Indian bonds set to open lower ahead of hefty state debt sale

MUMBAI: Indian government bonds are expected to trade with a downward bias in early deals on Tuesday, ahead of a heavy supply of debt from states, which would likely raise a record amount in this quarter.

The benchmark 10-year yield is expected to drift in a 6.61% to 6.65% band until the state debt auction, a trader with a private bank said.

It ended at 6.6331% on Monday.

Bond yields move inversely to prices.

Indian states will raise 301 billion rupees ($3.34 billion) through a sale of bonds later in the day, and the borrowing is part of the 5 trillion rupees planned through debt sales in January-March.

If they go ahead, this would be their highest ever quarterly borrowing and would also push annual debt sales to an all-time high.

“With the start of the last quarter (of the financial year), there could be some fresh inflows from insurers, but we will need to see how much they want to deploy into state debt, especially after the gigantic calendar,” the trader said.

Traders have persistently sold bonds over the last few weeks, as they were unsure how the supply would be absorbed at a time when demand from most investor segments is easing.

The Reserve Bank of India bought bonds worth 500 billion rupees on Monday and is set to buy an additional 1 trillion rupees of debt in January.

Indian bonds entered 2026 with a question mark over appetite for a ramp-up in debt supply, even after a year in which the central bank conducted record debt purchases and delivered 125 bps of rate cuts.