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Informist, Thursday, Mar. 27, 2025

By Srijita Bose

MUMBAI – Government bond prices erased most of the day's gains in the last half hour as traders sold bonds to book profits before the end of the financial year, dealers said. Though Friday is the last trading day for the financial year, only trades up till Thursday would be accounted for in the 2024-25 (Apr-Mar) profit and loss accounts since gilts are settled on a 'T+1' basis.

The 10-year 6.79%, 2034 bond ended at INR 101.31, or 6.60% yield, flat against Wednesday. Intraday, the 10-year benchmark yield had fallen below 6.58% for the first time since Jan. 17, 2022.

Most of the sales were concentrated in the 10-year benchmark, while other bonds were off highs but held onto some gains as traders maintained their view of a light Apr-Sept borrowing plan, along with a rate cut and softer stance by Reserve Bank of India's Monetary Policy Committee next month, dealers said.

"Today (Thursday) is the last day for people to book profits so the market gave up gains... mostly domestic banks sold at the last minute," a dealer at a private bank said. "But the view on the (borrowing) calendar remains unchanged."

Traders expect the government to raise 53-55% of its INR 14.82 trillion gross borrowing aim for FY26 in the first half, at around INR 8 trillion. Traders also expect issuance in gilts maturing in 30-50 years and 15 years to be reduced, with the supply in bonds up to seven years to be increased. In the first half of the current financial year, the supply of papers in the 30-50 bucket was 37% and the 15-year bucket was 13.9%. 

"The kind of movement we have seen today (Thursday) and yesterday (Wednesday), it looks like FOMO (fear of missing out) buying from private banks mostly for rate cut positioning and OMO (open market operation gilt purchase auction by RBI) replacement with some punting for calendar too," a dealer at a primary dealership said. "If the calendar comes at 53-55% then the rally is okay, but if it comes more than that around 57-59% then we may see a sell-off from here and an upside movement of around 2 basis points (on the 10-year benchmark gilt)."

Gains during the day were concentrated on bonds maturing in around 15 years on both replacement demand from banks after selling at RBI's OMO auctions and speculation of lower supply in the upcoming calendar, dealers said. The 15-year benchmark 6.92%, 2039 gilt was the third-most traded paper, with the yield falling by nearly 8 basis points since Tuesday's close. Traders favoured the 15-year gilt with some traders finding spread over the 10-year benchmark 6.79%, 2034 gilt lucrative on the expectation of a rate cut and stance change to 'accommodative' from 'neutral' by the RBI's rate-setting panel in April. The spread was around 14 bps at the start of the week, which came down to nearly 10 bps on Thursday, and may further compress by the end of the month, dealers said.

Meanwhile, traders also picked up some shorter-tenure bonds maturing up to 10 years as liquidity conditions eased with the net liquidity injected by RBI declining to the lowest level since Mar. 4, on government's month-end spending and RBI's continued liquidity push, dealers said. However, the five-year benchmark 6.75%, 2029 gilt was nearly flat, underperforming peers since Wednesday, as traders expect an increased share of supply in the segment, dealers said. 

Dealers are also expecting the Apr-Jun borrowing plan for state bonds to be released by Friday. Most were of the view that the indicated borrowing would come around INR 2.5 trillion, similar to the current year, though the actual borrowing may undershoot, dealers said. However, traders have already positioned for a lower borrowing and refrained from increasing their exposure on these bonds as the yield spread on the best-performing 10-year state bond over the 10-year benchmark gilt has narrowed to 37 bps at the last state bond auction of the year on Tuesday from nearly 60 bps earlier in the month. 

Meanwhile, private banks continued to pick up gilts maturing in 7-15 years to replenish their portfolios after selling at RBI's open market gilt purchase auction on Tuesday. Foreign portfolio investors were also major buyers during the day on rate cut expectations, dealers said. According to data from Clearing Corp of India at 1915 IST, overseas investors bought gilts amounting to INR 17.88 billion through the fully accessible route. Gains were capped by some likely profit booking from state-owned banks, dealers said. Mutual funds likely remained on the selling side due to redemption pressure at the quarter-end and year-end, dealers said.

The market-wide turnover for the day was INR 682.50 billion, compared to INR 682.10 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There was no trade using the wholesale digital rupee pilot for the 12th consecutive day.

OUTLOOK

On Friday, government bond prices may rise slightly after the size of the government's borrowing in Apr-Sept came in line with expectations. However, traders may adjust their portfolios on the basis of the share of bonds on offer. Moreover, traders may book profits after buying gilts aggressively earlier this week.

After market hours Thursday, the government said it will borrow INR 8.00 trillion through gilts in Apr-Sept, including INR 100 billion through 30-year sovereign green bonds. The biggest share of the borrowing, at 26.2%, will be through the 10-year gilt, as is usual.

Traders are likely to retain their bets on a repo rate cut and stance change by the RBI's Monetary Policy Committee in April due to a lack of significant interest rate cues until the next review on Apr. 7-9, dealers said. Some dealers are also looking forward to states' borrowing plan for Apr-Jun, also likely to be released this week.

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 6.55-6.65% during the day.

India Gilts: Remain up; 15-year benchmark outperforms for 2nd straight day

MUMBAI--1610 IST--Government bond prices remained up, with significant gains concentrated on bonds maturing in around 15 years on both replacement demand from banks and speculation of lower shares of the tenure in the Apr-Sept borrowing plan, dealers said. Gains in the 6.79%, 2034 bond were capped, likely by profit booking from traders, as the 10-year benchmark gilt fell to 6.58%, its lowest level in over three years. 

The 15-year benchmark 6.92%, 2039 gilt was the third-most traded paper, and its yield has fallen by nearly 8 basis points since Tuesday's close. The gilt has been in favour since Wednesday as traders speculated that the government's borrowing plan for the first half of 2025-26 (Apr-Mar) will have a lower share than the 13.9% in Apr-Sept this year. Some traders also said that the spread of the 15-year gilt over the 10-year benchmark 6.79%, 2034 gilt was also lucrative for traders to pick up these bonds. The spread was around 14 bps at the start of the week, which came down to nearly 10 bps on Thursday, and may further compress by the end of the month, dealers said.

Meanwhile, the 6.75%, 2029 gilt was largely steady as dealers said they had already priced in a 25 basis point repo rate cut by the Reserve Bank of India's Monetary Policy Committee in April. The yield on the five-year benchmark gilt fell to 6.48% on Wednesday, the lowest level since Apr. 7, 2022. Some dealers also said that in case of a rate cut, the price appreciation will be greater for duration papers which also reduced interest for short-tenure papers.

Private banks and foreign portfolio investors were the major buyers on domestic rate cut expectations, dealers said. According to data from Clearing Corp of India at 1500 IST, overseas investors bought gilts amounting to INR 4.15 billion through the fully accessible route. Gains were capped by some likely profit booking from state-owned banks, dealers said. Mutual funds were also likely on the selling side as they face a cash crunch owing to redemption pressure near month-end.

"There is very good momentum in the market, there are good flows and even though the range is capped by some profit booking, it is becoming easily absorbed," a dealer at a state-owned bank said. "We were expecting the year to close at 6.60% (yield on the 6.79%, 2034) level, market has actually outperformed that."

The market-wide turnover was INR 575.80 billion, against INR 675.75 billion at 1635 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 6.55-6.63%.  (Vidhushi RajPurohit)

India Gilts: Remain up; gains capped as traders book profits

MUMBAI--1345 IST--Government bond prices remained up as traders continued to bet on a light first half borrowing plan for the next financial year beginning Apr. 1, along with a rate cut and softer stance at the upcoming policy review by the Reserve Bank of India's Monetary Policy Committee in April, dealers said. However, the gains were capped as traders sold bonds at a profit after the yield on the 10-year benchmark gilt hit 6.58% for the first time in over three years, they said.

Traders picked up shorter-tenure bonds maturing upto 10 years as liquidity conditions eased on government's month-end spending and RBI's continued liquidity push, dealers said. The net liquidity injected by the central bank--a proxy for liquidity conditions--declined to INR 407.88 billion Wednesday, the lowest level since Mar. 4, from INR 1.57 trillion Tuesday. However, the five-year benchmark 6.75%, 2029 gilt was flat, and has underperformed peers since Wednesday, as traders expect the share of supply in the five-year tenure to increase in the government's Apr-Sept borrowing plan.

Private banks likely continued to pick up gilts maturing in 7-15 years to replenish their portfolios after selling at RBI's open market gilt purchase auction on Tuesday. Mutual funds likely remained on the selling side due to redemption pressure at the quarter-end and year-end, dealers said.

"It is time for banks to cut duration and go for shorter-end as a deeper rate cut could come in if there is stance change," a dealer at a private bank said. "But the 10-15 year segment (gilts) are also seeing good demand for replacement from banks, and one will get good price appreciation on longer bonds also due to rate cuts, so the move is seen across the curve."

The rise in prices of bonds maturing in 30-50 years was also limited as traders had already positioned for a reduction in issuance in these bonds at the upcoming calendar, dealers said. The yield on the 40-year benchmark 7.34%, 2064 gilt has fallen 18 bps in March, compared with the 14-bp fall in the 10-year yield. With the expected change in the share of five- and 15-year supply, some traders also said the concentration of long-term bonds in the calendar may remain similar to current year at around 37%.

The market-wide turnover was INR 382.70 billion, higher than INR 399.90 billion at 1335 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 6.55-6.63%.  (Srijita Bose)

India Gilts: Up as traders bet on light Apr-Sept borrow plan, rate-cut view

MUMBAI--1015 IST--Prices of government bonds were up as traders continued placing bets on a light borrowing plan by the government for the first half of 2025-26 (Apr-Mar), dealers said. Traders also continued to bet on easing monetary policy conditions in April, spurred on by an improvement in banking system liquidity.

"Market is carrying on the buying momentum from yesterday (Wednesday), and the liquidity has also significantly improved, which is adding to the buying enthusiasm," a dealer at a primary dealership said. "The yield (on the 10-year benchmark 6.79%, 2034 gilt) has already touched 6.58% level, so now everyone wants to join in the buying before it falls more."

As per Reserve Bank of India data, the net liquidity injected by the central bank--a proxy for liquidity conditions—declined further to INR 407.88 billion on Wednesday from INR 1.57 trillion on Tuesday, suggesting some narrowing of the deficit in the banking system. Typically, trading interest is extremely limited near the end of the financial year in March due to tight liquidity conditions and focus of banks on profit booking and credit disbursal.

Banks met both these mandates earlier this month after selling gilts at the RBI's open market operation auctions of INR 2.45 trillion in Jan-Mar, dealers said. Some traders even expect the liquidity measures by the central bank and the government's spending to lead the RBI to absorb liquidity from the banking system in the coming days, for the first time since mid-December.

Private banks were likely on the buying side, on continued bets of the Centre not heavily front-loading its gross borrowing in Apr-Sept, dealers said. The rumour that the government will cap its first half issuance to 55% of its INR 14.82-trillion gross borrowing aim has led to aggressive bond buys since Wednesday, dealers said. Informist reported, quoting a finance ministry official, that the government will release the borrowing plan Thursday evening.

With trading portfolios swelling, the yield on the 10-year gilt fell to 6.58%, its lowest level since Jan. 17, 2022. Traders expect the yield to fall to 6.55% before the upcoming policy review by the RBI's Monetary Policy Committee on Apr. 7-9. However, others are looking to book profits, and may do so on Friday if the calendar is in line with the view, dealers said.

The market-wide turnover was INR 196.80 billion, higher than INR 110.00 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 6.55-6.63%. (Vidhushi RajPurohit)

India Gilts: Seen steady as traders await govt borrowing plan for Apr-Sept

MUMBAI – Government bond prices will likely open steady Thursday as traders are waiting for the government to announce its borrowing plan for Apr-Sept, which is expected to be detailed this week, dealers said. Traders are expected to retain their bets on a domestic repo rate cut and softer policy stance in April.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.58-6.65%, compared with 6.60% on Wednesday. Market speculation that the government would announce a light borrowing figure for Apr-Sept, similar to that in 2024-25, has led to the 10-year benchmark yield ending at its lowest level since Jan. 14, 2022.

Traders expect the government borrowing figure for the first half of the next financial year to be 53-55% of the total gross borrowing target for 2025-26 (Apr-Mar), or around INR 8 trillion, dealers said. The supply of gilts in the first quarter of FY26 is thus expected to be lower than that issued between FY22 and FY24, which was 55-59% of the total gross borrowing target.

On expectations of lower supply and market rumours that the government might reduce the share of borrowing of gilts maturing in 15 years, traders might continue picking up these bonds on Thursday, dealers said. During the day, traders are also expected to pick these bonds on expectations that the Reserve Bank of India's Monetary Policy Committee will deliver a 25 basis point cut in the repo rate in April.

Gilt yields across tenures are expected to fall further before the upcoming policy review and traders want to lock in the current yields to take advantage of price appreciation later, dealers said. The yield on the 10-year benchmark gilt has already fallen by 13 bps since February-end and dealers were of the view that the yield might fall by another 2-3 bps before the MPC announces its decision on policy rates on Apr. 9. However, traders await further clarity on the borrowing programme before placing fresh rate cut bets, and also easier liquidity conditions expected next week, dealers said. (Vidhushi RajPurohit)

End

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

Edited by Saji George Titus

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