More Stories

Informist, Thursday, Mar. 6, 2025

By Vidhushi RajPurohit

MUMBAI – The yield on the 10-year benchmark 6.79%, 2034 bond fell to its lowest level in a month after the Reserve Bank of India announced fresh measures to inject durable liquidity, including a massive INR 1 trillion worth of bond purchases. The market cheered not just the prospect of increased demand for bonds, but also the central bank's seeming commitment towards fostering easier financial conditions, dealers said. 

Hopes of a policy repo rate cut in April were reaffirmed after the RBI's release announcing the measures, prompting traders to cover their short bets placed earlier and stock up on bonds after a month of listless trading, dealers said. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.76, or 6.68% yield, against INR 100.56, or 6.71% yield, Wednesday. During the day, the yield on the bond fell to 6.6781%, the lowest level since Feb. 7.

"The announcement of OMO was expected but RBI was waiting for the inflows for the previous (dollar/rupee) buy/sell swap auction to settle in and then it announced these measures," a dealer at a state-owned bank said. "It did the same leading to last MPC (Monetary Policy Committee), tried to ease the liquidity before announcing a rate cut, and this time also market expects the same."

After market hours Wednesday, the RBI said it would buy gilts worth INR 1.00 trillion through open market auctions in March. In addition, it will conduct another dollar/rupee buy/sell swap auction of $10 billion for a tenure of 36 months on Mar. 24. Dealers estimated that the measures would infuse around INR 1.87 trillion worth of durable liquidity into the banking system.

Trading volumes also rose as traders picked up gilts to position ahead of a 25-basis-point repo rate cut at the next Monetary Policy Committee meeting in April, dealers said. The marketwide turnover for the day was INR 544.55 billion, up from INR 445.60 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

During the day, bonds maturing within 15 years were seen to be most in demand. Dealers said the demand was driven by two factors--expectations of a rate cut and active interest from overseas investors. Short-term bond yields are more sensitive to near-term interest-rate expectations.

Dealers also said the RBI's measure to improve systemic liquidity would drag short-term yields lower. The yield on the 7.04%, 2029 bond fell to 6.6054%, the lowest level since Feb. 11. The paper was also the third most traded Thursday.

"There is still room in the yields of bonds in the belly of the curve to go down further as there has not been that active buying in these papers in recent weeks," a dealer at another state-owned bank said. "Mostly, these are the papers that RBI also includes in the OMO auctions, so that also led the buying in these bonds today."

Despite the positive sentiment, gilt prices remained in a tight range for most of the day as domestic banks sold gilts at a profit, dealers said. Gains were also capped by the rise in US Treasury yields. The yield on the 10-year benchmark US Treasury note was at 4.33% at 1700 IST Thursday, up from 4.25% at the same time Wednesday.

Dealers also said state-owned banks were trimming stock from their 'held-to-maturity' books to take advantage of profitable exits offered at current yields, particularly with the financial year coming to a close. Banks can sell up to 5% of holdings in this portfolio during a financial year.

OUTLOOK

On Friday, gilt prices are likely to open higher after the RBI detailed the bonds it will buy at the OMO auction Wednesday, dealers said. The RBI will buy six bonds--the 7.10%, 2029 gilt, 7.18%, 2033 gilt, 7.10%, 2034 gilt, 7.40%, 2035 gilt, 7.41%, 2036 gilt, and 7.23%, 2039 gilt--at the auction. These bonds are expected to see good buying interest from traders during the day. Other short-tenure bonds are also expected to remain in favour due to the RBI's proactive measures to boost systemic liquidity, dealers said. 

Gilt prices may also take cues from the overnight moment of US yields. Market participants will also track and assess any developments related to US tariff policy. During the day, traders may also monitor the movement of the rupee against the dollar, 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 6.65-6.73% during the day.

India Gilts: Remain up; short-term bonds, 7-15-year papers in favour

MUMBAI--1541 IST--Prices of government bonds remained up but traded in a narrow range after opening higher following the Reserve Bank of India's INR 1 trillion open market ourchase auction announcement Wednesday. Bonds maturing in 7-15 years and short-term bonds were in favour because of the announcement, dealers said. 

Papers maturing in 7-15 years are the most sought after as the RBI's recent open market purchases suggest the central bank would target this segment for its upcoming tranches, dealers said. Some traders, however, said they would wait for the announcement of tenures before aggressively purchasing any gilts. 

On the possibility of another 25-basis-point rate cut by the RBI's Monetary Policy Committee April, traders picked up short-term bonds, dealers said. Short-term bond yields are more sensitive to near-term interest-rate expectations. These tenures have under-preformed recently after RBI Governor Sanjay Malhotra delayed the implementation of tightened liquidity coverage ratio norms. The draft guidelines for these had caused a surge in demand for short-term gilts which banks typically hold as liqudity buffers. Additionally, the boost to systemic liquidity would drag short-term yields down further, dealers said. Traders preferred selling the 7.04%, 2029 gilt at a profit but retaining a long position by purchasing the benchmark 5-year 6.75%, 2029 gilt.

Market sentiment, which has been negative even after a 25 bps rate cut in February, got the biggest boost after the surprise OMO announcement. "Here (after the OMO announcement) it's the RBI's concern for transmission of monetary policy which is important," a trader at a primary dealership said. "The RBI is focused on durable liquidity, not just liquidity, which shows its intent to be proactive and set a small step ahead of an April rate cut," a dealer at a state-owned bank said. 
 

While state-owned and private banks sold gilts at a profit, purchases by foreign banks buoyed bond prices. Some traders were optimistic of prices ending higher, but most said profit sales would dominate, leading to a fall in bond prices. The marketwide turnover at 1530 IST was INR 366.35 billion, up from INR 329.20 billion at the same time Wednesday, 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 6.65-6.71%.  (Cassandra Carvalho)

India Gilts: Remain up on news of OMO buy; gains capped on profit-booking

MUMBAI--1330 IST--Prices of government bonds remained higher as traders continued to pick up gilts owing to the Reserve Bank of India's announcement of further measures to inject liquidity into the banking system ahead of significant tax outflows this month, dealers said. An overnight rise in US Treasury yields and profit-booking by domestic banks capped the gains. 

After market hours on Wednesday, the RBI said it would buy gilts worth INR 1.00 trillion through open market auctions in March. In addition, it would conduct another dollar/rupee buy/sell swap auction of $10 billion for a tenure of 36 months on Mar. 24. Dealers were expecting RBI to step in with OMO auctions, given the deteriorating liquidity conditions with outflows for tax deducted at source, excise duty, advance tax and goods and services tax payments lined up this month. 

However, the current measures are expected to nullify the outflows and not lead to any significant improvement in liquidity conditions, dealers said. This view kept traders from buying bonds aggressively, which confined prices to a narrow band, they added. Moreover, profit-booking by state-owned banks also capped the gains. 

"Banks will want to show profit in their books as this is the year-end period. They will want to take advantage of the leverage of selling 5% of their HTM (held-to-maturity) books as the current levels are really lucrative," a dealer at a state-owned bank said. 

Some profit-booking is also likely by mutual funds, dealers said. A few traders said that the rise in US yields also added some pressure on gilt prices. The yield on the benchmark 10-year US Treasury note was at 4.33% at 1200 IST, up from 4.25% at 1700 IST on Wednesday.

Meanwhile, foreign banks are seen continuing their buying momentum from Wednesday. On Wednesday, foreign banks were the top net buyers, buying gilts amounting to INR 57.95 billion, Clearing Corp of India data showed. 

Traders expect short-term bonds to benefit from the RBI's current proactive approach to ensuring comfortable liquidity conditions in the banking system. However, yields on long-term gilts are seen hardening with the upcoming heavy supply of state bonds this month, dealers said. Traders, therefore, expect the yield curve to steepen in the coming weeks. 

The marketwide turnover at 1330 IST was at INR 293.45 billion, up from INR 215.55 billion at the same time on Wednesday, 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 6.65-6.71%.  (Vidhushi RajPurohit)

India Gilts: Up as RBI announces INR 1-tln OMO; rise in US yields caps gains

MUMBAI--0957 IST--Prices of government bonds were up after the Reserve Bank of India on Wednesday announced INR 1 trillion worth of gilt purchases through open market operation auctions. Gains were capped as traders sold gilts to book profits, with an overnight rise in US Treasury yields also weighing on bond prices, dealers said.

Volumes jumped, with the marketwide turnover at INR 107.65 billion, double from INR 51.50 billion at around the same time on Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Traders firmed bets of a 25-basis-point rate cut by the RBI's Monetary Policy Committee in April, as the RBI's steps to bridge the liquidity deficit signalled an intent to foster easier monetary conditions, dealers said. According to latest data from the RBI, the net liquidity injected by the central bank--a proxy for the systemic liquidity deficit—stood at INR 544.78 billion on Wednesday.

After market hours Wednesday, the RBI announced two OMO auctions of INR 500 billion each, to be held on Mar. 12 and Mar. 18. Dealers had expected the RBI to purchase gilts worth a total of INR 600 billion through OMO auctions in March. The central bank also announced a dollar/rupee buy/sell swap auction of $10 billion for a tenure of thirty-six months, to be held on Mar. 24. Most dealers were also surprised by the timing of the announcement, as they had expected it earliest by Friday.  

"Gains are capped because of selling activity from nat banks (state-owned banks)," a trader at a primary dealership said. "We're just reacting to the OMO (announcement), not really considering US yields." However, some domestic traders were wary of aggressively picking up bonds due the overnight rise in US yields. The yield on the benchmark 10-year US Treasury note rose to 4.33% at 0957 IST from 4.25% at 1700 IST on Wednesday. US yields rose following a sell-off in global bond markets amid geopolitical uncertainty.

During the day, the yield on the 6.79%, 2034 bond is seen at 6.65-6.71%.  (Cassandra Carvalho)

India Gilts: Seen opening sharply higher post RBI's OMO announcement

MUMBAI – Prices of government bonds are seen opening sharply higher after the Reserve Bank of India Wednesday announced additional measures to ease the liquidity deficit in the banking system, including two tranches of open market purchase of gilts through auction for an aggregate amount of INR 1 trillion. However, the positive cues from Wednesday's OMO announcement could be offset to an extent by an overnight rise in US Treasury yields, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.71%, compared with 6.71% on Wednesday. The RBI announced two OMO auctions of INR 500 billion each, to be held on Mar. 12 and Mar. 18. Dealers had expected the RBI to purchase gilts worth a total of INR 600 billion through OMO auctions in March. The central bank also announced a dollar/rupee buy/sell swap auction of $10 billion for a tenure of thirty-six months, to be held on Mar. 24.  

According to latest data from the RBI, the net liquidity injected by the central bank--a proxy for the systemic liquidity deficit--fell to INR 204.17 billion on Tuesday due to inflows from settlement of the RBI's dollar/rupee buy/sell swap auction held on Friday. Bond prices were up Wednesday as improved liquidity led to bets of a rate cut in April, dealers said. However, the liquidity relief is expected to be temporary with tax payments for excise, advance tax and goods and services tax scheduled every week from Friday. These are expected to drain out over INR 3 trillion of rupee liquidity from the banking system in total, and traders were expecting the RBI to announce liquidity measures on Friday. The RBI's announcement post market hours Wednesday was a surprise for dealers, they said. 

Prices of illiquid bonds are seen rising the most, as most of the papers the RBI bought through previous OMO auctions since January have been gilts held in banks' 'held-to-maturity' books, dealers said. State-owned banks were largely the biggest sellers of these papers at the auctions, dealers said.

On the global front, the fall of the dollar index and crude oil prices were positives for gilt prices, dealers said. However, positive cues from Wednesday's OMO announcement could be offset to an extent by an overnight rise in US Treasury yields, dealers said. The yield on the benchmark 10-year US Treasury note rose to 4.33% at 0800 IST from 4.25% at 1700 IST Wednesday. US yields rose following a sell-off in global bond markets amid geopolitical uncertainty. German bund yields rose as the country planned to increase fiscal spending on defence. Asian bond yields were also up, with Japan's 10-year yield hitting a high not seen since 2009, as per media reports. Domestically, traders may sell bonds at a profit towards the end of trading hours, which may see the yield on the benchmark 10-year gilt rising from the day's low, dealers said.  (Cassandra Carvalho)

End

US$1 = INR 87.11

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

Edited by Rajeev Pai

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.