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Informist, Friday, Feb. 28, 2025

By Vidhushi RajPurohit

MUMBAI – Prices of government bonds ended lower as lower-than-expected cut-off prices at the INR 320-billion weekly gilt auction Friday indicated poor investor appetite, dealers said. The Oct-Dec GDP print, which was in line with market's expectations, did little to salvage gilts.

India's GDP grew at 6.2% in Oct-Dec, compared to a seven-quarter low of 5.4% in Jul-Sept against 9.5% a year ago. A poll by Informist had estimated the GDP at 6.3%. The government lowered the GDP growth estimate for Apr-Jun to 6.5% from 6.7% earlier, while the Jul-Sept print was raised to 5.6% from 5.4% earlier.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.42, or 6.73% yield, against INR 100.56, or 6.71% yield, Thursday. Trading volume picked up after GDP numbers were released as investors had refrained from placing risky bets before the data, dealers said. The market-wide turnover was INR 273.00 billion, down from INR 293.55 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.

Although bond prices fell immediately after the disappointing auction result, they quickly recovered as traders held out till the release of GDP data which was due later in the day. With the GDP data not giving any strong reasons to beef up bond holdings, prices in the last hour of trade succumbed to the pressure spurred by cheaply awarded auction stock.

Hope of a repo rate cut in April remained intact as the GDP data was slightly below estimate. However, traders had already priced in the reading and hence the data did not trigger any fresh buying, dealers said.

"The market held back any sharp selling after the (gilt auction) result as there was a wait for the growth numbers and the data did not provide the market with any surprise," a dealer at a state-owned bank said. "The fall in prices towards end was the reaction of the poor demand at auction."

Demand for the 6.79%, 2031 bond and the 6.92%, 2039 gilt from state-owned banks was lower than expected mostly due to uncertainty before the GDP growth print and tight liquidity conditions, dealers said.

For the longer-tenure 7.09%, 2054 gilt, the weighted average price was 2 paise lower than the cut-off price of INR 99.45, as insurers demanded higher yields on expectations of the spread between yields of the 10-year and long-term bonds widening due to an increase in supply of state bonds for the remainder of the current financial year.

At close of the session on Thursday, the spread between the 7.09%, 2054 paper and the benchmark 6.79%, 2034 bond widened to 41 basis points, the highest since the 30-year paper was issued in August. Traders expect the yield curve to likely steepen further as demand from insurance firms and other institutional investors remains subdued.

Despite the RBI announcing bond-forward guidelines on Feb. 21, 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. The first-year premium income of life insurance companies fell 8.1% on year to INR 308.25 billion in January, data released by the Life Insurance Council showed. 

During the day, prices were supported by some light purchase of gilts from state-owned banks, dealers said. Fall in US Treasury yields also led to inflows from overseas investors, amounting to INR 14.12 billion, through the fully accessible route, according to data from Clearing Corp. of India at 1700 IST. The 10-year benchmark US Treasury note was at 4.23% in the early trading hours before inching up to 4.25% at 1700 IST, but down from 4.31% at Indian market closing hours Thursday.

"Traders are talking about an unconfirmed deal in the standard lot; there's a INR 12 billion purchase there which is most probably FPIs. Yesterday also FPIs bought around INR 42 billion," a dealer at another state-owned bank said.

Traders expect trading volume in the gilts market to remain lacklustre in the upcoming weeks with the current financial year coming to a close, as most banks will focus on credit disbursals. Moreover, demand for short-term bonds has also reduced after RBI Governor Sanjay Malhotra said the implementation of liquidity coverage norms would be delayed.

The RBI's draft guidelines had proposed implementation by Apr. 1, and required banks to hold more high-quality liquid assets such as government bonds. Demand for short-term bonds has decreased because of the delay in implementation.

Dealers also await any announcement by the RBI to purchase gilts through open market operation auctions. Traders expect the RBI to buy gilts worth at least INR 600 billion through these auctions in what remains of 2024-25 (Apr-Mar). The central bank has already purchased INR 1.00 trillion of gilts through three auctions so far in Jan-Mar in a bid to infuse durable liquidity into the banking system.

The RBI has been infusing liquidity since the second half of January after its heavy dollar sales in the foreign exchange market to prop up the rupee led to a significant tightening in rupee liquidity.

The bond market has been keenly tracking Clearing Corp. of India data for cues on the RBI's purchases in the secondary market. The RBI did not buy or sell gilts in the secondary market in the week ended Feb. 21, data released Friday showed. This was the third straight week in which the Indian central bank did not participate in the secondary market after buying INR 388.15 billion through its screen-based operations in January.

OUTLOOK

On Monday, government bonds will likely take cues from the movement of US Treasury yields, dealers said. US inflation data that is due later Friday will lend direction to the US yields and provide cues on rate cut by US Federal Open Market Committee.

Dealers will also look for cues on further bond purchases by the RBI, dealers said. Any measures on further liquidity infusion by the central bank will 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 6.68-6.75% during the day.

India Gilts: Weak auction demand drags down prices, market awaits GDP data

MUMBAI--1532 IST--Government bond prices briefly fell after disappointing demand at the weekly gilt auction, but came off the day's lows as traders did not want to place big bets before the Oct-Dec GDP print, scheduled at 1600 IST. The possibility of a weaker-than-expected GDP print supported bond prices, dealers said. 

At the last auction of the current financial year ending Mar. 31, the government sold three bonds worth INR 320 billion. 

"Market was already expecting a poor auction because demand from banks is not coming," a dealer at a primary dealership said. "But ofshore flows are also coming in and everybody is waiting for GDP data, so the fall is not as much."

For the 6.79%, 2031 bond and the 6.92%, 2039 gilt, demand from state-owned banks was lower than expected, dealers said. Persisting tight liquidity  conditions along with uncertainty before the GDP growth print kept investors on the sidelines, dealers said. For the longer-tenure 7.09%, 2054 gilt, the weighted average price was 2 paise lower than the cut-off of INR 99.45, as insurers demanded higher yields on expectations of the yield spread between the 10-year and long-term bonds widening due to an increase in supply of state bonds for the remainder of the current financial year. 

Trade volumes remained muted ahead of the GDP data, which may provide further cues on a rate cut by the RBI's Monetary Policy Committee during the year, dealers said. The marketwide turnover was INR 184.20 billion, compared with INR 162.20 billion at 1430 IST Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the remainder of the day, the yield on the 6.79%, 2034 bond is seen at 6.65-6.74%.  (Srijita Bose)

India Gilts: Down before gilt auction result, caution before GDP weighs

MUMBAI—1310 IST--Prices of government bonds were down owing to some selling pressure before the INR 320-billion weekly gilt auction result Friday, dealers said. Some caution before the release of the India's Oct-Dec GDP growth print, due at 1600 IST, also weighed on prices.

As traders await further cues to gauge the direction of the market, trading volumes remained low. The marketwide turnover was INR 73.85 billion, compared with INR 121.00 billion at 1230 IST Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. 

Traders expect demand at the gilt auction to be weak in the light of poor apetite from traders before the release of the growth data. However, demand for the 6.79%, 2031 bond and the 6.92%, 2039 bond is expected to be relatively better owing to this auction being the last one of the current finacial year ending Mar. 31. Most traders were of the view that the current gilt prices were too high to bid aggressively at the auction. 

For the 7.09%, 2054 gilt, traders do not see any sharp interest from institutinal investors. Demand for long-term gilts has ebbed in recent weeks owing to the increased supply of state bonds, dealers said. At Tuesday's state bond auction where 17 states borrowed INR 410.54 billion, 10 states raised INR 177.70 billion through tenures at and above 15 years. Some traders also reasoned that a media report Thursday which said that the central government is contemplating issuing on-tap 50-year bonds, has further curbed demand for long-term gilts offered at auctions.

As traders await the result of the gilt auction to provide trading cues to the market, prices are expected to remain in a narrow band before the release of the GDP print. Traders said that a disappointing GDP data could solidify the hopes of another 25-basis-point repo rate cut by the Reserve Bank of India's Monetary Policy Committee in April. Hence, a reading below 6.1% could spur some gilt purchases, leading to a fall of 3 to 4 bps in the yield of the 10-year benchmark, 6.79%, 2034 gilt, dealers said. An Informist poll estimates the Oct-Dec reading at 6.3%, while bond traders estimate a print of around 6.4%.  

During the day, the yield on the 6.79%, 2034 bond is seen at 6.65-6.74%. (Vidhushi RajPurohit)

India Gilts: Steady on caution before GDP data, weekly bond sale

MUMBAI--0930 IST--Prices of government bonds were steady as traders were cautious before India's Oct-Dec GDP growth print, due at 1600 IST, dealers said. Traders also refrained from placing aggressive bets ahead of the INR 320-billion gilt auction, the last scheduled auction in 2024-25 (Apr-Mar).

Gilt prices may remain in a narrow range till 1600 IST as traders await India's Oct-Dec GDP growth data, on hopes that 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. An Informist poll estimates the Oct-Dec reading at 6.3%, while bond traders estimate a print of around 6.4%.  

"Last few days, we've not reacted a fall in US Treasury yields, our market is just holding at 6.70% (yield) level (on the benchmark 6.79%, 2034 bond)," a dealer at a private bank said. "We're just waiting for some major figures (the GDP growth data) only, and liquidity is also in some deficit still." The yield on the benchmark 10-year US Treasury note fell to 4.23% at 0930 IST from 4.31% at 1700 IST on Thursday.

At the auction on Friday, the government will sell INR 100 billion of the 6.79%, 2031 bond, along with INR 120 billion of the 6.92%, 2039 bond and INR 100 billion of the 7.09%, 2054 bond. Some dealers said demand at the auction would be firm since it was the last scheduled auction for FY25, but others said that caution ahead of the GDP data and lower-than-expected cut-off prices at recent auctions would result in lower cut-off prices. Demand for the long-term paper in specific, is seen moderate after a media report Thursday said the central government could consider issuing on-tap 50-year bonds, citing two sources familiar with the matter. Prices of long-term bonds were down Thursday, likely because of expectations of higher supply, after the report, dealers said.

The marketwide turnover was INR 17.30 billion, compared with INR 22.40 billion at 0930 IST 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 6.65-6.74%. (Cassandra Carvalho)

India Gilts: Seen tad up on fall in US ylds; caution likely before GDP data

MUMBAI – Prices of government bonds are seen opening slightly higher due to an overnight fall in US Treasury yields, dealers said. However, prices are likely to move in a thin range until the release of India's Oct-Dec GDP growth print at 1600 IST, along with the second advance estimate for 2024-25 (Apr-Mar). 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.75%, compared with 6.71% on Thursday. The yield on the benchmark 10-year US Treasury note fell to 4.23% at 0800 IST from 4.31% at 1700 IST on Thursday. A slew of economic data in the US released recently indicated signs of slowing growth in the world's largest economy. This has led to traders pricing in at least two rate cuts in the US this calendar year, against initial expectations of only one cut. After market hours on Thursday, weekly initial jobless claims for the week ended Saturday rose to the highest this year, sharply higher than estimates. US fourth quarter GDP growth was unrevised, but core inflation was revised higher. Traders now await US personal income and outlays for January at 1900 IST.

On the domestic front, gilt prices may remain in a narrow range till 1600 IST 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. 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 the print would have to be either sharply higher or lower than estimates for significant market reaction.

Traders may also be cautious ahead of the INR 320-billion gilt auction. 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. This is the last scheduled auction for the financial year. Dealers expect cut-off prices to be slightly lower than secondary market prices, but see the auction sailing through. (Cassandra Carvalho)

End

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

Edited by Ashish Shirke

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