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Informist, Monday, Feb. 10, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended off lows on Monday as the impact of a rise in US Treasury yields was offset by the recovery of the rupee from a record low against the dollar earlier in the day, dealers said. Traders said the lingering negatives of the recent monetary policy review had largely been absorbed into gilt prices.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.53, or 6.71% yield, against INR 100.59, or 6.70%, Friday. Bond prices erased most losses as the rupee ended at 87.4750 against the dollar, after falling to a record low of 87.9500 earlier in the day.

A falling rupee weighs on bond prices due to concerns on imported inflation and further currency weakness after the Reserve Bank of India's Monetary Policy Committee cut the repo rate by 25 basis points to 6.25% on Friday. However, bond prices have fallen sharply since Thursday's close due to lack of further guidance on repo rate cuts, with a status quo on the 'neutral' policy stance. Moreover, RBI Governor Sanjay Malhotra did not announce any fresh measures on infusing liquidity on Friday.

"All the negative (cues) are factored in, the short-term curve is yet to be corrected, we have a rate cut and there's good value-buying so we think it'll (the yield on the benchmark 10-year bond) will hold at this level," a trader at a primary dealership said.

State-owned banks purchased gilts as the yield on the benchmark 10-year gilt neared 6.73% after more than two weeks, and was considered a lucrative level to buy bonds. Purchases of short-term gilts by foreign portfolio investors also limited losses. Bond prices opened lower after the yield on the 10-year US Treasury note rose to 4.50% at 1700 IST, from 4.44% at 1700 IST Friday.

US yields rose on US President Donald Trump's comments of introducing a 25% tariff on all steel and aluminium products imported into the country starting Monday. For India, the bad news would be compounded by Trump's threat of reciprocal tariffs on all countries starting Tuesday or Wednesday, dealers said. ICICI Bank said in a report that the proposed tariffs could be a potential growth shock for countries like India.

"Market was already weighed down after they (RBI) did not announce anything for liquidity, and then there is Trump and the tariff threats which is leading to selling here (government securities market)," a dealer at a private bank said. "Domestic participants have mostly trimmed a lot after MPC (meeting outcome) and the levels (bond yields) are also not that good to sell for them, so today's (Monday) selling would likely be from FPIs (foreign portfolio investors) who would want to exit."

Foreign portfolio investors sold gilts worth INR 5.11 billion through the fully accessible route Monday, according to data from Clearing Corp. of India at 1745 IST. Some dealers said foreign portfolio investors were trimming bonds of eight years and above to purchase short-term bonds of up to five years on the view that the RBI's liquidity infusion, outside the monetary policy review, would bring yields of those bonds down first, dealers said. 

Domestic traders also preferred short-term bonds, and the 7.04%, 2029 paper was the second-most traded bond on the RBI's Negotiated Dealing System-Order Matching System Monday. Short-term yields are more sensitive to rate cuts, and dealers expect spread of the 10-year benchmark gilt over these papers to widen. Expectations of another 25 basis point rate cut by the MPC in April also kept the outlook on short-term yields positive, dealers said.

Traders avoided trimming their stock of long-term bonds, expecting the yield curve to move lower in line with the rate cut after the release of India's CPI data for January, dealers said. Traders bet on India's CPI inflation for January printing at or below 4.5%, the median of an Informist poll. This would lead to greater capital gains on these papers due to their longer maturities, which is why traders had stocked up on the bonds maturing above 30 years since last week, they said.

Moreover, the RBI is expected to continue infusing durable liquidity into the banking system, particularly through open market operation purchases, both at auction and in the secondary market, dealers said. The RBI's screen-based purchases totalled INR 388.15 billion in January, and it bought INR 200.20 billion worth of gilts at its first OMO purchase auction in over three years. Beyond scheduled auctions buys until Feb. 20, dealers expected a further announcement of OMO purchases later this month.

As for the 10-year benchmark 6.79%, 2034 gilt, the bond's yield has risen the most among comparable tenures, and also in comparison to both short- and long-term benchmarks. On Friday, traders sold the gilt due to their disappointment about an OMO auction calendar, which some expected the RBI would announce at the MPC outcome. Meanwhile, short bets on the bond increased ahead of its INR 220 billion supply on Friday, as part of the weekly gilt auction, dealers said.

"The auction this week includes the 10-year (6.79%, 2034 bond), and it is the last auction of the 10-year this year (FY25)," a dealer at a state-owned bank said. "If people won't get at auction they'll want to pick up in secondary (market)."

The market turnover Monday was INR 360.90 billion, against INR 687.50 billion Friday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. There were no trades using the wholesale digital rupee pilot, same as Friday.

OUTLOOK

On Tuesday, gilt prices may open higher after the RBI doubled the size of its OMO purchase auction Thursday to INR 400 billion. The central bank will buy the same five gilts notified earlier--the 7.17%, 2030 gilt; 7.18%, 2033 gilt; 7.10%, 2034 gilt; 7.54%, 2036 gilt; and the 7.18%, 2037 gilt.

Traders may pick up bonds as funding costs ease sustainably towards the new 6.25% repo rate, which will make spreads across the yield curve more attractive. The MPC cut the repo rate by 25 bps on Friday, but the lack of liquidity measures had led to bond prices falling.

Gilt prices may also take cues from the movement of US Treasury yields ahead of US CPI inflation data for January and US Federal Reserve Board Chair Jerome Powell's submission of the Monetary Policy Report to US Senate Banking Committee this week.

Gilt prices may take cues from the movement in the rupee against the dollar, as well as US President Trump's comments on political and economic measures. Crude oil prices may also be a trigger, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.75% during the day.

India Gilts: Erase most losses on rupee's recovery from record low

MUMBAI--1605 IST--Prices of government bonds recovered most losses with the recovery of the Indian currency from record lows, dealers said. The rupee ended at 87.4750 against the dollar, after falling to a record low of 87.9500.

"The rupee has also risen from its low, there's strong buying interest in the (gilt) market today (Monday)," a dealer at a state-owned bank said. "This week is also the last 10-year auction for this year (FY25), so after this (auction) everyone will have to buy from secondary only." A fall in the rupee weighed on bond prices earlier in the day due to concerns on imported inflation and further currency weakness after a rate cut.

Traders were also buying the 10-year 6.79%, 2034 bond as Friday's auction would be the last bond sale of the paper in the financial year ending March, dealers said. Dealers also speculated the Reserve Bank of India was buying gilts on-screen, a practice seen on each day since Jan. 15, other than the days of open market operation auction, according to RBI data for January.

Purchases from state-owned banks and foreign investors likely limited losses, as the 10-year yield hit its highest in over two weeks earlier in the day. FPIs were likely placing short bets on the 6.79%, 2034 gilt while picking up short-term bonds.

"The market has no reason to feel as terribly as it has reacted," a dealer at a primary dealership said. "After all, there's been a rate cut, and the reaction is as if he (the RBI) has hiked rates. Anything above 6.70% (yield on the 10-year gilt) makes sense to buy."

Despite the disappointment on no further liquidity measures after the RBI's Monetary Policy Committee meeting outcome on Friday, traders expect the RBI to continue buying gilts maturing around 10 years. The RBI has another INR 400 billion worth of gilt purchases scheduled until Feb. 20, across two auctions. Dealers are betting on a further round of auctions to be announced later this month, along with continued secondary market buys. The RBI's screen-based purchases totalled INR 388.15 billion in January.

The market turnover was INR 316.40 billion at 1630 IST, compared with INR 591.95 billion at 1630 IST Friday, 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 6.68-6.75%. (Cassandra Carvalho)

India Gilts: Off lows as PSU bks likely buy; mirror rupee recovery

MUMBAI--1300 IST--Prices of government bonds were off lows, mirroring the recovery in Indian rupee against dollar after the Indian unit fell to a record low earlier in the day, dealers said. Gilt prices remained down tracking a rise in US Treasury yields after US Presdent Donald Trump threatened to announce fresh tariffs this week.

Gilt prices recovered some losses on likely buying from state-owned banks, dealers said. State-owned banks had sold gilts worth INR 92.81 billion in the secondary market last week, and were likely picking up bonds as prices fell after the monetary policy review. A status quo on the 'neutral' stance by the Reserve Bank of India's Monetary Policy Committee Friday and a lack of liquidity measures by the central bank led to a sharp fall in gilt prices, and turned the outlook on bonds less positive despite a repo rate cut by 25 basis points, dealers said.

"Mostly after MPC there is an undertone of bullish sentiment after having lightened their positions Friday. Market is largely given (down), now there is room to build trading books from here," a dealer at a state-owned bank said.

Prices were also aided owing to traders' expectations that the RBI might come up with some additional liquidity measures after interevening aggressively in the foreign exchange market with its dollar sales to support the rupee. The rupee recovered nearly all losses and rose to an intraday high of 87.4500 a dollar, after hitting a record low of 87.9500 a dollar earlier in the day.

Some traders expect the central bank to come up with another dollar/rupee buy/sell swap auction after conducting one on Jan. 31. Its continued gilt purchases outside open market operations also led traders to buy bonds, dealers said. On Sunday, the net liquidity injected by the RBI--a proxy for systemic liquidity deficit--rose to INR 1.33 trillion from INR 1.08 trillion Friday.

Dealers expect the constant buying from traders and investors when the yield on the 6.79%, 2034 gilt is above 6.72%, even as they continue to monitor the developments around the tariff threats by Trump. On Friday, Trump said he will announce on Monday new 25% tariff on all steel and aluminium imports into the US. He also threatened retaliatory tariffs to be implemented later this week.

"Many people had taken trading positions on the 10-year benchmark (6.79%, 2034) gilt thinking that RBI will come with OMO auction as they were buying on-screen also, but that didn't happen," a dealer at a state-owned bank said. "Also, people shorted the 10-year (gilt) while going long on other shorter-term bonds also, so the overall disappointment at MPC was worst off for the 10-year in all cases."

Some domestic traders were disappointed due to the absence of the 10-year benchmark 6.79%, 2034 gilt in the open market purchase announcement Friday, and the bond's price fell more relative to other gilts maturing in 2034, dealers said. In its first OMO auction to buy gilts in over three years, the RBI had picked up INR 50 billion of the 10-year benchmark bond on Jan. 30.

The market turnover was INR 215.55 billion at 1300 IST, compared with INR 458.65 billion at 1130 IST Friday, 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 6.68-6.75%. (Vidhushi RajPurohit)

India Gilts: Dn on rise in US ylds; disappointment lingers after MPC outcome

MUMBAI--1044 IST--Government bond prices were down due to a rise in US Treasury yields since Friday. This added to the negative sentiment in the market, and traders shed bonds, after Friday's disappointment over the Reserve Bank of India's Monetary Policy Committee maintaining stance quo on the 'neutral' stance and the central bank not announcing additional measures to infuse liquidity, dealers said.

The yield on the 10-year US Treasury note rose to 4.49% from 4.44% at 1700 IST on Friday. Foreign portfolio investors and private banks likely also sold bonds after US President Donald Trump's comments on declaring reciprocal tariffs affecting all nations and aligning with the tariff rates imposed by each nation, dealers said.

Traders headed into the MPC outcome on Friday betting heavily on expectation of additional measures on liquidity, after the earlier out-of-policy announcements of open market operation buys, a dollar/rupee buy/sell operation and a long-term variable rate repo auction. The market also wanted certainty on on future rate cuts, as had been priced in, through a change in the monetary policy stance to 'accomodative', dealers said. Moreover, the early fall in the rupee to a record low of near 88 a dollar weighed on prices.

"People did not get an opportunity to get out of their heavy positions made before the MPC, so now they are shedding off those and adjusting their shorts placed, " a dealer at a private bank said. "Also FPIs (foreign portfolio investors) also will be selling. But some amount of positive was the...data of the RBI on Friday showing that the RBI bought (gilts) on screen."

The weekly statistical supplement after market hours Friday showed the RBI bought gilts worth INR 77.90 billion outside open market operation auctions in the week ended Jan. 31. Traders were enthused the RBI continued to buy gilts in the secondary market despite buying INR 200.20 billion at the auction, dealers said, though it did not buy gilts on either day next to the auction on Jan. 30. State-owned banks likely bought gilts as the yield on the 10-year bond rose to near two-week high, limiting losses, they said.

Traders said the fall in longer-tenure bonds maturing over 30 years may be limited as demand from insurers is likely to pick up after the RBI announced that it would detail final guidelines for bond forwards shortly, dealers said. The RBI had brought out the draft guidelines on this in December 2023. Life Insurance Corp. of India officials, in a post-earnings press conference on Friday, said that it has begun early talks with three counterparties to enter into bond forward rate agreements. It would also be keen to enter bond forwards after the final guidelines are out, an official said.

The market turnover was at a low INR 85.85 billion at 1040 IST, compared with INR 291.65 billion at the same time Friday, 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 6.68-6.75%. (Srijita Bose)

India Gilts: Seen lower as US yields rise, MPC disappointment lingers

MUMBAI – Government bond prices may open lower due to a rise in US Treasury yields over the weekend, dealers said. Gilts may also remain lower after Friday's disappointment on the lack of a change in the Monetary Policy Committee's stance from 'neutral', as well as no additional liquidity measures announced at the outcome of the Reserve Bank of India's meeting. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.68-6.75%, compared to 6.70% on Friday. The fall in gilt prices could be limited as the MPC cut the repo rate for the first time in nearly five years by 25 basis points to 6.25%, dealers said. 

The yield on the 10-year benchmark US Treasury note rose to 4.49% at 0800 IST from 4.44% at 1700 IST on Friday after the release of US non-farm payrolls and unemployment data on Friday. Non-farm payrolls rose by 143,000 in January after rising by an upwardly revised 307,000 in December, the most in nearly two years, the Labor Department's Bureau of Labor Statistics said. Economists polled by Reuters had expected the survey to show 170,000 jobs added. Despite the slowdown in new jobs, US unemployment dipped to 4.0% in January, the lowest since May. 

Gilt prices may also take a beating due to US President Donald Trump's comments on introducing new tariffs on steel and aluminium imports into the US. He also said he would declare reciprocal tariffs on Tuesday or Wednesday, which would be implemented almost right away, affecting all nations and aligning with the tariff rates imposed by each nation. 

The fall in gilts could, however, be limited as traders may pick up bonds as funding costs ease sustainably towards the new 6.25% repo rate, which will make spreads across the yield curve more attractive, dealers said. Prices of short-term gilts maturing within five years could rise during the day due to the cut in rates, dealers said. 

During the day, traders could place bets before the release of India CPI inflaion print on Wednesday. Though traders widely expect inflation to ease, short bets on the 10-year benchmark gilt could rise during the day, dealers said. According to an Informist poll of 12 economists, India's headline CPI inflation is likely to fall to a five-month low of 4.5% in January, driven by a sharp fall in vegetable prices. CPI inflation was 5.22% in December and 5.10% in January 2024.  (Srijita Bose)

End

US$1 = INR 87.4750

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

Edited by Ashish Shirke

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