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Informist, Tuesday, Mar. 18, 2025

 

By Cassandra Carvalho

 

MUMBAI – Prices of government bonds ended sharply higher on Tuesday after cut-off yields at the second-largest state bond auction on record were lower than expected, dealers said. After the auction result, foreign banks were likely buyers amid speculation the Reserve Bank of India would hold another open market operation auction to buy gilts before April. True to these expectations, the RBI after market hours announced that it will buy six gilts worth INR 500 billion through an OMO auction on Mar. 25.

 

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.82, or 6.67% yield Tuesday, against INR 100.70, or 6.69% yield, Monday. The yield on the benchmark gilt fell below the 6.67% level for the first time since Feb. 7, and ended at its lowest level since Feb. 6. Further gains were capped as state-owned banks sold gilts at a profit for year-end and quarter-end earnings, particularly with the 10-year gilt yield below the crucial 6.68% mark, dealers said.

 

The RBI set the cut-off yield on Rajasthan's 10-year bond at 7.15%, 2 basis points below the median of an Informist poll. Cut-off yields across tenures were lower than expected. Insurers bid aggressively for longer-term state bonds at the auction, while mutual funds bid for state bonds across the yield curve, dealers said. Banks likely replaced gilts sold to the RBI at the OMO auction earlier in the day with higher-yielding state bonds, they said. With the increased competition, traders who had missed out on state bonds at the auction picked up both on- and off-the-run gilts in the secondary market, driving up both prices and trade volumes. 

 

Around 80% of the day's trade happened after 1430 IST, with total marketwide turnover at INR 483.30 billion, nearly double from INR 245.90 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Traders also bet on the RBI conducting another OMO auction to buy gilts in March to inject liquidity amid a persistent deficit, even after its INR-500-billion purchase Tuesday. A spate of buying from foreign banks in bonds maturing in 10-15 years, with state-owned banks the likely sellers, also drove up gilt prices, dealers said.

 

"I think RBI could come out with another OMO (before April), and now foreign banks have begun buying, and the last time this happened there was an announcement," a dealer at a state-owned bank said. "It could be around the same amount (as Tuesday's notified amount)."

 

At the RBI's OMO auction Tuesday, some banks were pleasantly surprised that the central bank accepted bids at slightly higher-than-expected prices, in stark contrast with previous auctions where bonds were sold to the central bank at deep discounts. The OMO auction cut-offs on three of the six gilts were better than expected, with prices set 10-20 paise below Monday's indicated levels, as compared to estimates of 20-30 paise lower. At the OMO auctions held so far this quarter, the RBI favoured cut-off prices at least 20 paise below secondary market valuations.

 

State-owned banks had dominated bidding in the OMO auctions, offloading stock from held-to-maturity books at a profit, but at prices much cheaper than indicative levels from Financial Benchmarks India Ltd. for the previous day. Many private banks' bids were accepted at Tuesday's auction, leading to some replacement demand for gilts in the secondary market from this segment, dealers said. 

 

"Private banks also finally got rid of some HTM (held-to-maturity) stock (at the OMO auction) today (Tuesday) so that replacement demand is causing the rally now," a dealer at a private bank said.

The spread of Rajasthan's 10-year gilt issued Tuesday over that of the benchmark 10-year gilt narrowed to 48 bps, from 49-58 bps for 10-year state bonds last week. Even as investors locked in higher yields, some dealers were also of the view that state bonds may be profitable in the trading book. Traders expect the benchmark spread over gilts to compress further from April to 40 bps. Moreover, gilt yields themselves are expected to decline sharply with liquidity conditions likely to improve and traders widely expecting a 25-bps rate cut by the RBI's Monetary Policy Committee on Apr. 9.

 

Mutual funds were buying gilts in the secondary market, especially in the short-term segment, dealers said. Long-term bond prices outperformed most tenures earlier in the day, when trade volumes were thin, on purchases from insurance companies. Life Insurance Corp. of India Chief Executive Officer Siddhartha Mohanty said on Tuesday that the company had discussed issuances of 50- and 100-year gilts with the RBI, which indicated an appetite for long-term gilts from the country's largest life insurer and pushed prices of those bonds higher, dealers said. The 40-year benchmark 7.40%, 2064 gilt rose for the ninth straight trading session.

 

In the first half of the day, trade revolved around profit-booking for earnings near the year-end on Mar. 31, as traders awaited the auction results for cues. Gilt prices were weighed on by the RBI's announcement post market hours Monday, where it revised the notified amount of the state bond auction Tuesday to INR 521.20 billion, from INR 401.20 billion notified earlier.

 

However, traders were focussed on bidding for the OMO auction, which began soon after market open and bond prices were in a thin band until the result of the RBI's purchase was declared. Separately, there were no trades using the wholesale digital rupee pilot Tuesday, same as Monday.

 

OUTLOOK

On Wednesday, gilt prices are likely to open higher after the RBI post market hours Tuesday announced an open market purchase of gilts via auction for a notified amount of INR 500 billion, which is what traders were eagerly anticipating. The RBI has offered to buy the 7.04%, 2029; 7.17%, 2030; 7.26%, 2032; 7.26%, 2033; 7.50%, 2034, and 7.18%, 2037 bonds at the auction on Mar. 25. Including Tuesday's auction, the RBI has bought gilts worth INR 2.00 trillion via open market auctions, and INR 388.15 billion worth of gilts through its screen-based operations in January.

 

Bond prices may also take cues from the movement on US Treasury yields ahead of the US Federal Open Market Committee meeting's outcome at 2330 IST Wednesday. 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 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 6.64-6.72% during the day.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.79%, 2034	100.8225	6.6714%	100.6950	6.6896%
6.75%, 2029	100.6975	6.5736%	100.6000	6.5978%
7.10%, 2034	102.4700	6.7304%	102.3675	6.7455%
7.23%, 2039	103.6600	6.8205%	103.5200	6.8358%
7.34%, 2064	104.1000	7.0303%	103.9600	7.0405%

 

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India Gilts: Rise after auction results; state bond cut-offs better than view

 

	1614 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	100.84	100.85	100.66	100.68	100.70
YTM (%)	6.6697	6.6679	6.6946	6.6918	6.6896

 

MUMBAI--1614 IST--Prices of government bonds rose after the results of the Reserve Bank of India's gilt buying auction and the state bond auction. States raised INR 526.20 billion through bonds at lower-than-expected cut-off yields, spurring bond prices in the secondary market as well. Cut-off prices at the RBI's open market operation purchase of gilts Tuesday were also slightly higher than expected, adding to the boost in sentiment, dealers said.

 

Banks rushed to refill their held-to-maturity books at the state bond auction after sales at the OMO auction an hour earlier, helping the second-largest auction on record sail through. The cut-off yield on Rajasthan's 10-year bond yield was 7.15%, 2 basis points lower than an Informist poll estimate. Insurers bid aggressively for longer-term state bonds at the auction, while mutual funds bid for state bonds across the yield curve, dealers said.

 

"After April we're not going to get state bonds at such good levels, and we also have our HTM (held-to-maturity) needs, so this is good chance before the year-end," a dealer at a state-owned bank said. Some state-owned banks sold gilts at a profit, though others preferred to add high-yielding and illiquid bonds to their held-to-maturity portfolios, leading traders to pick up on-the-run bonds of similar tenures, dealers said.

 

The OMO auction cut-offs on three gilts were better than expected; with prices set 10-20 paise below Monday's indicated levels, as compared to estimates of 20-30 paise lower. With less aggression on bids, private banks – which had not been able to compete with state-owned banks for a majority of the OMO buys so far – were also able to sell some stock from their 'held-to-maturity' books, dealers said.

 

In the secondary market, long-term bond prices rose more than most tenures, as appetite for these gilts from investors increased after a slump seen earlier in Jan-Mar. Some traders also favoured papers of 10-15 year maturities, on speculation that the RBI could hold another OMO auction before April. Trade revolved around profit-booking for earnings near the year-end on Mar. 31, and another opportunity to do so from HTM books was anticipated, dealers said.

 

The market-wide turnover jumped from earlier in the day to INR 410.50 billion, against INR 190.90 billion at 1630 IST on Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. (Cassandra Carvalho)

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India Gilts: In thin band; traders await cues from auction results

 

	1333 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	100.68	100.69	100.66	100.68	100.70
YTM (%)	6.6921	6.6903	6.6946	6.6918	6.6896

 

MUMBAI--1333 IST--Government bond prices were largely unchanged as traders awaited the results of both the Reserve Bank of India's open market gilt purchase auction and state bond auction for cues to trade, dealers said. An increase in the state bond auction size weighed on gilt prices, but traders said they would await the cut-off yields to trade in earnest.

 

Volumes fell even from the sluggish levels the previous day as traders refrained from placing large bets before the results. The market-wide turnover was INR 70.55 billion, against INR 121.55 billion at 1330 IST on Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. 

 

"Market is in a very narrow trading zone and everyone is waiting for the auction results," a dealer at a private bank said. "The state bond auction will give more cues...mostly should be fine. Only thing now is whether there will be an additional state bond auction by month-end."

 

The state bond auction size was increased to INR 521.20 billion from INR 401.20 billion, revised by the RBI on Monday. The auction is seen sailing through due to demand from long-term investors such as insurance companies, as well as from state-owned banks, dealers said. Demand from foreign investors is also seen firm, with bond yields expected to fall sharply starting April, and spreads of state bonds over gilt yields also expected to narrow with supply of the former easing.

 

As of Monday, states had borrowed only 65.4% the overall indicative borrowing of INR 4.73 billion in Jan-Mar, and even after Tuesday's auction, it would only go to three-fourths of the indicated amount. With only more week and auction left in the March quarter, some traders fear states may ask the RBI to conduct an unscheduled auction, while others expect the borrowing to undershoot the calendar by nearly INR 600 billion, dealers said.

 

As for the OMO auction, state-owned banks are likely to be the largest sellers to the RBI as they have most stock of the illiquid papers at the auction. Cut-off prices on all papers are expected to be 20-30 paise lower than Financial Benchmarks India Pvt. Ltd. levels. Banks are looking to generate liquidity to extend loans near the year-end. With all the bonds significantly above par, at which they were issued, profit maximisation was not the main goal, dealers said.

 

Outflows owing to both direct and indirect taxes during the month could keep liquidity in deficit or near neutral till March end. The widening of the liquidity deficit was reflected in the RBI's net liquidity injected figure, which rose to INR 2.43 trillion on Monday--the highest since Jan. 29. During the day, the yield on the 6.79%, 2034 bond is seen at 6.65-6.72%.  (Srijita Bose)

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India Gilts: Steady before RBI's OMO buy result, state bond auction

 

	0940 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	100.67	100.69	100.66	100.68	100.70
YTM (%)	6.6932	6.6903	6.6946	6.6918	6.6896

 

MUMBAI--0940 IST--Prices of government bonds were largely steady at open as the upward revision of the state bond auction size for Tuesday was offset by traders' caution before the result of Reserve Bank of India's INR 500-billion open market operation auction to purchase six gilts, dealers said.

 

Earlier, 11 states were aiming to raise INR 401.20 billion through the auction on Tuesday. On Monday, after market hours, the RBI revised the state bond auction size and said 13 states will raise INR 521.20 billion. The increase in the quantum was expected to be slightly negative for gilt prices. However, the OMO auction of similar quantum alleviated some of the downward pressure as banks will have replacement demand, dealers said.

 

"There will be no significant burden on liquidity as the large size of the state bond auction will be absorbed from the inflows of the OMO buy auction," a dealer at a private bank said. "Now the market will likely remain in a narrow price band as traders will eye the result of the state bond auction to lend some direction."

 

While the larger state bond auction auction is also seen sailing through, traders had expected a narrowing of state bond spreads over gilt yields this week. That may not happen with the increase in supply, and could also weigh on gilt prices later in the day if cut-off yields are higher than expected, dealers said.

 

Meanwhile, at the OMO buy auction, traders expect a full subscription, but said there might not be a significant takeaway for secondary market prices as the bonds on offer are largely illiquid. At 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. The cut-off prices at the auction are pegged by dealers to be 20–30 paise lower than the gilts' market price.

 

Dealers expect aggressive bidding for the 7.26%, 2032, 7.26%, 2033, and the 7.73%, 2034 bonds as these were not included in earlier OMO auctions and banks are looking to take advantage of the profitable exit of these bonds near the year-end. The first two bonds are erstwhile 10-year benchmark gilts and have outstanding amounts of nearly INR 1.5 trillion each.

 

Trade volumes remained muted as dealers were focused on bidding at the auctions. The market-wide turnover was INR 16.25 billion, against INR 3.70 billion at 0930 IST on 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 6.65-6.72%.  (Vidhushi RajPurohit)

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India Gilts: Seen tad down after state bond auction size increased

 

MUMBAI – Government bond prices are likely to open lower after the Reserve Bank of India on Monday revised the state bond auction size to INR 521.20 billion from the INR 401.20 billion notified on Thursday, dealers said. The focus will be on auctions in the first half of the day, with the central bank also conducting an INR 500-billion open market operation auction to buy six gilts.

 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.72%, compared with 6.69% on Monday. Bond prices had risen slightly on Monday as the earlier state bond auction was smaller than expected, among other positives. Traders are also likely to trim their holdings of gilts maturing in 10 years or more to make room for the state bonds on offer, dealers said. The spread of the 10-year state bond over the 10-year gilt yield rose to as high as 58 basis points last week. In the upcoming quarter, dealers expect the spread to compress as the supply of state bonds is likely to ease, which is usual at the beginning of a financial year.  

 

Banks are expected to actively participate at the OMO auction and book profits from their held-to-maturity books. At 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. The cut-off prices at the auction are pegged by dealers to be 20–30 paise lower than the gilts' market price. Dealers expect aggressive bidding for 7.26%, 2033 gilt and the 7.73%, 2034 bond as these were not included in earlier OMO auctions and traders will take advantage of the profitable exit for these bonds near the year-end. Traders expect a full subscription at the OMO auction, but said there might not be a significant takeaway for the market as the bonds on offer are largely illiquid.

 

Meanwhile, some dealers also expect inflows from overseas investors on account of another domestic repo rate cut by the RBI's Monetary Policy Committee in April. Traders may also track intraday movement in US Treasury yields before the US Federal Open Market Committee's rate decision on Wednesday; the committee is widely expected to hold rates. The yield on the benchmark 10-year US Treasury note was at 4.29% at 0800 IST, largely unchanged from 1700 IST on Monday. (Vidhushi RajPurohit)

 

End

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

 

Edited by Tanima Banerjee

 

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