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Informist, Tuesday, Feb. 18, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended higher Tuesday as traders picked up bonds ahead of the Reserve Bank of India's INR 400-billion bond purchase under open market operations through an auction on Thursday, dealers said. Likely demand from mutual funds triggered a sudden rise in prices in the second half of trade, after bonds traded in a thin band earlier due to lack of firm cues.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.72, or 6.69% yield, against INR 100.67, or 6.69% yield, on Monday. Some traders are on leave to take advantage of the holiday Wednesday for Chhatrapati Shivaji Maharaj Jayanti. As a result, volumes were low, dealers said. The market turnover was INR 259.00 billion, compared to INR 235.20 billion Monday, according to data on the RBI's Negotiated Dealing System–Order Matching platform.

As traders rushed to pick up the six papers being offered at Thursday's auction, which includes the highly-liquid benchmark 10-year gilt, volume at 1700 IST surged to nearly five times that at 1430 IST. The RBI will buy the 7.17%, 2030 gilt, 7.18%, 2033 gilt, 7.10%, 2034 gilt, 6.79%, 2034 gilt, 7.41%, 2036 gilt and the 7.18%, 2037 gilt at the auction. Last-minute demand from mutual funds spurred the price rise, dealers said.

"Mutual funds bought gilts yesterday (Monday) also and they always tend to buy gilts whenever market is dull and shallow. They're picking up the 10-year gilt, that's why price action is most there," a dealer at a private bank said. Gains were concentrated in the 6.79%, 2034 bond, before traders sold the bond at profit near the close, capping the rise.

Mutual funds were the largest net buyers of gilts Monday, with purchases worth INR 14.27 billion. Traders were betting on the RBI to again buy the 6.79%, 2034 bond above its market price, as it had done the last time it had bought the gilt at the auction on Jan. 30. Should the RBI prefer to buy a large quantum of the other gilts, which are off-the-run papers and will likely be sold by state-owned banks at a profit from their held-to-maturity portfolios, traders from private banks and mutual funds will likely be disappointed and sell the stock picked up Tuesday, dealers said.

The inclusion of the 10-year benchmark paper is also seen as an opportunity for participants of all segments to take part in the auction, dealers said. "The 10-year's inclusion allows the broader market to participate, and is also the only chance at getting a good cut-off," a trader at a primary dealership said. The liquidity-infusing measure is the last of the three auctions notified by the RBI in January, and traders are betting on auctions worth a total of at least INR 600 billion to be announced by the end of this month.

Earlier in the day, price of the 6.79%, 2034 bond did not move out of a 2-paise band. Traders, especially those from state-owned banks, picked up gilts in light volumes to refill their 'held-to-maturity' books after the OMO sales, dealers said. Banks preferred off-the-run papers, as the yield of these papers were higher than those of liquid papers of comparable maturities. Banks bought illiquid gilts such as the 8.30%, 2040 paper, which offered 8 basis points more yield than the 15-year benchmark 6.92%, 2039 paper in intraday trade, dealers said.

However, banks were avoiding aggressive purchases in the secondary market as they diverted funds for lending, to maximise their interest income at a time when net interest margins are under pressure due to the repo rate cut on Feb. 7, dealers said. This has caused a mismatch between high deposit rates and immediately lower lending rates in some buckets. Traders were keen on picking up state bonds in the primary market, as the spread between state bonds and gilts made for more lucrative investments, dealers said. State-owned banks bid aggressively at the INR 298 billion state bond sale Tuesday, but at higher-than-estimated yields in order to capture the spread. The cut-off yield on Assam's 10-year bond was 7.15%, against an Informist poll estimate of 7.12%.

There were no trades using the wholesale digital rupee pilot, same as on Monday. Rise in volume in the 'Odd Lot' segment of the NDS-OM platform's Reported Deals led to speculation that foreign portfolio investors were buying gilts. The total trades, including state bonds and zero-coupon Separate Trading of Registered Interest and Principal of Securities bonds, were nearly INR 112 billion. However, traders said investors had taken delivery of the zero-coupon papers that were originally agreed to for the 7.09%, 2074 bond at the government bond auction on Friday. Clearing Corp. of India data at 1845 IST showed FPIs sold INR 5.7 billion worth of fully accessible route gilts on Tuesday.

OUTLOOK

The gilt market is shut on Wednesday. On Thursday, government bonds are likely to take cues from the result of the INR 400 billion OMO auction at 1030-1130 IST. The RBI will also auction INR 330 billion worth of Treasury bills at the same time, the first since the T-bill quantums were increased from INR 280 billion earlier in Jan-Mar. The clash of timings is not expected to impact bidding at either of the auctions, dealers said.

Gilt prices may also take cues from the movement of US Treasury yields after the minutes of the US Federal Open Market Committee's meeting that was held in January are released at 0030 IST Thursday. Traders also await the minutes of the Monetary Policy Committee's meeting, due on Friday.

Market participants will closely assess any statements by US President Donald Trump on tariffs and their potential impact on global trade. Traders are waiting for 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 6.64-6.74% during the day.

India Gilts: Rise as traders buy bonds before RBI's OMO purchase auction Thu

MUMBAI--1620 IST--Government bond prices rose as traders likely picked up gilts ahead of Thursday's open market operation purchase auction worth INR 400 billion by the Reserve Bank of India, dealers said. Demand from mutual funds and foreign portfolio investors in the second half of trade increased trade volumes and pushed up prices after being stagnant earlier in the day, dealers said.

Indian money markets are shut on Wednesday for Chhatrapati Shivaji Maharaj Jayanti, which spurred dealers into action. Traders are hoping to sell the 10-year benchmark 6.79%, 2034 bond to the RBI at a profit, because the central bank had set a cut-off price above the secondary market price when it last bought the bond on Jan. 30, dealers said.

However, dealers said that the RBI may accept bids at lower prices as they look to infuse durable liquidity, making it less lucrative for traders who picked them up at higher prices, dealers said. Moreover, with most of the bonds in the 'held-to-maturity' portfolios, state-owned banks may tender the off-the-run bonds at lower prices than the secondary market, making them cheaper for the central bank to buy. The RBI will buy six bonds – the 7.17%, 2030 gilt; 7.18%, 2033 gilt; 7.10%, 2034 gilt; 6.79%, 2034 gilt; 7.41%, 2036 gilt; and the 7.18%, 2037 gilt – at the auction. The 10-year benchmark gilt was not offered to be bought at the INR 400-billion auction last week.

"Right now, traders are just focused on OMO (auction on Thursday). The demand and supply in g-sec is currently driving market direction more than rate cuts," a dealer at a private bank said. "This week, the 10-year (benchmark 6.79%, 2034 gilt) is also there, so we're hoping for good cut-off on that, because there won't be any yield management in rest of the bonds."

Many traders across bank treasuries are on leave in view of the holiday Wednesday, making for an extended weekend, dealers said. Volumes rose after a spurt in mutual fund activity, with only a quarter of the trade volume so far being done before 1430 IST. The market turnover was INR 209.65 billion, compared with INR 195.60 billion at 1630 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. (Srijita Bose)

India Gilts: In thin band, volumes sluggish as traders lack fresh cues

NEW DELHI--1310 IST--Government bond prices were steady, as the market lacked direction and there were no fresh cues, dealers said. Trade volumes were on track to be the lowest since December as investors kept to the sidelines ahead of a market holiday on Wednesday.

The market turnover was INR 46.60 billion, compared with INR 130.20 billion at 1330 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Money markets are shut on Wednesday on account of Chhatrapati Shivaji Maharaj Jayanti.

Price of the 6.79%, 2034 bond did not move out of a 2-paise band on Tuesday. Banks were looking to refill their held-to-maturity portfolios at the state bond auction, and had also picked up stock of the 10-year bond at its fresh issuance on Friday, dealers said. State-owned banks have sold the largest chunk of bonds at the Reserve Bank of India's open market operation auctions, in which it has bought INR 600.20 billion worth of gilts maturing in 2030-2037, with another INR 400-billion purchase scheduled for Thursday.

"State-owned banks seem to have met their replacement demand in auctions and are not coming to the secondary very actively," a dealer at a private bank said. "The trading market is dead, foreign portfolio flows on either side are not there today (Tuesday), nobody else is there because its a short week."

Traders had expected activity to pick up from state-owned banks after selling bonds to the RBI. However, the proceeds of these sales  were being diverted to state and corporate debt, which offered higher yields for similar tenures, and where supply had picked up, dealers said. Moreover, banks wanted to maximise their interest income at a time when net interest margins are under pressure due to a repo rate cut on Feb. 7. This has caused a mismatch between high deposit rates and immediately lower lending rates in some buckets. In this endeavour, banks have begun buying illiquid gilts as well, such as the 8.30%, 2040 paper, which offered 8 basis points more yield than the 15-year benchmark 6.92%, 2039 paper, dealers said.

Gilt prices rose Monday after the RBI said it was doubling the OMO buy auction size this week, and would also buy the 6.79%, 2034 gilt Thursday. There was an underlying expectation that prices would eventually rise due to slowing growth and inflation pointing to at least one further repo rate cut in the near future, dealers said. However, traders could not express that until funding costs came down in line with the repo rate reductions, which would only be solved by further liquidity infusion by the RBI, dealers said.

There was also a lack of positioning before the minutes of the US Federal Open Market Committee at 0030 IST Thursday and the RBI's Monetary Policy Committee on Friday, dealers said. The next cue for interest rates and gilt prices may only be the Oct-Dec GDP data, scheduled for release at the end of the month, they said.

"If I could have taken a holiday between the (January) CPI data (on Feb. 12) and the (Oct-Mar) GDP data (on Feb. 28), I would have. I'm certain that the market is not going anywhere," a dealer at a primary dealership said. During the day, the yield on the 6.79%, 2034 bond is seen at 6.67-6.71%.  (Aaryan Khanna)

India Gilts: Steady amid lack of cues; traders await more liquidity measures

MUMBAI--1000 IST--Government bond prices were steady due to lack of significant fresh cues. Investors were on the sidelines as they awaited further liquidity measures by the Reserve Bank of India amid constantly tight liquidity, dealers said.

"Whatever events are lined up now have already been priced in, market is now waiting for fresh cues...a liquidity push through long-term VRRs (variable rate repo tenders), and waiting for how the OMO (open market operation) auction (by the RBI) will go," a dealer at a state-owned bank said. "Also, many people are on leave, so volumes are also less." Money markets will be closed on Wednesday on the occassion of Chhatrapati Shivaji Maharaj Jayanti.

Traders said the RBI seemed proactive in infusing durable liquidity into the banking system after RBI doubled the size of its OMO buy auction, which suggests that it could provide monetary accommodation through another rate cut in April. Howver, with the RBI projecting GDP growth in 2025-26 (Apr-Mar) at 6.7%, traders awaited the growth print due later in the month to take further bets on a rate cut by the RBI's Monetary Policy Committee, dealers said. 

Meanwhile, gilts maturing in five to 15 years are likely to be picked up as traders will look to replace the bonds to be sold at the auction later this week, dealers said. At the state bond auction too, demand for similar tenures is seen higher, as banks will look to lock in higher yields for their held-to-maturity portfolios, dealers said. 

Despite a rise in US Treasury yields in early Asian trade, gilt prices did not take cues as foreign portfolio investors remained on the sidelines, awaiting more clarity on US President Donald Trump's policies on trade and tariffs, dealers said. Traders are also waiting for minutes of the US Federal Open Market Committee's meeting held in January, as well as minutes of the Monetary Policy Committee's meeting held earlier this month, both of which are due this week.

The market turnover was at INR 11.15 billion, compared with INR 72.20 billion 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 6.67-6.73%.  (Srijita Bose)

India Gilts: Seen lower as US yields rise; traders await more liquidity push

MUMBAI – Government bond prices are seen opening lower as US Treasury yields rose in Asian trade, dealers said. However, prices are seen moving in a narrow range during the day as traders await additional liquidity measures from the Reserve Bank of India, they said.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.67-6.73%, compared to 6.69% on Monday.

The yield on the 10-year benchmark US Treasury note rose to 4.51% at 0820 IST from 4.48% at 1700 IST on Friday. US markets were shut on Monday for Presidents' Day. As foreign portfolio invesotors mostly remain on the sidelines, awaiting more certainty on US President Donald Trump's tariffs and trade policies, the impact of the rise in US yields on gilt prices is seen limited, dealers said. 

Early Tuesday, Trump posted on social media that he would impose reciprocal tariffs along with non-monetary tariffs and trade barriers for countries doing the same to the US. The impact of these tariffs may hurt growth as well as push up domestic inflation, dealers said. However, as the fear of reciprocal tariffs hung over the market, dealers said some of the impact has already been priced in and the market would only take cues once the tariffs were imposed. 

Traders are also waiting for minutes of the US Federal Open Market Committee's meeting held in January, as well as minutes of the Monetary Policy Committee's meeting held earlier this month. Both are due this week.

After the RBI doubled the size of its open market operation auction for the purchase of government securities on Thursday to INR 400 billion, prices on the belly of the curve – gilts maruting within five to 15 years – are seen up as traders will look to replace the bonds to be sold at the auction later this week, dealers said. At the state bond auction too, demand for similar tenures is seen higher, as banks will look to lock in higher yields for their held-to-maturity portfolios, dealers said. 

Traders await additional measures from the RBI to infuse liquidity in the banking system to bet further on a repo rate cut by the MPC at its net policy review meeting in April. On Friday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--narrowed to INR 2.14 trillion from INR 2.42 trillion on Thursday.  (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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