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Informist, Wednesday, Jan. 29, 2025

By Vidhushi RajPurohit

MUMBAI – After a day of choppy trade, government bond prices ended little changed on caution ahead of the outcome of the US Federal Open Market Committee meeting and India's Union Budget, dealers said. Profit sales and offloading of gilts ahead of upcoming domestic events also resulted in gilts giving up early gains, though they were afloat ahead of the Reserve Bank of India's bond purchases at the open market operation Thursday.

The 6.79%, 2034 bond ended at INR 100.72, or 6.69% yield, against INR 100.70, or 6.69% yield, on Tuesday. Prices were volatile, and the 2034 gilt traded in an intraday band of INR 100.60-INR 100.83. Ahead of the events, gilts ultimately lacked direction and traders reversed their intraday bets by the close.

The US FOMC rate decision itself is not seen as a big mover of bond prices unless the committee surprises the market with a rate cut, dealers said. The CME FedWatch tool showed near-unanimity in pricing in a status quo on rates. However, traders await US Federal Reserve Chair Jerome Powell's comments after the FOMC outcome on the effect of President Donald Trump's proposed tariffs on the US rate-cut cycle.

Meanwhile, the Union Budget for the financial year 2025-26 (Apr-Mar) is set to be presented Saturday. The median of an Informist poll shows net borrowing may decline 3.6% on year to INR 11.20 trillion, but dealers said the positives had been priced in and prices could slump if the government announced a larger-than-expected borrowing programme. Other events lined up include the OMO auction worth INR 200 billion Thursday, and the RBI's Monetary Policy Committee meeting next week.

"What we are seeing is mostly just day trading, people don't want to be positioned aggressively before the events on either side of the market," a dealer at a primary dealership said. "There is a wide range of expectations from domestic events such as the Budget and MPC as well as with Trump, which is swaying the market both ways."

Prices had opened higher ahead of the RBI's INR 200 billion OMO auction on Thursday, with traders picking up bonds to sell to the central bank, hoping for a profitable exit. The fall in US Treasury yields also aided gilt prices, spurring purchases by foreign banks. The yield on the 10-year benchmark US Treasury note was at 4.53% at 1700 IST, from 4.57% at the close of Indian market hours Tuesday, ahead of the FOMC outcome.

Private banks and primary dealerships were likely to have been the major sellers during the day, even dragging the 6.79%, 2034 bond's price below the previous close. State-owned banks were likely to have been buyers as the 10-year gilt yield hit 6.70%, seen as the higher end of the current 6.65-6.70% trading range ahead of the Budget, dealers said.

With no significant cues to lend direction, trade volumes fell from Tuesday. The market turnover for the day was INR 465.35 billion, against INR 736.40 billion Tuesday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. Like Tuesday, there was no trade using the wholesale digital rupee pilot Wednesday.

The RBI's announcement of measures to infuse durable liquidity into the banking system on Monday had been factored in, and traders had expected calmer trade through the day heading into the key events, dealers said. The RBI's steps cemented the view of a rate cut by the Monetary Policy Committee next week. Therefore, the selling pressures came as a surprise to some, although traders said the 10-year gilt yield had fallen over 18 bps from the January highs and was profitable to sell even at current levels.

Heading to the Budget on Saturday, traders also wanted to trim their trading portfolios and build fresh positions only after the government had announced its planned borrowing for the next financial year. The 10-year benchmark gilt's yield is not seen rising much above 6.70% even if there is a slight disappointment about the Budget announcements, due to expectations of policy rate cuts after the RBI's liquidity infusion measures, dealers said.

"Market has priced in the outcomes of the event, but now that we are moving closer to them there was a sentiment that there was a need to offload and not carry any excess," a dealer at a state-owned bank said.

Even as most other bonds fluctuated between gains and losses and were able to stay afloat, long-term bonds fell amid thin trade. The 40-year benchmark 7.34%, 2034 gilt--the most-traded amid longer-term securities--fell to become the eighth most-traded bond Wednesday, after being within the top six earlier this week. Life insurers and mutual funds, possibly facing month-end redemption pressures, may have liquidated their holdings of long-term gilts, which led to the underperformance, dealers said.

OUTLOOK

On Thursday, bond prices may open slightly higher ahead of the OMO auction, dealers said. The RBI will buy five bonds, including the 10-year benchmark 6.79%, 2034 bond, erstwhile 10-year gilts the 7.18%, 2033 bond and the 7.10%, 2034 bond, the 7.59%, 2029 bond, and the former 14-year benchmark 7.18%, 2037 bond. Some caution ahead of Saturday's Budget may keep prices from rising sharply, dealers said.

Bonds may also take cues from the movement in US yields after the FOMC policy outcome, dealers said. Any geopolitical cues and crude oil prices will also impact gilt prices. Prices of gilts will also be sensitive to movement of the Indian rupee against the dollar.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.64-6.72% during the day.

India Gilts: Tad up in choppy trade; traders position before event-heavy wk

MUMBAI--1620 IST--Prices of government bonds swung from losses to gains ahead of the Reserve Bank of India's gilt buys worth INR 200 billion through an open market operation auction on Thursday. Several events lined up in the next few days also kept traders on edge, with some trimming any risk while others favoured keeping their trading books "heavy", dealers said. 

Bond prices were down earlier as traders, especially those from private banks and primary dealerships, sold bonds at a profit on the view that the market had "overreacted" to positive cues earlier this week. With the US Federal Open Market Committee's rate decision largely discounted as a status quo, traders await US Federal Reserve Chair Jerome Powell's comments after the outcome on the effect of US President Donald Trump's proposed tariffs on the US rate cut cycle. This was aided by the potential to book profit, with the yield of the benchmark 10-year 6.79%, 2034 gilt down nearly 20 basis points from its high in January. 

While some state-owned banks said they were selling bonds at a profit, most were buying gilts after being net sellers since Jan. 20. State-owned banks were adding bonds to their portfolios on expectation of a rate cut by the RBI's Monetary Policy Committee next week, dealers said. The domestic cue was significant since on the global front, the FOMC outcome was already largely priced in. However, the purchases were in light volumes, with larger volume purchases seen only post the Union Budget for 2025-26 (Apr-Mar) on Saturday, dealers said. 

Traders also had varied expectations from the Budget, which kept price movement volatile, dealers said. As for the open market purchase of gilts by the RBI Thursday, purchases by foreign banks to sell at the auction kept losses in bond prices limited. Some dealers expect private banks to begin buying gilts early Thursday before the auction. 

The market turnover stood at INR 421.85 billion, lower than INR 650.30 billion at 1630 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the rest of the session, the yield on the 6.79%, 2034 bond is seen at 6.67-6.70%.  (Cassandra Carvalho)

India Gilts: Reverse gains; fall on caution before FOMC outcome, Budget

MUMBAI--1320 IST--Prices of government bonds reversed early gains and fell on caution ahead of the outcome of the meeting of US Federal Open Market Committee, due early Thursday, and the Union Budget for 2025-26 (Apr-Mar) on Saturday, dealers said. Prices rose earlier in the day as traders bought gilts ahead of the Reserve Bank of India's first bond purchase via auction in over three years on Thursday.

A status quo on interest rates by the FOMC is fully priced in, but private banks still wanted to trim their gilt portfolios ahead of the event. Risks include US Federal Reserve Chair Jerome Powell guiding for an extended pause on rates amid uncertainty on new US President Donald Trump's policies. While some traders sold gilts at a profit, state-owned banks likely held off heavy sales awaiting the open market operation auction. The RBI has offered to buy INR 200 billion worth of five gilts on Thursday, including the 10-year benchmark 6.79%, 2034 bond. 

"Traders are mostly sideways as no one would want to buy aggressively before the FOMC outcome, and there is (OMO) auction tomorrow (Thursday), so no one would want to sell now either," a dealer at a state-owned bank said. "The sharp volatility yesterday (Tuesday) has passed and market reacted on OMO news and booked profit also, so now there is calm." 

Volumes were muted after two days of hefty trading and volatility due to the RBI's actions showing it was looking to infuse durable liquidity into the banking system, dealers said. The market turnover stood at INR 213.30 billion, lower than INR 470.45 billion at 1330 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. With prices again moving after a lull in the early hours, trade volumes may pick up.

The yield on the 6.79%, 2034 gilt is expected to remain in a narrow range of 6.67-6.70% during the day. The Budget is broadly expected to be a positive for the market as net borrowing is seen lower on year, and traders may hold on to their bets as prices fall, dealers said. However, traders expect some selling from participants who might have accumulated bonds heavily after the OMO announcement, and would want to sell gilts at a profit, only to re-enter the market after the Budget.

Buying by foreign banks is expected to buoy gilts during the day, as US Treasury yields eased overnight before the FOMC outcome. The yield on the 10-year benchmark US Treasury note was at 4.53% at 1140 IST from 4.57% at the close of Indian market hours Tuesday.  (Vidhushi RajPurohit)

India Gilts: Up ahead of RBI's OMO auction Thu; recover post Tue's sell-off

MUMBAI--0949 IST--Prices of government bonds were up ahead of the Reserve Bank of India's open market purchase of gilts via auction Thursday. Traders also picked up bonds after prices unexpectedly slid near the end of market hours Tuesday, dealers said. 

On Thursday, the Reserve Bank of India will buy five gilts via an open market auction, the first since September 2021. The bonds to be bought are the 10-year benchmark 6.79%, 2034 bond, the erstwhile 10-year gilts--the 7.18%, 2033 bond and the 7.10%, 2034 bond, the 7.59%, 2029 bond, and the former 14-year benchmark 7.18%, 2037 bond. Some of the papers are liquid, and the market got a boost with the most-traded 10-year benchmark also part of the bonds that the central bank would buy, dealers said.

"I think OMO size is quite decent this time. Earlier it used to be around INR 100 billion or so, but tomorrow's (Thursday's) is INR 200 billion, so people will want to buy before that," a dealer at a private bank said. "The (yield) curve is flat right now, so maybe the short-term bond won't have good sales (at the auction) but the long ones are definitely going to be good."

Dealers also said they were picking up bonds after the fall in bond prices Tuesday, which was unexpected, they said. Traders speculated that bond prices fell Tuesday likely because of news about US President Donald Trump threatening to impose tariffs on the countries part of the BRICS intergovernmental grouping, of which India is a member, dealers said.

Selling pressure during the day is likely to be limited as traders would prefer to sell gilts to the RBI at the OMO auction, especially the benchmark 10-year gilt, some dealers said. Purchases likely by foreign banks on expectations of a rate cut by RBI's Monetary Policy Committee also keep gilt prices up. The 10-year US Treasury yield also eased overnight to 4.53% from 4.57% at the end of Indian market hours Tuesday.

However, others said that profit-booking and caution before the US Federal Open Market Committee outcome at 0030 IST Thursday could weigh on gilts. With the trading range for the 6.79%, 2034 gilt seen at 6.65-6.70% yield in the run-up to the Union Budget for 2025-26 (Apr-Mar) on Saturday, state-owned banks would buy gilts aggressively at the higher end of that range, dealers said. State-owned banks have sold INR 361.72 billion worth of gilts in the secondary market since Jan. 20, Clearing Corp. of India data shows. 

The market turnover stood at INR 50.70 billion, lower than INR 176.15 billion at 0930 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.79%, 2034 bond is seen at 6.62-6.72%.(Cassandra Carvalho)

India Gilts: Seen tad up ahead of OMO auction Thu

MUMBAI – Prices of government bonds are seen opening slightly higher ahead of the Reserve Bank of India's purchase of gilts via an open market auction Thursday, dealers said. Other domestic cues that are lined up include the Union Budget for 2025-26 (Apr-Mar) on Saturday and the RBI's Monetary Policy Committee meeting outcome next week, dealers said. A fall in US Treasury yields overnight may also push up bond prices. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.62-6.72%, compared to 6.69% on Tuesday.

On Thursday, the Reserve Bank of India will buy five gilts via an open market auction, the first since September 2021. Traders are likely to pick up bonds in the secondary market on Wednesday before the auction. The bonds are the 10-year benchmark 6.79%, 2034 bond, the erstwhile 10-year gilts--the 7.18%, 2033 bond and the 7.10%, 2034 bond, the 7.59%, 2029 bond and the former 14-year benchmark 7.18%, 2037 bond. Some of the papers are highly liquid, especially the 10-year benchmark, dealers said. On Tuesday, foreign banks picked up the 10-year gilt, while state-owned banks and primary dealerships were on the selling side.   

The measures to infuse durable liquidity, announced by the RBI on Monday, have cemented hopes of a rate cut by the Monetary Policy Committee next week, dealers said. The central bank's daily variable rate repo auctions being held "until further notice" since Jan. 16, coupled with Monday's announcement of a 56-day variable rate repo auction, OMO auctions and a dollar/rupee buy/sell swap auction have led market participants to believe that the RBI is setting the stage for the MPC to cut the repo rate on Feb. 7. Two of the panel's three external members had voted for a repo rate cut in December, while all three RBI members had voted for a status quo on the rate at 6.50%.

Bond prices may fluctuate during the day, as seen on Tuesday. The yield on the benchmark 10-year gilt fell to a near three-year low of 6.6254% intraday. However, bond prices ended lower Tuesday on profit-booking by traders. Caution ahead of the Union Budget for 2025-26 (Apr-Mar) may also cap price movement. Some traders have placed bets on expectations of the gross market borrowing in FY26 falling below the INR 14.01 trillion budgeted for the current financial year. Further, bond prices may take cues from the movement of overnight indexed swap rates, dealers said. 

On the global front, the yield on the 10-year benchmark US Treasury note eased to 4.53% at 0800 IST from 4.57% at the close of Indian market hours Tuesday. US yields fell as traders hoped for comments from US Federal Reserve Chair Jerome Powell that would support a rate cut by the Federal Open Market Committee in March. The two-day FOMC meeting is currently underway, with the outcome scheduled at 0030 IST Thursday. The FOMC is expected to announce a status quo on rates, but caution before the outcome may keep volumes muted near the end of trading hours, dealers said. (Cassandra Carvalho)

End

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

Edited by Rajeev Pai

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