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Informist, Monday, Feb. 24, 2025

By Srijita Bose

MUMBAI – Government bond prices Monday ended little changed from their previous close, with traders refraining from placing aggressive bets ahead of GDP data for Oct-Dec on Friday. Earlier in the day, prices had risen after the minutes of the Monetary Policy Committee's Feb. 5-7 meeting increased expectations of another repo rate cut at the next meeting in April, with a fall in US bond yields since close of trade in India Friday also helping lift prices, dealers said.

The 6.79%, 2034 bond ended at INR 100.60, or 6.70% yield, on Monday against INR 100.58, or 6.71% yield, on Friday, after rising as high as INR 100.69 intraday. A rise in US Treasury yields towards the end of the session weighed on gilt prices, dealers said, with the benchmark 10-year US Treasury note trading at 4.44% at 1700 IST, up from 4.43% earlier in the day.

"People are waiting for GDP data to get further cues...and the boost in liquidity was also not durable," a dealer at a private bank said. "Plus, market is a little wary of running ahead and going aggressive right now and instead went for swaps (overnight indexed swaps) where the move is more."

The Indian statistics ministry will release GDP data for Oct-Dec at 1600 IST on Friday, with an Informist poll indicating growth in the final quarter of 2024 may have risen to 6.3% from Jul-Sept's seven-quarter low of 5.4%. With members of the Reserve Bank of India's rate-setting panel sounding warnings about the domestic growth situation in the minutes of the Feb. 5-7 meeting--released post market hours Friday--hopes are pinned on the repo rate being lowered again by 25 basis points to 6.00% on Apr. 9. Dealers said movement in the 10-year benchmark was lesser compared to shorter-tenure bonds as traders refrained from increasing their exposure before the release of the GDP data, which is a key monetary policy consideration.

With a shift in the panel's focus to growth from inflation, short-term bonds, which had underperformed in recent weeks, fared better than other tenures as short-term yields are more sensitive to near-term interest rate expectations. Volumes in these tenures picked up, with trade in the five-year benchmark 6.75%, 2029 bond being the second-largest in the secondary market. The spread between yields of the 10-year benchmark 6.79%, 2034 and the five-year 6.75%, 2029 bond rose to nearly 6 basis points from over 3 bps on Friday. Mutual funds bought shorter-tenure papers maturing within five years, dealers said. They also bought Treasury bills as they expect the RBI to reject T-bills at the upcoming auction on Thursday as supply is set to reduce in FY26. 

Meanwhile, traders were also disappointed over the absence of a bond purchase auction announcement by the RBI last week. Traders expect the RBI to conduct OMO auctions of up to INR 1.00 trillion in total by the end of March, having already infused durable liquidity of the same amount from January to ease liquidity conditions in the banking system. For the second straight week, the RBI also did not buy or sell gilts in the secondary market in the week ended Feb. 14, after buying gilts worth INR 388.15 billion through screen-based secondary market purchases in January.

Instead, the central bank opted for a $10-billion dollar/rupee buy/sell swap. While the swap will provide liquidity to the cash-strapped banking system, most dealers view the measure as a roll-over of the RBI's already outstanding forward dollar sales. The RBI would still need to resort to durable liquidity easing measures, such as bond purchases, to cover the liquidity shortfall.

"The swap is a temporary fix...more OMO's are needed," a dealer at another private bank said. "But even without that, state-owned banks are not coming in the market as they are still expecting yields to go up, so with them on the sidelines, volumes have also remained poor for the past week or so."

The market turnover was INR 281.95 billion, compared to INR 249.45 billion Friday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. There were two trades worth INR 100 million using the wholesale digital rupee pilot, the same as Friday.

Traders are waiting for the spread between yields of the 10-year benchmark and longer tenure bonds to widen as supply of state bonds is expected to increase which will make longer tenure bonds cheaper, dealers said. Despite the RBI announcing bond-forward guidelines on Friday, which will come into effect on May 2, traders expect demand from life insurers for forward rate agreements to remain muted as their gross premiums have declined, they said.

OUTLOOK

On Tuesday, government bonds are likely to take cues from the overnight movement of US Treasury yields. Prices may remain in a narrow range till Friday as traders will wait for GDP data to take cues, dealers said.

Traders will also remain cautious awaiting cues on further bond purchases by the RBI, dealers said. Long-term bonds may fall after the RBI revised Tuesday's state-bond auction to INR 410.54 billion from INR 380.54 billion earlier, they said.

Market participants will closely assess any statements by US President Donald Trump on tariffs and their potential impact on global trade. 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 6.68-6.75% during the day.

India Gilts: In thin band after rise in early trade; GDP of Fri to lend cues

MUMBAI--1538 IST--Government bond prices moved in a narrow range as traders awaited further cues from India's Oct-Dec GDP print to be released on Friday, dealers said. Prices rose in early trade on increased expectations of a rate cut by the Reserve Bank of India's Monetary Policy Committee in April.

"People have already positioned heavily before the GDP data and fresh positions at this point seem less likely," a dealer at a state-owned bank said. "Only move is seen in short-end of the curve similar to what we are seeing in OIS (overnight indexed swap rates) as well because it did not move as much after the February rate cut (by the MPC)."

Mutual funds bought shorter-tenure papers maturing within five years as well as treasury bills in hopes of a rate cut in April after the minutes of MPC's February meeting on Friday showed the new panel's shift to growth from inflation, dealers said. The yield spread between the 10-year benchmark 6.79%, 2034 and the 5-year 6.75%, 2029 bond rose to over 6 basis points from over 3 bps on Friday.

Private banks were also likely on the buying side, while state-owned banks likely sold bonds at a profit, dealers said. However, trade volumes remained muted as traders waited for the GDP print on Friday for further cues on rate cut by the MPC at its next policy review meeting, dealers said. According to an Informist poll, GDP growth is expected to rise to 6.3% in the final quarter of 2024 from a seven-quarter low of 5.4% in Jul-Sept. The trade volumes were lower with the market turnover at INR 186.65 billion at 1530 IST, compared with INR 196.25 billion at the same time on Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

Though the $10 billion worth of dollar/rupee swaps announced by the RBI on Friday are likely to provide temporary relief to banking system liquidity, traders await more durable liquidity measures such as another open market operation by the central bank to purchase gilts, they said. 

Dealers expect gilts to trade in a narrow range till the release of the GDP data unless there is a fresh cue. During the remaining day, the yield on the 6.79%, 2034 bond is seen at 6.69-6.73%.  (Srijita Bose)

India Gilts: In narrow range as traders limit aggressive bets before GDP data

MUMBAI--1256 IST--Government bonds traded in a narrow band due to lack of strong cues, dealers said. Trade volumes were lower than usual, but better than last week, as traders refrained from aggressively taking up fresh positions despite a positive market sentiment.

After the minutes of the Reserve Bank of India's Monetary Policy Commitee's February meeting released last week indicated a shift in the panel's focus to growth from inflation, bets of a rate cut in April have increased, dealers said. Short-term bonds, which underperformed in recent weeks, fared marginally better than other tenures as short-term bond yields are more sensitive to near-term interest rate expectations. Volumes in these tenures picked up, with trade in the 5-year benchmark 6.75%, 2029 bond becoming the second-largest on the secondary market.

Traders were all the more cautious ahead of India's Oct-Dec GDP growth data due Friday, on hopes the print would cement views of an April rate cut. India's GDP for Oct-Dec and the second advance estimate for 2024-25 (Apr-Mar) will be released at 1600 IST Friday. An Informist poll estimates the Oct-Dec reading at 6.3%, while bond traders estimate a print of around 6.4%. Traders said they have already placed their bets on such a reading, and were unlikely to initiate any large purchases or sales until the GDP data comes out.

"No one's interested in trading right now. No new positioning as such, since everyone's already priced in a 6.4% (Oct-Dec) GDP (growth) reading," a dealer at a private bank said. "Everyone is waiting for that and maybe then market will move a little." The market turnover was INR 133.40 billion, up from INR 53.85 billion at 1230 IST Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform, but lower than average volumes.

Although bonds traded on a positive note due to a fall in US Treasury yields over the weekend, gains were capped due to disappointment over the absence of a bond purchase auction announcement by the RBI last week. Instead, the central bank has opted for a $10-billion dollar/rupee buy/sell swap. While the swap will provide liquidity to the cash-strapped banking system, most dealers view the measure as a roll-over of the RBI's already outstanding forward dollar sales. A rollover would imply that the RBI would still need to resort to durable liquidity easing measures, such as bond purchases, to cover the liquidity shortfall. 

The RBI's net outstanding forward sales, which comprise offshore non-deliverable forwards as well as onshore forward positions, were last known to be at $67.94 billion at the end of December. Expectations of the RBI announcing more open market purchase of gilts via auction persisted, with some dealers betting on an announcement post market hours Monday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.69-6.74%.  (Cassandra Carvalho)

India Gilts: Up on fall in US yields, positive cues from MPC minutes

MUMBAI--0922 IST--Prices of government bonds were up, tracking a fall in US Treasury yields over the weekend. The rise in prices was aided by minutes of the Reserve Bank of India's Monetary Policy Committee's February meeting, which showed the panel shifting its focus to growth, dealers said. 

The yield on the 10-year US Treasury note fell to 4.43% at 0922 IST from 4.50% at 1700 IST on Friday, after US services data for February reported by S&P Global showed business activity fell to a 17-month low. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors.

Minutes of the MPC's February meeting showed that concerns about a growth slowdown in the Indian economy overpowered views on inflation. The meeting was the first for RBI Governor Sanjay Malhotra and Deputy Governor M. Rajeshwar Rao. The three external members-- Nagesh Kumar, Ram Singh and Saugata Bhattacharya--focused on the effect of restrictive policy on growth, with Kumar suggesting the committee opt for a 50-basis-point cut. The committee was increasingly comfortable on the price stability front, with Governor Malhotra saying the food inflation outlook was "turning decisively positive".

"The dovish MPC minutes are definitely positive, its just that the (lack of) stance change is a bit of a surprise, had they changed stance the market would've rallied more," a trader at a primary dealership said. The minutes showed that the MPC retained a neutral stance and remained watchful due to 'excessive volatility in global financial markets' and uncertainty in global trade policies.  

Some gains were erased by the lack of an OMO auction announcement by the RBI on Friday, dealers said. Traders had expected the RBI to announce an open market auction purchase of gilts post market hours on Friday. Traders have priced in at least INR 600 billion more of gilt purchases through auction by the central bank in Jan-Mar, dealers said. The heavy suppply of state bonds up for auction Tuesday also capped the rise in bond prices. Sixteen states will riase INR 380.54 billion, less than the indicated amount, but a size large enough to see spreads between state bonds and gilts widen, which may see traders prefer the former to lock in higher yields, dealers said.

The market turnover was INR 34.05 billion, compared with INR 5.55 billion at 0930 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 6.69-6.74%.  (Cassandra Carvalho)

India Gilts:Seen higher on fall in US ylds; minutes show MPC focus on growth

MUMBAI – Prices of government bonds are seen opening higher, tracking a fall in US Treasury yields over the weekend and a slightly positive tone in the minutes of the Reserve Bank of India's Monetary Policy Committee's February meeting, dealers said.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.69-6.74%, compared to 6.71% on Friday. The yield on the 10-year US Treasury note fell to 4.43% at 0756 IST from 4.50% at 1700 IST on Friday, after US services data in February reported by S&P Global showed business activity fell to a 17-month low. Japanese markets are shut Monday. Traders now await US inflation and GDP growth data later in the week for cues on further rate cuts by the US Federal Open Market Commitee. The FOMC left rates unchanged in January.

Minutes of the MPC's February meeting showed that concerns about a growth slowdown in the Indian economy overpowered views on inflation. The meeting was the first for RBI Governor Sanjay Malhotra and Deputy Governor M. Rajeshwar Rao. The three external members-- Nagesh Kumar, Ram Singh and Saugata Bhattacharya--focused on the effect of restrictive policy on growth, with Kumar suggesting the committee opt for a 50 basis point cut. The committee was increasingly comfortable on the price front, with Governor Malhotra saying the food inflation outlook was "turning decisively positive".

The minutes showed that the MPC retained a neutral stance and remained watchful due to 'excessive volatility in global financial markets' and uncertainty in global trade policies. "US trade policies that would be unveiled in early April would also impact committee's deliberations and global backdrop may stay volatile; that should persuade the committee to retain neutral stance after delivering second successive cut in April," Abhishek Upadhyay, economist at ICICI Securities PD, said in a note. 

Some rise in bond prices may be offset since traders expected the RBI to announce an open market auction purchase of gilts post market hours on Friday. Traders have priced in at least INR 600 billion more of gilt purchases through auction by the central bank in Jan-Mar, dealers said. The RBI has purchased nearly INR 1 trillion worth of gilts via auction so far this quarter. Another negative for bond prices is Friday's RBI data that showed the central bank did not purchase any gilts on-screen in the week ended Feb. 14, the second consecutive week, after INR 388.15 billion of gilt purchases on-screen in January.

The RBI however, post market hours Friday, announced a dollar/rupee buy/sell swap for $10 billion for three years on Feb. 28, which is seen as a positive on the liquidity front, as banking system liquidity remains in a deficit since mid-December. Gilt prices may also take cues from the movement of the rupee against the dollar, dealers said. The rupee is seen opening higher Monday. (Cassandra Carvalho)

End

US$1 = INR 86.70

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

Edited by Ashish Shirke

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