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Informist, Friday, Sept. 4, 2026

 

By Janwee Prajapati

 

MUMBAI – Government bond prices ended steady Friday due to a lack of significant domestic triggers and the absence of any major escalation in the war in West Asia, which kept Brent crude oil prices contained, dealers said. Bond prices were slightly down following a slightly higher-than-expected coupon set on the new five-year 2031 gilt at the weekly gilt auction Friday. However, an intraday easing in Brent crude oil prices led to a recovery in bond prices amid subdued trading volumes. Traders refrained from building aggressive positions ahead of the weekend, which kept the trade volume subdued Friday, dealers said.

 

"There is nothing major happening in the market currently," a dealer at a primary dealership said. "We (market participants) are waiting for some indication... for now, crude is pushing us down (pulling down bond prices) and FCNR(B) (foreign currency non-resident (banks)) flows are keeping us afloat, hence we (bond prices) are kind of mixed." 

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 99.83, slightly up from INR 99.82 Thursday. The yield on the bond fell slightly to 6.9625% from 6.9646% at the end of the previous session. The yield on the 10-year benchmark bond traded between 6.95% and 6.97% throughout the day.

 

Brent crude oil prices fell to the day's low of $94.81 per barrel near the end of Indian trading hours, down from $95.87 at 0900 IST, and down from $96.84 at the end of Indian trading hours Thursday. Brent crude oil prices were largely steady throughout Friday's trading session, as there was no major escalation in the war in West Asia.

 

Additionally, the yield on the 10-year benchmark US Treasury note also fell to 4.77%, down from 4.78% at the end of Indian trading hours. US yields eased as expectations of a policy rate hike by the Federal Open Market Committee dampened after Fed Governor Christopher Waller said he is inclined to hold interest rates steady in September. Waller said he would be inclined to leave key interest rates unchanged if upcoming data confirms that price pressures are easing, but added that he would support a rate hike if inflation fails to cool, according to media reports.

 

Bond prices erased all gains and traded slightly lower after the INR-320-billion weekly gilt auction, as some traders said the coupon on the new five-year 2031 bond was slightly higher than expected. The Reserve Bank of India set a coupon of 6.53% on the new 2031 gilt, which was in line with the median of an Informist poll. However, traders said that near the end of bidding at the auction, they turned optimistic due to robust FCNR flows and placed bids around 6.49-6.51%. Banks and mutual funds likely picked up the 5-year paper at the auction, dealers said. The 40-year, 7.71%, 2066 paper was well bid by long-term investors, dealers said. The central bank set a cut-off of INR 100.58, slightly higher than the market's expectation of INR 100.54 according to the median of the Informist Poll. 

 

"Prices fell after the auction cut-off for the five-year paper was higher than expected," a dealer at a small finance bank said. "Banks got the shorter-term paper for their FCNR deployment and the 40-year paper was taken by pension funds and insurers."

 

The five-year 6.36%, 2031 bond has outperformed other tenures since the RBI released data on FCNR(B) deposits, which were significantly higher than expected despite the scheme's early closure. The higher-than-expected foreign inflows from FCNR(B) deposits pushed the banking system liquidity surplus to a record high as the RBI's net liquidity absorption – a proxy for the banking system liquidity surplus -surged to INR 10.31 trillion on Thursday, dealers said.

 

Total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 381.25 billion Friday, down almost 41% from INR 646.05 billion Thursday. Trade volumes were thin as several traders were on leave for Krishna Janmashtami, while caution also prevailed amid expectations that the RBI may announce measures to drain the durable liquidity surplus by next week, with some anticipating such an announcement after market hours. Possible measures include a hike in the cash reserve ratio or a dollar/rupee sell/buy swap. Some traders also expect bond sales through open-market operations. Others, however, are not convinced of the effectiveness of OMO sales in absorbing excess liquidity, dealers said.

 

As has been the case for several months, no trades using the RBI's wholesale e-rupee pilot took place on Friday.

 

OUTLOOK

Gilts are not traded on Saturdays. Monday, at the open, gilt prices may take cues from movements in US Treasury yields and crude oil prices. Traders are likely to wait for major cues before building aggressive positions, or at least until the window to swap FCNR(B) deposits shuts on Sept. 11, dealers said. However, traders are tracking the liquidity measures the RBI will take to prop up overnight money market rates as the banking system liquidity surplus has risen to a record, dealers said.

 

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. The surplus liquidity in the banking system is seen as warranting measures to drain durable liquidity beyond the variable rate reverse repo operations the RBI is currently conducting.

 

Focus will also be on the US Federal Open Market Committee's mid-month rate decision, dealers said. The FOMC decision will be a key trigger for the RBI Monetary Policy Committee's repo rate decision in October, dealers said. Traders expect the yield on the 10-year benchmark bond to hit 7.10% in about a month. As September nears its end, focus will also be on the Centre's and states' borrowing plans from October onwards, with heavy supply expected from both.

 

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

 

	FRIDAY		THURSDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	99.8300	6.9625%	99.8150	6.9646%
6.48%, 2035	97.0300	6.9249%	96.9900	6.9307%
6.36%, 2031	99.4200	6.5111%	99.3800	6.5216%
7.06%, 2041	99.5025	7.1135%	99.4650	7.1177%
7.24%, 2055	96.1100	7.5728%	96.1000	7.5737%

 

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India Gilts: Most give up gains as some say 2031 coupon higher than view

 

	1545 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.76	99.88	99.75	99.84	99.82
YTM (%)	6.9726	6.9549	6.974	6.9618	6.9646

 

	1545 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.36%, 2031
PRICE (INR)	99.40	99.53	99.36	99.43	99.38
YTM (%)	6.5164	6.4834	6.5263	6.5085	6.5216

 

MUMBAI--1545 IST--Prices of government bonds were mixed; with the 10-year benchmark 6.94%, 2036 bond reversing prior gains as some dealers found the coupon set on the new 2031 bond at the weekly gilt auction higher than the expectations, they said. Short-term bond prices remained a tad higher, inspite of the fresh supply of INR 210 billion of a new 2031 bond, with private-sector and foreign banks picking up bonds to deploy hefty inflows received through foreign currency non-resident (banks) deposits, dealers said. 

 

At the auction, several traders expected the coupon on the new 2031 bond to be set as low as 6.50%, even as the Reserve Bank of India set a coupon at 6.53%, the same as the median of an Informist Poll. This view was because large banks have been aggressively buying short-term state and central government bonds this week to deploy FCNR(B) flows. Some traders had expected a higher coupon due to lack of appetite from traders expecting measures to drain surplus liquidity and imminent repo rate hikes, they said. "Foreign banks and these large banks who have gotten FCNR will take at lower levels (yields), but what about the residual amount, who will take that?" a dealer at a state-owned bank said. The longer-term 7.71%, 2066 bond cut-off price was tad higher than estimates, at INR 100.58, with insurers and pension funds buying the bond, dealers said. "Insurers, PFs are coming to buy on-screen every day but only 100-200 crores (INR 1 billion to INR 2 billion); but they're buying at every level," a dealer at a brokerage said. 

 

Trade volumes were thin with several traders on leave for Krishna Janmashtami, while caution also prevailed due to expectations of the RBI announcing measures to drain durable liquidity surplus by next week, with some expecting such an announcement post-market hours. The central bank has held meetings with bankers Thursday and Friday to discuss banks' utilisation of FCNR(B) deposits and the management of the surplus liquidity of these deposits, dealers said. With one of the measures the RBI could opt for being sales of short-term government bonds through open market operations, asset and liability managers expecting such a move refrained from aggressive purchases at auction and in the secondary market, dealers said. Several dealers expect the RBI to combine several measures to manage the large surplus, including through incremental hikes in the cash reserve ratio and dollar-rupee sell-buy swaps. The total trading volume in the government securities market at 1545 IST was INR 294.70 billion, significantly lower than INR 515.55 billion at 1530 IST Thursday, according to data from the Clearing Corp. of India Ltd. (Cassandra Carvalho)

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India Gilts: Tad up on steady oil prices; gilt auction result to lend cues

 

	1250 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.85	99.88	99.79	99.84	99.82
YTM (%)	6.9603	6.9549	6.9679	6.9618	6.9646

 

MUMBAI--1250 IST--Prices of government bonds were slightly higher due to a lack of major escalation in the US-Iran war which kept Brent crude oil prices steady, dealers said. However, Brent crude oil prices remain above $95 per barrel, which has weighed on market sentiments, dealers said. Traders refrained from building aggressive positions ahead of the result of the weekly gilt auction and the weekend, dealers said.

 

"There is demand for both bonds (new five-year 2031 bond and 7.71%, 2066 bond at auction)," a dealer at a private sector bank said. "Banks and mutual funds are likely going for the short term (new five-year 2031 bond)... The cut-off will be around 6.53%, and the weighted average could be at 6.54%."

 

At the INR-320-billion weekly gilt auction, the government will sell INR 210 billion of the new five-year 2031 bond and INR 110 billion of the 7.71%, 2066 bond. Traders expect the demand for both the bonds to be firm from banks and other investors, dealers said. Traders expect the coupon on the new 2031 bond to be at 6.53%, whereas the cut-off on the 40-year paper is seen at INR 100.54, according to the median of an Informist Poll. Some traders are likely to pick up the five-year paper to deploy their foreign currency non-resident (banks) deposits which was significantly higher than market expectations, dealers said. On the other hand, some traders are likely to bid at a higher cut on expectations of a repo rate hike which will likely pull up the coupon on the five-year bond, dealers said. Pension funds and insurers are seen picking up the 2066 paper as levels seemed attractive, dealers said. Traders will closely track the result of the weekly gilt auction for further cues, dealers said.

    

Bond prices are likely to fall near the end of the day as traders will likely place short bets ahead of the weekend, dealers said. Traders will closely monitor developments in the war and its impact on Brent crude oil prices, dealers said. The yield on the 10-year gilt is seen in a range of 6.92–7.00% during the day, dealers said. The five-year bond continued to outperform other papers as traders picked up the bond due to robust FCNR(B) flows while others await the final numbers from the central bank on Sept. 11, dealers said. Some traders were on leave on account of Krishna Janmashtami, which kept trade volume low Friday. The total trading volume in the government securities market at 1250 IST was INR 150.20 billion, significantly lower than INR 349.15 billion at 1230 IST Thursday, according to data from the Clearing Corp. of India Ltd.  (Janwee Prajapati)

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India Gilts: Steady on caution ahead of auction; Brent near $96/bbl weighs

 

	0930 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.81	99.85	99.79	99.84	99.82
YTM (%)	6.9654	6.9596	6.9679	6.9618	6.9646

 

MUMBAI-–0930 IST--Government bond prices opened steady as traders refrained from placing aggressive bets ahead of the INR-320-billion weekly gilt auction Friday. Brent crude oil prices remaining near $96 per barrel also weighed on prices, dealers said. 

 

Brent crude oil futures for November delivery traded at $95.99 per barrel at 0920 IST, slightly lower from $96.74 at the end of Indian gilt market hours Thursday. Oil prices have remained above the psychologically crucial $95 per barrel level following renewed fighting between the US and Iran, denting market sentiment, dealers said.

 

"Not a lot of trading activity in the market for now, maybe because we have an auction at 1030 (IST)," a dealer at a state-owned bank said. "Crude also hasn't moved much since yesterday's (Thursday) closing, so nothing much in the market today (Friday)." 

 

Some traders maintained caution ahead of the weekly gilt auction Friday. The government will sell INR 210 billion of a new five-year bond and INR 110 billion of the 7.71%, 2066 bond. Demand for the short-term gilt is expected to be robust for asset-liability management needs by banks, while long-term investors are likely to mop up the supply of the 40-year gilt, dealers said.

 

The total trading volume in the government securities market at 0930 IST was INR 21.85 billion, significantly lower than INR 93.40 billion at 0930 IST Thursday, according to data from the Clearing Corp. of India Ltd. Traders will closely monitor developments in the war and its impact on Brent crude oil prices, dealers said. The yield on the 10-year gilt is seen in a range of 6.92–7.00% during the day, dealers said.  (Diksha Tripathy)

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India Gilts: Seen steady on caution before gilt auction; RBI measures eyed

 

MUMBAI – Government bond prices are seen opening steady Friday as traders are likely to refrain from placing aggressive bets ahead of the INR-320-billion gilt auction, whose results are likely to provide cues to the market. Fading bets of a rate hike by the US Federal Reserve at its September meeting, following remarks from Fed Governor Christopher Waller, helped prevent a rise in US Treasury yields and are likely to support Indian bond prices Friday, dealers said. However, Brent crude oil prices remained above the psychologically crucial $95 per barrel level, which is likely to dampen risk appetite, dealers said. Traders also await a possible measure by the Reserve Bank of India to drain surplus banking-system liquidity, dealers said. 

 

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 6.96% Friday and move between 6.92% and 7.00% during the day, dealers said. On Thursday, the bond ended at INR 99.82, or a yield of 6.9646%. Trading volume is likely to remain low in the first half as traders maintain caution ahead of the weekly gilt auction scheduled between 1030 IST and 1130 IST. Traders expect volume to pick up in the second half as some may trim positions ahead of the weekend, which is likely to weigh on bond prices.

 

Bond prices are likely to find support Friday from fading bets of a rate hike at the September Federal Open Market Committee meeting, dealers said. Remarks from Fed Governor Christopher Waller that he is inclined to hold interest rates steady in September dragged US bond yields lower. Waller said he would be inclined to leave key interest rates unchanged if upcoming data confirms that price pressures are easing, but added that he would support a rate hike if inflation fails to cool, Reuters reported. Following Waller's remarks, financial markets pared expectations of a Fed rate hike at the September meeting, with the probability falling to 50.4% Friday from 63.2% Thursday, according to CME's FedWatch tool.

 

The Federal Open Market Committee's decision will be a key trigger for the Monetary Policy Committee's decision on the repo rate in October, dealers said. As September nears its end, focus will also be on the Centre's and states' borrowing plans from October onwards, with heavy supply expected from both.

 

Markets will also closely watch the August employment report due Friday from the US Labor Department. The report is expected to show that the US economy added 56,000 jobs last month, while the unemployment rate is expected to remain steady at 4.1%, according to Reuters.

 

On the US-Iran war front, US Vice President JD Vance said all options remain on the table against Iran and ruled out talks unless Tehran halts attacks on commercial shipping in the Strait of Hormuz, Al Jazeera reported. Brent crude oil futures for November delivery traded at $96.06 per barrel at 0730 IST, against $96.74 per barrel at the end of Indian gilt market hours Thursday. Traders will closely track developments in the war in West Asia and their impact on Brent crude oil prices during the day.

 

Bond prices are likely to take cues from the result of the INR 320-billion weekly auction. The government will sell INR 210 billion of a new five-year bond and INR 110 billion of the 7.71%, 2066 bond. Demand for the short-term gilt is expected to be robust for asset-liability management needs by banks, while long-term investors are likely to mop up the supply of the 40-year gilt, dealers said.

 

Until the window to swap Foreign Currency Non-Resident (Bank) deposits shuts on Sep 11, traders are unlikely to aggressively place short bets on gilts, they said. However, traders are tracking the liquidity measures the Reserve Bank of India will take to prop up overnight money market rates as the banking system liquidity surplus has risen to a record, dealers said.

 

RBI and bank officials met Thursday to discuss liquidity management after measures to mobilise dollars led to larger-than-expected inflows, according to media reports. The meeting comes as surplus liquidity in the banking system has surged, pushing overnight borrowing costs significantly below the RBI's policy rate. At the meeting, lenders proposed using foreign exchange sell-buy swaps to gradually drain excess rupee liquidity from the banking system, Reuters reported, citing sources.

 

Traders expect the RBI to announce liquidity-management measures Friday after market hours, which may lend direction to the market, they said. The surplus liquidity in the banking system is seen as warranting measures to drain durable liquidity beyond the variable rate reverse repo operations the RBI is currently conducting. Traders expect measures that could include a hike in the incremental cash reserve ratio or sales of government bonds through open market operations, they said. (Diksha Tripathy)

End

 

US$1 = INR 94.49

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

 

Edited by Saji George Titus

 

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