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Informist, Friday, Mar. 7, 2025

By Srijita Bose

MUMBAI – Government bond prices ended on a mixed note. Prices of bonds included by the Reserve Bank of India in Wednesday's open market purchase auction rose, dealers said. However, traders were somewhat disappointed by the absence of the 10-year benchmark 6.79%, 2034 bond, which caused the yield on the bond to inch up after hitting its lowest level in a month on Thursday.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.71, or 6.69% yield, against INR 100.76, or 6.68% yield, Thursday. The 10-year yield at Thursday close was the lowest since Feb. 6.

"Market was a mixed bag today (Friday). The 10-year benchmark not being included in the OMO auction was certainly a drag," a dealer at a private bank said. "But even for other papers at the OMO, cut-offs should be below FBIL (Financial Benchmarks India Pvt. Ltd.) levels and and PSUs (state-owned banks) will still bid agressively there, so, liquidity is the main objective...not profit-taking."

Yield spread of the off-the-run 7.10%, 2034 gilt over the 10-year benchmark narrowed by over 1 basis point from previous close to around 6 bps, as the RBI included the former while keeping the benchmark out of the auction. The central bank had bought the 6.79%, 2034 gilt at its last open market operation purchase on Feb. 20. The RBI is set to purchase another INR 1 trillion worth of gilts this month, after INR 1 trillion worth of total buys through auction in Jan-Feb. The 10-year benchmark yield may not fall below 6.68% without additional positives before the monthly outlows of advance tax and goods and service tax are over, dealers said. While traders are expecting a repo rate cut by the RBI's Monetary Policy Committee in April, they said they would only be able to build positions and buy gilts once banking system liquidity was not in a significant deficit.

Some dealers expect RBI to choose the 10-year bond at the next OMO auction on Mar. 18. At the previous auctions, cut-off prices for most bonds were set 15-20 paise lower than levels indicated by Financial Benchmarks India Pvt. Ltd the previous day. A repetition of this is unlikely in March as each of the tranches is INR 500 billion, which may lead to more competitive offers across each of the six bonds, according to some dealers.

State-owned banks likely remained on the selling side as they booked profit and used the cash for credit disbursal near the year-end, dealers said. Mutual funds also sold some bonds maturing up to 15 years and picked up long-term bonds as the spread of the 40-year gilt over the 10-year benchmark yield hovered around 40 basis points, the highest since 2022, dealers said.

Long-term bonds gained favour as foreign banks and investors also likely picked up these bonds to encash a higher price appreciation as yields across the curve are seen falling if RBI's rate-setting panel decides to cut rates for the second time in April to 6.00%, dealers said. Moreover, the RBI is expected to ensure better transmission of the rate cut by maintaining easier liquidity conditions after March, which will further drag yields down. Supply pressures from state bonds have also not hurt the market as much as expected due to purchases from FPIs. State-owned banks have also been replacing gilts in their portfolios with state bonds due to higher yields, and constant RBI OMO purchases will drive further replacement demand, dealers said.

"Long-term bonds are finally picking up, though yields could widen during the month because of higher state bond supply, the horizon from April looks good," a dealer at a state-owned bank said. "FPIs have been buying them at (state-bond) auction, and over supply of state bonds will also fall from April...concentration of gilts in the first half (of FY26) may also see more bonds in shorter-tenure." 

Meanwhile, high-coupon bonds maturing between 2041 and 2043 saw good demand to replace off-the-run stock maturing between 2035 and 2040 that banks would sell to the RBI at the OMO auction, with three such bonds selected at the auction. The 8.83%, 2041 bond was the second most traded bond in the reported deals section of RBI's Negotiated Dealing System – Order Matching page with trades amounting to INR 14.90 billion at 1700 IST. Traders also continued to switch to other illiquid gilts offering higher yields to replace them in place of the papers they wish to sell at the OMO auction on Wedneday, dealers said. 

Meanwhile, caution before the US non-farm payrolls data release Friday led to reduced trading activity from overseas investors despite an ease in US Treasury yields, dealers said. The yield on the 10-year benchmark US note was at 4.26%, down from 4.33% at the close of Indian market hours Thursday, as recent data released in the US point to slower growth and a potential weaker labour market. The overnight movement had pushed up most bonds in early trade, expect for the 6.79%, 2034 gilt, which lagged peers since the opening. 

The marketwide turnover for the day was INR 232.60 billion, up from INR 542.80 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades worth INR 100 million made using the wholesale digital rupee pilot Friday.

OUTLOOK

Gilts are not traded Saturday. On Monday, gilt prices are likely to take cues from the movement on US yields after the release of US non-farm payrolls data for February post market hours, dealers said. US employment report showed that the economy added 151,000 jobs in February against 170,000 estimated by a Wall Street Journal poll.

US Federal Reserve Chair Jerome Powell is also scheduled to speak Friday, and comments by Fed officials John Williams, Michele Bowman and Adriana Kugler are also awaited.

Traders may continue buying bonds which the RBI is planning to buy at Wednesday's OMO auction. Other short-tenure bonds are also expected to remain in favour due to the RBI's proactive measures to prevent systemic liquidity from falling into a significant deficit, dealers said. 

Market participants will also track and assess any developments related to US tariff policy and the rupee's movement against the dollar, dealers said. Crude oil prices could also be a trigger if they move significantly. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.73% during the day.

India Gilts: Remain mixed; illiquid, long-term bonds in favour; 10-yr down

MUMBAI--1600 IST--Prices of governement bonds were mixed. Bonds that the Reserve Bank of India has included at the open market operation auction on Wednesday were in favour along with long-tenure bonds, dealers said. However, traders were somewhat disappointed by the absence of the 10-year benchmark 6.79% 2034 bond, which caused the yield on the bond to inch up after hitting its lowest level in a month on Thursday.

High-coupon bonds maturing between 2041 and 2043 saw good demand to replace off-the-run stock maturing between 2035 and 2040 that banks would sell to the RBI at the OMO auction, with three such bonds selected at the auction. The 8.83%, 2041 bond was the second most traded bond in the reported deals section of RBI's Negotiated Dealing System – Order Matching page with trades amounting to INR 14.90 billion at 1600 IST. 

"Market is in general on a positive note after the RBI's OMO announcement and in March it is a good time to clear their books of illiquid papers and make gains there," a dealer at a state-owned bank said. "The short-term papers and papers with higher coupons therefore will see better replacement demand as liquidity is being taken care of by RBI."

Traders said the current spread of around 40 basis points of the 40-year benchmark gilt's yield over the 10-year yield also led to greater demand from mutual funds for these bonds. With the RBI's Monetary Policy Committee likely to cut the repo rate at its next meeting in April and liquidity conditions likely to ease next month, these bonds were preferred as every basis-point fall in their yield would show greater price appreciation than shorter-term gilts, dealers said.

Meanwhile, caution before the US non-farm payrolls data release Friday led to reduced trading activity from overseas investors despite an ease in US Treasury yields, dealers said. The yield on the 10-year benchmark US note was at 4.27% at 1500 IST, down from 4.33% at the close of Indian market hours Thursday. 

The marketwide turnover was INR 185.10 billion, compared with INR 366.65 billion at 1530 IST Thursday, according to data on the RBI's NDS-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.68-6.70%. (Vidhushi RajPurohit)

India Gilts: Mixed; long-term bonds up on investment, trader demand

MUMBAI--1411 IST--Prices of government bonds traded on a mixed note. Long-term bond prices were up as life insurers, mutual funds, and foreign portfolio investors all looked to lock in yields at current levels following steepening of the yield curve over the past few weeks, dealers said.

Life insurers, including a large state-owned entity, were likely picking up bonds maturing in over 30 years via bond forward-rate agreements as the cost of entering these trades--tied to the five-year overnight indexed swap rates--had decreased. Meanwhile, mutual funds also sold some bonds maturing up to 15 years and picked up long-term bonds as the spread of the 40-year gilt over the 10-year benchmark yield hovered around 40 basis points, the highest since 2022, dealers said. FPIs had also picked up long-term gilts over the last two weeks, taking advantage of their underperformance against other tenures in February.

Meanwhile, details of the Reserve Bank of India's open market operation auction for Wednesday disappointed traders as it did not include the 6.79%, 2034 bond, dealers said. The announcement of liquidity infusion via OMO purchases had pushed gilt prices up Thursday, but the lack of the 10-year benchmark deterred traders from aggressive purchases Friday.

The RBI is set to purchase another INR 1 trillion worth of gilts this month, after INR 1 trillion worth of total purchases through auction in Jan-Feb. Traders said the 10-year benchmark yield may not fall below 6.68% without additional positives, with the RBI's liquidity measures and a rate cut by its Monetary Policy Committee in April largely priced in. 

Some dealers expect the RBI to choose the 10-year bond at the next OMO auction on Mar. 18. At the previous auctions, cut-off prices for most bonds were set 15-20 paise lower than levels indicated by Financial Benchmarks India Pvt. Ltd. A repetition of this is unlikely in March as each of the tranches is INR 500 billion, which may lead to more competitive offers across each of the six bonds, according to some dealers.

However, some viewed the OMO auctions as an opportunity to take profits. "The main problem is the quantum, so it (bid prices) may be undercut slightly," a dealer at a state-owned bank said. "But people still want to jump at a chance to book profit. And the interest income is unchanged because PSUs (state-owned banks) can sell from HTM (at auction) and refill with state bonds. We're getting state bonds above 7.20% (yield) also."

In the secondary market, trade on the RBI's Negotiated Dealing System-Order Matching platform was concentrated on the 10-year benchmark and gilts of similar tenures. However, volumes of illiquid paper such as the 8.83%, 2041 gilt and short-term bonds such as the 7.06%, 2028 and 7.37%, 2028 paper rose in the 'Reported Deals' segment. Short-term bonds remained in favour due to the RBI's proactive measures to boost systemic liquidity, dealers said. Poor subscription at both the variable rate repo auctions held Friday pointed to sufficient liquidity in the banking system, dealers said. 

The marketwide turnover was INR 150.90 billion, compared with INR 322.75 billion at 1430 IST Thursday, according to data on the RBI's NDS-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.68-6.70%.  (Aaryan Khanna and Cassandra Carvalho)

India Gilts: Steady; 10-yr benchmark dn on exclusion from RBI's OMO buy Wed

MUMBAI--1018 IST--Prices of government bonds across most tenures were steady with an upward bias, after the Reserve Bank of India detailed its choice of purchases at the INR 500-billion open market auction to be held on Wednesday. Most papers were not traded yet except for the ones notified for the OMO buy. However, the benchmark 10-year 6.79%, 2034 gilt was down as traders were disappointed at the paper not being included in the notified OMO purchase, dealers said. 

Trade was largely centred around the 10-year benchmark and the papers notified for the OMO auction, and volumes were muted. At Wednesday's auction, 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. The 7.18%, 2033 gilt and the 7.10%, 2034 gilt are erstwhile 10-year benchmarks, both papers traded in a thin price band. However, the 7.23%, 2039 gilt opened 26 paise higher at INR 103.50 or 6.8381% yield, compared to Thursday's close. Dealers speculated that the initial optimism was due to its announcement in the OMO auction, though the illiquid bond soon shed gains in line with the rest of the market.

"RBI has announced OMO but 10-year (6.79%, 2034 gilt) is not there in this announcement, so market is slightly disappointed on that front. Main thing is that PSUs (state-owned banks) continue to sell in the secondary market as well," a trader at a primary dealership said. State-owned banks have sold INR 130.57 billion worth of gilts the past two days after being net buyers at the beginning of the week, Clearing Corp. of India data show. Most of the papers notified for the RBI's OMO auction on Wednesday are held in state-owned banks' 'held-to-maturity' books, presenting a good opportunity to sell the bonds at a profit, dealers said.

The marketwide turnover was INR 46.00 billion, compared with INR 135.70 billion at 1030 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 6.68-6.70%.  (Cassandra Carvalho)

India Gilts: Seen tad up as RBI's choice of gilts for OMO buys favourable

MUMBAI – Prices of government bonds are seen opening slightly higher as the Reserve Bank of India's choice of bonds it will offer to buy on Wednesday is seen as favourable. An overnight fall in US Treasury yields may also support the rise in gilt prices, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.66-6.71%, compared with 6.68% on Thursday.

At Wednesday's auction, 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. The 7.18%, 2033 gilt and the 7.10%, 2034 gilt are erstwhile 10-year benchmarks. The notified bonds are expected to see good buying interest from traders during the day. Most of the papers are held in state-owned banks' 'held-to-maturity' books, and state-owned banks may sell these bonds at a profit during the day. However, the RBI did not announce purchase of the liquid, benchmark 10-year 6.79%, 2034 gilt, which may weigh on the bond's price, dealers said.

Other short-term bonds are also expected to remain in favour due to the RBI's proactive measures to boost systemic liquidity, dealers said. Bond prices were sharply higher on Thursday after the RBI's announcement of two tranches for a combined INR 1 trillion of purchase of gilts via open market auctions.

The yield on the benchmark 10-year US Treasury note fell to 4.26% at 0800 IST from 4.33% at 1700 IST Thursday. US President Donald Trump paused tariffs on some Mexican and Canadian imports until Apr. 2, only a few days after imposing a 25% tariff on imports from both countries. Jobless claims in the US fell last week, data released post market hours Thursday showed, but federal-worker claims rose in February.

Traders now await US non-farm payrolls data for February, due post market hours, which a survey by the Wall Street Journal expects to show a rise 170,000 jobs. US Federal Reserve Chair Jerome Powell is also scheduled to speak Friday, and comments by Fed officials John Williams, Michele Bowman and Adriana Kugler are also awaited. Gilt traders may trim any risk nearing the end of market hours Friday due to caution ahead of global cues, dealers said.  (Cassandra Carvalho)

End

US$1 = INR 86.87

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

Edited by Deepshikha Bhardwaj

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