Debt Market Watch 23rd March 2026 by GEPL Capital
Government Security Market Update:
Geo-political tension at the Middle East has spoked the energy prices and the most sensitive bonds yield spiked to the highest in the 15 weeks. India's 10-year benchmark closed at 6.7369% on Friday after touching a high of 6.77% with traders suspecting central bank will be buying in the secondary market. Benchmark Brent crude was last at $110 a barrel, up nearly 7% on the week and about 50% so far this month. The rupee weakened past 93 per dollar for the first time on Friday, posting its worst single-day fall in more than four years. The Central Bank has kept the rates unchanged in February policy after reducing repo rate by 125 bps in 2025. India's banking system liquidity surplus also fell to a two-month low as tax related outflows drained cash. Earlier in a week the twenty one states issued 4 to 30 years loans in the range of 6.83 to 7.79% and in the Treasury bill auction the Reserve Bank of India sold 91; 182 and 364 DTB at a yield of 5.3278; 5.5380 & 5.6450% respectively. The yield on the 6.48% Government bond due Oct 2035 rose to 6.7369% from 6.6798% last week
Global Debt Market Update:
The U.S.10-year Treasury yield the benchmark climbed nearly 11 basis points to 4.39%. The 2-year note yield more sensitive to short-term Fed rate decisions — traded at 3.89%, up nearly 6 basis points. Even the 30- year bond yield rose almost 11 basis points, to 4.96% as investors began to fear that the Federal Reserve may not lower interest rates at all this year, as the war in the Middle East threatens to drive inflation higher. The selloff in bonds came after Iran and Israel exchanged strikes overnight, with Iran launching new attacks against energy sites in Kuwait and elsewhere in the Persian Gulf. The Wall Street Journal reported, citing U.S. officials, that the Pentagon is sending thousands of additional Marines to the Middle East, while CBS News said that “heavy preparations” were being made for sending ground troops to Iran, citing multiple sources. With no end in sight to the escalation, investors are positioning for a more hawkish stance from the Fed as higher global oil prices reshape the economic backdrop. Inflation was already trending above the Fed’s target even before energy costs spiked at the outbreak of the Iran war on Feb. 28. The Fed’s rate-setting Federal Open Market Committee voted 11-1 on Wednesday to leave its key interest rate unchanged at the current 3.50% to 3.75%. Central banks in Europe also held rates steady this week as policymakers grappled with the impact of the war, with markets increasingly pricing in rate increases this year in order to contain higher prices.
Bond Market Ahead:
The Indian government bond market is currently navigating a complex environment characterized by elevated volatility and upward pressure on yields. The ongoing conflict in the Middle East remains the primary driver of market anxiety. Escalating tensions have historically triggered spikes in crude oil prices, which directly heighten inflation concerns in India, given the country's reliance on energy imports. The Indian rupee has faced downward pressure, recently touching record lows. A weaker currency generally reduces the appeal of local debt for foreign investors, leading to volatility in foreign portfolio flows. The market participants will be closely monitoring the situation at the Middle East and will see the support from the central bank as the market is entering the last week of the FY26. The market will likely continue to test whether existing liquidity support from the RBI is sufficient to counteract supply pressures and geopolitical risks. Until there is a sustained cooling in oil prices or a reduction in geopolitical risk, the bias for bond yields is expected to remain firm or potentially elevated, with participants closely tracking any tactical interventions by the central bank
Bond Strategy:
* Sell 6.48% GS 2035 around 6.68 to 6.69% with a target of 6.76% and a stop loss of 6.65%.
* Sell 6.68% GS 2040 around 7.10 to 7.11% with a target of 7.16% and a stop loss of 7.06%.
SEBI Registration number is INH000000081.
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