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Informist, Friday, Jan. 31, 2025

By Srijita Bose

MUMBAI – Government bond prices ended lower as cut-off prices of the 6.79%, 2031 gilt and the 7.34%, 2064 gilt were lower than expected and the Reserve Bank of India devolved INR 39.46 billion of the 6.79%, 2034 green bond on primary dealers at the weekly gilt auction, dealers said. Trade volumes remained muted during the day as traders refrained from placing large bets ahead of the Union Budget for 2025-26 (Apr-Mar) on Saturday.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.62, or 6.70% yield, against INR 100.76, or 6.68% yield on Thursday. While volumes picked up after the auction result, most traders kept to the sidelines as they had already adjusted their portfolios for the Budget, dealers said.

"Market was already expecting the green bond to get devolved or cancelled altogether, but the slight surprise was with the other two cut-offs that we saw," a dealer at a private bank said. "The caution before Budget and MPC (Monetary Policy Committee meeting) next week kept traders from taking any fresh bets now."

For the 2034 green bond, the RBI set a cut-off price above the secondary market price, and accepted only three bids out of 59 for the security. The three bids, all at the same price, were likely from financial institutions the RBI had nudged to tender bids, dealers said. The RBI accepted INR 10.54 billion worth of bids for the green bond in total, enabling the government to raise the entire notified INR 300 billion at the auction.

For both the seven-year and the 40-year benchmark bonds, traders shied away from taking fresh bets ahead of the Budget, dealers said. An Informist poll of 14 bond dealers had estimated an INR 100.55 cut-off price for the 2031 gilt; the RBI set a cut-off of INR 100.46. For the 2064 gilt, the central set a cut-off price of INR 103.73, 10 paise lower than the poll median. Dealers said a state-owned provident fund which was expected to stock up on the long-term bond likely gave the debt sale a miss, leading to the disappointing cut-off.

Demand from primary dealers for turning the 40-year bonds to zero-coupon instruments was also underwhelming, as was life insurers' demand for the long-term gilt through bond forward-rate agreements, dealers said. Primary dealers sold bonds in the secondary market after getting stuck with a chunk of the green bond at the auction, dealers said. State-owned banks also sold gilts before the Budget on Saturday, though they were likely buyers as prices fell, as the 10-year benchmark yield rose to the psychologically crucial 6.70% mark.

Foreign banks were likely to have been net buyers due to a significant amount of foreign portfolio investor inflows during the day. Index-tracking funds picked up India's gilts as their weightage on J.P. Morgan's Government Bond Index–Emerging Markets increases by 1% at the month-end, dealers said. Some flows are also likely to have come in as gilts were included in the Bloomberg Emerging Market Local Currency Government Index starting Friday. The amount of inflows was more than some traders expected, as the total amount attached to the Bloomberg index inclusion is expected to be only $4 billion over 10 months.

FPIs bought INR 89.75 billion worth of gilts under the fully accessible route on Friday, according to data from the Clearing Corp. of India at 2014 IST. Despite the caution attached to the impact of new US President Donald Trump's policies on India's growth and inflation, foreign investors have bought nearly INR 140 billion of these bonds since his inauguration on Jan. 20.

"There was a lot of inflow, we transacted a bulk of it," a dealer at a foreign bank said. "We wouldn't know what it came for, but FPIs were very active."

Despite this, the market turnover for the day remained sluggish at INR 336.25 billion, against INR 319.65 billion on Thursday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. The volumes picked up after the auction result, which could also have been due to foreign investors buys, dealers said. There were two trades worth INR 100 million using the wholesale digital rupee pilot on Friday against no trades made on Thursday.

The Economic Survey for 2024-25 (Apr-Mar), tabled in Parliament by Finance Minister Nirmala Sitharaman on Friday, projected India's real GDP growth at 6.3-6.8% for FY26, against the four-year low growth of 6.4% growth estimated for FY25. The core CPI outlook for the year is also expected to be benign on soft global energy and commodity prices, the report said. However, bond traders did not immediately reassess their views of a 50-75 basis point repo rate cut until March 2026, ahead of the Budget, dealers said.

OUTLOOK

Gilts are not traded on Saturday. Gilt prices will take direction from the gross and net market borrowing announced for FY26 in the Union Budget on Saturday, dealers said.

An Informist poll of 18 analysts pegged net market borrowing at INR 11.20 trillion, down 3.7% on year, while gross borrowing was seen at INR 14.50 trillion. While traders expect a similar net borrowing number, they see gross borrowing lower than the current year's INR 14.01 trillion target. Traders expect the government to reduce its payments for FY26 redemptions, currently scheduled at INR 3.96 trillion, by using funds collected from goods and services tax cess collections as it has over the past two years. The government is also expected to increase its target for switching gilts to over INR 2 trillion in FY26 from INR 1.5 trillion in the current fiscal year.

Bonds may also take cues from changes in US Treasury yields and crude oil prices, 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 6.55-6.80% during the day.

India Gilts: Down as RBI devolves green bond; caution before Budget Sat

MUMBAI--1615 IST--Prices of government bonds fell further after the Reserve Bank of India devolved INR 39.46 billion of 6.79%, 2034 green bond on primary dealers at the weekly gilt auction, dealers said. Cut-off prices on the other two bonds were also lower than expected and traders trimmed risk in the secondary market as well ahead of the Union Budget for 2025-26 (Apr-Mar) Saturday. 

The RBI set a cut-off price above the secondary market price for the 2034 green bond, and accepted only three bids out of 59 for the security. The three bids, all at the same price, were likely from financial institutions the RBI had nudged to tender bids, dealers said. The RBI accepted INR 10.54 billion worth of bids in total, enabling the government to raise the entire notified INR 300 billion at the auction.

"People had mostly expected that either RBI will devolve or cancel the auction (of the 2034 green bond), and PSUs (state-owned banks) bid aggressively for the bond so cut-offs were also decent," a dealer at a primary dealership said. "But even for the other papers, especially for the longer tenure, traders did not want to go aggressive just before the Budget."

The cut-off prices on the 6.79%, 2031 bond and 7.34%, 2064 bond at the auctions were both lower than the median of an Informist poll. Primary dealers sold bonds in the secondary market after getting stuck with a chunk of the green bond at the auction, dealers said. State-owned banks also sold gilts before the Saturday Budget, though they were likely buyers as prices fell, and the 10-year benchmark yield rose to the psychologically crucial 6.70% mark.

The Economic Survey for 2024-25 (Apr-Mar), tabled in Parliament by Finance Minister Nirmala Sitharaman on Friday, projected India's real GDP growth at 6.3-6.8% for FY26, against the four-year low growth of 6.4% growth estimated for FY25. The core CPI outlook for the year has been predicted to be benign on soft global energy and commodity prices, the report said. However, bond traders did not immediately reassess their views of a 50-75 basis point repo rate cut until March 2026, ahead of the Budget, dealers said.

The market turnover was INR 269.35 billion, lower than the INR 211.45 billion at 1530 IST Thursday, 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 6.65-6.71%.  (Srijita Bose)

India Gilts: Slightly down on caution before Budget Sat, rise in US yields

MUMBAI--1305 IST--Prices of government bonds were slightly down as traders were likely trimming their portfolios ahead of the Union Budget for 2025-26 (Apr-Mar) Saturday, dealers said. An overnight rise in US Treasury yields also weighed on gilt prices. Dealers expect trading volumes to be low until the result of the INR-300-billion weekly gilt auction. 

The yield on the 10-year US Treasury note rose to 4.55% at 1200 IST, from 4.51% at 1700 IST Thursday. "Some selling is there as traders who have some excess accumulation would want to lighten their risks before the Budget day tomorrow (Saturday)," a dealer at a private bank said. "US yields are also a bit up, but mostly the market will wait for the gilt auction results to provide some cues."

Ahead of the auction result, trade volumes were dismal. The market turnover was INR 103.85 billion, lower than the INR 129.30 billion at 1300 IST Thursday, 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 6.65-6.70%.

The Reserve Bank of India auctioned 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 at 1030-1130 IST. Demand for the 2031 gilt and the 2064 gilt is seen firm, with the seven-year gilt expected to be picked by state-owned banks for their asset-liability management, dealers said. Some incremental demand may also come from banks who sold the 7.18%, 2033 gilt to the Reserve Bank of India at the open market operation auction on Thursday.

For the 2064 bond, dealers expect buying interest from long-term investors, including provident funds and life insurance companies. Dealers also said that around INR 40 billion of the 2064 bond on offer may go for bond forward-rate agreements, and Separate Trading of Registered Interest and Principal of Securities, which would be bid for by primary dealers and foreign banks. 

Meanwhile, traders said market demand for the 2034 green bond was poor, and were concerned some state-owned banks may get a nudge from the RBI to pick up the gilt at auction. Despite this, the bond is likely to be devolved on primary dealerships or the RBI would reject all bids for the green bonds. With the secondary market yield on the green bond higher than the 10-year benchmark 6.79%, 2034 gilt – due to the latter's much greater trading volume – the government may avoid raising funds via the green bond issuance, as it would be more expensive than routine gilts while having more compliance burdens, dealers said.  (Vidhushi RajPurohit)

India Gilts: Steady on caution before Union Budget; mixed views on bond sale

MUMBAI--0957 IST--Prices of government bonds were steady as traders were cautious ahead of the Union Budget for 2025-26 (Apr-Mar) on Saturday. Traders were also refraining from aggressive bets before the INR 300-billion weekly bond sale, dealers said.

US Treasury yields were marginally up from levels at close of the Indian market Thursday, after US GDP for 2024 showed robust growth in the world's largest economy. The yield on the 10-year US Treasury note rose to 4.54% at 0957 IST, from 4.51% at 1700 IST Thursday. The offshore trigger did not have much of an impact on gilt prices ahead of the key domestic event, dealers said.

"The rise in US yields is there, we're ignoring it because of Budget," a dealer at a private bank said. "Today (Friday) even with auction, we're not going to see much movement because of (trading) positions before Budget. Yesterday's (Thursday's) rally after OMO (auction result) was also capped because of Budget positions."

Traders will watch for the government's gross and net borrowing figures at the Budget, with some traders estimating a gross figure as low as INR 13.8 trillion. Traders expect the government to reduce its payments for FY26 redemptions, currently at INR 3.96 trillion, by using funds collected from goods and services tax cess collections as it has over the past two years. On the upper end, traders have priced in a budgeted amount of INR 14.50 trillion, higher than the gross figure of INR 14.01 trillion this current fiscal year, dealers said.

As for the weekly gilt auction, traders had mixed views on the demand for bonds. While demand for the 6.79%, 2031 bond is seen firm due to the government bond buybacks in short-term bonds and the Reserve Bank of India buying back the 2033 gilt at its open market operation auction on Thursday, traders had varied opinions on demand for the 2034 green bond and the long-term paper, dealers said. Dealers said that a large provident fund may be aggressive in bidding for the 7.34%, 2064 bond, in addition to life insurers. However, the bond's spread over the 10-year gilt has been rising, and may not be preferred by traders ahead of the Budget due to its potential mark-to-market losses being higher from a negative surprise, dealers said.

While some said demand for the green bond could improve from the bond's previous auction in November, some dealers did not see any demand for the gilt, with underwriting fee estimates as high as 10 paise. Dealers speculated that the RBI may persuade state-owned banks to purchase the green bond at the auction. At the bond's previous auction in November, the RBI devolved INR 34.98 billion of the bond on primary dealerships. 

The market turnover was INR 12.35 billion, lower than the INR 19.05 billion at 0930 IST Thursday, 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 after cut-off on 10-yr gilt at OMO buy higher than view

MUMBAI – Prices of government bonds are seen slightly higher after the Reserve Bank of India bought a larger-than-expected amount of the 10-year benchmark 6.79%, 2034 bond at the open market purchase of gilts via auction on Thursday, dealers said. However, selling pressure before the weekly gilts auction and the Union Budget for 2025-26 (Apr-Mar) may cap any rise in bond prices, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.64-6.72%, compared to 6.68% on Thursday. While the cut-off prices set by the RBI at the OMO auction for four of the five bonds were below traders' expectations, the central bank set a cut-off price of INR 100.80 on the benchmark 6.79%, 2034 bond, higher than its secondary market price both at the time of the auction's close at 1130 IST and the result. 

Dealers expected the RBI to buy around INR 30 billion of the benchmark gilt, 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. The reaction to the positive auction outcome may likely continue Friday since traders had less than 25 minutes to trade after the OMO result, dealers said. 

Demand at the weekly bond sale is seen firm, dealers said. 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. Demand is seen strong for the 2031 and 2064 gilts, but dealers speculate that the RBI may persuade state-owned banks to purchase the green bond at the auction. However, dealers also said that demand for the green bond would likely be higher than that at its previous auction. At the bond's previous auction in November, the RBI devolved INR 34.98 billion of the bond on primary dealerships. 

The bond auction result will lend cues to market direction in the second half of trading hours, but caution ahead of Saturday's Budget may also keep trading volumes muted and limit volatility, dealers said. Market participants have priced in a gross net borrowing of INR 14 trillion-INR 14.50 trillion, but traders hope for a lower number than the INR 14.01 trillion budgeted for the current fiscal year. 

US Treasury yields were a tad up from Thursday's Indian market close, after US GDP for 2024 showed robust growth in the world's largest economy. The yield on the 10-year US Treasury note rose to 4.54% at 0800 IST, from 4.51% at 1700 IST Thursday. However, traders will likely ignore the offshore cues ahead of the Budget, dealers said. (Cassandra Carvalho)

End

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

Edited by Avishek Dutta

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