More Stories

Informist, Thursday, Jan. 30, 2025

By Vidhushi RajPurohit

MUMBAI – Government bond prices ended a tad higher after the Reserve Bank of India bought a larger chunk of the 10-year benchmark 6.79%, 2034 gilt than the market expected at its first open market operation auction to buy bonds since September 2021. Moreover, the RBI buying the entire notified amount of INR 200 billion also aided prices, though traders sold bonds at a profit to cap the gains.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.76, or 6.68% yield, against INR 100.72, or 6.69% yield, on Wednesday. For most of the day, traders kept to the sidelines due to a lack of significant cues other than the RBI's buy. 

The RBI offered to buy five gilts--the 7.59%, 2029 bond; 7.18%, 2033 bond; 7.10%, 2034 bond; 6.79%, 2034 bond; and 7.18%, 2037 bond, as part of its liquidity injection. While three of the gilts were illiquid, traders were largely eyeing the quantum of the 6.79%, 2034 bond that the central bank would accept at the auction. Dealers expected the RBI to buy around INR 30 billion of the benchmark, with the bulk of the buys likely to go to the illiquid bonds. However, the central bank bought INR 50 billion of the 6.79%, 2034 gilt and set the cut-off price at INR 100.80, higher than its secondary market price both at the time of the auction's close at 1130 IST and the result.

"The cut-offs were mostly on expected lines, but the positive was mainly the quantum that it (RBI) accepted, especially for the 10-year (benchmark) gilt," a dealer at another primary dealership said. 

Trading volumes picked up near the end of the session after the OMO results, the delay of which led to the extension of market hours till 1730 IST Thursday. The market turnover for the day fell to INR 326.30 billion, from INR 465.35 billion Wednesday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. 

Prices of government bonds were also supported as the yield on the benchmark 10-year US Treasury note eased to 4.51% from 4.53% at 0900 IST. The US Federal Open Market Committee's meeting outcome early Thursday did not provide any significant cues to the market, dealers said. The FOMC unanimously voted to leave the federal funds target range unchanged at 4.25-4.50%, a decision that was in line with market expectations.

However, traders said that selling pressure on the 10-year gilt increased after its yield fell below 6.68%, a psychologically crucial level and a key support for the yield on technical charts. The 10-year benchmark yield has not closed below 6.68% since Feb. 14, 2022, when the repo rate was 4% against the current 6.50%.

Moreover, traders had less than 25 minutes to trade after the OMO result, and the market did not want to position aggressively before the weekly gilt auction on Friday and the Union Budget for 2025-26 (Apr-Mar) coming up on Saturday, dealers said. After the much anticipated OMO auction, traders shifted their focus to the upcoming cues. In an Informist poll of 18 analysts and fund heads, gross borrowing is seen rising on year, while net borrowing may fall 3.7% to INR 11.20 trillion. However, some traders expect even gross borrowing may shrink to below INR 14.01 trillion in FY25.

"The US yields have eased slightly. If the moderation sustains and the borrowing figure in the Budget is not above this year's figure, then we can expect some foreign inflows in the gilts market as well," a dealer at a private bank said.

OUTLOOK

On Friday, bond prices may open slightly higher after the RBI bought a larger-than-expected amount of the 10-year benchmark 6.79%, 2034 bond at the OMO auction on Thursday, dealers said. However, traders may also remain cautious ahead of the weekly gilt auction worth INR 300 billion.

The government will sell INR 100 billion of the 6.79%, 2031 bond, INR 50 billion of the 6.79%, 2034 green bond and INR 150 billion of the 7.34%, 2064 bond. Caution ahead of Saturday's Budget may also keep trading volumes muted and limit volatility, dealers said.

Bonds may also take cues from the overnight movement in US yields, crude oil prices at the open, as well as the movement of the rupee against the dollar intraday. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.64-6.72% during the day.

India Gilts: In thin band; market hours Thu extended to 1730 IST

MUMBAI--1627 IST--Prices of government bonds moved in a thin band, with most traders on the sidelines as they awaited the result of INR 200 billion open market purchase of gilts by the Reserve Bank of India, dealers said. Bond prices rose slightly due to an intraday fall in US Treasury yields, but traders avoided large buys before the result. Dealers said market hours were extended to 1730 IST due to the delay in the auction result.

Dealers were expecting cut-off prices 10-20 paise below Wednesday's indicative levels calculated by Financial Benchmarks India Ltd., and the RBI was likely to allocate major buys to the illiquid 7.18%, 2033 and 7.18%, 2037 bonds, dealers said. The central bank may pick up around INR 60 billion-INR 70 billion of each of the two papers. However, bond prices would soar in case the RBI accepted a majority of the liquid papers, such as the benchmark 10-year 6.79%, 2034 gilt, dealers said. The latter was unlikely since state-owned banks, who were the major bidders at the auction, took the auction as an opportunity to offload illiquid stock from their 'held-to-maturity' books, they said.  

"PSUs (state-owned banks) bought these (7.18%, 2033 and 7.18%, 2037) papers last year, this is a good chance to get rid of stock from HTM books without needing the RBI's permission, and there's also good float (outstanding value) of these bonds," a dealer at a state-owned bank said. While the 2034 bonds on offer may not be picked up in a large quantum, the RBI may buy around INR 50 billion of the 7.59%, 2029 bond against the notified aggregate amount of INR 200 billion, dealers said. 

Meanwhile, the yield on the benchmark 10-year US Treasury note fell to 4.51% from 4.53% at 0900 IST. Due to lack of cues until the OMO auction result, gilt traders picked up bonds tracking the fall in US yields. However, traders did not buy aggressively. The OMO auction outcome would also dictate traders' positions before the weekly gilt auction Friday, and more importantly, the Union Budget for 2025-26 (Apr-Mar) on Saturday, dealers said.

The market turnover was INR 276.66 billion, against INR 421.00 billion at 1630 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.79%, 2034 bond is seen at 6.64-6.72%. (Cassandra Carvalho)

India Gilts: In thin band as traders await results of RBI's OMO buy auction

MUMBAI--1330 IST--Prices of government bonds were in a thin band as traders awaited the result of the Reserve Bank of India's open market purchase of gilts worth INR 200 billion via auction, dealers said. This was the central bank's first purchase of gilts through an auction since September 2021, the last phase of its Government Securities Acquisition Programme 2.0.

Both the price and the cut-offs at the auction will likely lend cues to secondary market prices. Traders expect the RBI to buy back the entire notified amount, though it may be concentrated in the off-the-run securities rather than the 10-year benchmark 6.79%, 2034 bond. These bonds will likely be sold at a discount to Financial Benchmark India Ltd. levels as on Wednesday, dealers said. The RBI offered to buy back five gilts--the 7.59%, 2029 bond; 7.18%, 2033 bond; 7.10%, 2034 bond; 6.79%, 2034 bond; and 7.18%, 2037 bond. 

Most banks will sell the bonds out of their 'held-to-maturity' portfolios as they can circumvent the 5% limit for shifting bonds out of that bucket, dealers said. "Public-sector banks and private banks have good HTM (held-to-maturity) holdings, so now that they can sell those bonds at the auction and the fact that they can also go above the 5% limit will be a good enough reason to see active participation," a dealer at a state-owned bank said. 

"Private banks might show greater participation in liquidating their (held-to-maturity) books as they are mostly passive traders and trade according to their ALM (asset-liability management) requirements," the dealer quoted above said. 

Traders are expected not to opt for buying aggressively to re-build their 'held-to-maturity' portfolios after the auction and may proceed cautiously before Union Budget for 2025-26 (Apr-Mar) Saturday. However, if the RBI's largest buy at the OMO auction is the 6.79%, 2034 bond, the 10-year benchmark yield may fall sharply later in the day, dealers said.

The market turnover was INR 143.60 billion, against INR 211.15 billion at 1330 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.79%, 2034 bond is seen at 6.64-6.72%. (Vidhushi RajPurohit)

India Gilts: Tad up in thin trade ahead of RBI's OMO buy auction 

MUMBAI--1003 IST--Prices of government bonds were a tad up as traders picked up bonds to sell at the Reserve Bank of India's INR 200-billion open market purchase of gilts via auction, dealers said. 

The RBI will buy five bonds, including the 10-year benchmark 6.79%, 2034 bond, erstwhile 10-year 7.18%, 2033 and 7.10%, 2034 bonds, the 7.59%, 2029 bond, and the former 14-year benchmark 7.18%, 2037 bond during 1030-1130 IST. Participation at the auction is seen strong since most of the bonds are liquid, dealers said. State-owned banks are large holders of these gilts in their 'held-to-maturity' trading books, and will likely take the opportunity to lighten their portfolios at the auction.

"Nationalised banks have these bonds in their HTM (held-to-maturity books) and, normally, there's a restriction on HTM to trade in secondary, so the auction is a good chance to sell from there," a trader at a primary dealership said. Investors have been keen to book profits as the 10-year gilt's yield is nearly 20 basis points lower than the highs hit earlier this month. 

Bond prices opened steady as US Treasury yields were little changed after the outcome of the US Federal Open Market Committee's meeting early Thursday, dealers said. The FOMC unanimously voted to leave the federal funds target range unchanged at 4.25-4.50%, a decision that was in line with market expectations. The yield on the 10-year benchmark US Treasury note was 4.53% at 1003 IST, unchanged from the close of Indian market hours Wednesday. "The outcome commentary was hawkish, but the press conference was on the dovish side, so US yields also didn't react much, so neither are we," a dealer at a private bank said. 

Volumes were weak before the auction. Traders expect the turnover to pick up during the day after the auction. Traders may also avoid large bets on caution before the Union Budget for 2025-26 (Apr-Mar), due Saturday. Nonetheless, intraday trade is likely to be volatile, as was seen earlier this week, dealers said. Bond prices have been up during the week, but have see-sawed sharply as traders adjust their portfolios ahead of key events such as the Budget and the RBI's Monetary Policy Committee meeting outcome next week.

The market turnover was INR 44.20 billion, lower than the INR 50.70 billion at 0930 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.79%, 2034 bond is seen at 6.64-6.72%. (Cassandra Carvalho)

India Gilts: Seen up before OMO auction; US ylds little changed post US FOMC

MUMBAI – Prices of government bonds are seen higher Thursday ahead of the Reserve Bank of India's long-awaited INR 200-billion gilt purchases through an open market auction, dealers said. US Treasury yields were little changed Wednesday after the outcome of the US Federal Open Market Committee's two-day meeting. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.64-6.72%, compared to 6.69% on Wednesday.

The RBI will buy five bonds, including the 10-year benchmark 6.79%, 2034 bond, erstwhile 10-year 7.18%, 2033 and 7.10%, 2034 bonds, the 7.59%, 2029 bond, and the former 14-year benchmark 7.18%, 2037 bond at 1030-1130 IST. Some of the papers are liquid, and the market got a boost with the most-traded 10-year benchmark also being part of the bonds that the central bank would buy, dealers said. Traders may pick up these bonds in the secondary market to sell at the auction, dealers said. In a series of measures announced to infuse durable liquidity into the banking system, this will be the RBI's first open market auction since September 2021.

Foreign banks switched from being net buyers this week to net sellers on Wednesday, likely in order to trim any risk ahead of the US FOMC outcome which was due at 0030 IST Thursday, dealers said. The FOMC unanimously voted to leave the federal funds target range unchanged at 4.25-4.50%, a decision that was in line with market expectations. The yield on the 10-year benchmark US Treasury note was 4.54% at 0800 IST, against 4.53% at the close of Indian market hours Wednesday. The yield briefly hit 4.60% overnight, but cooled off after US Federal Reserve Chair Jerome Powell said he expected US inflation to fall further. However, after Powell's comments, the CME FedWatch tool showed that Fed fund futures reflected a 23% probability of a 25 basis point rate cut at the FOMC's next meeting in March, down from 31% before the outcome.

The positive sentiment from the OMO auction may likely be limited as traders may be cautious ahead of the Union Budget for 2025-26 (Apr-Mar) on Saturday, dealers said. The yield on the benchmark 10-year gilt has not sustained a fall below 6.68%, a key technical level seen as lucrative to sell bonds. The yield remains anchored at the current range despite the RBI's proactive stance on easing the liquidity deficit, higher chances of a rate cut by the RBI's Monetary Policy Committee next week, and expectations of the government's gross borrowing for FY26 being lower than that budgeted for the current fiscal year. Bond prices have been volatile this week due to traders' varied expectations on the numerous cues, which will likely continue Thursday, dealers said. (Cassandra Carvalho)

End

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

Edited by Tanima Banerjee

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.