India bonds little changed on first day of 2026 as demand falters

MUMBAI: Indian government bonds kicked off 2026 with range-bound trades on Thursday, with traders largely staying on the sidelines, wary that a buyer-thin market may struggle to absorb upcoming debt supply.

The benchmark 10-year yield closed at 6.5818%. It ended at 6.5881% on Wednesday.

Bond yields rise when prices fall.

Traders are cautiously bracing for Friday’s 320-billion-rupee ($3.56 billion) auction of the benchmark 10-year bond.

The market remains in limbo, with investors waiting for a catalyst to revive demand as the rate-easing cycle looks largely over and the Reserve Bank of India’s heavy secondary-market purchases have failed to lift sentiment.

Traders said the RBI’s choice of securities for open market operations has hurt volumes, as those papers have seen limited trading interest.

Read more: India bonds dip as quarter-end dulls demand, RBI skips old benchmark in OMOs

The banking system liquidity has also stayed in deficit or near neutral, limiting the cash available to support bond buying.

Liquidity improved slightly on Wednesday after 15 straight days in deficit. The system showed a 173-billion-rupee ($1.92 billion) surplus as of December 31, after averaging a 573-billion-rupee deficit from December 16 to 30.

“Liquidity is not improving significantly, most of the policy actions are done and there is a large supply overhang,” said Debendra Kumar Dash, senior vice president of treasury at AU Small Finance Bank.

“None of this is encouraging for traders in the market..there is no relief in sight.”

States are also expected to announce their January–March borrowing calendar by end of the week, with issuance seen as high as 5 trillion rupees, a record quarterly amount.

Rates

India’s overnight index swap rates were little changed on Thursday, as traders waited for strong directional cues.

The one-year OIS rate was at 5.45%, and the two-year OIS rate ended at 5.5550%. The five-year OIS rate settled at 5.9250%.