More Stories

Informist, Tuesday, Mar. 25, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended lower after seesawing during the day. Bonds recovered early losses after the better-than-expected cut-offs at the state bond sale and the Reserve Bank of India's open market operation auction, but shallow gains faded as traders rebalanced their books from being allocated the massive state bond supply, dealers said.

"Everyone got allotted (at the state bond auction) so because of that the prices were slightly down," a dealer at a private bank said. "It's also that everything's done for now, its (the auctions are) over."

The 10-year benchmark 6.79%, 2034 bond ended at INR 101.07, or 6.64%, yield Tuesday, against INR 101.12, or 6.63% yield, Monday. Mutual funds and foreign banks were likely aggressive sellers through the day, dealers said. Other sections of the market also sold the 10-year gilt as its yield fell to the psychologically crucial 6.62% mark, and after getting hit with the supply of INR 722.55 billion, a record, from the state bond auction. 

The upward revision in the notified amount at the state bond auction, to INR 746.55 billion from INR 566.21 billion earlier, had led to an early fall in gilt prices. Some traders were also disappointed that the RBI bought only INR 445.41 billion worth of gilts at OMO auction, instead of the INR 500 billion notified, which was seen as a signal of the central bank's discomfort with rising cut-off prices, dealers said.

Since the OMO auction was announced last week, gilt prices have risen as traders expect banks to replenish their bondholdings in the secondary market from the additional OMO purchase by the RBI. Dealers had expected cut-off prices at the OMO purchase auction to be around 10 paise lower than the secondary market valuations of the off-the-run bonds, but cut-off prices on all bonds were slightly higher than the median in an Informist poll. Banks had already sold INR 2 trillion worth of bonds through previous OMO purchase auctions, largely at a deeper discount.

A few state-owned banks that were still keen on maximising profits for the quarter end and year end tendered a larger quantum of the bonds at a discount to indicative prices from Monday, but most banks, including private banks and some primary dealerships offered the gilts at prices closer to market values, dealers said. The auction was a positive for private banks' asset and liability managers as well, after being unable to dump illiquid stock at previous OMO auctions because of state-owned banks' aggressive tendering. 

"This time at OMO (purchase auction), private banks were finally able to sell at a good cut-off (prices), I think even for PSUs (state-owned banks)...they have sold from HFT (held-for-trading) and AFS (available-for-sale) books this time," a dealer at a private bank said. "But even then RBI did not accept the full quantum...so there was some disappointment."

The lack of interest from asset-liability managers of large state-owned banks was also seen in the disappointing offer to cover ratio, dealers said. Market participants tendered gilts worth only INR 675.40 billion against the INR 500 billion notified amount, continuing a trend where the offer to cover ratios have been declining for the OMO auctions over the past few weeks. On Mar. 18, the market had tendered INR 1.01 trillion against the same notified amount, while the central bank's OMO auction on Jan. 30 – its first since the aftermath of the COVID-19 pandemic – had seen offers over six times the notified amount.

Instead, state-owned banks took advantage of the two auctions being back to back, and refilled their books with state bonds after selling gilts aggressively at the RBI auctions earlier in Jan-Mar. Investment demand was robust as spreads of state bonds over gilts declined on week, but were still higher than seen between April and February, dealers said. Some state-owned banks trimmed stock of gilts after the state bond auction cut-offs, but only in light volumes.

"Market was thinking the state bond auction won't be fully accepted but it was the last auction so traders bid aggressively, and PSUs (state-owned banks) bought the most because of replacement demand from the OMO," a dealer at a state-owned bank said. 

Traders also bid aggressively given it was the last auction in the current financial year ending Monday, betting on being able to sell the bonds at a profit once spreads narrow in Apr-Jun, when state bond supply typically falls away. The cut-off yields on Tamil Nadu's and Madhya Pradesh's 10-year bonds were 7.01% and 7.02%, respectively, a positive surprise, dealers said. Long-term state bond cut-off yields were also within view, with the highest cut-off yield at 7.12%. Chhattisgarh rejected bids for two bond re-issues, while Tamil Nadu's 2026 re-issue was undersubscribed, but traders shrugged it off as insubstantial among the 49 bonds on offer. 

Foreign portfolio investors purchased state bonds of 10-15 year maturities, dealers said. Some banks and primary dealerships struggled to place bids on the e-Kuber site as the processing was slow, while others faced an issue with setting price bands for the bids, dealers said. However, these issues were resolved by the end of the auction and all bids were successfully processed by 1130 IST, requiring no extension to the bidding.

Trade volume was tepid before the auction result, but surged as expected taking cues from the cut-offs and accepted amounts. The market-wide turnover for the day was INR 524.50 billion, compared to INR 352.40 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 for the tenth consecutive day.

OUTLOOK

On Wednesday, gilt prices may open steady due to a lack of fresh domestic cues scheduled until the government details its borrowing calendar for Apr-Sept, with some dealers also looking to states' borrowing plan for Apr-Jun, both likely this week. Traders may continue to place bets on a repo rate cut and stance change by the RBI's Monetary Policy Committee in April, dealers said.

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 6.60-6.68% during the day.

India Gilts: Reverse losses as OMO, state bond auction cut-offs beat view

MUMBAI--1550 IST--Prices of government bonds reversed earlier losses, as the cut-off yields set by the Reserve Bank of India at its open market auction purchases were lower than the market expectations, dealers said. The cut-off yields at the record state bond auction were also lower than expectations, even as they raised less than the notified amount.

Traders sold the 10-year gilt as its yield fell to the psychologically crucial 6.62% mark, leading to two-way trade and puncturing the upward momentum in the bond's price, though other bonds of similar tenures rose. The market-wide turnover on the Negotiated Dealing System – Order Matching platform doubled in the hour after the results of both auctions to INR 345.40 billion from INR 179.50 billion at 1430 IST.

The RBI bought INR 445.41 billion worth of the 7.04%, 2029; 7.17%, 2030; 7.26%, 2032; 7.26%, 2033; 7.50%, 2034, and 7.18%, 2037 bonds, against a notified amount of INR 500 billion. Cut-off prices at the OMO auction were 5-10 paise above the median expectation in an Informist poll, and the largest quantum was accepted for the 7.18%, 2037 gilt, as traders had expected.

A few state-owned banks that were still booking profits for the year-end and quarter-end earnings tendered bonds at a discount to indicative prices from Monday, but most banks, including private banks and some primary dealerships offered the gilts at prices closer to market values, dealers said. Most banks did not expect another OMO auction to be announced after INR 1 trillion worth of RBI buys in March. They had been more aggressive in their tenders at previous auctions to offload profitable bonds, even at a discount from current market prices, to the RBI from their held-to-maturity books.

As for the state bond auction, cut-offs were better than expected despite the heavy supply of INR 746.55 billion. Twenty-one states raised INR 722.55 billion, the largest quantum on record. Chattisgarh did not accept any bids for two bond re-issues, while Tamil Nadu got bids for less than the notified amount on one of its re-issues.

However, traders were pleasantly surprised at the 7.01% cut-off yield on Tamil Nadu's 10-year bond. Madhya Pradesh's 10-year bond was also set at a competitive cut-off yield of 7.02%, dealers said. State-owned banks and foreign portfolio investors likely dominated the bidding at the state bond sale. In the case of state-owned banks, they rushed to refill their books with state bonds after tendering gilts from 'held-to-maturity' books at the OMO auction earlier in the day, as well as in the five prior OMOs since Jan. 30.

"The (state bond) auction cut-offs show very good demand, PSU banks (state-owned banks) really wanted to get state bonds after the OMO," a dealer at a state-owned bank said. "We did not expect 7.01% on Tamil Nadu (10-year), even Madhya Pradesh (10-year) is 7.02%."  During the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.60-6.66%. (Cassandra Carvalho) 

India Gilts: Off lows ahead of RBI OMO, state bond auctions' results

MUMBAI--1231 IST--Government bond prices were off lows ahead of the results of the record state bond auction and the Reserve Bank of India's purchase of gilts at the open market operation auction. Bidding showed that market appetite was robust, and the cut-offs are expected to lend positive cues to gilt prices to recover all losses, dealers said.

Traders kept to the sidelines with bidding across the two auctions from 0930 IST until 1130 IST, at which point gilt prices fell due to the upward revision in the state bond auction size. After the bidding ended, gilt prices recovered slightly as trading activity increased betting on higher-than-expected cut-off prices at the open market operation auction and lower cut-off yields for state bonds. The market-wide turnover was INR 89.00 billion, against INR 101.95 billion, at 1230 IST on Monday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. 

"Everyone is waiting for the auction results to come out, though expectations are that both will be good and priced will reverse from here by day-end," a dealer at a primary dealership said. "People have got a lot to sell from their trading books and will not be desperate to sell at a deep discount at OMO too...and the replacement will go to state bonds." During the day, the yield on the 6.79%, 2034 bond is seen at 6.60-6.66%. 

Instead of state-owned banks, which dominated a majority of the RBI's prior OMO auction, asset-liability managers from private banks as well as traders are expected to offload some stock at the central bank's bond buy auction Tuesday, dealers said. They have tendered the bonds at a discount to market prices, though much lower than the 20-30 paise prevalent in most auctions so far in Jan-Mar. 

With the RBI buying gilts, the record state bond auction of INR 746.55 billion is likely to sail through, with spreads likely to compress from last week's auction, dealers said. On Mar. 18, the RBI set the cut-off yield on Rajasthan's 10-year bond at 7.15%, 48 basis points higher than the 10-year benchmark 6.79%, 2034 gilt.

"The market has rallied since last week, and spreads (between the 10-year state bond over the 10-year gilt) are not likely to be above 40 bps," another dealer at a primary dealership said. "The auction size does not matter, because the RBI itself is buying INR 500 billion." Foreign portfolio investors are also keen on picking up higher-yielding state bonds, and may pick up over INR 20 billion worth of the stock at the auction, dealers said.

Some banks and primary dealerships struggled to place bids on the e-Kuber site as the processing was slow, while others faced an issue with setting price bands for the bids, dealers said. However, these issues were resolved by the end of the auction and all bids were successfully processed by 1130 IST, requiring no extension to the bidding. (Srijita Bose and Aaryan Khanna)

India Gilts: Dn before record state bond auction; RBI's OMO buy result eyed

MUMBAI—0930 IST--Government bond prices were down as the Reserve Bank of India on Monday revised the notified amount for the state bond auction higher, dealers said. Trading interest was limited as dealers were on the sidelines before the RBI's INR 500-billion open market operation purchase auction to buy six gilts at 0930-1030 IST. The market-wide turnover was INR 15.85 billion, against INR 11.75 billion at 0930 IST on Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

Earlier, 18 states were aiming to raise INR 566.21 billion through the auction on Tuesday. On Monday, after market hours, the RBI revised the state bond auction size and said 21 states would raise INR 746.55 billion at 1030-1130 IST. This is the largest bond auction on record and also the last scheduled auction of dated securities for the current financial year ending Monday. The increase in the quantum led gilt prices to inch lower. However, the OMO auction which is scheduled before has alleviated some pressure on gilt prices, dealers said. 

Dealers expect cut-off prices at the OMO purchase auction to be 10–15 paise lower than the secondary market valuations of off-the-run bonds. They have already sold INR 2 trillion worth of bonds through previous OMO purchase auctions, largely at a deeper discount, dealers said. Since this auction was announced last week, gilt prices have risen as traders expect banks to replenish their bondholdings in the secondary market from the additional OMO purchase by the RBI.

"This auction is over and above what the market had expected, this time traders are not looking to give away their holdings at a great discount," a dealer at a private bank said. "It won't be a surprise if some bonds are actually bidded at their market valuations."

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. Traders expect aggressive bidding for the 7.04%, 2029 gilt and the 7.50%, 2034 gilt as this is the first time that the RBI has offered to buy these two bonds through auction since January, dealers said.

Traders will take cues from the result of the auctions. The large state bond auction result could weigh on gilt prices if the cut-off yields are much higher that market's expectations, dealers said. During the day, the yield on the 6.79%, 2034 bond is seen at 6.60-6.66%.  (Vidhushi RajPurohit)

India Gilts: Seen lower before record state bond auction; OMO buy may aid

MUMBAI – Government bond prices are likely to open lower as the Reserve Bank of India on Monday revised the state bond auction size to INR 746.55 billion from the INR 566.21 billion notified on Friday, dealers said. The impact of the record supply may be mitigated by the Reserve Bank of India conducting an INR 500-billion open market purchase of gilts at an auction before it.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.60-6.66%, compared with 6.63% on Monday. Gilt prices are expected to take cues from the result of the two auctions. Cut-off prices at the OMO auction are expected to be 10-15 paise lower than secondary market valuations of the off-the-run bonds, down from a 20-30 paise discount earlier, as banks have fulfilled a majority of their profit-booking impulses and will be less aggressive in tendering to the RBI, 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. Traders expect aggressive bidding for 7.04%, 2029 gilt and 7.50%, 2034 gilt as this is the first time that the RBI has offered to buy these two bonds through auction since January, dealers said. Some traders also expect the 7.18%, 2037 bond to receive good bidding as the bond has a large outstanding figure of INR 1.72 trillion. 

Trade volumes are expected to pick up after the bidding for the OMO purchase auction is over, as dealers are likely to try to trim their holdings of gilts maturing in 10 years or more to pick up the higher-yielding state bonds at the largest state bond auction on record. Others said focus on the auctions may limit trading activity before 1130 IST, when the state bond auction is scheduled to end. This is also the last scheduled auction of dated securities for the current financial year ending Monday.

Traders are likely to participate aggressively in the state bond auction as, in the upcoming quarter, dealers expect the supply of state bonds to ease, which is usual at the beginning of a financial year. Consequently, the spread of these bonds over the gilts will compress. The spread of 10-year state-bond issued last week over that of the benchmark 10-year gilt narrowed to 48 bps from 49-58 bps the previous week. Regardless of the positioning before the auction, the massive supply is expected to drive up spreads, dealers said. (Vidhushi RajPurohit)

End

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

Edited by Deepshikha Bhardwaj

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.