Indian government bonds rallied in early trade on ​Friday, as expectations of a record central bank surplus ‌transfer overshadowed rate-hike concerns.

The Reserve Bank of ​India's surplus transfer, expected to ⁠be announced after market hours, is pegged at ₹2,90,000 crore to ₹3,20,000 crore($33.29 billion), according to a Reuters poll.

A ‌hefty dividend would help government finances at a time when they are likely ‌to come under pressure from the Iran war-led ‌energy ⁠shock, traders said.

BMI, a Fitch company, ⁠said it is maintaining its forecast for the federal government's fiscal deficit at 4.5% of GDP, above the government's 4.3% target, ​while flagging increased upside ‌risks.

India's 10-year bond yield has risen about 40 basis points since the start of the Iran war, with a knock-on impact on corporate debt ‌yields, which have risen to multi-year highs, prompting ​firms to turn to floating-rate bonds.

On Friday, the benchmark 6.48% 2035 bond ⁠yield slipped 3.7 basis points to 7.0765% by 11:05 a.m. IST. Bond prices move inversely to yields.

Yields had ‌surged a day earlier after Bloomberg News reported that the RBI is considering all available options to stabilize the rupee, including raising interest rates.

New Delhi is selling ₹32,000 crores of bonds later in the day, which would test investor ‌appetite.

On the global front, oil prices and Treasuries were rangebound, ​with the benchmark Brent crude contract at $104 per barrel and the 10-year Treasury yield ⁠around 4.56%.

RATES

India's overnight index swap rates eased as ⁠RBI dividend optimism spurred receiving.

The one-year swap was down 8 bps at 6.2750%, while the ‌two-year rate fell 7.25 bps to 6.4825%. The five-year rate fell 6.75 bps to 6.7750%.

Published on May 22, 2026