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Informist, Wednesday, Jan. 22, 2025

By Vidhushi RajPurohit

MUMBAI – Government bond prices ended higher Wednesday as borrowing in 2025-26 (Apr-Mar) is expected to be lower as compared with FY25, dealers said. A rise in the rupee on Wednesday reinforced hope of a repo rate cut by the Reserve Bank of India's Monetary Policy Committee at its February meeting. A fall in US Treasury yields led to some foreign inflows into the gilt market, also aiding prices, dealers said.

The 10-year benchmark 6.79%, 2034 bond closed at INR 100.46, or 6.72% yield, compared with INR 100.36, or 6.74% yield, at the close on Tuesday. During the day, the yield on the 10-year benchmark gilt touched its lowest level since Dec. 11, though likely selling from state-owned banks kept a cap on gains in gilt prices, dealers said.

Traders bet on gross market borrowing in FY26 falling below the INR 14.01 trillion budgeted for the current financial year, with some expecting a borrowing cut in FY25 as well. The government is scheduled to buy back INR 200 billion worth of bonds on Thursday, its third buyback this month, which was seen as a sign of the government's strong fiscal position, dealers said. Lower supply with the natural increase in the market's appetite for bonds on year is likely to skew demand-supply dynamics, and sharply bring down gilt yields after the Budget, they said.

"Considering the market is jumping up in a week with 10-year supply, there is an incredible amount of confidence on Budget and MPC," a dealer at a private bank said. "Obviously, it is yet to be seen whether this confidence is justified or if it is a big mistake." 

After opening steady, prices rose as traders started building positions ahead of the upcoming Budget. Better performance of the rupee against the dollar also supported the upward momentum of prices, dealers said. Foreign portfolio investors were heard to have picked up gilts in early trade for the second straight day, also buoying the domestic currency. On Wednesday, the rupee settled at 86.3225 against the dollar, versus 86.5775 at the close on the previous day. 

The rise of the rupee led traders to bet on a 25-basis-point policy repo rate cut in February, dealers said. The threat of depreciation to the currency has been one of the leading concerns against a rate cut by the RBI's rate-setting panel next month. Should the rupee start appreciating against the dollar, dealers said the RBI may start buying dollars to shore up its foreign exchange reserves, which would infuse durable rupee liquidity into the banking system. This, in turn, may ease monetary conditions and pave the way for policy rates to fall, dealers said. Coupled with the rupee's appreciation, hope of some durable support to the banking system's liquidity by the RBI also led traders to pick up gilts.

"Market is still hoping for the RBI to announce an OMO (open market operation) purchase of gilts as it keeps trying to provide support to the liquidity and OMO can give the needed durable support," a dealer at a primary dealership said. "So there was not one single trigger for prices, but overall, there were many positive speculations before major policy events (Budget and MPC)."

The RBI's daily variable rate auctions, started last week, had helped ease money market rates and led traders to be more aggressive in picking up short-tenure debt instruments, even though they waited for more durable liquidity measures. The cut-off yields on the 182-day and 364-day Treasury bills was down marginally on week, despite goods and services tax outflows. On Tuesday, the net liquidity injected by the RBI--a proxy for systemic liquidity deficit--rose to INR 2.71 trillion, the highest in a year.

As market sentiment improved looking ahead to the domestic trigger, mutual funds likely bought long-term gilts as the price appreciation on these was higher than short-term bonds per basis point of fall in yields, dealers said. Foreign banks were also likely buying long-term bonds on behalf of insurers as part of bond forward-rate agreements, they said. Traders picked up longer-tenure gilts with the expectation that states' borrowing – concentrated in bonds maturing above 10 years – in Jan-Mar will fall short of the indicative calendar of INR 4.73 trillion, due to higher-than-expected transfers of taxes from the Centre.

Trade volume also picked up to INR 776.20 billion on Wednesday, against INR 669.80 billion Tuesday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. There were no trades using the wholesale digital rupee pilot, against two trades worth INR 100 million the previous day.

OUTLOOK 

On Thursday, 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. Dealers expect some short selling ahead of the weekly gilt auction on Friday. 

Gilts prices will also take cues from the result of the buyback auction Thursday. The government will buy back five gilts worth INR 200 billion on Thursday 1030-1130 IST. During the day, prices of gilts will also be sensitive to the movement of the Indian rupee against the dollar, dealers said. 

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 6.70-6.79% during the day.

[I] India Gilts: Remain up on hope of FY25 borrow cut, lower supply in FY26

Informist, Wednesday, Jan. 22, 2025

India Gilts: Remain up on hope of FY25 borrow cut, lower supply in FY26

MUMBAI--1625 IST--Government bond prices remained up Wednesday due to increased risk appetite from traders ahead of domestic triggers expected to be positive, and firm demand from investors for long-term bonds, dealers said. The traders expect lower gross borrowing in 2025-26 (Apr-Mar) in the Budget from FY25, with some bets on a cut in borrowing for the current financial year too due to the government's three buybacks this month.

"People are building positions now on the Budget and MPC (Monetary Policy Committee) according to their expectations. There is some talk that the gross borrowing numbers could come lesser for the year..." a dealer at a state-owned bank said.

The rupee's appreciation against the dollar on Wednesday also reduced concern about the currency's vulnerability in the face of a repo rate cut by the Reserve Bank of India's Monetary Policy Committee in February. Traders' appetite for risk increased as caution around US President Donald Trump's policies subsided for the time being, and the 10-year US Treasury yield eased intraday, dealers said.

Buying from mutual funds, as well as long-term investors such as life insurers, likely pushed up both trade volumes and led to a surge in the prices of long-term gilts, dealers said. After being little changed from Tuesday in the first half of trade, the market turnover was at INR 680.10 billion, against INR 582.50 billion at 1630 IST on Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

Foreign banks were likely buying long-term bonds on behalf of insurers as part of bond forward-rate agreements, dealers said. Traders also picked up longer-tenure gilts with the expectation that states' borrowing in Jan-Mar will fall short of the indicative calendar of INR 4.73 trillion, due to higher-than-expected transfers of taxes from the Centre. This is expected to draw in insurers and pension funds to government securities, especially as demand traditionally booms in the last quarter of the financial year, dealers said.

The demand percolated to the benchmark 6.79%, 2034 gilt as well, and the 10-year gilt yield briefly fell to its lowest in over a month. State-owned banks were likely sellers for the third consecutive day, offloading bonds at a profit, dealers said. For the rest of trade, the yield on the 6.79%, 2034 bond is seen at 6.71-6.76%.  (Srijita Bose and Aaryan Khanna)

India Gilts: Up as traders bet on FY26 gross borrowing being lower than FY25

MUMBAI--1420 IST--Prices of government bonds rose as traders picked up gilts ahead of the Union Budget for the financial year 2025-26 (Apr-Mar) on Feb. 1 as they expect gross borrowing to be lower than in the current financial year, dealers said. Caution after US President Donald Trump came into power faded, leading traders to focus on positive domestic cues.

Traders expect the government's gross borrowing figure to be between INR 13.75 trillion and INR 14 trillion, slightly lower than the INR 14.01 trillion in the current fiscal, dealers said. Apart from the expectation of reduction in the gross borrowing figure by the government, the weekly buyback auctions also signal fiscal strength. Meanwhile, foreign portfolio investors and banks are also likely to have bought gilts due to a moderation in US Treasury yields. The 10-year US yield fell to 4.57% from 4.60% earlier Wednesday.

"Now that the swearing in of Trump is over, we are looking ahead to the Budget and, plus, the US (Treasury) yields have also eased, so there is room for the building of fresh positions," a dealer at a state-owned bank said. 

The Reserve Bank of India's measure to ease money market rates in the form of a daily variable rate repo auction since last week has led to increased hopes of a policy repo cut by its Monetary Policy Committee in February, dealers said. The expectations of a rate cut have also built up as Trump has not imposed tariffs so far. Imposition of tariffs has the potential to lead to further protectionism and inflation across the world, including in India.

Heading into the Budget and the rate-setting panel's meeting in early February, traders did not have significant cues in the market to trade on, dealers said. State-owned banks are likely to have sold gilts at a profit as the yield on the 10-year benchmark 6.79%, 2034 gilt fell to 6.72%, a low of over one month.

"There is a bit of uncertainty because the market is looking ahead for concrete data points, but overall the sentiments are positive now," a dealer at a primary dealership said.

The trading volumes were slightly lower, with the market turnover at INR 273.10 billion, against INR 310.05 billion at 1230 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.72-6.78%.  (Vidhushi RajPurohit)

India Gilts: Steady on lack of cues; PSU banks' sales weigh slightly

MUMBAI--0959 IST--Prices of government bonds were steady due to lack of firm offshore and domestic cues, which also kept volumes muted. Sales by state-owned banks weighed on gilt prices, dealers said.

With the yield on the benchmark 10-year 6.79%, 2034 gilt at 6.74%, the lower end of its trading range over the past month, state-owned banks found it a lucrative level to sell gilts, dealers said. State-owned banks have net sold over INR 72 billion of gilts this week, according to data from Clearing Corp. of India.

Bond prices are expected to remain in a thin band during the day, as traders await cues to lend direction to the market, dealers said. Volumes were low, with the market turnover at INR 58.15 billion, against INR 144.35 billion at 0930 IST on Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Banks are likely to increase their trading portfolios over the next week, expecting positives on borrowing from the Union Budget for 2025-26 (Apr-Mar) on Feb. 1 and on rates from the Reserve Bank of India's Monetary Policy Committee's meeting the following week, dealers said.

Traders had expected comments by newly sworn-in US President Donald Trump to lend cues to US Treasury yields this week. However, the 10-year US yield was little changed overnight at 4.60%, leading some traders to believe that the expected volatility in markets because of Trump's economic policies was short-lived.

"Whatever had to happen (in the US) ended yesterday (Tuesday), so now market is going to remain here itself (at current yield levels)," a dealer at a state-owned bank said. During the day, the yield on the 6.79%, 2034 bond is seen at 6.73-6.78%.  (Cassandra Carvalho)

India Gilts: Seen steady on lack of cues; report on index inclusion may aid

MUMBAI – Prices of government bonds are seen opening steady due to lack of significant global and domestic cues, dealers said. US Treasury yields were largely unchanged overnight, with the yield on the 10-year US Treasury note at 4.59% at 0830 IST, unchanged from 1700 IST Tuesday.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.70-6.80%, compared to 6.74% on Tuesday. The main offshore cue for bond traders this week was the inauguration of US President Donald Trump. On the first day of his term, Trump did not immediately impose tariffs that he had promised during his election campaign, which are seen as inflationary. This was a relief for bond traders, as Trump's economic policies could slow down the pace of rate cuts by the US Federal Open Market Committee. Overnight, Trump said he could impose a 10% tariff on goods from China. On Monday, Trump said he was planning to implement tariffs of at least 25% on Mexico and Canada by Feb. 1. 

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 basis points next month. 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 against the dollar Tuesday despite a sharp fall in the dollar index following the lack of tariffs and other inflationary policies by Trump.

However, an Economic Times report citing a senior official from Bloomberg Index Services' comments may be a positive for bond prices during the day, dealers said. The official said that an investment grade sovereign rating and ease of investing was crucial to the inclusion of Indian gilts in global bond indices. Gilts are set to be included in the Bloomberg Emerging Market Local Currency Government Index on Jan. 31.  (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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