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Informist, Tuesday, Feb. 4, 2025

By Vidhushi RajPurohit

MUMBAI – Government bond prices ended on a mixed note. Bonds maturing in 10 years or more ended lower due to an uptick in US Treasury yields, as well as profit booking by some traders after prices rose Monday, dealers said. Traders exited longer-term papers to buy short-term bonds, which ended flat or higher on expectations of a 25-basis-point repo rate cut by the Reserve Bank of India's Monetary Policy Committee at the outcome of its three-day meet Friday.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.81, or 6.67% yield, against INR 100.86, or 6.67%, Monday. The 10-year gilt had risen 24 paise on Monday. For the majority of the day, the price of the 2034 gilt moved in a narrow five paisa band, owing to a lack of significant fresh cues, dealers said.

"A clarity was missing today, which is what we are seeing in the prices. Expectations of a rate cut are strong, but the market acted on that yesterday (Monday), when it moved up, and today it was natural for prices to go down looking at US (yields) also," a dealer at a private bank said. "However, the market was holding up as no one wants to trim their positions sharply when there is such a strong view on rate-cut." The yield on the 10-year US Treasury note rose to 4.58% at 1700 IST from 4.55% at close of the Indian market on Monday.

The 10-year gilt's price was already reflecting a quarter-basis-point rate cut, dealers said. With the pace of both growth and inflation seen slowing, the rate-setting panel is widely expected to cut the repo rate of 6.50% for the first time in nearly five years. Moreover, Finance Secretary Tuhin Kanta Pandey said Sunday the government wanted the RBI to cut interest rates. Short-term bond yields, which are more sensitive to rate cuts, are expected to fall more and were preferred by traders. In addition to rate cuts, traders were also of the view that the central bank might announce further measures to enhance liquidity into the banking system, which would impact short-term gilt yields more and lead to a "bull-steepening" of the yield curve.

Demand for long-tenure papers was also waning in light of higher supply and lower demand from mutual funds and life insurance firms. A higher-than-expected gross borrowing figure in the Union Budget for 2025-26 (Apr-Mar) could be concentrated on bonds maturing in 30 years and beyond, dealers said. The gross market borrowing for FY26 is pegged at INR 14.82 trillion, against INR 14.01 trillion for the current fiscal. 

During the day, higher cut-off at the state bond auction for long-term papers also pulled down prices of gilts of similar maturities, dealers said. The cut-off on the 30-year Tamil Nadu paper was set at 7.18%, against 7.12% in an Informist poll. On Tuesday, 13 states auctioned bonds worth INR 336 billion, the third largest so far in the current financial year that started April. The higher supply at the auction and further higher quantum at upcoming auctions as mentioned in the indicative calendar for Jan-Mar, also weighed on gilt maturing in 30 years and beyond, dealers said.

Private banks were likely selling gilts in light volumes, after buying gilts Monday, dealers said. Clearing Corp. of India data showed private banks were the top net buyers Monday. Meanwhile, state-owned banks were likely churning their portfolio, dealers said. Monday, public sector banks were the top net sellers, data from Clearing Corp. of India showed. However, losses were limited as traders across market segments were largely betting on a repo rate-cut Friday, dealers said.

Some uncertainty, however, remained among traders regarding the outcome of the monetary policy committee's meeting, which curtailed heavy positioning on the rate-cut view, dealers said. "The MPC outcome is still a bit dicey as RBI is still very much concentrated on liquidity, especially durable liquidity," a dealer at a state-owned bank said. "While easing liquidity is seen necessary for policy easing, but there are also chances that it might go for another CRR (cash reserve ratio) cut or some other measure directed at liquidity." On Monday, the net liquidity injected by RBI — a proxy for systemic liquidity deficit – was at INR 1.08 trillion. The durable liquidity in the banking system was in a deficit of (-) INR 410.02 billion, as on Jan. 10, RBI data showed.

The market turnover for the day was INR 422.90 billion, falling from Monday's INR 711.90 billion, according to data on the RBI's Negotiated Dealing System–Order Matching platform. There were no trades using the wholesale digital rupee pilot Tuesday, against two trades worth INR 100 million Monday.

OUTLOOK

On Wednesday, gilt prices may track US Treasury yields at open, dealers said. Prices may remain slightly higher on expectations of a policy rate cut Friday by the Monetary Policy Committee. 

Bonds may also take cues from crude oil prices. Gilt prices will also be sensitive to the movement of the rupee against the dollar. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.64-6.70% during the day.

India Gilts: Mixed; short-term bonds up on view of MPC rate cut Fri

MUMBAI--1611 IST--Prices of government bonds traded on a mixed note, with bonds maturing in more than 10 years remaining down. However, short-term bond prices were either flat or up as traders exited longer-term papers to buy short-term bonds on expectations of a rate cut by the Reserve Bank of India's Monetary Policy Committee on Friday, dealers said. 

The benchmark 10-year bond has already priced in around 80-90% chances of a 25-basis-point rate cut to be announced at the outcome of the MPC meeting on Friday, dealers said, which kept scope for price volatility limited. Some market participants do not expect a rate cut this week, and were trimming portfolios at a profit, dealers said. Those who were expecting status quo on rates this week expected the RBI to solely focus on measures to ease the liquidity deficit in the banking system, dealers said. Regardless of the measure, traders said the gilt yield curve was likely to "bull-steepen" – short-term bond yields falling more than yields on long-term bonds. 

"If you see, short sales in the 15-year have amounted to a good number. Even 10-year shorts are going up," a dealer at a state-owned bank said. "I'm selling the long-term to buy the 2026 and 2027 (maturity) papers because their yields are going to fall more after rate cut." 

The cut-off yield on Gujarat's 2-year paper was 6.75%, lower than an Informist poll estimate of 6.81%. The bond was lapped up by traders in favour of a 25-bps cut this week. Banks also picked up the bond to match their liabilities, dealers said. Demand for short-term gilts was also high, with the 7.32%, 2030 bond being the third most traded paper on the secondary market. The bond's price also rose slightly, in contrast with the 10-year benchmark 6.79%, 2034 gilt.

Some mutual funds and insurance companies were exiting long-term gilts due to their preference for state bonds, with supply expected to ramp up in the remainder of the Jan-Mar quarter. They were able to demand wider spreads on long-term state bonds, making it an increasingly popular choice to invest, dealers said. The cut-off on the 30-year Tamil Nadu paper was set at 7.18%, against 7.12% in an Informist poll.

While price movement was limited, volumes picked up as traders positioned ahead of the MPC outcome. The market turnover was INR 368.75 billion, lower than INR 654.35 billion as at 1630 IST Monday, 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 6.64-6.70%. (Cassandra Carvalho)

India Gilts: Tad down as US yields up; further fall limited on rate cut view

MUMBAI--1300 IST--Prices of government bonds were a tad down owing to an overnight rise in US Treasury yields. Losses were limited and prices are not expected to fall further as traders continue to bet on a 25-basis-point repo rate cut by the Reserve Bank of India's Monetary Policy Committee at the outcome of its three-day meet Friday, dealers said.

Traders also awaited the result of the state bond auction, with INR 336 billion of supply, among the largest so far in the current financial year started April. The appetite for state bonds may lend direction to gilt prices as well, as traders said they had built up positions on the rate cut on Monday and may avoid large bets Tuesday.

"Prices are expected to be sustained today (Tuesday) at the current level, even profit booking might be limited as ahead of MPC traders might not want to shed off excess of their holdings either," a dealer at a state-owned bank said. "There is a normal day-to-day buying and selling in the market, volumes might pick up tomorrow (Wednesday) as the MPC meeting starts."

Dealers said some profit booking was likely by private banks, which were the top net buyers on Monday, according to the data on Clearing Corp. of India. State-owned banks might remain on sidelines after selling aggressively on Monday, dealers said. While most participants are pricing in a quarter-basis-point rate cut by MPC on Friday, some expect a repo rate cut of up to 50 bps. Two external members of the committee--Nagesh Kumar and Ram Singh--had voted for a 25-bps rate cut in December as well.

Others said they were still not convinced of a repo rate cut this week, with the rupee sliding past the 87-a-dollar mark on Monday. Instead, the central bank will continue to infuse durable liquidity into the banking system to anchor overnight money market rates --consistently above the repo rate of 6.50% due to a banking system liquidity deficit--at the repo rate, they said.

The market turnover was INR 207.85 billion, lower than INR 484.00 billion as at 1330 IST Monday, 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 6.64-6.70%. (Vidhushi RajPurohit)

India Gilts: Down on overnight rise in US yields; traders sell bonds at profit

MUMBAI--1016 IST--Prices of government bonds were slightly lower tracking an overnight rise in US Treasury yields. Traders were likely selling bonds at a profit after a sharp rise in prices Monday, dealers said.

The 10-year benchmark 6.79%, 2034 gilt had risen around 24 paise on Monday as traders who felt they were underinvested in gilts picked up bonds on expectations of a rate cut by the Reserve Bank of India's Monetary Policy Committee on Friday. Clearing Corp. of India data showed private banks and primary dealers were the top net buyers on Monday. With a surge in trading volumes, some traders said positioning for the rate cut had built up, and the rise in US yields just provided an exit before a further rise in prices. 

"More or less its (bond prices) steady only, but its slightly down because of uptick in US 10-year," a trader at a primary dealership said. "Before the policy (MPC), it'll be in a band only. However, most participants are expecting a rate cut so there's some heavy positioning."

The yield on the 10-year US Treasury note rose to 4.57% at 1016 IST from 4.55% at close of the Indian market on Monday. While the US administration delayed imposing tariffs on Canada and Mexico late Monday, the initial measure of tariff imposition had not moved US yields, and consequently gilt prices either, dealers said.

The fall in bond prices was limited ahead of an expected rate cut, and some traders see gilts reversing losses and rising during the day. Twelve of 14 economists and treasury heads polled by Informist said they expect the MPC to lower the repo rate by 25 basis points to 6.25% at the end of its three-day meeting that begins on Wednesday. While state-owned banks had enough stock to position for a rate cut this week despite sales, private banks and some primary dealerships were building their trading books ahead of the MPC outcome, dealers said. Volumes were too low to determine clear buyers and sellers in the market, they said.  

The market turnover was INR 104.65 billion, lower than INR 155.65 billion as at 1030 IST Monday, 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 6.64-6.70%. (Cassandra Carvalho)

India Gilts:Seen steady; may rise during the day on bets of MPC rate cut Fri

MUMBAI – Prices of government bonds are seen opening steady Tuesday and may rise during the day as traders bet on a rate cut by the Reserve Bank of India's Monetary Policy Committee on Friday, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.64-6.70%, compared to 6.67% on Monday.

The Monetary Policy Committee's three-day meeting will begin on Wednesday and the outcome will be announced Friday. The six-member rate-setting panel is expected to cut the repo rate by at least 25 basis points, with some dealers expecting a 50 bps cut. The RBI's proactive stance on easing the liquidity deficit in the banking system the past month is seen as a preparatory step for a rate cut, dealers said.

On Monday, bond prices rose sharply after Finance Secretary Tuhin Kanta Pandey said the Union Budget for 2025-26 (Apr-Mar) has left enough room for the RBI to cut rates, reinforcing market expectations of a rate cut on Friday. This will be the first MPC meeting for recently-appointed RBI Governor Sanjay Malhotra, and for Deputy Governor Rajeshwar Rao, who recently took charge of the Monetary Policy Department after the retirement of Michael Patra on Jan. 14. Traders are speculating that both might vote in favour of a rate cut, dealers said.

On the global front, the yield on the benchmark US Treasury note rose to 4.57% at 0800 IST from 4.55% at close of the Indian market on Monday. The slight overnight rise in US Treasury yields may offset gains at open, but traders are likely to ignore the offshore cue ahead of the domestic event. The US Purchasing Managers' Index for January was slightly higher than expectations, and was higher than December's reading.

As for the tariff announcement by US President Donald Trump on Mexico, Canada and China, some fears were allayed after Trump paused tariffs on Mexico and Canada. The slight easing of the dollar index from a three-week high after the pause on tariffs may see the rupee appreciating during the day, which may be a positive for bond prices, dealers said. The rupee ended at a record closing low of 87.1850 against the greenback on Monday. (Cassandra Carvalho)

End

US$1 = INR 87.07

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

Edited by Deepshikha Bhardwaj

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