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Informist, Thursday, Mar. 20, 2025

 

MUMBAI – Prices of government bonds ended sharply higher as traders positioned for a rate cut by the Reserve Bank of India's Monetary Policy Committee in April, while also expecting the panel to change its stance to 'accomodative' from 'neutral'. Dealers also bought gilts on expectation that the yield on the benchmark 10-year gilt would fall to 6.60%, as stop-losses would be triggered at 6.62%, dealers said. 

 

The 10-year benchmark 6.79%, 2034 bond ended at INR 101.07, or 6.64% yield Thursday, against INR 100.90, or 6.66% yield, Wednesday. The gilt's yield closed at the lowest level since Jan. 21, 2022. Gains were limited as the yield approached the psychologically crucial 6.62% level, at which stop-losses would be triggered, dealers said.

 

The fear of missing out on gains in case the 10-year gilt yield fell to 6.60%, brought in demand from mutual funds and corporate entities, dealers said. Bond prices also reached the day's high on purchases by foreign banks and foreign portfolio investors. However, state-owned banks likely dominated the rush to buy gilts as they had refrained from aggressive purchases when the benchmark's yield was at 6.70%, on hope the yield would rise to 6.75% at which bonds would be cheaper to buy.  

 

State-owned banks picked up gilts for their trading books, while private banks were likely sellers, dealers said. Traders expected stop-losses on short positions to send the benchmark 10-year yield plunging to 6.60% and rushed to take advantage of current levels despite rich valuations. Additionally, buying momentum picked up as banks shifted their focus to betting on a rate cut as their credit-disbursal and profit-booking targets for year-end neared a close, dealers said.

 

"No one wants to miss out right now because we may see 6.60% immediately after 6.62?cause of the stop-losses," a dealer at a private bank. "PSUs didn't buy earlier because they wanted yields to rise and (because of) credit off-takes so now they're in the market (to buy)."

 

Trade volumes surged, with the market-wide turnover for the day at INR 751.60 billion, up from INR 546.00 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Trade in the benchmark 10-year gilt rose to INR 348.50 billion, the highest since the MPC cut the repo rate to 6.25% on Feb. 7. 

 

"Everyone is buying across the curve, spreads are narrowing and many more participants in the market today (Thursday)," a dealer at state-owned bank said. 

 

Inflows from year-end collections boosted purchases from mutual funds and insurance companies, dealers said. Mutual funds sold short-term Treasury bills, and used those funds for gilt buys. Their sufficient cash levels also saw the triparty repo rate at 6.16%, below the RBI's repo rate of 6.25%. Insurance companies were also aggressively buying long-term gilts on speculation of the RBI issuing a 100-year bond, following comments from the chief executive officer of Life Insurance Corp. of India on Monday, dealers said. 

 

The 7.34%, 2064 gilt yield hit 6.97%, the lowest level seen since Oct. 17. Traders also picked these bonds on expectations that the share of 30-year to 50-year bond supply would fall in the first half of the 2025-26 (Apr-Mar) borrowing calendar to 30-36% from 38.6% in Oct-Mar of FY25, dealers said. Foreign portfolio investors were also picking up long-term bonds, dealers said. 

 

The outcome of the US Federal Open Market Committee meeting late Wednesday was also seen positive, aiding the rise in bond prices, dealers said. The panel held rates steady and retained the expectation of rate cuts later this year. The median view indicated the Fed funds rate would fall to 3.75-4.00% by December-end. Consequently, the yield on the US 10-year benchmark note fell 5 bps to 4.23% at 1700 IST from 4.29% at the Indian market close on Wednesday. Following the widening interest rate differential between safe haven US debt and Indian gilt yields, foreign portfolio investors picked up fully accessible gilts worth INR 20.48 billion, Clearing Corp. of India data showed as of 1730 IST. 

 

Foreign portfolio investors also picked up state bonds due to the higher returns the securities offered over gilts, dealers said. FPIs bought state bonds worth INR 200 million Thursday, data at 1730 showed. State-owned banks also preferred state bonds to refill their 'held-to-maturity' books after sales at the RBI's open market auctions. The RBI has bought gilts worth INR 2 trillion via OMO auction in Jan-Mar so far, most of which was illiquid stock from HTM books. As per RBI guidelines, banks would have to update the value of their books to secondary market valuations at the financial year-end. Traders, thus, preferred higher-yielding state bonds over gilts, to ensure the weighted average yields of their books were lucrative, dealers said. Karnataka's 7.08%, 2034 bond, which is of similar maturity to the 6.79%, 2034 benchmark 10-year gilt, was last traded at a yield of 7.05% from 7.08% a month ago. 

 

Most traders no longer expect states to issue bonds twice next week, a speculation which had deterred traders from bidding aggressively at the state bond auction last week. States had raised bonds twice a week around the same time last year. Traders have shifted their focus to next week's Treasury bill auction. Dealers speculated that the RBI could cancel the last scheduled auction for Jan-Mar. A cancellation of Wednesday's auction would prevent outflows of up to INR 330 billion, the notified aggregate amount. Government spending scheduled for the end of the month may roll over to April due to holidays for Eid and banks' account closure after the next weekend, dealers said.

 

Some traders also expect the RBI to announce another open market purchase of gilts, or a dollar/rupee buy/sell swap next week, to address the liquidity deficit after goods and services tax outflows. There were no trades using the wholesale digital rupee pilot Thursday, for the seventh consecutive day.

 

OUTLOOK

On Friday, gilt prices may may sustain Thursday's momentum as traders bet on the possibility of further domestic rate cuts and a stance change by the Monetary Policy Committee to 'accommodative' in April. Traders will also await any announcement by the RBI on liquidity, and may also take cues from overnight lending rates. 

 

Traders may also assess developments related to US tariff policy and the rupee's movement against the dollar, dealers said. US Treasury yields and 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 6.62-6.68% during the day.

 

	THURSDAY		WEDNESDAY
	PRICE	YIELD	PRICE	YIELD
6.79%, 2034	101.0675	6.6366%	100.9025	6.6601%
6.75%, 2029	100.8700	6.5309%	100.7400	6.5630%
7.10%, 2034	102.7600	6.6877%	102.5900	6.7127%
7.23%, 2039	104.0500	6.7781%	103.9000	6.7944%
7.34%, 2064	104.7500	6.9833%	104.5500	6.9977%

 

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India Gilts: Remain up; state bond yields slump on PSU bks' demand

 

	1557 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	101.05	101.13	100.94	100.96	100.90
YTM (%)	6.6391	6.6277	6.6547	6.6519	6.6601

 

MUMBAI--1557 IST--Prices of government bonds remained up, with the benchmark 6.79%, 2034 gilt touching the day's high of INR 101.13, as purchases by foreign banks and foreign portfolio investors amped up, dealers said.

 

State-owned banks purchased state bonds for their 'held-to-maturity' books, dealers said. Traders also looked to capture the higher yields of state bonds over gilts, as banks aimed to have a higher weighted-average yield in their portfolios towards the end of the financial year. Karnataka's 7.08%, 2034 bond, which is of similar maturity to the 6.79%, 2034 benchmark 10-year gilt, was last traded at a yield of 7.05% from 7.08% a month ago. 

 

"Because of the RBI guidelines, all our portfolio investments have to be marked-to-market and a 6.60-6.65% weighted average (yield) is challenging to have," a dealer at a state-owned bank said. "If you see the 10-year SDL (state bond) has had almost a one rupee gain since last month."

 

Other state-owned banks were building trading positions, since refilling 'held-to-maturity' books with gilts at current market valuations was expensive, and would limit portfolio adjustments at the year-end. Traders across segments looked to book profits, capping gains as the yield on the benchmark fell to 6.63%, a two-year low--barring a brief fall to this level on Jan. 28.

 

Mutual funds and insurance companies were actively purchasing gilts in the secondary market, positioning for a rate cut by the RBI's Monetary Policy Committee in April. Traders also expect the RBI to announce another open market purchase of gilts, or a dollar/rupee buy/sell swap next week, to address the liquidity deficit after goods and services tax outflows. Government spending scheduled for the end of the month may roll over to April due to holidays for Eid and banks' account closure after the next weekend, dealers said. Dealers also speculated that the RBI could cancel the last scheduled auction of Treasury bills for Jan-Mar. A cancellation of Wednesday's auction would prevent outflows of up to INR 330 billion, the notified aggregate amount. 

 

Some traders exited the 6.79%, 2034 benchmark to purchase the 7.10%, 2034 gilt, as the spread between the two narrowed to around 4 basis points from 8 bps two weeks ago. Traders played on similar spreads between the benchmark and 15-year papers, dealers said. 

 

The marketwide turnover was INR 680.85 billion, sharply higher than INR 429.50 billion at 1530 IST on Wednesday, 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 6.62-6.68%. (Cassandra Carvalho)

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India Gilts: Remain firm as traders bulk up Apr rate cut, softer stance bets

 

	1400 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	101.10	101.12	100.94	100.96	100.90
YTM (%)	6.6320	6.6291	6.6547	6.6519	6.6601

 

MUMBAI--1400 IST--Government bonds held on to gains as traders bulked up their bets on a repo rate cut in April and a softer stance by the Reserve Bank of India's Monetary Policy Committee, dealers said. A fall in US Treasury yields also supported bond prices. 

 

"The credit offtakes that banks were doing are nearly done, so now they are amping up their positions for April MPC...we could hit 6.60% (yield on the 10-year benchamrk 6.79%, 2034 gilt) by Mar. 31," a dealer at a state-owned bank said. "There is buying accross the curve but long-term bonds are seeing more move because one will get a higher price appreciation in a deeper rate cut cycle."

 

Tarders almost unanimously expect the RBI's rate-setting panel to cut the repo rate by another 25 basis points at its meeting in April, dealers said. Traders expect nearly 50 bps of rate cut over the next 12 months but are waiting for liquidity conditions to ease and global uncertainties to play out before building up their bets on the same, they said. Traders are also betting on the RBI's rate-setting panel changing its stance to 'accommodative' from 'neutral' at the April policy review to signal its commitment of a looser monetary policy, dealers said.

 

Buying momentum picked up as banks shifted their focus to betting on a rate cut as their credit-disbursal and profit-booking targets for year-end neared a close, dealers said. Demand from banks to replace the bonds sold at RBI's open market gilt purchase auctions also picked up, they said.

 

Demand for longer tenure bonds remained firm as price appreciation of these bonds is likely to be greater due to their higher duration, dealers said. The yield on the 7.34%, 2064 bond fell bellow 6.97%, the lowest level seen since Oct. 17. Traders also picked these bonds on expectations that the share of 30-50-year bond supply would fall in the first half of the 2025-26 (Apr-Mar) borrowing calendar to 30-36% from 38.6% in Oct-Mar of FY25, dealers said. 

 

Foreign banks and investors also likely bought gilts as US yields fell, dealers said. The yield on the 10-year benchmark US Treausry note fell to 4.24% from 4.30% at 1700 IST on Wednesday after the outcome of the US Federal Open Market Committee's meeting late Wednesday.

 

Meanwhile, the rise in shorter tenure bonds was limited as liquidity conditions remained tight and as traders trimmed their already heavy positions in these bonds, dealers said. The net liquidity injected by the central bank was INR 2.29 trillion on Wednesday despite inflows from RBI's INR 500 billion worth of OMO auction this week due to goods and service tax outflows, they said. 

 

The marketwide turnover was INR 502.10 billion, higher than INR 356.10 billion at 1430 IST on Wednesday, 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 6.62-6.68%.  (Srijita Bose)

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India Gilts: Up as bets on Apr rate cut stack up, US yields fall

 

	1010 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	101.04	101.06	100.94	100.96	100.90
YTM (%)	6.6405	6.6380	6.6547	6.6519	6.6601

 

MUMBAI--1010 IST--Prices of government bonds were up as traders continued to pick up gilts on hopes that the Reserve Bank of India's actions to support liquidity are setting the stage for a cut in interest rates next month, dealers said. An overnight fall in US Treasury yields also aided gilt prices. 

 

"Market has been dull for quite a while, as banks were focusing on year-end credit targets. But as the tax outflows are managed by RBI's infusion of funds, and we are heading closer to policy, dealers are now trying to actively build their portfolios," a dealer at a state-owned bank said.  

 

Tight liquidity conditions and large tax outflows kept most banks on the sidelines in March with dull trade volumes for most of the days, dealers said. However, dealers are of the view that the selling pressure to book profits for the current financial year ending Mar. 31 has abated. Banks are now actively building up their books after having sold gilts worth INR 2 trillion at RBI's open market operation auctions since January, dealers said. 

 

During the day, traders also expect prices to be aided from inflows from overseas investors owing to an overnight fall in US yields. The yield on the US 10-year benchmark note fell 5 bps to 4.24% at 0900 IST from 4.29% at the Indian market close Wednesday. The fall in US yields was a result of the US Federal Open Market Committee's indication that the Fed funds rate would fall to 3.75-4.00% by December end. Late on Wednesday, the FOMC announced its decision to keep the Fed funds target range unchanged at 4.25-4.50%, in line with the market's expectations.

 

The market-wide turnover was INR 182.70 billion, against INR 104.00 billion at 1030 IST on Wednesday, 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 6.62-6.70%. (Vidhushi RajPurohit)

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India Gilts: Seen tad up on April rate cut view, fall in US yields

 

MUMBAI – Prices of government bonds are expected to open slightly higher as traders are likely to continue placing bets on a domestic repo rate cut in April, dealers said. Gilt prices might also track an overnight fall in US Treasury yields as the US Federal Open Market Committee continued to signal reduction of 50 basis points in policy rates this year. 

 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.62-6.70%, compared with 6.66% on Wednesday. Prices of gilts are expected to sustain Wednesday's momentum as traders bet on the possibility of further domestic rate cuts and a stance change by the Reserve Bank of India's Monetary Policy Committee to 'accommodative' in April. 

 

Dealers were of the view that ahead of the next Monetary Policy Committee meeting in April, the yield on the 10-year benchmark gilt is likely to fall to 6.62% as the RBI's continued measures to support liquidity bolstered hopes of policy easing. However, traders will continue to gauge evolving liquidity conditions as a rate cut requires the system to have adequate liquidity for transmission into the broader financial system. 

 

Late on Wednesday, the US Federal Open Market Committee announced its decision to keep the Fed funds target range unchanged at 4.25-4.50%, in line with the market's expectations. At 2315 IST Wednesday, the CME FedWatch tool showed that Fed fund futures reflected a near 100% probability of the FOMC leaving rates unchanged. US Federal Reserve Chair Jerome Powell acknowledged that after the tariff impositions by US President Donald Trump, uncertainty around the economic outlook had increased. 

 

However, the FOMC retained the expectation of rate cuts later this year. The median view indicated the Fed funds rate would fall to 3.75-4.00% by December-end. Consequently, the yield on the US 10-year benchmark note fell 5 bps to 4.24% at 0800 IST from 4.29% at the Indian market close on Wednesday. (Vidhushi RajPurohit)

 

End

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

 

Edited by Akul Nishant Akhoury

 

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