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Informist, Tuesday, Mar. 11, 2025

By Vidhushi RajPurohit

MUMBAI – Prices of government bonds ended higher after the cut-off yields at state bond auction Tuesday were below the market's expectations, dealers said. Expectations of February's retail inflation print meeting the Reserve Bank of India's target and buying ahead of the INR 500-billion open market operation auction Wednesday also aided gilt prices.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.67, or 6.69% yield, against INR 100.61, or 6.70% yield, Monday. Trade volume, which had been muted on caution before the state bond auction result, also picked up near the close. Gains were capped due to likely profit booking by private banks and state-owned banks, dealers said.

Dealers were expecting the auction to sail through as the heavy supply of state bonds this month has pushed up the spreads of state bonds over gilts, making them attractive for banks' 'held-to-maturity' books, dealers said. Increased demand from insurance firms for long-term bonds also helped keep cut-off yields in check. Cut-off yields on state bonds maturing in 25-30 years were all set below 7.25%.

Insurers' push to lock in current yield levels has also pulled down yields on long-term gilts, after supply ended on Feb. 28. The yield on the 40-year benchmark 7.34%, 2064 gilt ended at 7.08% Tuesday, down from a nine-month closing high of 7.16% on Mar. 4. Its spread over the 10-year benchmark yield has tightened by 3 bps since then, to 39 basis points Tuesday.

"People want to accumulate the long-term bonds now as from April the supply of state bonds will reduce so the current yields are good to lock in," a dealer at a state-owned bank said. "Market is expected to perform better from here as CPI is also expected to have eased down to 3.9% and liquidity also is expected to improve in April, so overall there is a positive sentiment."  

Traders were also picking up gilts ahead of the CPI data for February, due Wednesday 1600 IST. Dealers expect the February inflation print to have eased below the RBI's medium-term target of 4.0%, down from 4.31% in January, driven by an ease in food inflation. An Informist poll of 16 economists estimates the reading at 3.9%. A print at or below 4.0% will cement the hopes of a 25 bps policy repo rate cut in April by the Reserve Bank of India's Monetary Policy Committee, though the 10-year gilt yield may not fall below the psychologically crucial 6.68% level unless there is a positive surprise, dealers said. A reading above 4.2% is expected to lead the 10-year gilt yield to move up to 6.73-6.74% levels, they said.

An overnight ease in US yields also led to buying from foreign banks, which was concentrated in the first half of the day, dealers said. The yield on the 10-year US Treasury note fell to 4.19% at 0900 IST from 4.25% at 1700 IST Monday, before ending at 4.23% Tuesday. Persistently lower crude oil prices also led to some foreign banks buying gilts, dealers said. Brent crude for May delivery fell below $70 a barrel in Asian trade Tuesday, and were down near $4 a barrel since February-end.

Market was also buoyed ahead of the INR-500-billion OMO buy auction Wednesday, as the papers that RBI detailed for the auction were seen actively traded on the RBI's Negotiated Dealing System-Order Matching platform. 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.

The 7.10%, 2034 bond, the 7.18%, 2033 bond and the 7.23%, 2039 bond were among the top most traded papers. However, the traders refrained from aggressive buying as most state-owned banks already have the stock of the bonds in their 'held-to-maturity' books. Dealers expect the auction to be aggressively bid as banks will try to take advantage of profitable exits offered at current yields. After falling 25 basis points in 2023-24 (Apr-Mar), the 10-year benchmark gilt yield has fallen 36 bps so far in FY25. 

Despite the better than expected demand at the state bond auction, gains were capped due to likely profit booking from state-owned banks and private banks, dealers said. Some selling was also there from mutual funds which were the largest segment-wise sellers of gilts in the secondary Monday as well, as they likely bid aggressively at the state bond auction Tuesday. Overseas investors also sold gilts amounting to INR 5.94 billion through the fully accessible route, Clearing Corp. of India data at 1700 IST showed.

The marketwide turnover for the day was INR 315.60 billion, up from INR 217.90 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Tuesday, against two trades worth INR 100 million Monday.

OUTLOOK

On Wednesday, gilt prices are likely to remain steady ahead of INR-500-billion RBI's OMO auction, dealers said. Prices might inch up as some traders will likely build their positions before the auction. However, with most of the six bonds in the held-to-maturity portfolios of banks, trading activity may remain muted, dealers said. 

Prices will likely remain steady ahead of India's CPI data for February due at 1600 IST. An Informist poll of 16 economists has estimated the reading at 3.9%. A reading of below 4.0% is expected to move gilt prices up as traders' hope for a 25 bps repo rate in April will be cemented, dealers said.

Traders may also take cues from the movement on US Treasury yields at opening. 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: Up after state bond auction cut-offs better than expected

MUMBAI--1630 IST--Prices of government bonds were up as cut-off yields for most bonds at the INR-495.22-billion state bond auction were lower than expected, dealers said. The Reserve Bank of India set the cut-off yield on 10-year state bonds as low as 7.18%, against 7.20-7.22% seen in an Informist poll.

Mutual funds--which were the largest segment-wise sellers of gilts in the secondary on Monday--likely bid aggressievely at the auction, along with state-owned banks. Cut-off yields on state bonds maturing in 25-30 years were all set below 7.25%, another positive for traders. Life insurers' demand for long-term bonds has risen in March, which was also reflecting in the compression of the spread of long-term gilts over the 10-year benchmark, dealers said.

The spread of the 7.34%, 2064 gilt over the benchmark 10-year narrowed to 39 bps from 42 bps at the end of February. The demand for long-term papers was also furthered by the expectation that the RBI would reduce its allocation of long-term gilts in the Apr-Sept borrowing calendar, after feedback from market participants, dealers said.

"I still think long-term gilts are undervalued. They're not up, they're just recovering to (prices) where they should be," a dealer at a state-owned bank said. "Spreads were 42 (bps) earlier now they're around 37 (bps), but within a month I think it'll go to 30 (bps)."

Bond prices gave up early gains as traders awaited the auction result. Bidding for the auction was extended by 20 minutes till 1150 IST, due to a technical lag on the RBI's e-Kuber platform which had slowed down the placing of bids, dealers said. Trade volumes in the secondary market picked up after the result, with traders favouring the 'belly' of the yield curve. Trade in bonds maturing in 7-15 years picked up as the RBI has offered to buy gilts of these tenures at its INR-500-billion open market operation auction to buy gilts Wednesday. Traders also picked up the 10-year benchmark gilt on expectations of the RBI offering to buy the paper at its next OMO auction on Mar. 18.

The marketwide turnover was INR 287.05 billion, compared with INR 186.00 billion at 1630 IST Monday, 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 6.67-6.72%.  (Cassandra Carvalho)

India Gilts: Remain up on fall in US yields; state bond auction result eyed

MUMBAI--1230 IST--Prices of government bonds remained up owing to an overnight fall in US Treasury yields, dealers said. Trade volumes were low as traders awaited the result for the INR-495.22-billion state bond auction. 

"The g-sec (government security) prices should have been higher if we see the fall in US yields, but there is some caution before the auction result," a dealer at a private bank said. "Some selling pressure has also kept prices in check as traders sold g-sec in secondary to pick up state bonds which are at good spreads now."

Heavy supply of state bonds has led traders to trim their holding of liquid gilts and to make space for higher yielding state bonds, dealers said. Investors were also looking to lock in the current yields for their 'held-to-maturity' portfolios, with state bond supply likely to fall in Apr-Jun as is usual and spreads and yields are likely to decline. Last week, the spread of the states' 10-year bonds over the 10-year gilt yield widened to 47-60 basis points, from 46-49 bps in the previous week.

On Tuesday, the spread is expected to be around 50 bps. Traders expect the cut-off yield on the 10-year state bonds to be in the range of 7.20-7.22%, according to an Informist poll, lower than 7.21-7.34% set last week.

Mutual funds' sales weighed on gilt prices and they were the top net sellers on Monday as well owing to redemption pressure from other financial institutions near financial year end, dealers said. However, the fall in the 10-year benchmark US Treasury yield to 4.20%, from 4.25% at 1700 IST Monday, is expected to keep gilt prices higher than the previous close unless the auction disappoints.

The marketwide turnover was INR 82.15 billion, compared with INR 70.15 billion at 1235 IST Monday, 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 6.67-6.72%. (Vidhushi RajPurohit)

India Gilts: Up on fall in US yields, crude oil; state bond sale awaited

MUMBAI--0956 IST--Prices of government bonds were up, tracking an overnight fall in US Treasury yields, dealers said. A fall in crude oil prices also aided the rise in bond prices. Bond prices traded in a thin range after opening higher, as traders awaited the INR 495.22-billion state bond auction at 1030-1130 IST. 

The yield on the 10-year US Treasury note fell to 4.19% as of 0911 IST from 4.25% at 1700 IST Monday. The yield fell 6 basis points as investors fled to safe-haven assets due to fear that US President Donald Trump's imposition of tariffs and government job cuts would lead to a recession in the world's largest economy. Fed fund futures are now pricing in at least three cuts in the federal funds rate by the US Federal Open Market Committee in 2025, against expectations of two cuts earlier this year. Bond prices have not been closely tracking the overnight movement of US yields due to domestic cues such as the state bond auction, India's inflation data, and liquidity in the banking system, dealers said. 

"Market is in a positve right now because we have no supply, except for state bond supply which we can digest. Now, the outlook on US rate cuts is three this year, so we're (gilt traders) positioning ahead of our rate cut (expected in April)," a trader at a primary dealership said. "After the selloff in equity, US T and crude are down, so it's good for us."

Demand from banks and long-term investors for state bonds is likely to drive yields lower despite the higher-than-expected auction size of INR 495.22 billion, dealers said. At the auction, cut-off yields across tenures may be capped at 7.28%, against 7.34% last week on Assam's 10-year bond.

A fall in crude oil prices was also a positive for bond prices, dealers said. Crude oil prices fell amid concerns that a global trade war after US tariffs would lead to a slowdown in global economic growth, curbing demand. Brent crude for May delivery fell to $69.27 a barrel at 0956 IST, down almost $4 a barrel since the end of February. 

In addition to the state bond auction, traders await India's CPI data for February, due at 1600 IST Wednesday, dealers said. A poll of 16 economists by Informist estimated the reading at a six-month low of 3.9%, primarily due to a further decline in food prices. Traders are not building aggressive positions before the data since a reading of 3.7-4.2% is priced in, dealers said. Bond prices may only see significant movement if the print is below 3.7% or above 4.2%. 

The marketwide turnover was INR 46.40 billion, compared with INR 14.55 billion at 0930 IST Monday, 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 6.67-6.72%. (Cassandra Carvalho)

India Gilts: Seen steady before state bond sale; fall in US yields may aid

MUMBAI – Prices of government bonds are seen steady ahead of the INR 495.22-billion state bond auction at 1030-1130 IST, dealers said. An overnight fall in US Treasury yields may support bond prices.   

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.67-6.72%, compared with 6.70% on Monday. Bond prices fell on Monday as traders trimmed stock of gilts to make room for state bonds at 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.

The yield on the 10-year US Treasury note fell to 4.19% as of 0800 IST from 4.25% at 1700 IST Monday. The yield fell 6 basis points as investors fled to safe-haven assets due to fear that US President Donald Trump's imposition of tariffs and government job cuts would lead to a recession in the world's largest economy. Fed fund futures are now pricing in at least three cuts in the federal funds rate by the US Federal Open Market Committee in 2025, against expectations of two cuts earlier this year. Bond prices are unlikely to closely track the overnight movement of US yields due to domestic cues such as the state bond auction, India's inflation data and liquidity in the banking system, dealers said. 

Tuesday is the last day for traders to build their positions before the INR 500-billion open market purchase auction on Wednesday. Traders may continue buying the six bonds that the Reserve Bank of India 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. Bond prices may track the movement of the rupee against the dollar during the day, dealers said. (Cassandra Carvalho)

End

US$1 = INR 87.21

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

Edited by Deepshikha Bhardwaj

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