Debt Market Watch 12th January 2026 by GEPL Capital
Government Security Market Update:
Indian government bonds fell on Thursday ahead of a debt sale, which is ?likely to test a market where appetite has taken a hit despite aggressive debt purchases by the central bank. The 10-year benchmark yield tested once again 6.65% on Friday before the auction result and later managed to close around 6.63%. The Reserve Bank of India has bought 2 trillion rupees ($22.3 billion) of bonds since last month and is set to purchase bonds worth another 1 trillion rupees through January 22. However, the central bank’s choice of buying less-traded bonds at these operations has dented overall demand as has hefty upcoming supply from state governments. The one-year OIS ended 1.5 bps higher at 5.48%, while the two-year OIS rate rose 2 bps to 5.57%. The five-year OIS rate was also up 2 bps at 5.9375%. ($1 = 89.9710 Indian rupees). Earlier in a week the nine states sold 4 to 30 years loan in the range of 6.92 to 7.67% and in the Treasury bill auction the Reserve Bank of India sold 91; 182 & 364 DTB at a yield of 5.3110; 5.5371 & 5.5807% respectively. In a weekly sales the government sold 6.68% GS 2040 & 6.90% GS 2065 at a yield of 7.1007 & 7.4365% respectively. The yield on the 6.48% Government bond due Oct 2035 rose to 6.6401% from 6.6062% last week.
Global Debt Market Update:
The U.S. 10-year Treasury yield dipped on Friday after the latest jobs report showed a mixed picture of the U.S. labor market. The yield on the 10-year Treasury was more than 1 basis point lower at 4.165%. The 2-year Treasury note was up more than 4 basis points at 3.532%, while the 30-year bond yield moved down more than 4 basis points to 4.815%. The December nonfarm payrolls report showed a stable, albeit softening, labour market that may still lead the Federal Reserve to cut interest rates, perhaps as early as the spring. The U.S. economy added 50,000 new jobs last month, weaker than expected, but the unemployment rate dipped to 4.4%. The closely watched Job report suggested the labour market remained struck in what economists and policymakers have called a “no hire, no fire” mode. The labour market lose considerable momentum last year, blamed on President Trump’s aggressive policies, which economist and policymakers said reduced both demand for and supply of workers. Last year, the Fed embarked on a 75 bps rate cut run, though in December, Fed Chair Jerome Powell suggested that the Fed could pause its easing cycle. So far, money market have priced in two 25 basis points of rate cuts for 2026, which would leave the Fed funds rate near the 3 to 3.25%. The Federal Reserve’s next meeting is scheduled from January 27-28.
Bond Market Ahead:
Indian bond market is all set to make an upward move as early as this week, with expectations building around a possible announcement on the inclusion of the Indian government bonds in Bloomberg Global Aggregate Index. The inclusion would apply to India’s Fully Accessible Route (FAR) government bonds. Notably, Indian government securities are already part of the Bloomberg EM Local Currency Government Index, and that earlier inclusion has already had a positive impact, including improved foreign investor participation and better market liquidity. Market estimates suggest that a 1% weight in the Bloomberg Global Aggregate Index could translate into around $25 billion of foreign inflows. These inflows are expected to spread over 10-12 months following inclusion, providing steady support to the bond market. The good demand at the SDL and the government securities auction indicates that the market is getting good support around the current rates and the yields to fall in the coming time. The lower SDL auction amount for January 13, 2026 compared to the scheduled calendar and OMO purchase from the RBI will keep the trend up. President Donald Trump said Thursday he will launch a $200 billion mortgage rate, calling it a step towards tackling the problem of economic “affordability” which he previously had dismissed as a Democratic created “hoax.” This initiative will help in easing the bonds yields across the curve and the U.S.10-year Treasury yields may fall to 3.95%.
Bond Strategy:
* Buy 6.48% GS 2035 around 6.62 to 6.63 with a target of 6.58% and a stop loss of 6.66%
* Buy 7.24% GS 2055 around 7.34 to 7.35% with a target of 7.31% and a stop loss of 7.38%
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