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Informist, Wednesday, Sept. 16, 2026

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices rose due to purchases by domestic banks, which found prices lucrative, with the momentum rising in the second half of trade as US Treasury yields and crude oil prices inched lower, dealers said. A fall in US yields before the Federal Open Market Committee's rate decision at 2330 IST also pulled down overnight indexed swap rates, even though trade volumes were subdued before the key trigger.

 

The five- and 10-year benchmark gilts had Tuesday ended at their highest levels since May 22, making them attractive for asset-liability management, dealers said. On Wednesday, the 10-year benchmark 6.94%, 2036 gilt ended at INR 99.21, against INR 99.07 Tuesday. The bond's yield fell to 7.0524% from 7.0727% at the end of the previous session.

 

From an intraday high above $108.50 per barrel, Brent crude for November eased to near $107 per barrel by the end of Indian market hours. Though it was higher than the level at 1700 IST Tuesday, a fall in US Treasury yields helped offset the impact of high oil prices Wednesday, dealers said. The yield on the 10-year US note fell to 4.98% by 1700 IST from 5.01% at the same time Tuesday.

 

"There's no great mystery to it: banks are buying at these levels, there could be some traders who are also going bullish into the FOMC," a dealer at a primary dealership said. "Since crude and US yields also came down at the end, that would have helped. Still, the entire move higher has come without any volumes." The total turnover on the RBI's Negotiated Dealing System–Order Matching platform was INR 333.55 billion, sharply lower than INR 500.75 billion Monday.

 

Foreign portfolio investors were also marginal buyers early in the day, dealers said, picking up the 10-year benchmark gilt.

 

Traders widely expect the US rate-setting panel to hike its policy rate, which is likely to put pressure on the RBI's Monetary Policy Committee to raise its policy repo rate from the current 5.25% at its next meeting in October. Some traders expect that a rate hike in the US will pull down US yields Thursday, and picked up gilts in anticipation of that, dealers said.

 

Domestic bonds have already priced in a rate hike cycle of 50-100 basis points over the next year by the MPC and prices should not fall much further if the MPC decides on a 25-basis-point rate hike at its next policy in October, dealers said. This made current valuations attractive, especially as not all market participants see the domestic rate hike as imminent, they said. 

 

Purchases by banks for asset-liability management were concentrated in gilts maturing in up to 10 years, dealers said. Long-term bonds also ended sharply higher likely due to investor-led demand, though the low trade volumes suggested that traders continued to be cautious before locking in current yield levels, dealers said. Traders also await the result of the RBI's INR-500-billion auction to sell gilts through open market operations Thursday. 

 

Dealers said the sale would not be bid aggressively even though banks are flush with cash and have room to invest in bonds. The central bank may have to tender the bonds at 5-15 bps higher if it wants to absorb the entire INR 500 billion of liquidity, they said. Illiquid gilts maturing between 2029 and 2032, including some gilts being sold by the RBI Thursday, were being quoted with high bid-ask spreads in the secondary market Wednesday.

 

"It's a big challenge for any market. We are getting a supply of around 50,000-60,000 thousand crore (INR 500 billion to INR 600 billion) weekly anyway, and the RBI is doubling that," a dealer at a private sector bank said, referring to the state and central government bond auctions. "So I don't see how he (RBI) can sell bonds tomorrow (Thursday) and then expect there to be demand for the auction on Friday." The government will sell two gilts worth INR 280 billion at the weekly gilt auction Friday.

 

OUTLOOK

On Thursday, gilt prices will take direction from the movement in US Treasury yields after the US Federal Open Market Committee's rate decision at 2330 IST Wednesday, dealers said. The US panel is widely expected to hike its policy rate in order to contain the higher-than-target inflation.

 

Bond market participants may see it as a sign that the FOMC is getting ahead of inflation and may be able to manage above-target inflation with a lower terminal policy rate, which may pull down US yields, dealers said. Inaction on the policy rate may pull down short-term US yields, while pushing up the widely watched 10-year yield.

 

Developments in the West Asia war and their impact on crude oil prices will also act as a trigger for gilt prices. High US yields and crude oil prices have pushed India's gilts out of favour with foreign investors and make the case for a domestic repo rate hike as soon as October, dealers said. 

 

After the initial move, traders will closely track the result of the RBI's first OMO auction to sell bonds in five years. The 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 at the auction at 0930-1030 IST. Traders do not expect the RBI to accept bids worth the entire notified amount at the OMO sale as it would have to set cut-off yields sharply higher than market levels to drain liquidity, dealers said. Although there were some concerns that the RBI could conduct more OMO sale auctions than the three announced, traders expect the central bank to switch to other methods after the Monetary Policy Committee's rate decision on Oct. 7.

 

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. The proportion of different bond tenures in the calendar will lend cues to the shape of the gilt yield curve, dealers said. The RBI has held several meetings with market participants this month 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 6.95% and 7.14%, dealers said.

 

	WEDNESDAY		TUESDAY
	PRICE	YIELD	PRICE	YIELD
6.94%, 2036	99.2100	7.0524%	99.0700	7.0727%
6.48%, 2035	96.3500	7.0310%	96.2650	7.0440%
6.36%, 2031	98.4650	6.7661%	98.3700	6.7914%
7.06%, 2041	98.7450	7.1975%	98.7100	7.2014%
7.24%, 2055	95.5200	7.6251%	95.2575	7.6487%

 

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India Gilts: Remain up; banks, FPIs see value after recent rise in yields

 

	1605 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.20	99.22	99.00	99.05	99.07
YTM (%)	7.0539	7.0510	7.0826	7.0764	7.0727

 

NEW DELHI--1605 IST--Government bond prices remained higher due to purchases by state-owned banks at levels they considered attractive after the sharp fall in prices over the past two sessions, dealers said. They said foreign portfolio investors were also marginal buyers, which would be the first in seven sessions. However, trade volumes were subdued due to caution before the US Federal Open Market Committee's rate decision at 2330 IST Wednesday.

 

A fall in overnight indexed swap rates also helped gilt prices, with the five-year swap rate down 3 basis points at 6.63% as offshore paying pressures eased, dealers said. At the same time, the yield on the 10-year benchmark 6.94%, 2036 gilt remained above 7.05%, which saw a lot of selling, they said. Traders also initiated fresh short sales in the bond at the psychologically crucial level, especially as Brent crude for November delivery remained near $108 per barrel. The 10-year US yield also hovered around 5%.

 

"The market was a bit oversold over the last two days and even private banks bought yesterday. From sub-7% levels, we jumped to 7.10% (on the 10-year gilt)," a dealer at a state-owned bank said. "Since the global situation did not worsen, there is some minor consolidation before the two big triggers in the next 24 hours." The 10-year gilt yield ended at 6.98% Thursday before rising over the last two sessions, hitting 7.10% intraday Tuesday. Money markets were shut on Monday for Ganesh Chaturthi. 

 

The dealer was referring to the FOMC decision and the Reserve Bank of India's open market operation auction to sell INR 500 billion of six gilts at 0930-1030 IST Thursday. Traders widely expect US Treasury yields to fall if the rate-setting panel hikes its policy rate, as widely expected. Bond market participants will see it as a sign that the FOMC is getting ahead of inflation and may be able to manage above-target inflation with a lower terminal policy rate, dealers said. The follow-on effect of a likely rate hike in India in October had largely been factored into gilt prices, they said.

 

Meanwhile, traders do not expect the RBI to accept bids worth the entire notified amount at the OMO sale as it would have to set cut-off yields sharply higher than market levels to drain liquidity, dealers said. Although there were some concerns the RBI could conduct more OMO sale auctions than the three announced, traders expect the central bank to switch to other methods after the Monetary Policy Committee's rate decision on Oct. 7.

 

"Considering the size, we don't expect banks to be too aggressive in bidding at current levels, so it will depend on how low (in price terms) the RBI goes to ensure its success," the dealer quoted above said. 

 

The total traded volume in the government securities market at 1605 IST was INR 284.40 billion, lower than INR 351.10 billion at 1535 IST Tuesday, according to data from the Clearing Corp. of India Ltd. The yield on the 10-year gilt was seen in a range of 7.03-7.08% during the day, dealers said.  (Aaryan Khanna)

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India Gilts: Up on likely PSU buys, intraday fall in crude oil prices helps

 

	1232 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.19	99.19	99.00	99.05	99.07
YTM (%)	7.0560	7.0553	7.0826	7.0764	7.0727

 

MUMBAI--1232 IST--Government bond recovered all losses to trade higher on likely purchases from public sector banks at level seen as attractive, dealers said. Slight intraday ease in Brent crude oil prices helped, dealers said. Trade volume stayed subdued as traders refrained from building aggressive positions ahead of the Federal Open Market Committee meeting decision scheduled to be released post Indian market hours, dealers said.

 

"Public sector banks must be buying for their AFS (available for sale) portfolios...they might trim positions later in the day at a profit," a dealer at a state-owned bank said. "There is no other reason for the rise...Brent has eased slightly, but it is still broadly at similar levels." Brent crude oil futures for mid-month delivery were at $107.53 per barrel, lower from more than $108 per barrel earlier, but up from $104.22 per barrel at the end of Indian trading hours Tuesday.

 

Traders refrained from building aggressive positions as uncertainty around the FOMC decision on policy rates hovered. The total traded volume in the government securities market at 1232 IST was INR 138.80 billion, lower than INR 210.50 billion at 1230 IST Tuesday, according to data from the Clearing Corp. of India Ltd. The yield on the 10-year gilt was seen in a range of 7.00-7.10% during the day, dealers said. The yield on the 10-year benchmark bond is expected to remain below 7.15% till the RBI's MPC meet next month, dealers said.

 

Traders widely expect the FOMC to hike rates Wednesday as Fed funds futures are pricing in a 92.4% probability of a 25-basis-point increase in interest rate at the US Federal Reserve's two-day meeting ending Wednesday, unchanged from Tuesday but up sharply from a 59.40% probability a week earlier, according to the CME Group's FedWatch tool. The yield on the 10-year benchmark US Treasury note rose slightly intraday to trade at 5.00%, up from 4.99% at 0900 IST, the same as to 5.00% at 1700 IST Tuesday.

 

At the INR-240-billion T-bills auction, the Reserve Bank of India is likely to set a cut-off of 5.27% on the 91-day Treasury bill at the auction Wednesday, according to the median of an Informist Poll. The cut-off on the 182-day T-bill is seen at 5.70% and that on the 364-day T-bill is seen at 5.99% yield. The expected cut-off yield on the 91-day T-bill is 6 basis points higher than the cut-off set at auction on Sept. 9. The cut-off yield seen on the 182-day T-bill is 8 basis points higher, and the cut-off yield seen on the 364-day T-bill is 7 basis points higher than the cut-off set last week. "On-year T-bill is higher because of the rise in one-year OIS (overnight indexed swap rates)," a dealer at a primary dealership said. "Mutual funds will likely take the 3-month paper, banks and PD (primary dealerships) will take the other two papers."

 

Traders are 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. The proportion of different bond tenures in the calendar will lend cues to the shape of the gilt yield curve, dealers said. Some traders expect the government to increase the supply of T-bills. While demand for long-term bonds is likely to remain firm from insurers and other long-term investors, traders will gauge the demand for these bonds from other market participants. With the announcement of bond sales through INR-1-trillion worth of open-market operation auctions, traders now expect the borrowing calendar to have slightly less weight in short-term bonds. Some traders expect the central bank to conduct more such auctions if liquidity in the banking system remains in excessive surplus, which would further weigh on bond prices.  

 

"Now, since the GDP and inflation data are out, people are focused on demand-supply mismatch," a dealer at a private sector bank said. "In the borrowing calendar for the second half...we will have to see how the banks will absorb INR 8.5-9.0 trillion of supply...I personally think they (central government) will increase the supply of T-bills."  (Janwee Prajapati) 

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India Gilts: Tad dn on rise in Brent crude over $108/bbl; caution before FOMC

 

	0922 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.94%, 2036
PRICE (INR)	99.03	99.07	99.00	99.05	99.07
YTM (%)	7.0793	7.0728	7.0826	7.0764	7.0727

 

MUMBAI--0922 IST--Government bond prices were slightly down tracking a rise in Brent crude oil prices, dealers said. Slight ease in US Treasury yields limits losses. Volume remained subdued as traders refrained from building aggressive positions ahead of the Federal Open Market Committee decision scheduled to release post-Indian trading hours Wednesday, dealers said.  

 

"Nothing much is happening today (Wednesday)...these are trading levels only," a dealer at a primary dealership said. "The market is only waiting for the FOMC decision now." 

 

Brent crude oil futures for November delivery were at $108.22 per barrel, up from $104.22 per barrel at the end of Indian trading hours Tuesday. Fear of escalation in West Asia war soured market sentiment amid caution ahead of the FOMC meeting decision post-market hours Wednesday, dealers said. Traders refrained from building aggressive positions ahead of the FOMC decision as they widely expect the US rate-setting panel to hike the policy rate at the September meeting, which will nudge the Reserve Bank of India's Monetary Policy Committee to hike the repo rate in October, dealers said. However, if the FOMC refrains from raising the policy rate on Wednesday, traders expect bond yields to fall below 7%.

 

Bets of a policy rate hike by the FOMC rose after US consumer prices rose 3.4% last month from a year earlier due to higher energy prices, prompting traders to raise the odds of a Federal Reserve rate hike next week. Fed funds futures are pricing in a 92.4% probability of a 25-basis-point increase in interest rate at the US Federal Reserve's two-day meeting ending Wednesday, unchanged from Tuesday but up sharply from a 59.40% probability a week earlier, according to the CME Group's FedWatch tool. The yield on the 10-year benchmark US Treasury note was at 4.99%, almost similar to 5.00% at 1700 IST Tuesday.

 

The total traded volume in the government securities market at 0922 IST was INR 13.45 billion, lower than INR 96.95 billion at 0930 IST Tuesday, according to data from the Clearing Corp. of India Ltd. The yield on the 10-year gilt was seen in a range of 7.00-7.10% during the day, dealers said. The yield on the 10-year benchmark bond is expected to remain below 7.15% till the RBI's MPC meet next month, dealers said. 

 

Traders will also track the result of the INR 240 billion worth of Treasury bills auction as they expect the cut-off yield to be higher, dealers said. However, bond yields are unlikely to be impacted by the result if it is similar to market expectations, dealers said. (Janwee Prajapati)

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India Gilts: Seen tad lower on rise in oil; caution ahead of FOMC decision

 

MUMBAI – Government bond prices are seen opening slightly lower Wednesday due to an overnight rise in Brent crude oil prices, dealers said. However, traders are likely to refrain from building aggressive positions ahead of the Federal Open Market Committee meeting decision scheduled for the post-Indian market hours Wednesday, dealers said. US Treasury yields, though steady overnight, stayed near 5%, which is likely to weigh on market sentiment, dealers said. The Reserve Bank of India's upcoming open-market operations auction Thursday to sell INR 500 billion of six gilts will continue to weigh on prices, dealers said.    

 

The yield on the 10-year benchmark 6.94%, 2036 bond is expected to open around 7.08% Wednesday and move between 7.00% and 7.10% during the day, dealers said. While some traders do not expect the yield to rise above the 7.10% mark on likely demand from public sector banks, others expect the yield on the 10-year benchmark bond to rise beyond 7.10% if Brent crude oil prices rise. However, traders largely expect the yield on the said bond to remain below the historically significant 7.14% mark at least till the result of the Federal Open Market Committee's decision on policy rate Wednesday. Banks are likely to continue their buying momentum Wednesday at attractive levels as public sector banks and private sector banks together bought about INR 77 billion worth of gilts Tuesday, which will limit the losses. Tuesday, the bond ended at INR 99.07, or a yield of 7.0727%. The five-year benchmark 6.36%, 2031 bond, the yield on which rose about 14 basis points during the trading session on Tuesday, is likely to remain under pressure as the notice of OMO auction looms. 

 

Brent crude oil futures for November delivery traded at $108.24 per barrel, up from $106.11 per barrel at the end of Indian trading hours Tuesday. The rise in crude oil prices fuelled fears of escalation in the West Asia war. The yield on the 10-year benchmark US Treasury note was at 4.99%, almost similar to 5.00% at 1700 IST Tuesday. US yields remain at elevated levels due to expectations of a rate hike at the FOMC meeting. Fed funds futures are pricing in a 92.4% probability of a 25-basis-point increase in interest rate at the US Federal Reserve's two-day meeting ending Wednesday, unchanged from Tuesday but up sharply from a 59.40% probability a week earlier, according to the CME Group's FedWatch tool.

 

The US Federal Open Market Committee's rate decision late Wednesday is being closely watched for domestic rate cues. It is widely expected the US rate-setting panel will raise its policy rate, which is likely to put pressure on the RBI's MPC to tighten monetary policy and raise the repo rate as well, dealers said. However, no rate hike in the US could lead to a significant fall in short-term US yields and benefit gilts maturing in up to five years, which are seen out of favour until the decision at 2330 IST Wednesday.  

 

With the announcement of bond sales through INR-1-trillion worth of OMO auctions, traders now expect the borrowing calendar to have slightly less weight in short-term bonds. Some traders expect the central bank to conduct more such auctions if liquidity in the banking system remains in excessive surplus, which would further weigh on bond prices. Traders are 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. The proportion of different bond tenures in the calendar will lend cues to the shape of the gilt yield curve, dealers said.  

 

On Wednesday, the government will also sell INR 240 billion worth of Treasury bills comprising 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. Traders expect the cut-off yield on these papers to rise at the auction following the RBI's measures to absorb liquidity from the banking sytem and expectations of a rate hike by the RBI's Monetary Policy Committee, dealers said.  (Janwee Prajapati) 

End

 

US$1 = INR 95.96

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

 

Edited by Avishek Dutta

 

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