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Informist, Thursday, Apr. 3, 2025

By Srijita Bose

MUMBAI – Government bond prices fell Thursday as traders trimmed their portfolios to make room for the first weekly gilt auction of the financial year on Friday, dealers said. Lower-than-expected cut-off prices at the Reserve Bank of India's open market gilt purchase auction and traders selling bonds at a profit also dragged gilt prices lower.

The 10-year benchmark 6.79%, 2034 bond ended at INR 102.05, or 6.50% yield, against INR 102.17, or 6.48% Wednesday. The yield on the 10-year gilt fell below 6.46% early in the trade as US Treasury yields fell after tariffs announced by US President Donald Trump early Thursday India time were seen hurting the country's growth and strengthening the case for further rate cuts by the RBI's Monetary Policy Committee.

"Though sentiments are still positive on rate cut, there is significant profit booking and short-selling today (Thursday) because of larger supply of 10-year (6.79%, 2034 gilt) tomorrow (Friday) and also because gilts are already pricing the cuts (in rate)," a dealer at a private bank said. "Tomorrow, we can see some rise again after the auction results."

Traders placed short bets on the 10-year benchmark 6.79%, 2034 gilt ahead of the gilt auction. The government will sell INR 300 billion of the paper, the largest supply of a single bond at a gilt auction so far, dealers said. Though the auction should sail through, the supply may lead to lower cut-off prices than the secondary market, they said. The government will also sell INR 60 billion of 6.64%, 2027 bond, demand for which is seen firm as traders have turned to short-term bonds due to the rate cut view and easy liquidity conditions. 

Foreign banks and investors likely picked up gilts as certainty of further rate cuts by the Monetary Policy Committee increased after the announcement of reciprocal tariffs by US President Donald Trump. Foreign investors likely bought gilts maturing up to 10 years on expectations of a deeper rate cut cycle by the RBI's rate-setting panel, dealers said. Gilts are currently pricing in 50 basis points of further rate cuts in 2025 to 5.75%, with a widespread expectation of the policy stance changing to 'accommodative' from 'neutral' on Wednesday.

The yield spread of the 10-year benchmark over the five-year 6.75%, 2029 gilt has widened to more than 13 bps heading closer to the policy review, from 8 bps at the beginning of March. Traders are of the view that the yield spread of the 10-year gilt over the five-year gilt would steepen further by another 6-7 bps before the policy review next week and nearly 10-15 bps if the RBI's rate-setting panel signals a deeper rate-cutting cycle through a stance change, dealers said.

At the open market operation auction, state-owned banks likely offered all the six bonds the RBI bought at a discount from market levels after a surge in valuations over the past week, particularly Wednesday, dealers said. State-owned banks also sold bonds at a profit in the secondary market as benchmark yields across tenures have fallen to over three-year lows. Meanwhile, dealers said that banks mostly sold the 7.04%, 2029 bond from their trading books, with a cut-off price for the bond set higher than estimated in an Informist poll. The cut-off prices on the longer-tenure bonds were 10-28 paise lower than the poll median.

People expected cut-offs at the OMO auction to be near Financial Benchmarks India Ltd. levels of Wednesday, but they were much lower than that, a dealer at a primary dealership said. "One of the reasons for this is for everyone, this level will be deep in-the-money since yields have fallen so much...people also sold from their HTM (held-to-maturity) books, so everyone would have made a good profit on them despite the bad cut-offs." The yield on the 10-year gilt fell 15 bps in March, its best month since April 2023, and fell further by 10 bps on Wednesday, its biggest single-day fall since October 2022.

The outcome of the state bond auction was on expected lines and did not have a significant impact on gilt prices, dealers said. Dealers said that while banks picked up state bonds to replace gilts sold at the OMO auctions since January, a major part of the demand will likely come in later in the month as traders await the outcome of the RBI's rate-setting panel on Wednesday.

Government bond prices had opened sharply higher after the yield on the 10-year US Treasury note fell to 4.06% at 0915 IST from 4.14% at 1700 IST on Wednesday, and gilt prices slid through the day even as the US benchmark yield rose to 4.09% by 1700 IST. US yields fell as investors fled to safe-haven assets amid fears of a global trade war and an economic slowdown after Trump announced reciprocal tariffs on over 60 countries and territories. Trump announced a 26% tariff on imports from India, effective Apr. 9.

The market-wide turnover for the day was INR 638.60 billion, down from INR 1.01 trillion on Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Trade volumes in the secondary market had risen sharply on Wednesday as traders increased their bets on a rate cut at the RBI policy, particularly with liquidity in the banking system being comfortable. There were two trades worth INR 100 million conducted using the wholesale digital rupee pilot. There had been no trades using the digital currency for 14 consecutive days.

OUTLOOK

On Friday, gilt prices may open steady on caution ahead of the INR 360-billion auction at 1030-1130 IST, dealers said. The overnight movement in US Treasury yields may also lend cues at the open.

The result of the first weekly gilt auction of FY26 could lend cues to the market later in the day, particularly with INR 300 billion of the 10-year benchmark 6.79%, 2034 gilt on offer. The auction is likely to sail through as traders are likely to retain their bets on a repo rate cut and stance change by the RBI's MPC at its upcoming three-day review starting Monday, dealers said.

Crude oil prices could also be a trigger for gilts if they move significantly, dealers said. A sharp movement of the rupee against the dollar could also provide cues. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.44-6.55% during the day.

India Gilts: Dn on poorer than view cut-offs at OMO auction, profit booking

MUMBAI--1615 IST--Government bond prices fell after cut-off prices at the Reserve Bank of India's open market gilt purchase auction were lower than expected, dealers said. Traders also trimmed their portfolios to brace for Friday's supply of gilts and sold bonds at a profit as benchmark yields across tenures have fallen to over three-year lows, they said.

State-owned banks likely offered all the six bonds the RBI bought at the OMO auction at a discount from market levels after a surge in the valuations over the past week, dealers said. The 7.04%, 2029 bond was the only bond which banks mostly sold from their trading books, dealers said, with a cut-off price higher than estimated in an Informist poll. The cut-off prices on other, longer-tenure bonds were lower than the poll.

Dealers said that while banks picked up state bonds to replace gilts sold at the OMO auctions since January, a major part of the demand will likely come in later in the month as traders await the outcome of the Monetary Policy Committee's on Wednesday. The outcome of the state bond auction was on expected lines and did not have a significant impact on gilt prices, dealers said.

"People are shorting and profit booking at this point, banks will not like to buy the 10-year below 6.50% (yield) levels," a dealer at a primary dealership said. "Also the OMO auction cut-offs were much below everyone's expectations and replacement is not going to come right now, since people will wait and watch for the rally in gilts after policy (outcome)."

Traders placed short bets on the 10-year benchmark 6.79%, 2034 gilt ahead of the first gilt auction of the financial year started Tuesday where the government will supply INR 300 billion of the paper, dealers said. 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 1524 IST showed trades worth INR 87.24 billion in the 6.79%, 2034 gilt.

Meanwhile, foreign banks and investors likely picked up gilts as certainty of further rate cuts by the MPC increased after the announcement of reciprocal tariffs by US President Donald Trump. The tariffs are expected to hit India's exports to its largest export destination and hurt growth, requiring monetary policy easing to offset. Foreign investors likely bought gilts maturing up to 10 years on expectations of a deeper rate cut cycle by the RBI's rate-setting panel, dealers said.

The market-wide turnover was INR 527.50 billion, lower than INR 927.00 billion at 1630 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 6.42-6.55%.  (Srijita Bose)

India Gilts: Remain dn before weekly gilt auction Fri, profit booking weighs

MUMBAI--1330 IST--Prices of government bonds slid as profit booking sentiment took hold after the surge in gilt prices across tenures Wednesday, dealers said. Some trimming of gilts was also on account of the weekly gilt auction on Friday.

The government said it would sell INR 60 billion on the 6.64%, 2027 gilt and INR 300 billion worth of the 6.79%, 2034 gilt on Friday. The latter will be the largest supply in a week of a single bond on record. Traders had expected the government to issue a new 10-year benchmark in the new financial year started April, and the unexpected supply weighed on the 6.79%, 2034 gilt, dealers said. Primary dealers short sold the bond to make room for the gilt at the auction.

"Prices saw a sharp jump on Wednesday and in the morning they also opened at good levels, so at such good levels it made sense to sell some gilts and then pick them up at the auction," a dealer at a state-owned bank said. "Today there were two auctions as well, so further movement of prices will mostly be dependent on the results." The 10-year gilt yield neared 6.45% earlier in the day, the lowest level since Jan. 3, 2022. 

Traders await the results of the Reserve Bank of India's INR-200-billion open market purchase of gilts via auction. The RBI has offered to buy the 7.04%, 2029, 6.54%, 2032, 8.24%, 2033, 7.50%, 2034, 7.54%, 2036 and 7.23%, 2039 gilts. Traders were seen tendering the gilts close to market levels, or within 10 paise lower than the indicative prices published by Financial Benchmarks India Pvt. Ltd. on Wednesday.

The profit-booking sentiments which prevailed during the previous OMO auctions started January abated at the start of the financial year and hence traders were not in a dire need to offer deep discounts to clear their 'held-to-maturity' books, dealers said. Moreover, with the RBI's Monetary Policy Committee meeting outcome on Wednesday, traders wanted to hold onto their gilt holdings on the view prices would rise further.

At the state bond auction, six states aimed to raise INR 118 billion via bonds, the first state bond sale of the Apr-Jun quarter. The fall in gilt yields in recent days and the relatively lower supply is expected to compress the spreads of state bonds over gilts, dealers said. Traders expect the cut-off yield on the states' 10-year bonds at 6.85-6.86%, a spread of 36-37 basis points over the 10-year benchmark gilt at the current yield level of 6.49%. At the state government bond auction last week, the spread was 38-47 basis points.

The market-wide turnover was INR 372.40 billion, lower than INR 615.60 billion at 1330 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 6.42-6.55%. (Vidhushi RajPurohit)

India Gilts: Off highs on profit-booking after fall in US ylds lifts prices

MUMBAI--0945 IST--Prices of government bonds were off highs as traders sold bonds at a profit after the 10-year benchmark 6.79%, 2034 gilt yield slid 10 basis points on Wednesday to its lowest level since January 2022, and continued to slide on Thursday, dealers said. Gilt prices were up earlier, tracking an overnight fall in US Treasury yields, dealers said. Traders amped up rate cut bets as US President Donald Trump's announcement of 26% tariffs on imports from India are likely to drive the RBI's Monetary Policy Committee to pursue faster or deeper rate cuts to offset the projected hit to growth, dealers said.

Tariffs would likely have a negative impact on India's growth, spurring a quicker rate cut cycle, dealers said. Emkay Global said in a report that India's exports to the US could drop by $30 billion-$33 billion (0.8-0.9% of GDP), with the 26% tariff imposition, not adjusting for cross-country responses. The imposition of tariffs on India is seen as a positive for bond traders, since it would likely push the MPC to hasten its rate cut cycle. The MPC's focus had shifted to growth from inflation, apparent from minutes of the rate-setting panel's February meeting, dealers said. While traders bet on a rate cut and stance change by the MPC, the gains were limited as traders booked profits.

"Prices have moved so much that there was bound to be some profit-booking and its by all segments, there's no specific entity we can point to," a dealer at a state-owned bank said. "There are auctions as well, so people will look there for cues also."

The yield on the 10-year US Treasury note fell to 4.06% at 0915 IST from 4.14% at 1700 IST on Wednesday. The 10-year US yield hit a low of 4.05% for the first time since mid-October. US yields fell as investors fled to safe-haven assets such as US debt, amid fears of a global trade war and an economic slowdown after Trump announced reciprocal tariffs on over 60 countries and territories. Trump imposed a 26% tariff on imports from India, set to go into effect on Apr. 9.

Traders await the results of the RBI's INR-200-billion open market purchase of gilts via auction at 0930-1030 IST. The RBI has offered to buy the 7.04%, 2029, 6.54%, 2032, 8.24%, 2033, 7.50%, 2034, 7.54%, 2036 and 7.23%, 2039 gilts. Tendering of these gilts is not expected to be aggressive, as investors demand lower yields given the recent slide in bond yields and a reduced focus on earnings.

The first few auctions witnessed aggressive bidding, especially from state-owned banks as lenders were focused on booking profits on the held-to-maturity stock. This is the seventh OMO auction the RBI will hold in 2025, and the first of a tranche of four auctions scheduled for April. The RBI bought gilts worth INR 2.45 trillion in Jan-Mar via open market auctions.

The market-wide turnover was INR 142.90 billion, slightly higher than INR 118.05 billion at 0930 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 6.42-6.55%. (Cassandra Carvalho)

India Gilts: Seen up on slump in US ylds, bets of MPC rate cut, stance change

MUMBAI – Prices of government bonds are seen opening higher, tracking an overnight fall in US Treasury yields, dealers said. However, the gains may be capped due to profit-booking after the slide in gilt yields on Wednesday.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.45-6.55%, compared with 6.48% on Wednesday. Traders may continue to bet on a rate cut and a change of stance to 'accommodative' by the Reserve Bank of India's Monetary Policy Committee next week. The 10-year bond yield fell 10 basis points on Wednesday, the biggest single-day fall since Oct. 4, 2022, after the central bank announced liquidity measures on Tuesday, which traders interpreted as an intent to boost monetary policy transmission, dealers said. 

The yield on the 10-year US Treasury note fell to 4.07% at 0800 IST from 4.14% at 1700 IST Wednesday. The 10-year US yield hit a low of 4.05%, for the first time since mid-October. US yields fell as investors fled to safe-haven assets such as US debt, amid fears of a global trade war and an economic slowdown after Trump announced reciprocal tariffs on over 60 countries and territories. Trump imposed a 26% tariff on imports from India, set to go into effect on Apr. 9.

Traders may also take cues from the result of the RBI's INR-200-billion open market purchase of gilts via auction at 0930-1030 IST. This is the seventh OMO auction the RBI will hold in 2025, and the first of a tranche of four auctions scheduled for April. The RBI bought gilts worth INR 2.45 trillion in Jan-Mar via open market auctions.

At 1030-1130 IST, six states will aim to raise INR 118 billion via bonds, the first state bond sale of the Apr-Jun quarter. The fall in gilt yields and the relatively-lower supply may see spreads of state bonds over gilts compressing at the auction, dealers said. During the day, traders may also take cues from the movement of the rupee against the dollar, dealers said. The dollar index fell sharply after Trump's tariff announcement. (Cassandra Carvalho)

End

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

Edited by Ashish Shirke

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