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Informist, Thursday, Feb. 27, 2025

By Vidhushi RajPurohit

MUMBAI – Prices of government bonds ended steady after erasing modest gains seen earlier in the day as some traders trimmed their holdings before the release of the GDP print for Oct-Dec, due 1600 IST Friday, dealers said. An uptick in US Treasury yields towards the end of the day also weighed on domestic bond prices.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.56, or 6.71% yield, against INR 100.58, or 6.71% yield, Tuesday. The gilts market was shut Wednesday for Mahashivratri. Dearth of significant cues and traders' caution before the release of GDP print Friday led to another day of lacklustre trade, dealers said. Prices of government bonds were in a narrow band and trading volumes also remained subdued during the day. 

The market turnover was INR 293.55 billion, down from INR 379.05 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 Tuesday. 

Fall in US Treasury yields led to some inflows from foreign portfolio investors into short-tenure gilts maturing within five years, dealers said. The 10-year benchmark US Treasury note was at 4.28% in the early trading hours before inching up to 4.31% at 1700 IST, against 4.35% at Indian market closing hours Tuesday. However, towards end, likely profit booking by state-owned banks and trimming of exposure before the quarterly GDP print led to some wiping of gains in gilt prices, dealers said. 

Inflows from overseas investors amounted to INR 22.36 billion Thursday through the fully accessible route, according to data from Clearing Corp. of India at 1600 IST. Traders expect the yields on the shorter tenure bonds to further fall as the case for a repo rate cut by the Reserve Bank of India's Monetary Policy Committee in April become stronger. However, most domestic traders awaited the GDP print for Oct-Dec to provide direction to the market, a print at or below 6.2% could give some hope to the market for further policy easing by the RBI, dealers said. An Informist poll of 16 economists estimated the Oct-Dec reading at 6.3%, while bond traders are expecting a print of around 6.4%. 

"There is some juice still left in short-tenure gilts which is why FPIs are interested there and a certainity regarding a 25 basis points repo rate could could make the yields on those papers to steepen from here," a dealer at a primary dealership said. "The yield curve for long-term bonds might remain flat from here as there is not much interest there right now."

While traders were cautious ahead of the GDP print, some traders expect the demand at weekly gilt auction Friday to be strong as it is the last gilt acution for the current financial year. Some dealers also expect demand for the short-tenure paper-- 6.79%, 2031 gilt-- to be  particularly robust.

The government will sell INR 100 billion of the 6.79%, 2031 bond Friday, along with INR 120 billion of the 6.92%, 2039 bond and INR 100 billion of the 7.09%, 2054 bond. There were also some short bets before the debt sale. 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 1700 IST, the data showed short bets worth INR 36.21 billion in the 6.92%, 2039 gilt and INR 15.70 billion in the 7.09%, 2054 gilt.

"The auction might see good demand as it is the last auction, but then there is GDP data later in the day so that may restrain traders from bidding aggressively at the auction," a dealer at a private bank said. 

OUTLOOK

On Friday, government bonds might open steady as traders will wait for GDP data for cues, dealers said. The GDP print for Oct-Dec, along with the second advance estimate for the financial year 2024-25 (Apr-Mar), will be released at 1600 IST. 

Traders may also be cautious ahead of the INR 320-billion gilt auction. Dealers will also await cues on further bond purchases by the RBI, dealers said. Any measures on further liquidity infusion by the central bank will also be a positive for shorter-tenure bonds, 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 6.65-6.75% during the day.

India Gilts: In thin band; gains erased on intraday rise in US yields

MUMBAI--1633 IST--Prices of government bonds erased all gains from earlier in the day owing to an intraday rise in US Treasury yields and sales by state-owned banks, dealers said. The yield on the 10-year benchmark US Treasury note rose to 4.31% from 4.28% at 0900 IST. State-owned banks sold gilts at a profit, dealers said. Meanwhile, foreign portfolio investors were buying shorter-tenure gilts in the secondary market. Clearing Corp. of India data at 1604 IST showed purchases by FPIs worth INR 22.36 billion via the fully accessible route Thursday.

"FPIs have come in for shorter-tenure (gilts) because of (an overnight fall in) US yields," a dealer at a private bank said. "Tomorrow (Friday) too, flows will be there because of month-end, but the price action will only be seen after GDP comes. That will determine the course of rate cuts."

Traders were also trimming risks ahead of India's GDP data for Oct-Dec due Friday. The print, along with the second advance estimate for the financial year 2024-25 (Apr-Mar), will be released at 1600 IST. An Informist poll estimated the Oct-Dec reading at 6.3%, while bond traders estimate a print of around 6.4%. Traders also trimmed gilts in light volumes ahead of the INR 320 billion gilt auction Friday, the last scheduled bond sale for FY25. The government will sell INR 100 billion of the 6.79%, 2031 bond, INR 120 billion of the 6.92%, 2039 bond, and INR 100 billion of the 7.09%, 2054 bond.

The marketwide turnover was INR 254.45 billion, compared with INR 317.85 billion at 1630 IST Tuesday, 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 6.68-6.73%.  (Cassandra Carvalho)

India Gilts: In narrow band ahead of GDP data Fri, trade volumes low

MUMBAI--1400 IST--Prices of government bonds were stuck in a narrow range with low trading volumes as traders were cautious before India's GDP print shceduled for release on Friday, dealers said. The marketwide turnover was INR 149.30 billion, compared with INR 246.45 billion at 1430 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. 

Bonds traded on a positive note following a sharp fall in US Treasury yields on Wednesday but traders were wary of piling gilts on to their books pending clarity on the domestic interest rate outlook. The market is hopeful of another 25-basis-point cut in interset rates at the Reserve Bank of India's next monetary policy meeting in April and a disappointing GDP print would seal the case for a cut, and may even pave the way for more easing, dealers said. According to an Informist poll, India's GDP growth is likely to have rebounded to 6.3% in Oct-Dec from a seven-quarter low of 5.4% in Jul-Sept. 

"No one is aware of the direction the market will move from here, which is keeping the prices from reacting sharply to the fall in US yields," a dealer at a state-owned bank said. "Unless the yield (on the 10 year benchmark 6.79%, 2034 gilt) breaks the 6.68% or 6.72% level, we will not be sure of the direction."

Persistent deficit in the banking system's liquidity was also one of the reasons for lacklustre trade, dealers said. On Wednesday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--was at INR 1.97 trillion, RBI data showed. Liquidity has been tight since December because the RBI has been aggressively selling dollars to support the Indian rupee from falling sharply against the dollar, causing a drain on rupee-denominated liquidity from the banking system. 

Some traders also expect the RBI to announce an open market operation auction to buy gilts next week, to infuse duarable liquidity into the banking system. The durable liquidity in the banking system was in a deficit of (-)INR 19.73 billion as on Feb. 7, RBI data showed. 

During the day, the yield on the 6.79%, 2034 bond is seen at 6.68-6.73%.  (Vidhushi RajPurohit)

India Gilts: Slightly up on fall in US ylds;  mood cautious before GDP data

MUMBAI--1008 IST--Prices of government bonds were slightly up, tracking a fall in US Treasury yields, dealers said. After rising, however, bond prices remained in a thin band as traders refrained from aggressive bets ahead of India's Oct-Dec GDP growth data at 1600 IST Friday.

The yield on the benchmark 10-year US Treasury note fell to 4.28% at 1008 IST from 4.35% at 1700 IST Tuesday. US yields have been falling this week, as speculation about the US Federal Open Market Committee shifting its focus to growth from inflation has been gaining momemtum, dealers said. Recent economic data, especially services data, indicated signs of slowing growth in the world's largest economy. This has spurred expectations of at least two rate cuts by the US central bank this calendar year, against an initial expectation of only one. Traders now await US inflation data post market hours on Friday for cues on further rate cuts by the FOMC. The FOMC, which left rates unchanged in January, is expected to keep them unchanged again at its next meeting in March.

"Bond prices will move in a thin range only, until GDP we're settled here," a dealer at a state-owned bank said. "US yields' fall is because of their rate cut expectations but ours (rate cut view) will depend on GDP." 

Traders await India's Oct-Dec GDP growth data, hoping the print would cement views of a rate cut in April, dealers said. Bond prices rose earlier in the week after minutes of the MPC's February meeting indicated a shift in the panel's focus to growth from inflation. India's GDP data for Oct-Dec and the second advance estimate for 2024-25 (Apr-Mar) will be released at 1600 IST on 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 bets on such a reading, and were unlikely to initiate any large purchases or sales until the GDP data was out.

Traders are unlikely to take significant cues from the second advance estimate for the current financial year, and may pay more attention to the quarterly data, dealers said. 

Bonds also took cues from a fall in overnight indexed swap rates. The 5-year swap rate hit a low of 5.99%, against 6.02% on Tuesday, tracking the fall in US yields. The depreciation of the rupee against the dollar was unlikely to impact bond prices unless it hit a significant low, dealers said. The local currency fell to a low of 87.4075 against the dollar in early trade, against 87.2100 at 1500 IST on Tuesday.

The marketwide turnover was INR 31.60 billion, compared with INR 36.95 billion at 0930 IST Tuesday, 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 6.68-6.73%.  (Cassandra Carvalho)

India Gilts: Seen up on fall in US ylds, caution before GDP may limit gains

MUMBAI – Prices of government bonds are seen opening higher, tracking a fall in US Treasury yields, dealers said. However, the rise may be limited as traders are likely to remain cautious ahead of India's Oct-Dec GDP data on Friday, awaiting cues on further rate cuts by the Reserve Bank of India's Monetary Policy Committee.  

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.68-6.73%, compared with 6.71% on Tuesday. Financial markets were shut on Wednesday on account of Mahashivratri.

The yield on the benchmark 10-year US Treasury note fell to 4.28% at 0800 IST from 4.35% at 1700 IST Tuesday. US yields have been falling this week, as speculation about the US Federal Open Market Committee shifting its focus to growth from inflation has been gaining momemtum, dealers said. Recent economic data, especially services data, indicated signs of slowing growth in the world's largest economy. This has spurred expectations of at least two rate cuts this calendar year, against an initial forecast of only one. Traders now await US inflation data post market hours on Friday for cues on further rate cuts by the FOMC. The FOMC had left rates unchanged in January.   

Gilt prices may remain in a narrow range till Friday as traders wait for India's Oct-Dec GDP growth data, hoping the print would cement views of a rate cut in April, dealers said. Bond prices rose earlier in the week after minutes of the MPC's February meeting indicated a shift in the panel's focus to growth from inflation. India's GDP data for Oct-Dec and the second advance estimate for 2024-25 (Apr-Mar) will be released at 1600 IST on 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 bets on such a reading, and were unlikely to initiate any large purchases or sales until the GDP data was out.

Traders may also take cues from the result of the Treasury bill auction scheduled at 1030-1130 IST. The RBI will auction INR 140 billion of 91-day T-bills, INR 120 bln of 182-day T-bills, and INR 70 bln of 364-day T-bills. At the previous auction on Feb. 20, the central bank had rejected all bids for the 91-day and 182-day T-bills, which was a boost to systemic liquidity. Any such outcome on Thursday could lend cues to bond prices, dealers said.  (Cassandra Carvalho)

End

US$1 = INR 87.20

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

Edited by Deepshikha Bhardwaj

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