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Informist, Thursday, Jan. 23, 2025

By Vidhushi RajPurohit

MUMBAI – Towards the end of the trading session, government bond prices fell as traders placed short bets to make space for 6.79%, 2034 bond ahead of the weekly gilt auction on Friday, dealers said. A rise in US Treasury yields also pushed prices down. A dearth of fresh triggers and caution ahead of the auction led to a fall in the trading volume.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.38, or 6.73% yield, against INR 100.46, or 6.72% yield, on Wednesday. For the first half of trade, gilt prices were largely steady due to lack of overnight movement in US Treasury yields and caution before the auction.

The government will sell INR 220 billion of the 6.79%, 2034 gilt and INR 100 billion of the 7.09%, 2074 gilt at the auction on Friday. Traders expect demand for both bonds to be firm, but considering the heavy short covering since Tuesday as prices rose, primary dealerships and private banks were keen to short-sell bonds, dealers said. Moreover, the 10-year US Treasury yield rose to 4.62% by the end of Indian market hours, from 4.60% earlier in the day.

"Traders will want to pick up the bonds at the auction, the quantum offered is also good and overall there is good momentum in the market," a dealer at a private bank said. "Besides the caution before tomorrow (Friday), traders had almost nothing to bet on, so Friday we can expect some volatility." The trading volume for the day was INR 511.85 billion, against INR 769.70 billion on Wednesday, according to data on the Reserve Bank of India's Negotiated Dealing System–Order Matching platform. There were no trades using the wholesale digital rupee pilot, the same as the previous day.

The cut-offs at the buyback auction were in line with what traders expected, though the government bought back only INR 96.66 billion of gilts maturing in 2025-26 (Apr-Mar), against the notified INR 200 billion. The RBI received offers worth INR 232.79 billion at the auction.

Mutual funds were likely the major participants at the auction as state-owned banks avoided offering bonds. Most banks would not have a profitable exit as they had bought the gilts at higher prices than the indicative levels on the Financial Benchmark India on Wednesday, dealers said. After three weeks of buyback of FY26 gilts, bringing down the next fiscal gross borrowing by INR 881.63 billion, traders do not expect another auction just before the Budget next week.

Traders' expectations of a repo rate cut in February at the Monetary Policy Committee meeting and lower borrowing figures at the Budget also remained firm, dealers said. The positive upcoming cues aided the prices of long-term bonds as well, as the states' borrowing – concentrated in bonds maturing above 10 years – in Jan-Mar is expected to fall short of the indicative calendar of INR 4.73 trillion, due to higher-than-expected transfers of taxes from the Centre.

"Market is moving in an upward momentum as the upcoming events seem favourable to bonds, but there is a need for something more structural by the RBI that can give some concrete direction to the market," a dealer at a private bank said.

Traders have been expecting the RBI to inject durable liquidity into the banking system for the past month through open market gilt purchases, a cash reserve ratio cut or long-term dollar-rupee buy/sell swaps. With none of these measures coming in so far, some dealers do not see the central bank doing anything on durable liquidity before the Budget. On Wednesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.88 trillion, its highest since Jan. 24, 2024.

OUTLOOK 

On Friday, bond prices may open steady on caution ahead of the gilt auction at 1030-1130 IST. Bonds will also take cues from US yields after the release of US data on weekly unemployment claims. Announcements by US President Donald Trump may also give cues to gilts, dealers said. Any geopolitical triggers or a further rise in crude oil prices may also impact gilt prices.

Prices of gilts will also be sensitive to the movement of the Indian rupee against the dollar. Gilt traders will also wait for any announcement by the RBI with regard to measures on liquidity, dealers said.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.71-6.79% during the day.

India Gilts: Down on rise in US yields, short sales ahead of Fri auction

MUMBAI--1624 IST--Government bond prices fell due to a rise in US Treasury yields and traders making room for fresh supply ahead of the weekly gilt auction on Friday, dealers said. Trading volumes remained muted due to a lack of significant triggers.

The yield on the 10-year US Treasury note rose to 4.62% from 4.59% earlier, weighing on gilt prices that traded within a narrow price band for much of the day, dealers said. Primary dealers and private banks also likely placed short bets on the 10-year 6.79%, 2034 gilt ahead of the auction. The government will sell INR 220 billion of the 6.79%, 2034 gilt and INR 100 billion of the 7.09%, 2074 gilt at the auction on Friday. 

"Today (Thursday) some shorting is also coming before the auction tomorrow (Friday), though demand for both the papers should be good," a dealer at a state-owned bank said. "The market has already rallied so much in the past few days, now you need fresh triggers or some significant change in view to move the prices because people are comfortable to hold at these levels."

Positivity on upcoming domestic triggers – the Union Budget on Feb. 1 and the monetary policy review the week after – buoyed bond prices across tenures, dealers said. Traders continued to pick up longer-tenure gilts with the expectation that state borrowing in the current Jan-Mar quarter will fall short of its indicative calendar of INR 4.73 trillion due to higher-than-expected transfers of taxes from the Centre.

Traders also found short-term gilts lucrative on the expectation of a repo rate cut by the Reserve Bank of India's Monetary Policy Committee meeting in February, while some also expect the RBI to inject durable liquidity either with another cut in banks' cash reserve ratio or an open market purchase of gilts, dealers said. The central bank had cut the cash reserve ratio by 50 basis points to 4% of their net demand and time liabilities in December.

"The long-term bonds are doing really well before the Budget comes out. The 10x30 gilts (yield spread between the 6.79%, 2034 gilt and 7.09%, 2054 gilt) has come down to 28-29 basis points and could further flatten to 25 bps, if there is a big surprise in the Budget with a target of fiscal deficit near or below 4.4%," a dealer at a primary dealership said. "For the shorter-end, there is little juice with 5x10 (yield between the 6.75%, 2029 gilt and the 10-year benchmark) already up to 7 bps, but if there is a double upside with rate cut and liquidity action at MPC, then another steepening (increase in spread) of at least 5 bps can be seen."

At 1630 IST, the market turnover was INR 471.80 billion, lower than INR 675.95 billion at the same time on Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.70-6.75%.  (Srijita Bose)

India Gilts: In thin band on lack of cues, caution before gilt auction Fri

MUMBAI--1300 IST--Prices of government bonds were in a thin band due to lack of clear direction in the market, dealers said. Traders expect prices to remain in a narrow band as they would avoid aggressive bets before the weekly gilt auction on Friday.

Trading volumes were muted, and may remain subdued unless there are fresh triggers during the day, dealers said. The market turnover was INR 230.25 billion, lower than INR 401.15 billion at 1330 IST on Wednesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. 

Some traders expect the cut-off prices and quantum accepted at the INR 200-billion gilt buyback by the government to lend cues to gilt prices. However, others said the result may not impact the prices much as it is the third consecutive buyback auction for the month of the same five gilts maturing in 2025-26 (Apr-Mar), dealers said. 

Dealers expect the buyback auction to receive good offers from state-owned banks as they have sufficient holdings of the papers. At the last buyback auction for INR 300 billion, traders offered gilts amounting to INR 360.52 billion and the government accepted offers worth only INR 98.92 billion. At this auction, traders expect the cut-off prices to be at the levels published by Financial Benchmarks India Ltd., and the amount accepted to be around INR 175 billion, according to an Informist poll of seven treasury dealers.

Traders continued to hold onto bets of a repo rate cut by the RBI's Monetary Policy Committee in February, as well as the central bank soon injecting liquidity into the banking system that would buoy gilt prices, dealers said. On Wednesday, the net liquidity injected by the RBI--a proxy for systemic liquidity conditions--rose to INR 2.88 trillion, its highest since Jan. 24, 2024. The RBI has been conducting daily variable rate repo operations since last week, which have eased the money market rates but failed to provide durable liquidity, dealers said.

"Looking at the liquidity, the RBI might think about an OMO (open market operation) purchase of gilts, which will be a big positive for the G-sec (government securities) market, but the kind of quantum it brings will also matter," a dealer at a state-owned bank said. "We need to see how the buyback auction turns out and if it continues with it."  During the day, the yield on the 6.79%, 2034 bond is seen at 6.70-6.75%.  (Vidhushi RajPurohit)

India Gilts: Steady on lack of firm cues; traders await buyback auction

MUMBAI--1004 IST--Prices of government bonds were steady due to lack of firm global and domestic cues, dealers said. Bond prices opened a tad lower, tracking a slight overnight rise in US Treasury yields.

The yield on the 10-year US Treasury note was 4.61% at 1004 IST, against 4.57% at the close of the Indian market on Wednesday. Traders are also likely to short-sell bonds to make room for fresh supply at the weekly gilt auction Friday, dealers said. The government will sell INR 220 billion of the 6.79%, 2034 bond and INR 100 billion of the 7.09%, 2074 bond this week.

"There's some pressure because US 10-year (yield) has risen by 4-5 basis points and tomorrow there's heavy supply," a dealer at a private bank said. "I think buyback will see 50% participation because these papers are not too popular." 

Traders await the INR 200-billion bond buyback auction at 1030-1130 IST. The government announced a buyback of the 7.72%, 2025 bond, the 5.22%, 2025 bond, the 8.20%, 2025 bond, the 5.15%, 2025 bond and the 7.59%, 2026 bond, all maturing in 2025-26 (Apr-Mar). Some dealers expect tepid participation at the auction as the bonds are not profitable to sell, and the government is unlikely to pick up the gilts much above Financial Benchmark India Ltd. levels for Wednesday. However, despite the enthusiasm for the auction itself, the buybacks have been a positive for the gilt market as they brought down the government's gross borrowing in the next financial year, dealers said.

While short-selling is likely to continue through the day, bond prices may not move too much as traders may add to their gilt holdings ahead of the Union Budget and the Reserve Bank of India's Monetary Policy Committee next month. Dealers said they expect the outcome of both the events to be favourable for bond prices. On Wednesday, dealers placed bets on gross market borrowing in FY26 falling below the INR 14.01 trillion budgeted for the current financial year, along with expectations of a rate cut in February.

Volumes were muted, with the market turnover at INR 72.60 billion, but higher than INR 27.85 billion at 0930 IST on Wednesday, 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 6.70-6.75%. (Cassandra Carvalho)

India Gilts: Seen tad down; participation in buyback auction seen mixed

MUMBAI – Prices of government bonds are seen opening a tad lower, tracking a slight overnight rise in US Treasury yields, dealers said. The yield on the 10-year US Treasury note was 4.61% at 0800 IST, against 4.57% at the close of the Indian market on Wednesday. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.70-6.75%, compared to 6.72% on Wednesday. Traders will take cues from the result of an INR 200-billion buyback auction. All the five bonds to be bought back are maturing in 2025-26 (Apr-Mar) and some traders said they either didn't have stock of these bonds or that the bonds were not as lucrative at current market prices. Some dealers expect tepid participation at the auction, but some said the reduction in the government's gross borrowing in the next financial year was a positive cue for bond prices. 

Short-term bond prices may spike if participation at the auction is strong. However, after two buyback auctions this month, some traders said the scope for further rise in prices of these tenures was limited. The government bought back gilts worth around INR 291 billion in the past two weeks, which dealers see as a sign of the government's strong fiscal position. 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.

On Wednesday, dealers placed bets on gross market borrowing in FY26 falling below the INR 14.01 trillion budgeted for the current financial year, and may continue to do so on Thursday. The movement of the rupee against the dollar during the day may also lend cues to bond prices, dealers said. Gilt prices rose Wednesday as the rupee ended at a near two-week high, appreciating around 25 paise against the US dollar during the day. The yield on the benchmark 10-year touched its lowest level since Dec. 11, as the appreciating rupee boosted expectations of a rate cut by the Reserve Bank of India's Monetary Policy Committee next month, dealers said.

A fall in crude prices may aid bond prices during the day, dealers said. Brent crude for March delivery fell to $78.75 a barrel in Asian trade at 0800 IST, easing below the crucial level of $80, after a report said US crude oil reserves rose for the first time since mid-November. Post market hours, traders will await US weekly jobless claims for cues on the Federal Open Market Committee's rate cut trajectory. (Cassandra Carvalho)

End

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

Edited by Ashish Shirke

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