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Informist, Monday, Mar. 24, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended largely steady, recovering most of the day's losses as traders picked up gilts to sell at the Reserve Bank of India's INR 500 billion open market purchase of gilts Tuesday, dealers said. A record supply of state bonds on Tuesday and profit booking after a stellar week had weighed on gilt prices through the day.

The 10-year benchmark 6.79%, 2034 bond ended at INR 101.12, or 6.63%, yield Monday, against INR 101.15, or 6.62% yield, Friday. The benchmark yield last week fell over 7 basis points, notching its best week since the end of November. On Monday, the price of the benchmark 10-year bond was volatile, swinging from losses to recovery, but price movements across most tenures were calmer ahead of two key auctions Tuesday.

Eighteen states will raise INR 566.21 billion through bonds, the largest bond auction across state government securities or gilts on record, slightly higher than the indicated amount of INR 540.65 billion. With the supply coming up, demand for these state bonds in the secondary market was slightly subdued during the day, with asset-liability managers noting how the fall in yields last week made them less desirable for held-to-maturity books as well, dealers said.

Bond prices edged lower in early trade due to the larger-than-expected state bond supply, coupled with a rise in US Treasury yields over the weekend. The yield on the benchmark 10-year US Treasury note rose to 4.30% at 1700 IST, from 4.23% at 1700 IST Friday. The fall in prices was furthered by traders, especially from state-owned banks, who booked profits across tenures. Others took advantage of the sales to stock up before the OMO auction – 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 0930-1030 IST on Tuesday.

"There's nothing much happening in the market right now. Some profit booking for year-end, but some are also buying because OMO (auction)," a dealer at a state-owned bank said. "We're just waiting for the auctions tomorrow."

Traders preferred papers maturing in 7-15 years ahead of the RBI's OMO purchase. Trade volume in papers of similar maturity, also called the 'belly' of the yield curve surpassed other tenures, though the price action was muted. The turnover in the 7.18%, 2033 gilt was INR 11.80 billion, and that in the 7.10%, 2034 gilt was INR 43.15 billion. 

Short bets on the 10-year benchmark fell to the lowest in nearly two months, as traders played on lucrative spreads between government bond yields and overnight indexed swap rates. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1830 IST showed trades worth INR 66.26 billion in the 6.79%, 2034 gilt, down from INR 87.48 billion a week ago. The five-year swap rate ended three basis points higher at 5.90%, as traders paid fixed rates and picked up stock of the 10-year gilt, dealers said.

Traders also looked to hedge some risk by picking up state bonds with maturities of around 10 years and paying the five-year OIS rate, which offered an even more lucrative spread than gilts. The swap contract had fallen to a three-year low last week, and traders were of the view that further monetary policy easing was underpriced in gilts while already being reflected in swap rates, dealers said.

"Back in 2018-2020 also we used to do it, the carry between state bonds and OIS (overnight indexed swap rates) is good and there can't be any further receiving in OIS until UST (US Treasury yields) are down," a dealer at a private bank said. The spread between the five-year swap rate and Tamil Nadu's 7.19%, 2034 state bond yield stood at 115 basis points Monday.

Clearing Corp. of India data at 1830 IST showed purchases by foreign portfolio investors worth INR 11.96 billion via the fully accessible route Monday. As for domestic traders, the appreciation of the rupee to a near three-month high underscored rate cut bets as the central bank's intervention in the foreign exchange market would likely reduce, allaying any fears of a further rupee liquidity crunch. Systemic liquidity has been in a deficit for around over three months, partly triggered by the RBI's rupee rescue when the domestic unit was hitting record lows against the dollar.

Trading volume was muted earlier in the day as traders have already placed their bets on a 25-basis-point repo rate cut in April, though their buys helped gilt prices come off lows. Traders widely expect the rate-setting panel to change its stance to 'accomodative' from 'neutral'. Prices fell to the day's low on profit-booking amid thin volumes, and both recovered in tandem in the second half of trading. Long-term bonds were down more than other tenures, as investors booked profits after these papers outperformed other gilts in March. 

The market-wide turnover for the day was INR 352.40 billion, nearly half that of INR 608.15 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot for the ninth consecutive day.

OUTLOOK

On Tuesday, gilt prices may take cues from the results of the INR-566.21-billion state bond auction, and the RBI's OMO auction. Bidding at the OMO auction is expected to be 10-15 paise lower than secondary market valuations, as participants are seen asking for better prices after selling bonds at a 20-30 paise discount at previous OMO auctions in Jan-Mar. Traders also await the central government's borrowing plan for Apr-Sept and states' borrowing plan for Apr-Jun, due at the end of March.

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 6.60-6.66% during the day.

India Gilts: Mixed; traders book profits post surge last week

MUMBAI--1554 IST--Prices of government bonds were mixed, with long-term gilt prices down as investors booked profits, dealers said. Most traders were on the sidelines, as banks focussed on their year-end portfolio accounting, but some made room for the large supply of state bonds Tuesday, dealers said. Traders also picked up stock of papers maturing in 7-15 years ahead of the Reserve Bank of India's INR 500-billion open market purchase of gilts through auction Tuesday.

Long-term bond prices, which outperformed other tenures in March until last week, were sharply down on investors' profit booking, dealers said. The 40-year benchmark 7.34%, 2064 bond was down 13 paise, at INR 104.45. 

The rush for state bonds seen last week was slightly subdued Monday, as yields have fallen after the aggressive buys and plenty of supply on Tuesday, dealers said. Eighteen states will raise INR 566.21 billion through bonds on Tuesday, the largest weekly state bond sale to date, slightly higher than the indicated amount of INR 540.65 billion. Traders looked to hedge some risk by picking up state bonds with maturities of around 10 years and paying the five-year overnight indexed swap rate, which still offered a lucrative spread.

"State bonds yields are too low to pick up for HTM (held-to-maturity) right now," a dealer at a state-owned bank said. "... but let's see, they may increase because of the large supply tomorrow (Tuesday)." 

Traders picked up gilts maturing within 7-15 years, called the 'belly' of the yield curve in trading parlance, ahead of the RBI's open market operation auction on Tuesday under which the central bank will buy gilts of similar tenures. "It's as if there's replacement demand for the OMO auction before the auction has begun," a trader at a primary dealership said.

At 1530 IST, the marketwide turnover was INR 244.80 billion, against INR 445.95 billion at the same time on 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 6.60-6.65%. (Cassandra Carvalho)

India Gilts: Volatile in thin trade; record state bond auction Tue weighs

MUMBAI--1325 IST--Government bond prices were volatile, repeatedly falling and then recovering losses. Traders sold gilts to make room for state bonds to be picked up at the largest ever bond auction Tuesday, dealers said. Trading volumes remained muted as traders have already placed their bets on a 25-basis-point repo rate cut in April, though their buys helped gilt prices come off lows.

"What we are seeing now is mostly intraday trading and profit-booking... domestic banks are doing that for their year-end targets and they want to go a little light also before that, because of the state bond auction too," a dealer at a private bank said. "Also, the rush from FII (foreign institutional investors) funds into G-sec (gilts) has slowed down a bit so that agressive buying is not coming in today (Monday) and volumes are low." Foreign portfolio investors bought over INR 95 billion worth of gilts under the fully accessible route last week, data from Clearing Corp. of India showed.

Prices fell to the day's low amid thin volumes, and both recovered in tandem after 1240 IST. The marketwide turnover was INR 172.25 billion, against INR 375.80 billion at 1330 IST on Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

The Reserve Bank of India on Friday said that 18 states would raise INR 566.21 billion through bonds on Tuesday, a larger auction than the one on Mar. 26, 2024, when states had raised INR 550.32 billion, the previous record. Despite the size, investors are likely to help the auction sail through as prior to the state bond auction, the RBI has offered to buy INR 500 billion worth of six gilts at an open market operation auction, dealers said. 

Dealers said that traders had already priced in a rate cut in April by the RBI's Monetary Policy Committee and were now widely expecting a stance change to 'accomodative' from 'neutral'. Softer monetary policy typically weakens a domestic currency against the dollar, but the rupee recouped all its 2025 losses against the dollar by Monday after hitting 85.5950 a dollar at the day's high.

Further price gains in gilts will only happen once liquidity conditions in the banking system improve, dealers said. As per latest RBI data, the net liquidity injected by the central bank, a proxy for the liquidity deficit, was INR 2.61 trillion on Sunday, the highest since Jan. 27. During the day, the yield on the 6.79%, 2034 bond is seen at 6.60-6.65%. (Srijita Bose)

India Gilts: Steady; rate cut bets offset impact of large state bond sale Tue

MUMBAI--1005 IST--Government bond prices were steady as traders' buys expecting a repo rate cut in April offset the impact of a larger than indicated state bond auction on Tuesday, dealers said. Traders also refrained from aggressive gilt buys owing to a rise in US Treasury yields over the weekend.

After market hours on Friday, the Reserve Bank of India announced that 18 states would raise INR 566.21 billion through bonds on Tuesday, slightly higher than the indicated amount of INR 540.65 billion. Some traders are expected to make room for higher-yielding state bonds at the last scheduled auction for the current financial year ending March. However, dealers were also of the view that traders would refrain from selling gilts ahead of the RBI's INR 500-billion open market operation auction to buy six gilts. 

"Market is mostly positive right now. Though the (state bond) auction is there, but then we also have an OMO (open market operation) auction. This is keeping prices steady for now. Moreover, heading closer to policy, no one wants to sell aggressively when everyone expects a rate cut," a dealer at a state-owned bank said. 

Meanwhile, the yield on the 10-year US Treasury note rose to 4.28% at 0930 IST, up 5 basis points from 1700 IST on Friday. Foreign portfolio investors are likely to focus on positive domestic cues rather than US yields, though some investors have been booking profits, dealers said. The appreciation of the rupee to an 11-week high of 85.8600 a dollar in early trade Monday made it more likely that the RBI's Monetary Policy Committee would cut interest rates, and the central bank would not have a problem ensuring adequate rupee liquidity in the banking system, dealers said.  

The marketwide turnover was INR 35.40 billion, against INR 191.15 billion at 1030 IST on 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 6.60-6.65%. (Vidhushi RajPurohit)

India Gilts:Seen steady; rate cut view intact, state bond sale Tue may weigh

MUMBAI – Government bond prices are seen steady at open. Traders are likely to continue purchasing gilts as they bet on the possibility of a repo rate cut in April, dealers said. Prices may also be supported ahead of the Reserve Bank of India's INR 500-billion open market operation auction Tuesday. However, a slightly higher-than-indicated state bond auction quantum for Tuesday and a rise in US Treasury yields over the weekend may cap the gains.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.60-6.65%, compared with 6.62% on Friday, its lowest closing level since January 2022. Last week, traders were aggressive in betting on a rate cut by the RBI's Monetary Policy Committee at its next meeting in April due to better than expected liquidity conditions this month, driving down the 10-year gilt yield by 11 basis points from February-end. Traders have been aggressive in their gilt purchases as they began building their portfolios ahead of the RBI's MPC meeting in April which is widely expected to cut the repo rate by 25 basis points to 6.00%. Dealers expect the buying momentum to sustain as they also expect a stance change by the rate-setting panel to 'accommodative' in the upcoming policy meet. 

Traders are likely to pick up gilts of maturities within 7-15 years, as the RBI has announced to buy bonds of similar maturities at the OMO auction to buy gilts on Tuesday, dealers said. The RBI will buy the 7.04%, 2029; 7.17%, 2030; 7.26%, 2032; 7.26%, 2033; 7.50%, 2034, and 7.18%, 2037 bonds. 

On the other hand, some traders would prefer to sell gilts to make room for higher-yielding state bonds on offer at the last scheduled auction for the current financial year ending March, dealers said. Eighteen states will raise INR 566.21 billion through bonds on Tuesday, slightly higher than the indicated amount of INR 540.65 billion. Traders are expected to bid aggressively at the auction on the view that in the upcoming quarter, the spread of these bonds over gilts will compress as the supply of state bonds is likely to ease, which is usual at the beginning of a financial year. The spread of 10-year state-bond issued Tuesday over that of the benchmark 10-year gilt narrowed to 48 bps from 49-58 bps the previous week.

Meanwhile, the yield on the benchmark 10-year US Treasury rose ahead of reciprocal tariffs by US President Donald Trump. Trump's higher tariffs are set to take effect on Apr. 2. Analysts fear the tariffs will result in higher inflation prints, both in the US and the rest of the world. The yield on the benchmark 10-year US Treasury note was at 4.28% at 0830 IST, up 5 bps from Indian market closing on Friday. (Vidhushi RajPurohit)

End

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

Edited by Deepshikha Bhardwaj

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