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Informist, Monday, Mar. 17, 2025

MUMBAI – Prices of government bonds ended slightly higher Monday as traders bet on a rate cut by the Reserve Bank of India's Monetary Policy Committee in April, dealers said. A fall in US Treasury yields over the weekend, coupled with a lower-than-indicated notified amount at Tuesday's state bond auction were also positives for gilt prices. However, post market hours, the RBI revised Tuesday's state bond auction size to INR 521.20 billion from INR 401.20 billion notified earlier, and above the indicated amount of INR 417.94 billion.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.70, or 6.69% yield Monday, against INR 100.65, or 6.70% yield, Thursday. Money markets were shut Friday for Holi. Despite the slew of positive cues, bond prices moved in a narrow range and gains were capped as traders kept to the sidelines near the year-end, with banks focussed more on credit disbursal and taking profits to add to earnings.

Earlier on Thursday, the RBI had said 11 states will raise INR 401.20 billion through the sale of bonds on Tuesday, lower than the amount of INR 417.94 billion as per the indicative calendar for Jan-Mar. The figure was a positive surprise for traders, after two straight weeks of more-than-indicated supply of around INR 500 billion each. Alongside that, the yield on the 10-year US Treasury note fell to 4.30% as of 1700 IST, from 4.34% at 1700 IST on Thursday. The widening interest rate differential between safe haven US debt and Indian gilts made the latter appealing for foreign portfolio investors. Purchases by FPIs via the fully accessible route buoyed bonds Monday. Clearing Corp. of India data at 1700 IST showed buys worth INR 9.13 billion.

Nearing the MPC's meeting scheduled for Apr. 7-9, traders began picking gilts across tenures, with an expectation that yields would fall sharply in the first week of April once the year-end lethargy is out of the way. Analysts and traders widely expect a rate cut already, but gilt yields have not moved significantly even after the 25-basis-point rate rate cut in February, the first in nearly five years, due to consistently tight liquidity.

"We've been supported at 6.69% to 6.6850% (yield on the benchmark 10-year) but in April, once the profit-booking ends (for March-quarter earnings) we will see a rally. We could go to 6.60%, or (further) below to 6.50-6.55% also," a dealer at a state-owned bank said.

Views on which tenures would perform the best were divergent, with some looking at papers maturing below seven years, expecting the gilt yield curve to steepen significantly after the next rate cut and an anticipated influx in liquidity. Others preferred the benchmark 6.79%, 2034 gilt and longer-term gilts on the view that their price gains will outstrip short-term bonds despite the difference in the fall in yields. This led to buying interest across the yield curve, though gains were the greatest in long-term bonds.

Foreign portfolio investors preferred short-term gilts, especially papers maturing in 2025-26 (Apr-Mar) and FY27, a trend seen in the past month. Dealers said the maturities of these papers were lucrative due to business holidays before the redemption, increasing their yields to maturity. The higher-yielding papers were also better investments than Treasury bills of comparable maturity, dealers said. 

Mutual funds and state-owned banks were likely sellers, with the former exiting gilt trades and actively readjusting stock of T-bills to match their liabilities. Some banks were on the sidelines, refraining from aggressive purchases, but switched between tenures of gilts to position for a rate cut while booking profits, dealers said.

Traders also positioned ahead of the state bond auction Tuesday, as some looked to lock in higher yields as state bond yield spreads over gilts are expected to collapse starting Apr-Jun, dealers said. The corresponding fall in yields – with the view of the 10-year gilt yield also falling 10 bps in the June quarter – may potentially lead to sizeable profits, they said.

"The state bond size is small but overall if you see, states have still undershot the (Jan-Mar borrowing) calendar by INR 1 trillion, which is a big deal," a dealer at a private bank said. "Last year (Jan-Mar 2024), they went overboard and sometimes there were auctions held twice a week."

Some traders trimmed some stock of gilts, especially of long-term papers, to make room for state bonds. Sales of long-term gilts were lapped up by insurance companies and pension funds, who have re-emerged as regular buyers in March after being an underwhelming source of gilt demand since October. A bond forward-rate agreement written for an amount of INR 3 billion-INR 4 billion also spurred demand for long-term papers, dealers said. The rise in long-term prices was aided by purchases made on the view that the per basis point value gains of long-term papers are more than that of their short-term counterparts in a rate-cut cycle, consequently making them lucrative also for mutual funds to lock in higher gains. 

The marketwide turnover for the day was INR 245.90 billion, down from INR 315.00 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Monday, same as on Thursday.

OUTLOOK

On Tuesday, gilt prices are likely to open lower after the RBI, post market hours Monday, revised the notified amount of the state bond auction Tuesday to INR 521.20 billion, from INR 401.20 billion notified earlier, and above the indicated amount. Bond prices may also take cues from the movement on US Treasury yields, after a slew of US economic data and ahead of the US Federal Open Market Committee meeting outcome.

The two-day FOMC meeting starts Tuesday and the panel is expected to hold rates steady this month. However, traders will closely watch for commentary from the committee, particularly from US Federal Reserve Chair Jerome Powell.

Traders may also take cues from the result of the RBI's INR-500-billion open market purchase of gilts Tuesday. Some gilt traders were on the sidelines Monday ahead of the auction. The RBI has offered to buy the 7.10%, 2029; 7.26%, 2032; 7.26%, 2033; 7.73%, 2034; 7.40%, 2035 and 7.41%, 2036 bonds at the auction. Cut-off prices are expected to be set at a discount of 20-30 paise to the bonds' current market valuations, dealers said. An ease in liquidity conditions could intensify April rate cut bets, with further bets on rate cuts in June or August also on traders' minds.

Traders may also assess 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 6.65-6.72% during the day.

India Gilts: FPI buys keep bond prices up; banks switch gilts for profit

MUMBAI--1618 IST--Prices of government bonds remained up, moving in a narrow range as banks refrained from adjusting their available-for-sale and held-to-maturity books, and focused on booking profits from trading books for their year-end and quarter-end earnings. Purchases by foreign portfolio investors buoyed prices, though there was no momentum on prices rising due to lack of fresh cues, dealers said.

Traders' interest in India's bonds had increased after the rate cut view in India firmed to 75 basis points or more for 2025 to 5.75% from the earlier view of 50-75 bps worth of rate cuts this year, dealers said. This has attraced foreign investors over the last few weeks, particularly in short-term bonds. FPIs have bought INR 5.71 billion worth of fully accessible route gilts Monday, according to Clearing Corp. of India data at 1618 IST.

"PSUs and other banks haven't started buying so that's why yields haven't moved, but if RBI cuts (the repo rate) to 6%, then you're looking at a spread of 70 basis points (the 10-year gilt yield over repo rate). After reporting (of profit and loss) is done, the purchases will be aggressive in April," a dealer at a private bank said. 

State-owned banks were on the sidelines, refraining from aggressive purchases, but switched between tenures of gilts to position for a rate cut while booking profits, dealers said. The per basis point value gains of long-term papers are more that of their short-term counterparts in a rate-cut cycle, and traders sought to maximise it by adding duration securities to their portfolios.

Some banks awaited the RBI's open market operation purchase auction for an opportunity to book profits from their held-to-maturity books. Traders also awaited the state bond auction Tuesday to lock in high yields in the quarter with the largest issuance, dealers said. Moreover, traders also looked ahead to the auction as state bond yield spreads over gilts are expected to collapse starting Apr-Jun, potentially leading to sizeable profits, they said.

The market-wide turnover was INR 193.20 billion, lower than INR 274.20 billion at 1630 IST on Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.65-6.72%. (Cassandra Carvalho) 

India Gilts: Remain up on lower-than-view state bond supply, fall in US ylds

MUMBAI--1345 IST--Government bond prices remained higher due to a fall in US Treasury yields and a smaller-than-expected state-bond auction on Tuesday. Traders also increased their bets on April rate cut by the Reserve Bank of India's Monetary Policy Committee, raising their risk after a long weekend passed, dealers said.

States will borrow INR 401.20 billion, against INR 417.94 billion notified in the Jan-Mar indicative calendar for state borrowing for this week. After two straight weeks of near INR-500-billion state bond supply at auction, the lower quantum was a relief for traders, dealers said. Gilts maturing in 10 years and more were the most affected on this account, matching the tenures which had a reduced supply. Demand for bond forward-rate agreements from life insurers worth nearly INR 3 billion-INR 4 billion on the 30- and 40-year benchmark gilts also likely kept prices of these bonds higher, dealers said.

"People were expecting the borrowing of state bonds to come at the higher end on INR 500 billion, so some trading positions are also building due to the lower quantum," a dealer at a private bank said. "Rate cut bets are up, but volumes are low so some could just be intraday trading positions."

The market-wide turnover was INR 130.05 billion, lower than INR 153.95 billion at 1330 IST on Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Traders continued to stay on the sidelines as banks were focused on using cash to fund credit disbursal near the financial year-end on Mar. 31, dealers said. 

Foreign banks and investors likely bought shorter-tenure gilts on expectation of another rate cut by the RBI's rate-setting panel, the second consecutive time, dealers said. The yield on the 10-year benchmark US Treasury note also eased slightly to 4.30% from 4.34% at 1700 IST on Thursday, which aided prices, they said.

Gains were capped as traders made room for the state bonds by placing short bets on the 10-year benchmark 6.79%, 2034 gilt ahead of Tuesday's auction, dealers said. Investors look to pick up state bonds to replace gilts they have sold to the RBI at open market operation auctions, even though they expect the 10-year state bonds' spreads over the 10-year gilt to fall from the high of 58 basis points last week. With only one more scheduled auction left in the March quarter, the overall issuance may fall short of the indicated INR 4.73 trillion by INR 600 billion-INR 800 billion, dealers said. During the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.65-6.72%. (Srijita Bose) 

India Gilts: Up in thin trade as Apr rate cut view, fall in US yields aid

MUMBAI--1030 IST--Prices of government bonds were up due to a fall in US Treasury yields over the weekend and a positive view on rate cuts in India. Volumes were thin as traders were on the sidelines, with banks focusing on credit disbursement at the financial year-end, dealers said.

The market-wide turnover was INR 52.40 billion, lower than INR 81.45 billion at 1030 IST on 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 6.65-6.72%.

The Reserve Bank of India's Monetary Policy Committee is widely expected to cut the repo rate by 25 basis points to 6.00% at its next meeting in April. Moreover, banks may continue to buy illiquid gilts to replace sales from their 'held-to-maturity' portfolios to the RBI over the last few weeks, at the central bank's OMO auctions. Another OMO auction is scheduled on Tuesday, where the RBI will buy INR 500 billion of six bonds – the 7.10%, 2029; 7.26%, 2032; 7.26%, 2033; 7.73%, 2034; 7.40%, 2035 and 7.41%, 2036 bonds.

"The levels are good for traders to begin positioning for a policy repo rate cut in April, but they also have to focus on their credit offtake target as banks need to close their trading books this month," a dealer at a state-owned bank said. "Liquidity is still comfortable and RBI is also set to infuse another INR 500 billion through another OMO (open market operation) auction so once banks meet their credit targets we can see aggressive positioning for rate cut."

A fall in the 10-year US yield to 4.31% from 4.34% at 1700 IST Thursday also supported. Indian money markets were shut on Friday for Holi. While this led to an early rise in prices, dealers said the 10-year gilt yield was unlikely to fall below the psychologically crucial 6.68% mark.

Some were of view that the replacement demand for gilts is likely to pick up once the tax outflows are over and they have a clear assessment of systemic liquidity, despite the RBI's regular variable rate repo operations this week likely to keep conditions comfortable amid advance tax outflows. According to latest data from the RBI, the net liquidity injected by the central bank--a proxy for systemic liquidity deficit—was at INR 1.55 trillion on Thursday.

During the day, some traders are also expected to shed some of their gilt holdings to pick up higher yielding state bonds on Tuesday. Post market hours on Friday, the RBI said 11 states aimed to raise INR 401.20 billion on Tuesday through auction. The lower size of the auction – the indicative calendar for Jan-Mar showed states would borrow INR 417.94 billion this week – was also leading investors to pick up long-term bonds, dealers said.  (Vidhushi RajPurohit)

India Gilts: Seen tad up on April rate cut bets, ease in US yields 

MUMBAI – Prices of government bonds are likely to open slightly higher as traders are may assess systemic liquidity conditions and start placing bets on a domestic repo rate cut in April, dealers said. Slight easing of US Treasury yields since the Indian market close on Thursday may also support gilt prices. India's money markets were shut on Friday on account of Holi.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.72%, compared with 6.70% on Thursday. India's CPI inflation fell to a seven-month low of 3.61% in February, furthering the hope that the Reserve Bank of India's Monetary Policy Committee can continue with its rate-easing trajectory after delivering a 25-basis-point cut in the repo rate in February. Demand for illiquid gilts may also inch up ahead of the RBI's INR-500-billion open market operation buy auction Tuesday, dealers said.

Traders will look to gauge the evolving liquidity situation before making further bets on rate cuts, dealers said. With advance tax payments expected to drain over INR 2 trillion from the banking system by early this week, tight frictional liquidity may prevent a fall in bond prices as traders avoid aggressive bets on the next rate cut, dealers said.

However, some traders are also expected to shed some of their gilt holdings to pick up higher yielding state bonds at the INR-401.20-billion state bond auction on Tuesday. The spread of 10-year state bond over the 10-year gilt yield rose to 58 basis points last week, against a peak of 49 bps at the end of February. 

On the global front, the yield on the benchmark 10-year US Treasury note eased slightly to 4.31% at 0800 IST from 4.34% at 1700 IST on Thursday. Dealers may take cues from offshore ahead of the US Federal Open Market Committee's meeting this week. The FOMC, which is scheduled to meet on Tuesday and Wednesday, is expected to hold rates steady at 4.25-4.50%, according to the CME FedWatch tool. However, traders will watch closely for commentary from the committee, particularly at US Federal Reserve Chair Jerome Powell's press conference after the rate decision. (Vidhushi RajPurohit)

End

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

Edited by Vandana Hingorani

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