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Informist, Tuesday, Jan. 21, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply higher as traders picked up gilts after the concern surrounding newly sworn-in US President Donald Trump's economic policies pushing up US inflation eased. After not signing any fresh tariffs on his first day in office Monday, traders expect that the new President of the US may take a softer stance on trade and taxes than outlined during the election campaign, dealers said.

The 10-year benchmark 6.79%, 2034 bond closed at INR 100.36, or 6.74% yield, compared with INR 100.19, or 6.76% yield, at the close on Monday. After rising in early trade, prices traded in a narrow range for most of the day as traders awaited further cues and clarity on policies under Trump's presidency. 

"Trump not going with blazing-guns on his very first day was a big relief, but there is still somewhat uncertainty given how unpredictable he was in his first tenure," a dealer at a private bank said. "But if he is a little soft this time around and inflation stays in check, then even our yield (on the 10-year benchmark) could easily touch 6.65-6.67% levels by next two weeks."

Trump's acknowledgement of the need to curb inflation was also a relief to traders, dealers said. The yield on the benchmark 10-year US Treasury note fell to 4.53% during the day from 4.60% at 1700 IST Monday. Foreign banks and investors likely bought gilts after US yields slumped, though their buys were largely concentrated in the first half of the day. 

With the uncertainty over Trump's swearing in out of the way, traders built up their portfolios expecting positives from the Union Budget for 2025-26 (Apr-Mar) and the Reserve Bank of India's Monetary Policy Committee meeting in February. Since the odds of at least two rate cuts by the US Federal Open Market Committee this year jumped after Trump's comments on reducing inflation, the Monetary Policy Committee would likely start cutting rates in India next month, dealers said.

Some traders said the reaction to Trump's inauguration was more limited than they had expected after the event was widely talked about and pre-assessed for over two months since his win. They expect further foreign investment to come in only after clarity on policy measures to be taken by the Trump administration, dealers said. 

Private banks and mutual funds likely bought gilts due to the offshore trigger, particularly bonds maturing within 10 years, dealers said. Traders now expect at least a 50 basis-point rate cut by the Monetary Policy Committee in 2025, and said the 10-year yield could go to as low of 6.67% if hope of a February rate cut is cemented, dealers said.

Traders also likely picked up these papers while selling longer-tenure gilts as they see a bull steepening in the yield curve--the fall in shorter tenure yields outpacing longer tenures--as expectations of a rate cut in India during the year get further cemented. State-owned banks, however, sold gilts at a profit, limiting gains as the yield on the 6.79%, 2034 bond fell to 6.73%, a two-week low.

"Traders are now also building positions before the Budget as there is some expectation of a borrowing cut. People are also expecting that RBI will be able to fine tune liquidity and the rupee going forward, with the VRRs (variable rate repo auctions) or long-term FX swaps (forward currency swaps)," a dealer at a state-owned bank said. "A bull-steepening could be underway, and the short-end to belly segment of the (yield) curve seems good."

The gains are likely to be less pronounced in bonds maturing in 30 years or more from traders, reducing interest from traders, though life insurers were active in picking up the gilts. The 40-year benchmark 7.34%, 2064 paper's price and volumes both rose Tuesday as a life insurer likely picked up the paper at an around 32 bps spread over the 10-year benchmark gilt, the highest in around 29 months, through a bond forward-rate agreement with a bank of around INR 30 billion-INR 40 billion, dealers said.

Trade volume ballooned on Tuesday, as traders who were on the sidelines before Trump's swearing-in started picking up gilts, dealers said. Trading volume for the day was INR 669.80 billion, against INR 244.75 billion on Monday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. There were two trades worth INR 100 million using the wholesale digital rupee pilot for the third consecutive day.

OUTLOOK 

On Wednesday, bond prices will react to the movement in US yields. Any announcement on tariffs and taxes by US President Trump will also give cues to gilts, dealers said.

During the day, prices of gilts will also be sensitive to the movement of the Indian rupee against the dollar, dealers said. Some traders were uncertain of foreign investment into India's debt as the rupee did not appreciate Tuesday against the dollar despite a sharp fall in the dollar index following the lack of tariffs and other inflationary policies by Trump.

Any geopolitical cues or a further rise in crude oil prices after the US event will also impact gilt prices. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.70-6.80% during the day.

India Gilts: Up on hopes of softer policy by Trump; PSU banks book profit

MUMBAI--1630 IST--Government bond prices remained sharply higher on likely buying by foreign banks and investors after the overnight fall in US Treasury yields, dealers said. Domestic traders also picked up gilts on expectations that US President Donald Trump may take a softer stance on trade and taxes as he did not announce any major policies that will push up inflation on his first day in office. 

"Prices seem to be consolidated right now and the 10-year (6.79%, 2034 gilt) yield is in a moderate zone and only with some change in expectation will that move. Trump-tantrum is still very much a possibility going ahead even though it looks like he wants to go slow and less aggressive this time (in his second term as US President)," a dealer at a private bank said. "There are also domestic events ahead with the Budget on good supply-demand dynamics and MPC (Monetary Policy Committee) meeting where there is still some expectation of a rate cut building."

Trade volumes ballooned on Tuesday, as traders who were on the sidelines before Trump's swearing-in started picking up gilts, dealers said. The rise in prices was, however, limited as state-owned banks sold gilts at a profit, dealers said. The market turnover was INR 582.50 billion at 1630 IST, against INR 195.60 billion at the same on Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

Traders also picked up gilts maturing within 10 years on the view of at least a 50 basis-point rate cut by the MPC in 2025, dealers said. Traders also likely picked up these papers while selling longer-tenure gilts as they see a bull steepening in the yield curve--the fall in shorter tenure yields outpacing longer tenures--as expectations of a rate cut in India during the year get further cemented. 

Some traders said the reaction to Trump's inauguration was more limited than they had expected after the event was widely talked about and assessed for over two months since his win. They expect further foreign portfolio investment to come in only after clarity on policy measures to be taken by the Trump administration, dealers said.  The yield on the 6.79%, 2034 bond is seen at 6.70-6.76% during the rest of the day. (Srijita Bose)

India Gilts: Remain up tracking overnight fall in US yields

MUMBAI--1330 IST--Prices of government bonds remained up as traders tracked the overnight fall in US Treasury yields and the announcement of the gilt buyback on Monday, dealers said. Trade volumes also picked up as traders covered their short bets and started building their trading portfolios after the caution surrounding newly sworn-in US President Donald Trump's policies on his inauguration day passed. 

On Monday, post market hours, the Reserve Bank of India announced that the government will buy back INR 200 billion worth of five gilts which are set to mature in 2025-26 (Apr-Mar). Dealers had expected the RBI to announce a buyback auction on Friday or over the weekend, as it had done the previous two weeks. The absence of such an announcement contributed to the subdued trading volumes on Monday, and weighed on prices. While the auction itself may not be well bid, the government's continuous efforts to buy back gilts before the Union Budget on Feb. 1 suggested fiscal strength, dealers said.

Meanwhile, the yield on the benchmark 10-year US Treasury note moderated to 4.55% at 1120 IST from 4.60% at 1700 IST on Monday. In his inauguration speech and executive orders passed on day one of his presidency, Trump did not impose fresh tariffs on imports. These tariffs, which are expected in the coming weeks, are seen inflationary for the US economy.

"The market was in a wait and watch mode because of what Trump may announce," a dealer at a private bank said. "Now that has gone, so people are short-covering and buying gilts for book-building purposes."

Trade volumes picked up on Tuesday, as traders started picking up gilts after having trimmed their risky exposures ahead of Trump's swearing-in, dealers said. The market turnover was INR 304.05 billion, against INR 60.80 billion at 1130 IST on Monday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. The announcement of the buyback coupled with easing of US yields pushed gilt prices up, but prices have remained in a narrow band through the day.

Private banks, mutual funds and foreign banks were likely buying gilts due to the offshore trigger, dealers said. However, state-owned banks sold gilts at a profit as the yield on the 6.79%, 2034 bond fell to 6.73%, a two-week low.

Some traders also traded on a bull-steepening of the yield curve—yields on short-term bond falling more than those on longer-term gilts--as rate cuts get closer, and sold the 10-year benchmark paper. Hopes of a rate cut by the RBI's Monetary Policy Committee in February remained intact, which is likely to affect short-term, rate-sensitive yields more, dealers said. Volumes on the five-year 6.75%, 2029 bond shot up on these buys.

"There is a chance of the front end and the belly of the yield curve to steepen more in the coming days," a dealer at a primary dealership said. Dealers expect the trading volumes to rise further and during the day, the yield on the 6.79%, 2034 bond is seen at 6.71-6.76%. (Vidhushi RajPurohit)

India Gilts: Up on fall in US ylds as Trump doesn't impose tariffs on 1st day

MUMBAI--1000 IST--Prices of government bonds rose sharply tracking an overnight fall in US Treasury yields as Donald Trump, the newly-sworn-in US president, did not immediately impose tariffs on the first day of his term, dealers said. Traders had feared Monday that Trump would impose his proposed tariffs immediately after taking office, which are seen as inflationary for the US and may push up US yields.

The yield on the benchmark 10-year US Treasury note fell to 4.54% at 0912 IST from 4.60% at 1700 IST Monday. On Monday, gilt traders were cautious and avoided placing any aggressive bets before Trump's inauguration ceremony, as uncertainty over his decisions on the first day of his term loomed large. The market turnover was INR 215.95 billion, against INR 8.60 billion at 0930 IST on Monday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform.

"In the first session (of signing executive orders) he (Donald Trump) didn't put tariffs right. He may do it later...but he mentioned the word 'inflation', so he will study and think about it. Then later he may pass the order," a dealer at a state-owned bank said. 

With the uncertainty of Trump's swearing in out of the way, traders were now building up their trading portfolio expecting positives from the Union Budget for 2025-26 (Apr-Mar) and the Reserve Bank of India's Monetary Policy Committee meeting in February. Since the odds of at least two rate cuts by the US Federal Open Market Committee this year jumped after Trump's comments on reducing inflation, the Monetary Policy Committee would likely start cutting rates in India next month, dealers said. Some volatility from the new US president's policies will continue to influence gilt prices in the next few days, as tariffs are still on the table, they said. 

Gains in bond prices, however, were capped as traders sold bonds at a profit. Private and domestic banks were likely selling bonds, while foreign banks and portfolio investors were likely buyers, dealers said. During the day, the yield on the 6.79%, 2034 bond is seen at 6.71-6.76%.  (Cassandra Carvalho)

India Gilts: Seen up on fall in US ylds; Trump's tariff comments may weigh

MUMBAI – Prices of government bonds are seen opening higher tracking an overnight fall in US Treasury yields after the inauguration of Donald Trump as US president, dealers said. However, Trump's comments on imposing tariffs, made soon after the inauguration, may weigh on bond prices during the day. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.71-6.88%, compared to 6.76% on Monday.

US markets were shut on Monday, in Eastern Time, due to Martin Luther King Jr. Day. US Treasury yields in Asian markets fell early Tuesday. The yield on the benchmark 10-year US Treasury note fell to 4.55% at 0800 IST from 4.60% at 1700 IST Monday, as fears of Trump imposing his proposed tariffs on the first day of his term eased. As Trump took office, he did not immediately sign any orders imposing tariffs, and US yields fell. 

However, shortly after, Trump said he was planning to implement tariffs of at least 25% on Mexico and Canada by Feb. 1. Trump also said he was thinking of implementing a universal global tariff on all countries but would refrain from doing so as the US wasn't "ready for that yet". Trump also said that energy is the biggest contributor to inflation, while declaring a "national energy emergency" to address it.

Trump's economic policies on immigration, tax cuts, and tariffs are seen as inflationary, and would likely also cause a rise in US government debt. A rise in US inflation could slow down the pace of rate cuts by the US Federal Open Market Committee this year. In December, the FOMC had lowered its forecast for the quantum of rate cuts this year to 50 basis points from 100 bps earlier. 

For Indian bond traders, fears of imported inflation and a slowing rate cut cycle by the FOMC could further delay the onset of the rate cut cycle in India. Most dealers expect the Reserve Bank of India's Monetary Policy Committee to cut the repo rate by 25 bps next month. However, depreciation of the rupee against the dollar may reduce chances of a rate cut in February, dealers said. 

The movement of the rupee against the dollar during the day may also lend cues to bond prices, dealers said. The dollar index fell after Trump's inauguration, but recovered post Trump's comments on tariffs. The rupee is expected to open sharply higher from Monday's close, dealers said.

The RBI's announcement of an INR-200-billion bond buyback by the government Thursday may lend mixed cues to short-term bond prices. All the bonds to be bought back were maturing in 2025-26 (Apr-Mar) and some traders said they either didn't have stock of those bonds or that the bonds were not as lucrative at current market prices. Others were optimistic that bond buybacks were an indication of the government's fiscal consolidation, expecting the government to reduce its fiscal deficit target in FY26. (Cassandra Carvalho)

End

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

Edited by Deepshikha Bhardwaj

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