, contained due to purchases from public sector banks as they considered the levels attractive, dealers said. Trade volume remained subdued due to lack of significant domestic triggers, dealers said.   

 

On the yield curve, the spread between the 10-year benchmark 6.94%, 2036 bond and the 15-year benchmark 7.06%, 2041 bond compressed in line with traders' expectation of a flattening of the yield curve, dealers said. The spread between the 10-year benchmark bond and the 15-year benchmark bond was 15 basis points, lowest since May 30, 2025. On other hand, the spread between the five-year benchmark 6.36%, 2031 bond and the 10-year benchmark 6.94%, 2036 bond, widened to over 40 basis points, contrary to traders' expectations of a compression after the advanced closure of the FCNR(B) window. The divergence was likely due to robust foreign inflows from the foreign currency non-resident (banks) deposit window, likely to be upwards of $100 billion according to some dealers, which limited the rise in short-term yields, dealers said. Moreover, the yield on the 10-year benchmark bond rose to over 7% Wednesday as Brent crude oil prices surged past $95 per barrel.

 

Brent crude futures for November delivery were at $95.61 per barrel, up from $91.95 at the end of Indian trading hours Tuesday. The yield on 10-year benchmark US Treasury notes also rose past 4.80% to trade at 4.82% at 1210 IST, up from 4.78% at 1700 IST Tuesday, which also weighed on market sentiment, dealers said.  

 

At the Treasury bill auction, traders expect the Reserve Bank of India to set a cut-off higher than the cut-off set on these papers at the week's auction. Traders expect the demand for the 91-day T-bill to be driven by excessive liquidity in the banking system, whereas the 364-day T-bill is likely to see a higher cut-off due to expectations of a repo rate hike, dealers said.  

 

The expected cut-off yield on the 91-day T-bill is 2 basis points higher than the cut-off set at the auction on Aug. 27. The cut-off yield seen on the 182-day T-bill is 4 basis points higher and that on the 364-day T-bill is 7 basis point higher than the cut-off set last week, according to the median of an Informist Poll. The RBI is likely to set a cut-off of INR 98.7007, or 5.28% yield, on the 91-day Treasury bill at the auction Wednesday. The cut-off on the 182-day T-bill is seen at INR 97.2576, or 5.66% yield, and that on the 364-day T-bill is seen at INR 94.4698, or 5.87% yield, according to the same poll.

 

"The cut-off on the 3-month bill will be slightly lower because of liquidity, as people would want to park their money somewhere," a dealer at a primary dealership said. "One-year (364-day T-bill). The T-bill will be higher because of rate hike fear... People are expecting at least two rate hikes in a span of one year." Liquidity surplus rose to INR 7.76 trillion on Tuesday, which is over a four-year-high.

 

The total trading volume in the government securities market at 1230 IST was INR 252.80 billion, higher than INR 209.40 billion at the smae time Tuesday, according to data from the Clearing Corp. of India Ltd. Public sector banks likely picked up bonds as the yield on the 10-year bond hit 7% which limited the fall in bond prices, dealers said. The yield on the 10-year gilt is seen in a range of 6.95–7.02% during the day, dealers said.  (Janwee Prajapati)

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India Gilts: Recover some losses on value buying; 10-yr 2036 gilt yld hits 7%

 

--Gilts tumble as Brent crude tops $95/bbl, 10-yr US yield at 3-yr high 

--India's 10-year benchmark gilt yield hits 7.0013%, highest since Jun 5 

--India's 10-year benchmark gilt price erases all gains after MPC June meet 

 

	0945 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.67	99.75	99.56	99.56	99.86
YTM (%)	6.9854	6.9739	7.0013	7.0013	6.9581

 

MUMBAI--0945 IST--Government bonds recovered some early losses as traders bought them when the yield on the 10-year benchmark 6.94%, 2036 bond remained near the technical level of 7.00%, dealers said. The yield on the 10-year 2036 bond touched 7.0013% in early trade, hitting its highest level since Jun. 5. A significant rise in Brent crude oil prices and US Treasury yields also weighed on bond prices Wednesday, dealers said. 

 

An overnight escalation in war in West Asia pushed prices of Brent crude above $95 per barrel, which weighed on bond prices, dealers said. Brent crude oil futures for November delivery were at $95.45 per barrel at 0945 IST, up nearly 4% from the end of Indian gilt market hours Tuesday. Tracking a rise in oil prices, US yields also inched higher, which weighed on Indian bond prices, dealers said. The yield on the 10-year benchmark US Treasury note was at a three-year high of 4.81% at 0945 IST, up from 4.78% at 1700 IST Tuesday. 

 

Bond prices were supported on purchases from traders at levels seen as attractive, they said. Some state-owned banks likely bought bonds when the yield on the 10-year benchmark 6.94%, 2036 bond remained near 7.00%, which helped bond prices recover some early losses, dealers said. State-owned banks were net buyers till Tuesday with purchases worth INR 49.64 billion, data from Clearing Corp. of India Ltd. showed. 

 

"PSUs (state-owned banks) are definitely there at these levels because they were buying at 6.95-6.96% (yield on the 10-year benchmark bond), so this is a good level," a dealer at a state-owned bank said. "Traders across categories are active today (Wednesday)."  

 

The total trading volume in the government securities market at 0945 IST was INR 113.80 billion, significantly higher than INR 36.60 billion at 0930 IST Tuesday, 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 6.95–7.02% during the day, dealers said.  (Diksha Tripathy)

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India Gilts: Seen sharply down as Brent crude tops $95/bbl, US yields soar

 

MUMBAI – Government bond prices are likely to open sharply lower Wednesday, tracking a significant overnight rise in Brent crude oil prices and US Treasury yields, dealers said. Traders are likely to refrain from taking fresh positions amid the escalation of the war in West Asia, which is expected to keep trading volume low Wednesday.

 

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 6.97% Wednesday and move between 6.92% and 7.00% during the day, dealers said. Tuesday, the bond ended at INR 99.86, or a yield of 6.95%. The expectations of further escalations in the US-Iran war are likely to weigh on the market sentiment, dealers said. Some state-owned banks are likely to buy bonds near a 6.98% yield on the 10-year 2036 bond, which is expected to 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 due to a significant rise in Brent crude oil prices, dealers said. At 0730 IST, Brent crude oil futures for November delivery were at $96.66 per barrel, up from $91.97 per barrel at 1700 IST Tuesday. Oil prices rose after US President Donald Trump said the strikes on Iran came in response to Tehran's earlier attempt to attack a US military base in Jordan. Iran, in turn, said it had fired a missile at a US air base in Jordan following the US strikes, Reuters reported. The clash ended weeks of relative calm, during which Washington had favoured economic pressure over military action against Tehran. Traders will closely track developments in the war in West Asia and its impact on Brent crude oil prices. 

 

The surge in US Treasury yields is likely to weigh further on bond prices, dealers said. The US 10-year Treasury yield rose to 4.81%, hitting a three-year high. Fed funds futures are now pricing in a 67% probability of a 25-basis-point increase in benchmark borrowing costs at the US Federal Reserve's two-day meeting ending Sept. 16, compared with a 39.6% probability a week earlier, according to the CME Group's FedWatch tool.

 

The Federal Open Market Committee decision will be a key trigger for the Reserve Bank of India's rate-setting panel'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. 

 

Traders will also track the results of the Treasury bill auction later in the day. The RBI will auction INR 90 billion of 91-day T-bills, INR 80 billion of 182-day T-bills, and INR 70 billion of 364-day T-bills between 1030 IST and 1130 IST. The cut-off yields on these are likely to be similar to those set at the auction last week as liquidity in the banking system remains comfortable, dealers said. The RBI had set a cut-off yield of 5.26% on the 91-day T-bill, 5.62% on the 182-day T-bill, and 5.80% on the 364-day T-bill at the previous auction.  (Diksha Tripathy)

 

End

 

US$1 = INR 94.97

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

 

Edited by Rajeev Pai

 

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