More Stories

Informist, Friday, Jan. 3, 2025

By Vidhushi RajPurohit

MUMBAI – On Friday, government bond prices ended higher after firm demand at the INR 320 billion weekly gilt auction, dealers said. Some traders who had anticipated covering their short bets at the auction missed out due to the higher-than-expected cut-off price of the 6.79%, 2034 bond, and had to cover those bets in the secondary market, pushing up prices.

The 10-year benchmark 6.79%, 2034 bond closed at INR 100.07, or 6.78% yield, compared with INR 99.99, or 6.79% yield, the previous day. Trade volume saw a sharp pickup, signalling the resumption of normal trading activity after the dull near year-end.

While the 7.09%, 2074 bond's cut-off price was on expected lines, the cut-off on the 10-year benchmark paper led to the upward momentum in prices. "Everyone was expecting around INR 99.00-99.91, but the cut-off was INR 99.93, and the weighted average was 99.95. Unlike usual auctions, this was at the market cut-off, without any tail," a dealer at a private bank said. The weighted average price at auction was in line with secondary market prices at the time of bidding. 

Foreign banks' appetite at the auction was seen as a likely step by them to "build positions" as they step into a new year, dealers said. Several traders were returning to their desks this week after the year-end lull. Domestic banks also bid aggressively at the auction, which pushed the bid-cover ratio on the INR 220-billion notified amount of the 6.79%, 2034 gilt at auction to a healthy 3.26 times, dealers said.

In the secondary market, likely buying by foreign banks was seen through the day as they built up their trading books after closing their accounts for 2024. Some likely profit booking by state-owned banks at around INR 100.07 levels on the 6.79%, 2034 bond put an upper threshold on the prices, after they had bought the bond earlier, dealers said.

Bond prices had opened lower due to the impact of an overnight rise in the 10-year US Treasury yield, after data released Thursday showed the world's largest economy was showing resilience on both employment and manufacturing sector business optimism. Traders also expect foreign portfolio investors to remain cautious on investing in India's gilts around the inauguration of US president-elect Donald Trump on Jan. 20, awaiting the impact of his economic policies on financial markets.

By the end of trade, the overnight rise had been largely erased. The 10-year US yield eased to 4.55% at 1700 IST, little changed from end of Indian market hours on Thursday, from a high of 4.57% earlier.

After the caution around the auction dissipated, traders picked up bonds on hope the Reserve Bank of India's weekly statistical supplement data showing that the RBI had begun purchasing bonds in the secondary market through screen-based open market operations. The RBI has had to inject at least INR 1 trillion of liquidity into the banking system every day between Dec. 16 and Wednesday.

Even after the cash reserve ratio cuts last month added over INR 1.16 trillion to the banking system, the calls for further durable liquidity injections – beyond the short-term variable rate repo operations – have only increased. Moreover, the liquidity deficit is seen sustained in Jan-Mar due to currency in circulation leakage and the RBI's dollar sales to reduce the slide in the rupee. The Indian unit ended at 85.77 a dollar on Friday, its ninth straight record closing low against the greenback.

"There is a very strong hope for OMO purchase in the market after seeing the falling rupee and RBI's dollar sales, which also kept the prices up," a dealer at a private bank said. "Good auction and hopes of gilt purchase by RBI kept the domestic cues very strong and that we are seeing in prices today."

After market hours, RBI data showed the central bank bought INR 200 million worth of gilts through screen-based open market operations on Dec. 27. This was the RBI's first purchase of gilts in the secondary market since Jul. 19, which was offset on the same day by an equivalent sale. The RBI has not bought gilts outright in the secondary market since October 2021.

Trading volume for the day was INR 509.15 billion, against INR 353.85 billion on Thursday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. There were no trades using the wholesale digital rupee pilot for the sixth straight day. 

OUTLOOK

Gilts are not traded on Saturdays. On Monday, bond prices may rise after the government said it would buy back INR 250 billion worth of five bonds maturing in 2025-26 (Apr-Mar). Short-term bonds may gain more than long-term securities, dealers said.

Traders do not expect a large impact of the RBI's open market operation buys on government bond prices on Monday, and said the amount was too small to infer its intent. In fact, dealers were disappointed the central bank only bought a small amount, as they had expected RBI to begin buying gilt buys in earnest--up to INR 30 billion a week--in December to shore up liquidity. Others were optimistic that with the RBI testing the waters on bond buys in the secondary market, it may also announce an open market operation auction to buy gilts soon.

During the day, gilt prices will also track the movement in the Indian rupee against the dollar, after it hit a record closing low for the ninth straight session Friday. Any major geopolitical developments and movement in crude oil prices could also lend cues to gilt prices at the open.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.72-6.80% during the day.

India Gilts: Rise as auction shows firm demand for bonds, US ylds ease

MUMBAI--1550 IST--Government bond prices rose after the results of the weekly gilts auction showed firm demand for the 10-year paper, dealers said. Bonds erased earlier losses as US Treasury yields also gave up some of their overnight rise.

The government sold INR 220 billion of the 6.79%, 2034 gilt and INR 100 billion of the 7.09%, 2074 bond. The Reserve Bank of India set the cut-off on the 10-year gilt at INR 99.93, against the INR 99.92 median in an Informist poll. The 2074 bond's cut-off was also in line with expectations.

Foreign and domestic banks, as well as mutual funds, are likely to have picked up the 2034 paper in bulk at the auction, dealers said. A number of traders also covered their short sales entered into before the auction, which bolstered demand for the issuance. Even against the huge notified amount, the RBI got competitive bids worth INR 717.33 billion, a strong bid-cover ratio of 3.26 times.

The participation of foreign banks at the auction picked up as dealers said their activity had resumed after the hiatus during the year-end account closing. The easing of US yields also led to flows from foreign banks, dealers said. US yields eased to 4.54% at the day's low, after rising to 4.57% at the Indian market open. 

"There was some STRIPS (Separate Trading of Registered Interest and Principal Securities) and FRA (forward rate agreements) demand for the longer-tenure paper, but mostly on expected lines. The results overall were slightly better than what the market was expecting," said a dealer at a primary dealership. "The result of the auction led to strong buying in the secondary market and that led to a rise in prices."

Some domestic traders took out their profits as prices rose, after having picked up bonds at a cheaper rate earlier in the day. Trade volumes normalised around the auction as more market participants returned to trading desks after the New Year holidays, dealers said.

The market turnover was INR 426.00 billion, against INR 306.75 billion at 1630 IST Thursday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.77-6.82%.  (Vidhushi RajPurohit)

India Gilts: Off lows; traders expect firm demand for 10-yr bond at auction

NEW DELHI--1155 IST--Government bond prices were off lows due to the expectation of firm demand at the INR 320-billion weekly gilt auction and buys from state-owned banks in the secondary market as the 10-year gilt yield hit 6.80%, dealers said. An overnight rise in US Treasury yields continued to weigh on bond prices.

The government will sell INR 220 billion of the 6.79%, 2034 gilt and INR 100 billion of the 7.09%, 2074 bond. The 10-year bond is likely to be firmly bid by domestic banks at 6.80% yield, considered psychologically crucial as the benchmark yield has not closed above this level since November, dealers said. Foreign banks are likely to be aggressive buyers as they open up their portfolios in 2025 after the year-end lull due to the annual closing of accounts, dealers said.

Mutual funds were also heard to be bidding for the 6.80% yield, as they had received some inflows at the beginning of the month and liquidity conditions in the financial system eased, dealers said. According to the latest data, the RBI infused liquidity of INR 674.45 billion on Thursday against INR 1.05 trillion on Wednesday, and INR 2.06 trillion on Monday.

With the sharp rise in short positions in the 6.79%, 2034 bond this week, dealers said short covering is also likely to bolster demand. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data showed trades worth INR 92.46 billion in the 6.79%, 2034 gilt, against less than INR 60 billion earlier this week, dealers said.

"There is good demand from across the board. Foreign banks have just returned from vacation, and they are building up positions," a dealer at a primary dealership. "People are quoting INR 99.90 (as cut-off on the 6.79%, 2034 bond), but my sense it could be a INR 99.92 also due to (short) covering." The latter figure is the median in an Informist poll of 15 dealers.

For the 2074 gilt, life insurers may be the primary buyers as their liabilities most closely match the bond's maturity. Despite some trader interest, dealers said the current 50-year bond's low outstanding – only INR 200 billion before this auction – and poor trade volumes may restrict demand to only long-term investors. Around INR 15 billion worth of bond forward-rate agreements were likely struck for the auction stock, dealers said.

The market turnover was INR 145.70 billion, against INR 105.65 billion at 1130 IST on Thursday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.77-6.82%.  (Aaryan Khanna)

India Gilts: Down on short bets before auction, overnight rise in US ylds

MUMBAI--0944 IST--Prices of government bonds were down as traders placed short bets on the gilts ahead of the INR 320-billion weekly gilt auction from 1030 IST to 1130 IST. An overnight rise in US Treasury yields, after Thursday's data showed resilience in the US economy, also weighed on bond prices, dealers said.

The yield on the 10-year US Treasury note rose to 4.57% at 0930 IST from 4.54% at close of the Indian market on Thursday, which weighed on bond prices, dealers said. The fall in the 10-year gilt price was amplified as traders placed short bets on the gilt to make room for fresh stock of the bond at the auction.

"Both the rise in US yields and the auction are equally important cues for the market right now," a dealer at a private bank said.

The government will sell INR 220 billion of the benchmark 6.79%, 2034 gilt and INR 100 billion of the 7.09%, 2074 bond. Demand for both gilts is expected to be firm, dealers said. The 2074 bond only an outstanding amount of has INR 200 billion, and pension funds and insurers are expected to lap up the bond at the auction. Some mutual funds are also keen to pick the 10-year gilt, dealers said.

While dealers said there were no foreign inflows into the secondary market as of 0930 IST, they expect foreign banks to pick up the 10-year gilt at the auction. After the year-end lull, foreign banks re-entered the gilts market, and were the largest net buyers of gilts on Thursday.

"There'll be demand for the 10-year bond across segments (at the auction)," the dealer said. 

The market turnover was INR 59.25 billion, higher than INR 42.15 billion at 0930 IST on Thursday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.77-6.82%.  (Cassandra Carvalho)

India Gilts: Seen down before weekly auction as US ylds rise overnight

MUMBAI – Prices of government bonds are seen opening a tad lower, tracking an overnight rise in US Treasury yields, dealers said. Traders await the weekly gilt auction from 1030-1130 IST, and may be cautious in trading until the auction result, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.77-6.82% compared to 6.79% on Thursday. The bond's price may be volatile in the secondary market and may fall more than other tenures as traders will be keen to pick up INR 220 billion of the bond at the auction. At the auction, the government will also sell INR 100 billion of the 7.09%, 2074 bond, which is expected to be picked up by pension funds and insurers. 

While the gilt auction is the main cue for gilt traders Friday, they may also take cues from the overnight rise in US yields, after yields softened intraday Thursday. US yields rose again after the release of the US purchasing managers' index data for December.

The yield on the 10-year US Treasury note rose to 4.57% at 0800 IST from 4.54% at Thursday's Indian market close, after weekly jobless claims came in lower than expected. The US manufacturing purchasing managers' index data printed higher than consensus estimates. Both data prints pointed to economic resilience in the US, causing the 10-year US yield to hit 4.60% overnight.  (Cassandra Carvalho)

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Edited by Deepshikha Bhardwaj

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.