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Informist, Friday, Feb. 14, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended steady across most tenures on Friday, erasing early gains as traders sold bonds to trim risk ahead of the weekend. Long-term bond prices ended lower, after the cut-off price on the 7.09%, 2074 bond at the auction was lower than expected, dealers said. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.57, or 6.71% yield, against INR 100.55, or 6.71% yield, Thursday. Bond prices had opened higher tracking an overnight fall in US Treasury yields. However, towards the end of the trade, dealers sold gilts on caution over any tariff announcements by US President Donald Trump directed towards India on the weekend, dealers said.

"We're waiting for any announcement of liquidity, like if he (the Reserve Bank of India) doubles the OMO (open market operation buy) auction size. We're watching for any geopolitical changes over the weekend, such as Trump's comments," a dealer at a state-owned bank said. 

Since Tuesday, traders were expecting the RBI would double the scheduled INR 200 billion OMO auction to buy gilts it had scheduled next Thursday, similar to this week's auction. Data showing the central bank's secondary market activity in the gilt market was also in focus, especially since the RBI's Monetary Policy Committee cut the policy repo rate by 25 basis points to 6.25% on Feb. 7. After market hours, data showed the RBI did not buy or sell gilts in the first week of February after nearly INR 600 billion worth of gilt purchases in January. However, the RBI did announce it would buy INR 400 billion worth of six gilts at auction next week.

Bond prices came off highs after cut-off prices at the weekly bond sale Friday were slightly weaker than expectations. The government set the cut-off price on the benchmark 10-year gilt at INR 100.56, against an Informist poll estimate of INR 100.58. The cut-off price on the 50-year paper was INR 100.21 against a poll estimate of INR 100.26. The cut-off on the three-year gilt was in line with expectations. Market participants were expecting strong cut-off prices at the auction since this was the last scheduled auction of the 10-year benchmark and 50-year paper in the current financial year ending March, dealers said.

Long-term bonds ended lower as demand for these papers diminished as investors are waiting for the sizes of state bond auctions to increase by the end of the month. Larger state bond supply would widen spreads between these and central government securities, making them lucrative to buy then, dealers said.

Prices of bonds maturing in 30 years or more were up this week due to bond forward-rate agreements being written. However, demand for the long-term bond at the auction for forward-rate agreements was moderate, dealers said. Around 25 billion of the bond's auction stock was bought for Separate Trading of Registered Interest and Principal of Securities, dealers said.

Some dealers said that bids for the long-term bond were not aggressive as long-term investors have also bought infrastructure bonds issued by banks this week. For these bonds, maturing up to 15 years, offer spreads over government securities, and around INR 100 billion have been issued through these bonds this week. Others said that reduced inflows into life insurance schemes was depressing demand. In January first-year premium of life insurers income fell 8.1% on year.

"Market is expecting another increase in OMO like they did this time...plus some amount of FRA (bond forward-rate agreements) has also been there," a dealer at a private bank said. "At the auction though, demand from life insurance companies was lesser since they are also getting less inflows."

The lack of urgency to buy gilts kept trading volumes low with yields not seen declining amid prevailing global geopolitical uncertainty. After selling almost all the stock at Thursday's OMO auction from their 'held-to-maturity' books, banks were waiting for either a positive cue on the liquidity front, or state bond auction sizes to increase, to refill these books, they said.

The looming probability of imposition of tariffs by US President Donald Trump on India also kept bond traders on the edge, dealers said. While announcing reciprocal tariffs, Trump said that India has more tariffs than any other nation. Offshore receiving in swap rates failed to translate into a rise in bond prices, dealers said. The five-year swap rate ended at 6.09% against 6.14% on Thursday. 

The market turnover was INR 281.15 billion, against INR 308.85 billion Thursday, 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 on Thursday.

OUTLOOK

The gilt market is shut on Saturdays. On Monday, prices of bonds, especially of those maturing within 15 years, are likely to open higher on Monday, after the RBI doubled the size of its open market auction purchase to be held on Thursday.

However, the rise in prices may be temporary, and could be offset by RBI's lack of on-screen bond purchases in the week ended Feb. 7. This is the first time it has not bought gilts in the secondary market since the week ended Jan. 10; in the three weeks between, the RBI bought INR 388.15 billion through screen-based purchases.

Bond prices are likely to take cues from the movement of US Treasury yields over the weekend. US markets are shut on Monday for Presidents' Day. Market participants will closely assess statements by President Trump on tariffs and their potential impact on global trade.

Traders await any additional measures by the RBI to ease the liquidity deficit in the banking system. Crude oil prices could also be a trigger if they move significantly, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.67-6.75% for the day.

India Gilts: Erase most gains as auction cut-off prices tad below view

MUMBAI--1504 IST--Prices of government bonds erased most gains as the cut-off prices on the 6.79%, 2034 and the 50-year benchmark 7.09%, 2074 gilt were slightly below expectations, dealers said. Traders were also cautious heading into the weekend due to geopolitical uncertainties from US President Donald Trump's policies.

Market participants were expecting strong cut-off prices at the auction since this was the last scheduled auction for the 10-year benchmark and the 50-year paper this financial year, dealers said. While investor demand came through at the auction, traders only covered some short bets and kept bets light on further interest rate cuts by the Reserve Bank of India's Monetary Policy Committee in April and beyond.

The cut-off price on the benchmark 10-year gilt was INR 100.56, against an Informist poll estimate of INR 100.58, while the cut-off price on the 50-year paper was INR 100.21 against a poll estimate of INR 100.26. The cut-off on the three-year gilt was in line with expectations. 

State-owned banks likely bid for a large quantum of the 10-year gilt to replace the stock sold to the RBI at its open market auction to buy gilts on Thursday. Banks, particularly those from the private sector, picked up the 6.64%, 2027 gilt to match their liabilities, dealers said. Mutual funds did not bid aggressively for either paper at the auction, they said.

The cut-off price for the 50-year paper was weaker than expected as life insurance companies did not bid aggressively to lock in returns. Instead, they expected state bond auction sizes to increase and preferred to pick up shorter maturity bonds – worth up to 30 years – while securing higher yields, dealers said. Dealers said that around INR 25 billion worth of the long-term paper was purchased for Separate Trading of Registered Interest and Principal of Securities.

"Long-term bond cut-off was slightly low because insurers are waiting for state bond auctions to go up. They'll start picking up that stock so now the bidding was lower (less aggressive)," a dealer at a primary dealership said. States have borrowed only 65% of the scheduled issuances so far in Jan-Mar, which is likely to increase as it usually does in March. Moreover, the indicated auction amounts are also rising, with all remaining state bond auctions indicated to be above INR 340 billion.

While long-term bonds face pressure, gilts maturing within 15 years will both be helped by the RBI's bond purchases and the Oct-Mar gilt issuance calendar ending on Feb. 28. Bond prices remained a tad up as traders were anticipating an announcement by the RBI post-market hours, on doubling the size of next week's open market operation buy to INR 400 billion, dealers said. Should the expected increase not come, bond prices are likely to slump on Monday, they said.

The market turnover was INR 192.45 billion at 1530 IST, compared with INR 132.35 billion at the same time on 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 6.66-6.73%. (Cassandra Carvalho)

India Gilts: Remain up; bids for 6.79%, 2034 gilt at auction seen aggressive

MUMBAI--1205 IST--Government bond prices remained higher due to an overnight fall in US Treasury yields. Bidding for the 10-year benchmark 6.79%, 2034 gilt at the weekly debt issuance was aggressive, and more moderate for the other two papers at Friday's auction, dealers said.

The government offered to sell INR 70 billion of the 6.64%, 2027 gilt, INR 220 billion of the 2034 bond, and INR 100 billion of the 7.09%, 2074 gilt at the auction at 1000-1030 IST. State-owned banks are likely to have a large appetite for the 10-year bond as they look to replace securities sold to the Reserve Bank of India at its open market operation auction Thursday. The central bank bought INR 326.85 billion worth of gilts maturing in 2033-2037 at the auction, among the INR 400 billion offers it accepted.

With the borrowing calendar for gilts winding down – the last scheduled weekly gilt auction is on Feb. 28 – investor demand is likely to be robust at auctions for the next three weeks, dealers said. Moreover, short sellers are also looking to cover their bets placed in the run-up to the last issuance of the 10-year gilt scheduled this financial year ending March. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. At 1140 IST, the data showed trades worth INR 144.43 billion in the 6.79%, 2034 gilt, up nearly INR 20 billion since Thursday's close.

"Picking up the 10-year gilt at 6.71-6.72% yield is not bad for investment books," a dealer at a state-owned bank said. "After emptying the books at the OMO (purchase auction), there is replacement demand, although some of it will go to illiquid bonds." Bonds which are not heavily traded typically have higher yields than a liquid gilt of a similar tenure.

For the 2027 gilt, the bond is expected to be picked up by domestic banks to match their liabilities. The need for such securities has fallen due to the pushback in tightening of liquidity coverage ratio norms, which would have increased demand for short-term gilts, dealers said. Last week, RBI Governor Sanjay Malhotra said the norms would not be implemented by Apr. 1 as suggested in the draft guidelines.

Some private banks said the constant selling of short-term bonds by foreign portfolio investors this week has dampened demand, and may drive down the cut-off price. FPIs have sold over INR 70 billion worth of gilts this week, largely concentrated in bonds maturing up to 2027. Moreover, traders' demand for short-term bonds is waning due to lack of OMO purchases by the RBI in these tenures.

"FPIs have been getting a good exit with the RBI making the rupee appreciate, so they are taking the opportunity to get out of gilts as uncertainties on the global front rise and US yields remain high," a dealer at a private bank said.

For the 2074 bond, life insurers are likely to be the biggest buyers as the bond's tenure matches their long-term liabilities, dealers said. Demand for derivative instruments like bond forward rate agreements and Separate Trading of Registered Interest and Principal of Securities, or zero-coupon bonds, may also lead to up to INR 40 billion of demand. Some foreign banks had pre-agreed on forward-rate agreements earlier this week, dealers said.

However, bids may not be aggressive as long-term investors have also bought infrastructure bonds issued by banks this week. For these bonds, maturing up to 15 years, offer spreads over government securities, and around INR 100 billion have been issued via these bonds this week, dealers said.

The market turnover was INR 82.60 billion, compared with INR 66.10 billion at 1030 IST on 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 6.66-6.73%.  (Aaryan Khanna)

India Gilts: Rise as US ylds fall; caution before bond auction limits gains

MUMBAI--1020 IST--Government bond prices were up tracking an overnight fall in US Treasury yields, dealers said. However, the rise in prices was limited as traders awaited the INR 390 billion gilt auction at 1030-1130 IST, they said. 

State-owned banks picked up gilts after selling a large chunk at Thursday's open market operation auction conducted by the Reserve Bank of India, dealers said. Demand from state-owned banks at the gilt auction is also seen firm. Traders are likely to bid aggressively for the 6.79%, 2034 gilt as this is the last scheduled fresh issuance of the paper in the current financial year ending March.

Foreign banks and investors likely remained on the sidelines even as the yield on the 10-year US Treasury note fell to 4.54% from 4.61% at 1700 IST on Thursday, but private banks were covering some short bets, dealers said. The fear of reciprocal tariffs by the US administration hung over the market after President Donald Trump posted on social media Wednesday that he would impose them soon. The impact of these tariffs may hurt growth as well as push up domestic inflation, dealers said. However, the implementation of reciprocal tariffs is expected to be delayed at least until Apr. 1, leading to continued uncertainty even after the US President and Indian Prime Minister Narendra Modi addressed media on Thursday.

"What Trump will do is very unpredictable, and so far he has been dilly-dallying on tariffs, so there is caution but I am not taking him very seriously," a dealer at a state-owned bank said. "The auction is there so everyone is looking to pick up at auction today (Friday) and demand should be good there."

The market turnover was INR 38.65 billion, compared with INR 39.30 billion at 1030 IST on 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 6.66-6.73%.  (Srijita Bose)

India Gilts: Seen steady before INR 390-bln bond auction

MUMBAI – Government bond prices are seen steady ahead of the weekly gilt auction at 1030-1130 IST, dealers said. An overnight fall in US Treasury yields could lead to a rise in prices at open but the rise could be limited due to caution ahead of the auction, they said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.64-6.73%, compared to 6.71% on Thursday. 

Traders have been awaiting the auction as this will be the last fresh issuance of the 10-year on-the-run 6.79%, 2034 gilt in the current financial year ending March. At the auction, the government will sell INR 220 billion of the 10-year bond along with INR 70 billion of the 6.64%, 2027 bond and INR 100 billion of the 7.09%, 2074 bond. 

Traders placed short bets on the 10-year gilt this week to pick up auction stock. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 0815 IST showed trades worth INR 127.11 billion in the 6.79%, 2034 gilt. The result of the auction could lead to movement in prices later during the day. 

Meanwhile, the yield on the 10-year US Treasury note fell to 4.54% at 0815 IST from 4.61% at 1700 IST on Thursday after US January Producer Price Index and jobless claims data for the week ended Saturday. Producer prices rose 0.4% on month in January, against the consensus estimate of 0.3%. US jobless claims fell by 7,000 to 213,000 in the week ended Saturday, against the consensus estimate of 215,000.

US yields also eased as the implementation of reciprocal tariffs is expected to be delayed at least until Apr. 1. President Donald Trump on Thursday signed a presidential memorandum laying out his plan to impose "reciprocal tariffs" on foreign nations. While announcing reciprocal tarriffs, he said that India has more tariffs than any other nation. This was just hours before Trump met Prime Miniter Nadendra Modi, who is on a two-day trip to the US.

Despite the fall in US yields, inflows from foreign potfolio investors could be limited due to impending reciprocal tariffs on India. 

Traders also await any additional measures by the Reserve Bank of India to ease the liquidity deficit in the banking system. Traders are also betting on the RBI doubling the size of its scheduled OMO auction of INR 200 billion next week, dealers said. They are alo optimistic about future OMO auctions by the RBI as its persistent dollar sales to keep the rupee from depreciating sharply against the dollar continued to drain rupee liquidity, dealers said.  (Srijita Bose)

End

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

Edited by Ashish Shirke

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