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Informist, Friday, Sept. 11, 2026

 

By Janwee Prajapati

 

MUMBAI – Government bond prices ended sharply down Friday following comments from the Reserve Bank of India Governor Sanjay Malhotra that the central bank may conduct open market sales of government securities or dollar-rupee sell-buy swaps to absorb surplus liquidity driven by strong foreign currency non-resident (banks) deposits, dealers said. An intraday fall in Brent crude oil prices limited the fall in bond prices. Moreover, the central bank accepted partial bids for the 6.20%, 2029 paper, which helped bond prices recover from their lows, dealers said. Traders refrained from building aggressive positions ahead of the release of US CPI data Friday and an extended weekend, dealers said. 

 

The 10-year benchmark 6.94%, 2036 bond ended at INR 99.41, against INR 99.74 Thursday. The bond's yield rose to 7.0233%, the highest since Jun. 3, up from 6.9762% at the end of the previous session. The bond traded in a range of 7.04% to INR 7.00% during the day. Brent crude oil futures for mid-month delivery traded at $104.22 per barrel at 1700 IST, down from $108.31 per barrel at 0900 IST, but up from $102.08 at the end of Indian trading hours Thursday. 

 

"... For a couple of days now I think we will remain between 7.02%-7.05% (yield on the 10-year benchmark 6.94%, 2036 bond)," a dealer at a private sector bank said. "People (traders) picked up bonds above 7.02% today (Friday)... yield (on the 6.94 36bond) will rise above 7.05% only if Brent crude oil prices rise near $115 per barrel." 

 

Crude oil prices stayed elevated as oil flows remained restricted through the Strait of Hormuz after the US and Iran exchanged attacks, while Iran-backed Houthis seized control of Yemen's port of Mocha, threatening Saudi oil exports through the Red Sea, according to media reports. The sharp rise in oil prices has raised concern that a prolonged war in West Asia could keep inflation elevated and complicate the interest rate outlook. Traders refrained from taking aggressive bets as they awaited the release of US CPI inflation data, which is likely to influence the Federal Open Market Committee's decision on the policy rate, dealers said. The yield on the 10-year benchmark US Treasury note was at 4.95% at 1700 IST, down from 4.98% at 0900 IST, but up from 4.87% at the end of Indian trading hours Thursday.

 

Back home, the RBI governor said on Friday that the central bank may conduct open-market sales of government securities or dollar-rupee sell-buy swaps to drain surplus liquidity stemming from strong foreign currency non-resident (banks) deposits. The central bank is aware that these deposits are exempt from cash reserve ratio requirements and will not be subject to a higher CRR or other requirements, Malhotra said in an interview to financial news channel CNBC-TV18. India's surplus liquidity – as measured by the RBI's net liquidity absorbed – has remained above INR 10 trillion since Sept. 3. Following the comments, bond prices fell to the day's low.  

 

Some traders had expected the RBI to announce measures to absorb excess liquidity from the banking system to ensure smooth transmission of a rate hike, dealers said. Traders had also expected the yield curve to flatten on rate-hike expectations, they said. Some traders likely placed short bets on the five-year benchmark bond anticipating a rise in yields, which weighed on its price on Friday. The price of the five-year benchmark 6.36%, 2031 bond fell, with its yield rising nearly 10 basis points on Friday — the sharpest single-day rise since Jun. 10. The five-year benchmark gilt yield ended at 6.6202% on Friday, its highest level since Jun. 4.

 

At the weekly gilt auction, bids for the 6.20%, 2029 paper were partially accepted at INR 45.06 billion against the notified amount of INR 110 billion, triggering a recovery in bond prices, dealers said. Banks likely picked up this bond for their asset-liability management books as levels appeared attractive, they said. Insurers, pension funds and mutual funds likely bought the new 30-year 2056 paper, they added. The RBI set a coupon of 7.63% on the new 30-year bond, in line with the median of an Informist poll. The central bank set cut-offs of INR 99.46 and INR 98.36 on the 6.20%, 2029 bond and the 6.57%, 2033 paper, respectively.

 

"Partial acceptance was good for the market," a dealer at a state-owned bank said. "Seven-year paper could have been slightly better... likely bank ALM (asset liability management books) got the paper. Demand in the long term (paper) was good." 

 

The total turnover on the RBI's Negotiated Dealing System–Order Matching system was INR 469.45 billion, up from INR 340.70 billion Wednesday. 

 

OUTLOOK

Markets are shut Monday for Ganesh Chaturthi. On Tuesday, gilts are seen opening lower as the RBI said, post-market hours Friday, it will sell INR 1 trillion of bonds through open-market operations in three tranches, one of INR 500 billion and the remaining two of INR 250 billion, dealers said. These will be its first OMO sale auctions since the simultaneous sales, along with its last Government Securities Acquisition Programme 2.0 purchases on Sept. 30, 2021. The first tranche of the INR-1-trillion OMO auction will be conducted Thursday, when the central bank will sell six gilts worth INR 500 billion. RBI will sell the 7.59%, 2029 bond, the 6.79%, 2029 bond, the 7.61%, 2030 bond, the 5.77%, 2030 bond, the 6.68%, 2031 bond, and the 8.28%, 2032 bond via the open market operations auction Thursday.  

 

Some traders expect the yield on the 10-year bond to rise to 7.10%-7.15% and hover near the historically significant 7.14% level till the Monetary Policy Committee meeting. However, others do not expect any significant impact on the yield of the 10-year benchmark bond. Instead, short-term bond yields are likely to come under pressure. This will likely flatten the yield curve, dealers said. Some traders expect the five-year benchmark bond to rise to 6.75% Tuesday. 

 

Traders will also track Brent crude oil prices and any significant escalation in the West Asia war, which will lend cues to bond prices. Traders will also closely monitor movements in US Treasury yields, dealers said.

 

Elevated US Treasury yields are likely to pull up domestic bond yields after US consumer prices rose 3.4% last month from a year earlier, prompting traders to raise the odds of a Federal Reserve rate hike next week. The headline inflation figure was unchanged from the prior month and matched estimates from economists polled by The Wall Street Journal. Core CPI, which strips out volatile food and energy costs, rose 2.4%. Both readings reinforced the investor narrative that inflation is still too high for the Fed to keep interest rates on hold. Traders will also monitor the release of India's CPI inflation for August, which is seen at 4.8%, according to an Informist poll, while market participants expect it between 4.9% and 5.1%.

 

Traders will also track Brent crude oil prices and any significant escalation in the West Asia war, which will lend cues to bond prices. They will also closely monitor movements in US Treasury yields. 

 

Traders are also waiting for the release of the borrowing calendar for state and central government bond issuances for the next quarter and the second half of the current financial year, respectively. They want to see the proportion of different bond tenures in the calendar, dealers said. The RBI has held several meetings with market participants this week, the last to discuss the Centre's borrowing calendar, they said. 

 

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 6.93% and 7.10%, dealers said.

 

	FRIDAY		THURSDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	99.4100	7.0233%	99.7350	6.9762%
6.48%, 2035	96.6800	6.9798%	97.0000	6.9301%
6.36%, 2031	99.0100	6.6202%	99.3750	6.5231%
7.06%, 2041	99.2500	7.1414%	99.4800	7.1160%
7.24%, 2055	95.7200	7.6073%	96.0000	7.5825%

 

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India Gilts: Down more on RBI Malhotra's remarks; auction result limits fall 

 

	1544 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.44	99.55	99.33	99.55	99.74
YTM (%)	7.0190	7.0038	7.0349	7.0038	6.9762

 

MUMBAI--1544 IST--Government bond prices fell more after Reserve Bank of India Governor Sanjay Malhotra said the central bank may conduct open market operations to sell government securities or dollar-rupee sell-buy swaps to drain the surplus liquidity emanating from robust foreign currency non-resident (banks) deposits, dealers said. Though Brent crude prices eased intraday, they continued to hover near the $105 per-barrel mark, which also weighed on market sentiment, dealers said. However, bond prices recovered partially after the results of the INR 320-billion weekly gilts auction was better than expected, along with partial acceptance of bids for the 6.20%, 2029 paper, dealers said.

 

"We saw a fall in bond prices because the governor's comments were hawkish," a dealer at a small finance bank said. "But the auction was positive... one paper (6.20%, 2029 bond) was partially accepted and the long-term (new 30-year 7.63%, 2056 bond) was better than expected."

 

The governor said the central bank may conduct open-market operations to sell government securities or dollar-rupee sell-buy swaps to drain the surplus liquidity emanating from FCNR(B) deposits. The central bank was conscious that these deposits are exempted from cash reserve ratio calculations and will not have higher CRR or other requirements, he told financial news channel CNBC-TV18 in an interview. India's surplus liquidity -- as measured by the RBI's net liquidity absorbed -- has remained above INR 10 trillion since Sept. 3.

 

At the auction where the government sold three bonds, cut-off prices were higher than market expectations, dealers said. Bids for the 6.20%, 2029 paper were partially accepted at INR 45.06 billion against the notified amount of INR 110 billion, which led to a recovery in bond prices, dealers said. Banks likely picked up this bond for their asset and liability management books as the levels seemed attractive, dealers said. Insurers, pension funds, and mutual funds are likely to have picked up the new 30-year 2056 paper, they added. The RBI set a coupon of 7.63% on the new 30-year bond, in line with the median of an Informist Poll. The central bank set cut-offs of INR 99.46 and INR 98.36 on the 6.20%, 2029 bond and the 6.57%, 2033 paper, respectively.

 

Traders refrained from building aggressive positions ahead of the extended weekend and US CPI data due Friday, dealers said. The total traded volume in the government securities market at 1544 IST was INR 392.55 billion, up from INR 263.55 billion at 1530 IST Thursday, according to data from Clearing Corp. of India Ltd. The yield on the 10-year gilt is seen in the range of 6.98–7.05% during the remainder of the day, dealers said. Traders expect the bond yield to close near 7.02% if Brent crude oil price remains near $103–$105 per barrel, dealers said. The Brent crude oil futures contract for November delivery was at $104.17 per barrel, up from $102.08 at the end of Indian trading hours Thursday.  (Janwee Prajapati)

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India Gilts: Remain sharply down; demand at 3-year gilt auction seen weak

 

	1215 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.49	99.55	99.42	99.55	99.74
YTM (%)	7.0125	7.0038	7.0226	7.0038	6.9762

 

MUMBAI--1215 IST--Government bond prices remained sharply down as traders trimmed positions amid low risk appetite due to fears of further escalation in the war in West Asia, dealers said. Some traders also trimmed positions ahead of the extended weekend, which further weighed on bond prices Friday. Brent crude oil prices and US Treasury yields eased during the day, which helped bond prices recover some losses. Traders now await the result of the INR-320-billion gilt auction Friday, as the cut-offs can lend further cues to the market. 

 

The government Friday invited bids to raise INR 320 billion through the sale of the 6.20%, 2029 bond, the 6.57%, 2033 bond, and a new 2056 bond. Demand for the 2029 bond was likely to have been tepid at the auction due to bets of a rate hike by the Reserve Bank of India's Monetary Policy Committee in the current financial year, dealers said. The cut-off price is seen at INR 99.35 or 6.44% yield, according to an Informist poll. 

 

"For three-year (bond), we might see some tail (in the cut-off price) because these short-term papers are more sensitive to rate hikes and currently, there are high chances of a rate hike by the RBI," a dealer at a state-owned bank said. "For the other two papers, demand won't be a problem. They will sail through easily."     

 

Demand for the new 2056 bond was seen better than either of the two short-term gilts, but traders still varied widely on the expected coupon on the new 30-year bond, dealers said. The Informist poll showed coupon estimates of 7.60-7.64%, compared with the 7.24%, 2055 gilt's secondary market yield on 7.61%. The recent rise in yields is likely to attract life insurers and pension funds looking to lock in returns, which would help the auction sail through, dealers said. However, long-term investors may bid for the bond at a higher coupon rate due to the rising global bond yields and expectations of that trend to continue. The sharp rise in the five-year overnight indexed swap rate was also reducing nominal returns through bond forwards and forward-rate agreements. Demand through derivative instruments for the new bond is unlikely to top INR 20 billion, life insurers and foreign bankers said.

 

In the secondary market, the fall in bond prices was limited due to easing of Brent crude oil prices, dealers said. Brent crude oil futures for November delivery were at $105.88 per barrel at 1210 IST, down from $108.38 per barrel at 0900 IST. US yields also fell, tracking the fall in oil prices, which helped bond prices, dealers said. The yield on the 10-year benchmark US Treasury note fell to 4.95% at 1215 IST from 4.98% at 0900 IST. Traders will closely track any developments in the war in West Asia and its impact on Brent crude oil prices, they said. 

 

The total traded volume in the government securities market at 1215 IST was INR 186.45 billion, higher than INR 132.60 billion at 1230 IST Thursday, according to data from the Clearing Corp. of India Ltd. The yield on the 10-year gilt is seen in a range of 6.98–7.05% during the day, dealers said.  (Diksha Tripathy and Aaryan Khanna)

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India Gilts: Slump as Brent rises above $108/bbl, 10-yr US yield nears 5%

 

--Dealers: Gilts slump as Brent crude near $110/bbl, 10-yr US yld near 5% 

--Dealers: State bond supply Tue heavier than view, weighing on gilts 

--CONTEXT: States to raise INR 359 bln Tue vs INR 240 bln indicated 

--India's 10-yr benchmark gilt yield hits 7.0211%, highest since Jun 4 

 

	0944 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.44	99.55	99.42	99.55	99.74
YTM (%)	7.0186	7.0038	7.0226	7.0038	6.9762

 

MUMBAI--0944 IST--Government bond prices slumped Friday, tracking a sharp overnight rise in Brent crude oil prices and US Treasury yields, dealers said. Some traders likely bought bonds when the yield on the 10-year benchmark 6.94%, 2036 gilt remained near 7.02%, which limited the fall in bond prices. Most traders refrained from placing aggressive bets ahead of the INR-320-billion gilt auction, results of which are likely to lend cues to the market, they said.

 

The rise in Brent crude oil prices weighed on market sentiment Friday, dealers said. Brent crude oil futures for November delivery were at $108.53 at 0944 IST, up 6.25% from the end of Indian gilt market hours Thursday. The surge in oil prices to a four-month high also pushed US yields higher, dealers said. The yield on the 10-year benchmark US Treasury note rose to its highest in nearly three years and was trading at 4.97% at 0940 IST.

 

Traders maintained caution ahead of the release of US CPI inflation data at 1800 IST. They will closely track the data to gauge the impact of elevated oil prices stemming from the war in West Asia, they said. Inflation in the world's largest economy is seen rising to 3.4% on year in August, according to a survey compiled by The Wall Street Journal.

 

"Crude and war-related fears are affecting the market today (Friday)," a dealer at a state-owned bank said. "Some traders, especially PSUs (state-owned banks), are buying because of 7% (yield on the 10-year 2036 bond) level. If US yields and crude sustain at these levels, we might even see 7.05% (yield on the 10-year 2036 bond) today itself." 

 

On Friday, some traders covered short positions, which helped limit the fall in bond prices. Some traders also made purchases when the yield on the 10-year benchmark bond hit 7.0211%, the highest level since Jun. 4. State-owned banks were likely to have been the major buyers during initial market hours Friday, dealers said. 

 

The total traded volume in the government securities market at 0944 IST was INR 80.10 billion, higher than INR 28.65 billion at 0930 IST Thursday, according to data from the Clearing Corp. of India Ltd. The yield on the 10-year gilt is seen in a range of 6.98–7.05% during the day, dealers said.

 

Traders will also closely track the result of the weekly gilt auction Friday, they said. The government will sell INR 320 billion of three gilts on Friday. Lower-than-expected cut-off prices may weigh on market sentiment, dealers said.  (Diksha Tripathy)

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India Gilts: Seen down as Brent crude hovers at 4-month high; US ylds surge

 

MUMBAI – Government bond prices are seen opening sharply lower Friday after Brent crude oil prices jumped to a four-month-high, dealers said. A sharp overnight rise in US Treasury yields is likely to add to the pressure on Indian bond prices, dealers said. Most traders are likely to maintain caution ahead of the US inflation data, due at 1800 IST Friday. The falling risk appetite of traders amid escalations in the war in West Asia is likely to dampen the demand in the market, they said. Traders will also closely track the result of the weekly gilt auction, which is likely to lend further cues to the market later in the day. 

 

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 7.00% Friday and move between 6.98% and 7.05% during the day, dealers said. Thursday, the bond ended at INR 99.74, or a yield of 6.9762%. Some traders may buy the 10-year benchmark bond if the yield rises to 7.00%, which could help defend the level. However, most traders are likely to avoid placing aggressive bets amid uncertainty around further escalations in the US-Iran war.

 

Ahead of an extended weekend in India due to the holiday Monday for Ganesh Chaturthi, traders are likely to trim positions, which is likely to weigh on bond prices. The risk-based sell-off may also weigh on market sentiment, dealers said.     

 

Friday, bond prices are likely to remain under pressure due to high Brent Crude oil prices, dealers said. Brent crude oil futures for mid-month delivery jumped nearly 6% overnight to hit a four-month high. Oil flows remained restricted through the Strait of Hormuz as the US and Iran exchanged attacks, while Iran-aligned Houthis seized control of Yemen's port of Mocha, threatening Saudi oil exports through the Red Sea, as per a Reuters report.

 

The sharp rise in oil prices has raised concern that a prolonged war in West Asia could keep inflation elevated and complicate the interest rate outlook. Traders now await the release of US retail inflation data later Friday, one of the last major economic data points due before the Federal Reserve meets next week. They are pricing in roughly a 70% probability of a rate hike this month at the Federal Open Market Committee meeting ending Wednesday, according to the CME FedWatch tool. 

 

Bond prices surged to new highs as soaring oil prices intensified inflation concerns and prompted investors to price in further monetary policy tightening by central banks worldwide. The yield on the 10-year benchmark US Treasury note rose to its highest in nearly three years and was trading at 4.97% at 0800 IST. The 30-year US Treasury yield reached its highest in more than 19 years and the two-year Treasury yield climbed to their highest in more than two years. The US inflation data later in the day is likely to give direction to bond yields, which in turn, could affect Indian bond prices, dealers said. Thursday, the US producer prices increased 0.4% in August, in line with market expectations, as energy prices rebounded during the month. 

 

Bond prices are also likely to take cues from the result of the INR-320-billion weekly gilt auction Friday. The government will sell INR 110 billion of the 6.20%, 2029 bond, INR 110 billion of the 6.57%, 2033 bond, and INR 100 billion of a new-30 year 2056 bond. The auction is likely to sail through. However, increased yields in the secondary market are likely to dampen the auction demand, dealers said.

 

Traders will also be closely watching for any measures by the Reserve Bank of India to drain surplus liquidity. The surplus liquidity in the banking system is expected to warrant measures to drain durable liquidity beyond the variable rate reverse repo operations the RBI is currently conducting, they said.

 

Traders await the release of the borrowing calendar for state and central government bond issuances for the next quarter and the second half of the current financial year, respectively. Traders will also focus on the proportion of different bond tenures in the calendar, dealers said. The RBI has begun meetings with market participants to discuss the Centre's borrowing calendar, they said.  (Diksha Tripathy)  End

 

US$1 = INR 95.55

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

 

Edited by Saji George Titus

 

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