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Informist, Monday, Mar. 10, 2025

By Srijita Bose

MUMBAI – Government bond prices ended lower Monday as traders made room for the higher-than-indicated supply of state bonds on Tuesday, dealers said. Traders were also cautious ahead of India's February CPI inflation data due on Wednesday, they said. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.61, or 6.70% yield, against INR 100.71, or 6.69% yield, Friday. The bond had opened little changed from the previous close but slid through the day as traders prepared for the INR 495.22-billion auction on Tuesday.

States will raise nearly INR 500 billion through bonds for the second straight week. Though the supply is higher than the indicated amount of INR 386.26 billion for the week, traders had somewhat expected a higher supply of state bonds near the end of the financial year, dealers said. So far, states have issued only 54.9% of the indicated amount of INR 4.37 trillion of bonds in Jan-Mar, and even if they continued to borrow at a pace of INR 500 billion a week until the end of March, it will undershoot the calendar by over INR 600 billion.

The fact that states may undershoot the Jan-Mar calendar may help the auctions sail through, especially at a time when demand for long-term bonds has picked up, dealers said. However, traders kept to the sidelines as banks wanted to focus on replenishing their gilt sales only through higher-yielding state bonds while allocating some portion of the liquidity generated to disburse credit at the end of the financial year.

"State-bond quantum was definitely a factor today (Monday), but overall, the selling was a mix of positioning before India CPI, OMO (open market operation purchase auction)," a dealer at a private bank said. "There are so many triggers during the month, and banks will want to give higher credit towards the end of financial year, so downward movement (in yield) is not happening."

The yield on the 10-year US yield fell to 4.25% during the day after rising to 4.30% earlier, against 4.26% at the close of the Indian market on Friday. However, movement in US yields did not impact domestic yields much as traders awaited domestic triggers, dealers said. 

Long-term bonds continued their outperformance as the gilt supply ended in February, and the demand from life insurers for these bonds seasonally picks up in March. While insurers are also keen on picking up state bonds, which offer higher yields for similar tenures, the gilts maturing in 40 and 50 years best match their liabilities, and they have to tap the secondary market for them, dealers said. Demand for forward-rate agreements also led to the prices of these bonds rising. The spread of the 40-year benchmark 7.34%, 2064 bond yield over the 10-year benchmark was 39 basis points, down 3 bps from a week ago.

Long-term gilts were also up on speculation that their supply as a percentage of the borrowing in the first half of next year may fall. In their feedback to the RBI and the government, traders said they would push for a lower supply of 30-50-year bonds as a percentage of the overall borrowing and an increase in the supply of sub-7-year bonds – which made up less than a quarter of the supply in Oct-Mar, dealers said. Short-term bonds will be increasingly in favour should the Monetary Policy Committee cut rates, as widely expected, and the banking system liquidity returns to a surplus, they said.

"For long-term bonds, demand from insurers, foreign banks as well as domestic banks is coming," a dealer at a primary dealership said. "There are expectations that the supply of both state bonds and long-term gilts will reduce in the first quarter (of FY26), so it will give a higher price appreciation if a rate cut happens. Also, even though state bond supply will increase (in March), yield spreads (of state-bonds over gilts) have very little space to increase."

The Centre aims to borrow INR 14.82 trillion through bonds on a gross basis in 2025-26 (Apr-Mar), of which around 53-54% may be issued in the first half of the fiscal, as in the case of the first half of FY25, dealers said. However, some dealers expect the government to frontload its borrowing as it had done before the current fiscal year to around 57% of the total gross borrowing.

Meanwhile, traders also placed short-bets on the 10-year gilt on caution ahead of Wednesday's release of India CPI data, dealers said. Though India's headline CPI inflation is expected to fall to a six-month low of 3.9% in February, according to an Informist poll, traders kept positioning light amid tight liquidity as this will be the last CPI print before the next Monetary Policy Committee meeting on Apr. 7-9. Most traders do not expect the yield on the 10-year to fall below 6.68% till liquidity conditions improve to near-neutral and sold the bond at a profit as the yield on the 10-year fell to the day's low, dealers said. 

Dealers said the tight liquidity conditions in the banking system, which are likely to persist for the rest of the month, also kept trade volumes low. Traders will wait for the month-end when the tax outflows are balanced out with the infusion of liquidity by the RBI through its INR 1-trillion of gilt purchases through OMO auctions and the scheduled dollar/rupee buy/sell swap auction on Mar. 24 before significantly building their portfolios for a rate cut, dealers said. On Sunday, the net liquidity injected by the central bank – a proxy for systemic liquidity deficit – was INR 1.46 trillion after payments for excise duty and tax deducted at source tightened liquidity, RBI data showed.

The marketwide turnover for the day was INR 217.90 billion, down from INR 231.00 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades worth INR 100 million using the wholesale digital rupee pilot Monday, the same as Friday.

OUTLOOK

On Tuesday, gilt prices are likely to remain steady ahead of INR 495.22 billion supply of state bonds, dealers said. Traders are likely to take cues to trade from the results of the auction. Traders may also take cues from the movement on US Treasury yields at opening.

Tuesday will be the last day for traders to build their positions before the INR 500 billion OMO purchase auction on Wednesday. Traders may continue buying the six bonds, which the RBI has notified it will buy at the OMO auction. However, with most of the six bonds in the held-to-maturity portfolios of banks, trading activity may remain muted, 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 6.67-6.75% during the day.

India Gilts: Remain down as traders make room for bumper state bond supply Tue

MUMBAI--1612 IST--Prices of government bonds remained down as some investors likely trimmed their holdings of gilts to pick up state bonds at the INR-495.22-billion auction Tuesday, dealers said. Banks were focusing on credit disbursal near the year-end amid tight liquidity, and traders remained on the sidelines.

"There is selling from those who will want to pick up state bonds at lucrative levels tomorrow (Tuesday), the volumes are still not that high and there is no incentive for traders to step in with purchases so that is keeping the market down," a dealer at a private bank said.

Long-term bonds continued their outperformance as gilt supply ended in February, while life insurers' demand for these bonds seasonally picks up in March. While insurers were also keen on picking up state bonds, which offered higher yields for similar tenures, the gilts maturing in 40 and 50 years best match their liabilities, and they had to tap the secondary market for them, dealers said. Demand for forward-rate agreements also led to the prices of these bonds rising. The spread of the 40-year benchmark 7.34%, 2064 bond yield over the 10-year benchmark was 39 basis points, down 3 bps from a week ago.

Long-term gilts were also up on speculation their supply as a percentage of the upcoming borrowing calendar may fall. Amid a lack of direction for gilts from daily cues, traders looked ahead to the borrowing calendar for Apr-Sept, which the government is likely to release at the end of the month. Bonds maturing in 30-50 years accounted for 38.6% of the borrowing in Oct-Mar.

The Centre aims to borrow INR 14.82 trillion through bonds on a gross basis in 2025-26 (Apr-Mar), of which around 53-54% may be issued in the first half of the fiscal, matching FY25, dealers said. However, others expected the government to frontload its borrowing as it had done before the current fiscal, to around 57% of the total gross borrowing.

"Government will not want to unnecessarily burden with increased supply of long-term bonds, when the current scenario shows it will be difficult for the market to absorb...them," a dealer at a primary dealership said, putting a figure of 40% of the calendar as a red line for long-term bonds. "The disposable income of people has come down and that in turn has impacted the premium collection of life insurance firms, so unless that improves long-term bonds might not receive good demand."

The marketwide turnover was INR 185.00 billion, compared with INR 189.05 billion at 1630 IST Friday, 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 6.66-6.72%.  (Vidhushi RajPurohit) 

India Gilts: Down ahead of large state bond auction Tue, rise in US yields

MUMBAI--1320 IST--Prices of government bonds were down in thin trade ahead of the larger than expected state bond auction Tuesday and because of a slight rise in US Treasury yields. The impact was muted on gilt prices, as traders had expected supply of state bonds to be significant in March, while the rise in US yields had not led to selling from foreign investors, only a slowdown in activity, dealers said.

"There's no volume in the market to determine any particular cue for the price movement. There is no new hint today for the market to trade on, even the state bond auction amount was expected to be higher and even for the next auction the amount will likely be high," a dealer at a private bank said. The market-wide turnover was INR 94.90 billion, compared with INR 136.65 billion at 1330 IST Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

States will raise nearly INR 500 billion through bonds for the second straight week on Tuesday. The yield on the benchmark US Treasury note was also slightly higher at 4.30% at 1220 IST compared to 4.26% at close of the Indian market on Friday. Hereon, dealers expect gilt prices to largely remain in a narrow band, as most banks will focus on their individual asset-liability requirements as the current financial year draws to a close this month. Purchases by state-owned banks near 6.70% yield on the 10-year benchmark 6.79%, 2034 bond would prevent further fall in gilt prices, they said.

Dealers said the tight liquidity conditions in the banking system, which are likely to persist for rest of the month, are also keeping trade volume low. Traders will wait for the month-end when the tax outflows are balanced out with the infusion of liquidity by the Reserve Bank of India through its INR 1-trillion of gilt purchases through open market operation auctions and the scheduled dollar/rupee buy/sell swap auction on Mar. 24 before significantly building their portfolios for a rate cut, dealers said. On Sunday, the net liquidity injected by the central bank – a proxy for systemic liquidity deficit – was INR 1.46 trillion, RBI data showed.   

"At this time no one is even positioning for a rate cut, traders will likely wait till the last week of this month when the GST outflows are over and their credit disbursal targets are met before pricing that in," a dealer at a state-owned bank said. During the day, the yield on the 6.79%, 2034 bond is seen at 6.66-6.72%. (Vidhushi RajPurohit)

India Gilts: Steady; traders look ahead to Feb CPI data, OMO auction this week

MUMBAI--0943 IST--Prices of government bonds were steady as traders awaited cues lined up later in the week, such as the Reserve Bank of India's INR 500-billion open market auction purchase of gilts, and India's CPI data for February, dealers said.

Trade was centered around the 10-year benchmark 6.79%, 2034 gilt, as investors remained on the sidelines, and traders refrained from aggressively building positions, dealers said. A rise in US Treasury yields over the weekend weighed on bond prices. The yield on the benchmark US Treasury note was slightly higher at 4.29% at 0905 IST compared to 4.26% at the close of the Indian market on Friday. Dealers expect some foreign outflows during the day due to the rise in US yields, coupled with a slump in the rupee against the dollar. 

Another negative was the larger than expected state bond auction this week, though it did not affect prices as traders had already expected heavy state bond supply in March, and said the auction would sail through. Post market hours on Friday, the RBI said 20 states aimed to raise INR 495.22 billion on Tuesday through auction. The calendar of market borrowing by states for the Jan-Mar quarter had indicated the quantum of Tuesday's auction to be INR 386.26 billion.

"State bond auction (size) is a negative but it was expected, as long as it is below INR 500 billion its fine. Right now, there's only (deals for) trading books, nothing else. Maybe CPI (for February) could see some movement of yields," a dealer at a state-owned bank said. 

Traders await India's CPI data for February, due at 1600 IST Wednesday, dealers said. An Informist poll of 16 economists estimated the reading at a six-month low of 3.9%, primarily due to a further decline in food prices. This is the last scheduled growth-inflation reading before the April monetary policy review, where the RBI's MPC is expected to cut the repo rate by 25 basis points to 4%.

The marketwide turnover was INR 16.75 billion, compared with INR 34.05 billion at 0930 IST Friday, 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 6.66-6.72%. (Cassandra Carvalho)

India Gilts: Seen tad down on higher-than-indicated state bond auction size

MUMBAI – Prices of government bonds are seen opening slightly lower as the notified amount for the state bond auction on Tuesday was higher than that indicated in the Jan-Mar state borrowing calendar, dealers said. US Treasury yields were slightly higher than Friday's Indian market close, after falling over the weekend as US non-farm payrolls in February came in lower than estimates.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.66-6.72%, compared with 6.69% on Friday. Bond prices are expected to trade in a narrow range during the day as traders await cues lined up later in the week, such as the Reserve Bank of India's INR 500-billion open market auction purchase of gilts, and India's CPI data for February, dealers said.

Post market hours on Friday, the RBI said 20 states aimed to raise INR 495.22 billion on Tuesday through auction. The calendar of market borrowing by states for the Jan-Mar quarter had indicated the quantum of Tuesday's auction to be INR 386.26 billion. While traders had expected the state bond auction quantum to increase nearing the end of the financial year, the higher-than-expected number for the second consecutive week may weigh on gilt prices, dealers said.

The yield on the benchmark US Treasury note was slightly higher, at 4.29% at 0800 IST compared to 4.26% at the close of the Indian market on Friday. The yield hit a low of 4.23% over the weekend as investors fled to safe-haven assets due to concerns of slowing growth in the US. The US economy added a seasonally adjusted 151,000 jobs in February, less than the 170,000 consensus forecast from Dow Jones, the US Bureau of Labor Statistics reported post market hours Friday. However, the figure was better than January's downwardly revised number. The unemployment rate edged higher to 4.1% from 4% in January. Bond traders now expect that the US Federal Open Market Committee could resume cutting rates as early as May. The FOMC left rates unchanged in January, and is expected to maintain status quo at its meeting next week.

Traders also await India's CPI data for February, due at 1600 IST Wednesday, dealers said. An Informist poll of 16 economists estimated the reading at a six-month low of 3.9%, primarily due to a further decline in food prices. Bond prices may also track the movement of the rupee against the dollar during the day, dealers said. (Cassandra Carvalho)

End

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

Edited by Saji George Titus

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