Indian government bonds saw gains in early trading on Friday, as anticipation of a significant surplus transfer from the central bank outweighed worries about potential interest rate hikes. The Reserve Bank of India (RBI) is expected to announce its surplus transfer—estimated to be between ₹2,90,000 crore and ₹3,20,000 crore (approximately $33.29 billion)—after market hours, according to a Reuters survey.
Traders noted that a substantial dividend from the RBI would bolster government finances, which may face mounting pressures due to the energy crisis prompted by the ongoing conflict in Iran. BMI, a Fitch company, has reaffirmed its outlook for the federal government’s fiscal deficit at 4.5% of GDP, slightly above the official target of 4.3%, while highlighting increased risks to this estimate.
Since the beginning of the Iran war, India’s 10-year bond yield has escalated by about 40 basis points, contributing to a rise in corporate debt yields to multi-year highs and prompting companies to shift towards floating-rate bonds. On Friday, the benchmark 6.48% bond maturing in 2035 saw its yield decrease by 3.7 basis points to 7.0765% by 11:05 a.m. IST, reflecting an inverse relationship with bond prices.
The yield spike observed the previous day was influenced by a Bloomberg News report indicating that the RBI is exploring all options to stabilize the rupee—including the possibility of raising interest rates. Additionally, New Delhi is set to issue ₹32,000 crores of bonds later today, which will assess investor demand.
Globally, oil prices and U.S. Treasuries remained stable, with the benchmark Brent crude contract priced at $104 per barrel and the 10-year Treasury yield nearing 4.56%.
In the realm of overnight index swaps, India’s rates softened in light of the optimism surrounding the RBI dividend. The one-year swap rate decreased by 8 basis points to 6.2750%, while the two-year rate fell by 7.25 basis points to 6.4825%. The five-year rate also declined by 6.75 basis points, settling at 6.7750%.
Published on May 22, 2026.
