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Informist, Wednesday, Mar. 5, 2025

By Vidhushi RajPurohit

MUMBAI – Prices of government bonds ended higher Wednesday as traders persistently bought gilts to build their trading portfolios, considering current levels lucrative should the Reserve Bank of India's Monetary Policy Committee cut the repo rate in April, dealers said. The appreciation of the Indian rupee against the dollar and easing of banking system liquidity conditions also aided gilt prices.

"There was a wait among traders for some cue to pick up gilts, first there was caution over GDP then the large (state bond) auction. So today, the market jumped to buying side as the levels between 6.72% and 6.75% (on the 6.79%, 2034 bond) are attractive to add bonds in books," a dealer at a state-owned bank said.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.56, or 6.71% yield, against INR 100.31, or 6.74% yield, Tuesday. Trading volumes also picked up as the buying momentum persisted throughout the day once the yield on the 6.79%, 2034 bond touched the psychologically crucial level of 6.75%, a six-week high. The market-wide turnover was INR 448.70 billion, higher than INR 300.75 billion Tuesday, according to data on the RBI's Negotiated Dealing System–Order Matching platform.

At the start of the trade, bond prices opened lower tracking an overnight rise in US Treasury yields. However, once the buying sentiment kicked in, traders continued to pick up gilts with a view of repo rate cut in April, dealers said. Moreover, gilts have not been sensitive to the movement in US yields over the past week due to the constant uncertainty of the impact of US President Donald Trump's trade and tariff policies and statements.

Intraday rise in rupee against the dollar was also a positive cue for gilt prices, dealers said. Rupee appreciated 0.4% against the dollar on Wednesday, and settled at an over one-week closing high of 86.9550 a dollar. Moreover, the net liquidity injected by the central bank--a proxy for the systemic liquidity deficit--stood at INR 204.17 billion on Tuesday, the lowest since Dec. 15. Ease in systemic liquidity gave a further boost to the buying momentum, and led to trade volumes picking up, dealers said.

Dealers said there has been a long wait for systemic liquidity to improve which restrained trading volumes for most of February. The easing of liquidity to near-neutral levels nudged traders to pick up gilts ahead of bets of policy rates easing in April, dealers said.

"Right now the spread between the repo rate (6.25%) and the 10-year gsec is near 50 bps. With a rate cut, the spread will widen further and traders want to lock in the current rates," a dealer at a primary dealership said. "There were lot of uncertainty and no clear view, so today liquidity might have acted as the needed trigger."

The positive buying momentum was spread across all tenures, as traders said that buying interest was seen from foreign banks as also mutual funds, particularly for short-term bonds. Meanwhile, trade volumes of 5.63%, 2026 gilt – maturing in about 13 months – also picked up as traders got a comparable yield to the 364-day Treasury bill, they said. Foreign portfolio investors also bought gilts amounting to INR 4.14 billion through the fully accessible route, according to the data on Clearing Corp of India at 1700 IST.

Ahead of the INR 505-billion state bond auction held on Tuesday, the largest bond auction so far in the current financial year, traders had trimmed their gilt portfolios to pick up the state bonds since they offer higher yields, dealers said. With no negative surprises from the auction, traders likely covered their short sales on liquid bonds.

"They (foreign banks) are showing good buying interest in domestic bonds and today also looking at the prices of bonds in all tenures, they were likely active today as well," a dealer at a private bank said. "The market is also sentiment led, it was a contagious thing as once the buying started no one wanted to miss out."

Dealers said absence of strong selling sentiment also kept bond prices higher for most of the day. However, traders expect liquidity conditions to worsen hereon, owing to large tax outflows lined up during the month which are expected to drain around INR 1.50 trillion from the banking system. Payment of tax deducted at source and excise duty is scheduled for Friday, which might lead traders to trim their positions should there be another liquidity crunch once the outflows begin, dealers said. Further, trading positions will be taken gauging the RBI's support to bear through the upcoming tightness, they said.

OUTLOOK

On Thursday, gilt prices will likely open higher as post market hours, the RBI announced open market operation auctions to buy gilts amounting to INR 1 trillion in two tranches this month. The central bank also announced $10 billion dollar/rupee buy/sell swap auction as part of its liquidity managing measures ahead of large tax outflows and other banking system liquidity drains in March. With the RBI's proactive announcement of liquidity infusion, traders may also increase the size of their bets on an another repo rate cut in April.

Gilt prices may also take cues from the overnight moment of US yields after the S&P US services Purchasing Managers' Index for February is released at 2130 IST, dealers said. Market participants will also closely track and assess any developments related to US tariff policy.

During the day, traders may also monitor the movement of the Indian rupee against the dollar, after it settled at a one-week high of 86.9550 a dollar on Wednesday, dealers said. 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: Remain up on trader buys amid best liquidity conditions in 2 mos

MUMBAI--1545 IST-–Government bond prices remained up as traders bought gilts as liquidity conditions eased, with an intraday ease in US Treasury yields aiding the latest leg upwards. Traders also covered short bets placed earlier, dealers said.

The settlement of the Reserve Bank of India's dollar/rupee buy/sell swap on Tuesday, as well as the government's month-end spending, brought liquidity conditions to near-neutral for the first time since mid-December, dealers said. Traders said lower funding costs – the weighted average triparty repo rate was below 6.00% for the second straight day – enabled them to place bets on the RBI's Monetary Policy Committee cutting the repo rate for the second consecutive time at its April meeting, dealers said. While this was broadly expected, traders had remained on the sidelines due to the tight liquidity conditions.

"Market was oversold before this even as US yields had come down, so as the liquidity eased a bit, people are now pricing in one rate cut in April and another one down the line," a dealer at a primary dealership said. "Demand is seen across the curve and expectations of further liquidity boost is still there...some confidence also came as market was able to absorb yesterday's (Tuesday's) state bond supply without giving in much."

Spreads of state bond yields over gilts widened after the INR 505-billion auction Tuesday, but not as much as traders had expected, and the auction sailed through, dealers said. While the US Treasury yield rose overnight, it eased to 4.25% from 4.27% earlier in the day.

Prices of bonds maturing in over 30 years were sharply up, both due to life insurers' appetite as spreads widened and due to foreign portfolio investor purchases in the segment over the past week, dealers said. The spread of the 40-year benchmark 7.34%, 2064 bond over the 10-year benchmark 6.79%, 2034 gilt has widened to over 41 basis points from 38 bps a month ago.

Mutual funds and foreign banks likely picked up shorter-tenure gilts, dealers said. Meanwhile, trade volumes on 5.63%, 2026 gilt – maturing in about 13 months – also picked up as traders got a comparable yield to the 364-day Treasury bill, they said.

The marketwide turnover was INR 344.65 billion, compared with INR 203.00 billion at 1530 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 6.70-6.77%.  (Srijita Bose)

India Gilts: Up on short covering, PSU bks' buys; volumes up after Feb lull

MUMBAI--1215 IST--Prices of government bonds rose further as traders covered their short positions and state-owned banks picked up gilts as the 10-year benchmark yield hit its highest in six weeks earlier in the day, dealers said. The yield on the 6.79%, 2034 bond touched a six-week high of 6.75% as prices fell at the open tracking an overnight rise in US Treasury yields.

Dealers expect the buying momentum to persist through the day as weeks of tight liquidity conditions and dearth of significant cues kept traders on sidelines in the latter half of February. As liquidity was near-neutral on Tuesday after a heavy liquidity deficit since mid-December, trading activity has been energised, dealers said. The net liquidity injected by the central bank--a proxy for the systemic liquidity deficit--stood at INR 204.17 billion on Tuesday, the lowest since Dec. 15, due to the Reserve Bank of India's liquidity injection through a dollar/rupee buy/sell swap.

"Market opened according to the expectations, tracking the momentum of US yields but then the 6.75% level (on the 6.79%, 2034 bond) was a crucial level and traders started entering the market as most of the participants are light in their books now," a dealer at a primary dealership said.

Traders expect the buying momentum to be supported mostly from state-owned banks and private banks, as the hopes of another 25-basis-point repo rate cut in April persists. Some traders also expect overseas investors to remain on the buying side in the gilt market despite a rise in US yields, continuing their activity from Tuesday. Foreign portfolio investors brought gilts amounting to INR 10.09 billion on Tuesday through the fully accessible route, data from Clearing Corp. of India showed.

The absence of gilt auctions in March is also leading traders to lock in the current yield levels, which are seen as the higher end of the trading range, and stock up their trading books, dealers said. Morevoer, traders also said the volumes in the secondary market were not very large and any sharp hardening of US yields might pose downside risk to gilt prices later in the day. The yield on the benchmark 10-year US Treasury note was at 4.24% at 1135 IST from 4.17% at 1700 IST Tuesday.

"The domestic market is currently ignoring the offshore cues and has jumped into a buying rally, and hopes are there that the price may remain supported. But if there is some major (intraday) movement in US yields then selling might get triggered," a dealer from a private bank said.

The marketwide turnover was INR 170.85 billion, compared with INR 103.90 billion at 1230 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 6.71-6.77%. (Vidhushi RajPurohit)

India Gilts: Tad up; reverse early losses as 10-yr yld hits 6.75%

MUMBAI--1000 IST--Prices of government bonds were a tad up as traders picked up bonds as the yield on the benchmark 10-year 6.79%, 2034 gilt hit 6.75% after more than six weeks, a level considered lucrative to buy. Prices were down earlier tracking an overnight rise in US Treasury yields, dealers said.

The yield on the benchmark 10-year US Treasury note rose to 4.27% at 0910 IST from 4.17% at 1700 IST Tuesday. US yields reversed the previous day's fall as risk appetite improved, following US Commerce Secretary Howard Lutnick saying the administration may roll back tariffs on Canada and Mexico imposed on Tuesday. Gilt traders are wary of a trade war escalating as the US tariffs go into effect, especially after US President Donald Trump said the US would impose reciprocal tariffs on countries like India from Apr. 2.

"When UST (Treasury prices) rally we didn't react much so now when they've fallen also we're not going to show much reaction," a dealer at a private bank said. "And whatever Trump has said on tariffs in India; equity markets are more likely to react to that than our debt market." 

On the domestic front, traders picked up bonds as the 10-year gilt yield hit the psychologically crucial 6.75% mark. An easing in the liquidity deficit enabled traders to build up positions, a pattern also seen on Tuesday, dealers said. RBI data Wednesday showed that the net liquidity injected by the central bank--a proxy for the systemic liquidity deficit--stood at INR 204.17 billion on Tuesday, the lowest deficit since Dec. 15. The reduction is likely due to inflows after the central bank's dollar/rupee buy/sell swap was settled Tuesday. However, the relief is expected to be temporary with tax payments for excise, advance tax and goods and services tax scheduled every week starting Friday.

These are expected to drain out over INR 3 trillion of rupee liquidity from the banking system in total. With no major scheduled redemptions this month, traders look to the RBI's next steps on liquidity to balance out the scheduled outflows, dealers said. Some traders are hoping for more open market gilt buys from the RBI worth up to INR 600 billion in March.

The marketwide turnover was INR 40.20 billion, compared with INR 28.95 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 6.71-6.77%. (Cassandra Carvalho)

India Gilts: Seen down on overnight rise in US yields post Trump's tariffs

MUMBAI – Prices of government bonds are seen opening lower, tracking an overnight rise in US Treasury yields after US President Donald Trump's proposed tariffs on Mexico, Canada and China came into effect, dealers said. Traders may also take cues from the US president's live address to a Joint Session of Congress. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.71-6.77%, compared with 6.74% on Tuesday. The yield on the benchmark 10-year US Treasury note rose to 4.25% at 0800 IST from 4.17% at 1700 IST Tuesday. US yields reversed the previous day's fall after Trump's proposed 25% tariffs on imports from Mexico and Canada took effect, along with duties of 20% on imports from China. A possible global trade war could ensue as China and Canada have slapped tariffs back on the US, and Mexico is expected to follow suit. This could lead to a rise in inflation, which could cause central banks across the globe to refrain from cutting rates, dealers said. US Federal Reserve officials said the imposition of tariffs could lead to a rise in inflation, and that the US Federal Open Market Committee might have to slow down the pace of rate cuts in the near term.

Traders may also take cues from any comments made by Trump on India, tariffs, growth, and inflation, in his address to the Joint Session of Congress, dealers said. This is Trump's first speech to Congress since taking office on Jan. 20. His speech was scheduled to begin at 0740 IST.

Gilt prices may move in a narrow range as domestic traders await clarity on whether the RBI will infuse further liquidity after its dollar/rupee buy/sell swap was settled Tuesday and aided banking system liquidity, dealers said. US February employment data, including non-farm payrolls on Friday, may be the next trigger for gilts, dealers said. Gilt prices may track the movement of the rupee against the dollar, along with the movement of swap rates during the day. (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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