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Informist, Friday, Apr. 4, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply higher due to a slump in US Treasury yields late in the day, which added to other positives in the domestic market, dealers said. Traders rushed to pick up bonds before the Reserve Bank of India's Monetary Policy Committee begins its three-day meeting on Monday on the view that bond prices were likely to rise further after the outcome, especially with the first gilt auction of the year absorbed smoothly.

The 10-year benchmark 6.79%, 2034 bond ended at the day's high of INR 102.30, or 6.46% yield, against INR 102.05, or 6.50% Thursday. The benchmark yield ended at its lowest since Jan. 3, 2022. Bond prices rose early in the day due to an already sharp fall overnight in US yields, before the result of the INR 360 billion gilt auction gave further impetus for traders to buy gilts, dealers said. 

The yield on the benchmark 10-year US Treasury note fell to 3.88% from 4.09% at 1700 IST Thursday, with an 11-basis-point fall intraday. US yields have tumbled after US President Donald Trump announced a slew of reciprocal tariffs on Thursday India time, raising fears of a recession in the world's largest economy. Investors in the US are now pricing in a greater than 50% change of the US Federal Open Market Committee delivering four rate cuts of 25 basis points each in the rest of 2025, against the estimate of two rate cuts by committee members in March. Foreign banks and investors likely picked up gilts US yields fell, dealers said.

"Cut-offs at the auction were mostly in line with expectations...people who bid at even lower prices are now buying on the secondary market," a dealer at a private bank said. "US yields have also slid down sharply so that is also bringing in FPIs (foreign portfolio investors). However, data from the Clearing Corp. of India at 1914 IST showed that FPIs sold over INR 2.6 billion through the fully accessible route.

Several traders had looked to pick up the 10-year bond at a bargain due to it being the largest single bond supply so far and placed bids well below the median cut-off price, dealers said. After missing out at the auction, they had to pick up the gilt on the secondary market, driving up prices. Banks were the major buyers both at the auction and in the secondary market, with interest from a corporate entity also helping the auction go through, dealers said. For INR 300 billion of the paper on offer, the RBI got bids worth nearly INR 1 trillion at the auction, signalling robust appetite for the benchmark gilt at the first auction of the financial year.

Some replacement demand from banks after selling gilts worth INR 2.65 trillion to the RBI at open market operation auctions since January also came in, with investors looking to lock in yields on the view that they may fall further after the MPC outcome Wednesday. However, dealers said that a major part of the replacement demand will likely come in later in the month after the outcome, with more clarity on the future rate trajectory.

For the 6.64%, 2027 bond, mutual funds and private banks likely bid at the auction to match their liabilities, dealers said. The INR 60-billion supply of the bond was swept by only 10 bids at the auction as traders found the yield lucrative on expectations of a deeper rate-cutting cycle. The RBI got bids worth nearly six times the amount on offer, signalling strong demand for the paper.

Traders also picked up other shorter tenure papers on who expectations of narly 50-75 bps of rate cuts by the RBI's rate-setting panel through the rest of 2025, dealers said. Meanwhile, long-term bonds outperformed the 10-year gilt earlier in the day, and dealers speculated that mutual funds were purchasing these tenures for their greater price appreciation per basis point fall in the yield, in the face of a rate cut. 

Traders who had booked profits earlier in the week due to the sharp fall in benchmark gilts across tenures to over-three-year lows, felt underinvested in bonds ahead of the policy outcome and increased their bets on a deeper rate-cutting cycle. Dealers broadly expect the MPC to signal its intent on further monetary policy easing by changing its stance to 'accomodative' from 'neutral' on Wednesday. Trade volume in the 7.10%, 2034 gilt picked up, as some traders exited the current benchmark at a profit to pick up the higher-yielding bond, dealers said. The erstwhile 10-year benchmark ended nearly 5 bps higher than the 6.79%, 2034 gilt, at 6.51% on Friday.

"The whole yield curve fell today and there was a good momentum also before MPC meeting, nobody will want to sell aggressively now since there are so many positives in the market," a dealer at a primary dealership said. "People are investing wherever they can, though there is more focus on short-mid segment now." 

A fall in crude oil prices also aided the rise in gilts since early in the day, intensifying later. Brent crude for June delivery fell to $64.43 a barrel at 1700 IST from $71.08 on Thursday, its lowest level since August 2021. Crude oil prices fell as traders feared oversupply of the commodity, with Trump's sweeping tariffs expected to dent demand and the Organization of the Petroleum Exporting Countries and its allies unexpectedly deciding to increase production from May. 

The market-wide turnover for the day was INR 884.05 billion, higher than INR 634.45 billion on Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades conducted using the wholesale digital rupee pilot against two trades worth INR 100 million on Thursday. There had been no trades using the digital currency for 14 consecutive days till Wednesday.

OUTLOOK

Gilts are not traded on Saturday. On Monday, gilt prices may open steady as the much-awaited Monetary Policy Committee meeting begins, dealers said. The movement in US Treasury yields may also lend cues at the open. 

US government data released 1900 IST showed non-farm payrolls rose 228,000 in March, against a Dow Jones consensus estimate of 140,000. However, the unemployment rate rose to 4.2% from 4.1% in February. Traders await a speech by US Federal Reserve Chair Jerome Powell for further cues on the Federal Open Market Committee's rate cut trajectory.

Traders are likely to retain their bets on a repo rate cut and stance change by the RBI's rate-setting panel keeping prices buoyed till Wednesday, 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 6.44-6.53% during the day.

India Gilts: Up more, near day's high as auction cut-offs in line with view

MUMBAI--1552 IST--Prices of government bonds rose further Friday. The 10-year benchmark 6.79%, 2034 gilt rose to the day's high as cut-off prices at the INR-360-billion gilt auction were on expected lines despite the large supply, dealers said. Some traders sold gilts at a profit, capping the gains, as they had already placed significant bets on a rate cut and softer stance by the Reserve Bank of India's Monetary Policy Committee next week.

Despite the supply of INR 300 billion in the 2034 bond, the largest ever size of an individual gilt to be auctioned, several traders who had looked to pick up the bond at a bargain and placed bids well below the median cut-off price missed out. They rushed to the secondary market to buy the gilt, dealers said. Corporate entities and banks were the major buyers both at the auction and in the secondary market, they said. The RBI set a cut-off price of INR 102.10 on the gilt, against an Informist poll estimate of INR 102.12.

Several sections of the market, including state-owned banks, likely felt under-invested in bonds ahead of the MPC outcome after trimming their portfolios at a profit through the week, with the 10-year gilt yield down 11 bps since Mar. 27, dealers said.

They rushed to stock up on the 6.79%, 2034 gilt at the auction on the view the bond's price would rise after the MPC outcome Wednesday. Some of the aggressive bids were also due to replacement demand from banks, since they have sold gilts worth INR 2.65 trillion to the RBI at open market operation auctions since January.

"Major participants were under-invested so they have strongly bidded at this auction, and tried to build a sufficient cushion at secondary (market) also," a trader at a primary dealership said.

Mutual funds were also present at the auction and likely bid for the 6.64%, 2027 bond along with banks to match their liabilities, dealers said. Traders who bet on two to three rate cuts by the MPC in the rest of 2025 picked up the short-term paper for its higher-yielding return, compared to a possible repo rate of 5.50% by the end of 2025. The INR 60-billion supply of the bond was swept by only 10 bids at the auction.

Trade volume in the 7.10%, 2034 gilt picked up, as some traders exited the current benchmark at a profit to pick up the higher-yielding esrtwhile benchmark, dealers said. The 7.10%, 2034 gilt yielded a return of 6.52% compared to 6.48% on the 6.79%, 2034 gilt. Long-term bonds outperformed the 10-year earlier in the day, and dealers speculated that mutual funds were purchasing these tenures for their greater price appreciation per basis point fall in the yield, in the face of a rate cut, dealers said. 

The marketwide turnover was INR 696.60 billion, higher than INR 520.80 billion at 1530 IST on Thursday, 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 6.45-6.55%. (Cassandra Carvalho)

India Gilts: Remain up on fall in US ylds; traders await gilt auction result

MUMBAI--1250 IST--Prices of government bonds remained up, supported by the overnight fall in US Treasury yields and continued bets on a domestic repo rate cut next week, dealers said. Gains were capped as traders refrained from buying aggressively before the result of the INR 360-billion weekly gilt auction.  

Traders were also likely to be covering their short bets placed on Thursday before the weekly gilt auction. The Reserve Bank of India auctioned INR 60 billion of the 6.64%, 2027 bond and INR 300 billion of the 6.79%, 2034 bond at 1030-1130 IST. Traders were mostly focusing their bids on the 10-year benchmark, 6.79%, 2034 gilt at the auction, hoping to pick it below the current market level, dealers said. Despite the large size of the auction, aggressive bidding is expected to keep the cut-off price at INR 102.11, as per the median in an Informist poll. The 2027 paper, on the other hand, was likely bid for by private and state-owned banks for their asset-liability management requirements.

If the cut-off price for the 2034 gilt at the auction is higher than the market's expectation, prices in the secondary market are expected to rise further as traders who are not able to pick the bond at the auction will rush to fill their trading books before the RBI's Monetary Policy Committee meeting starts on Monday, dealers said. A lower-than-expected cut-off, on the other hand, might prompt traders to book profit in the secondary market, though prices are not expected to fall sharply below current levels, they said.

"This is the first auction of the year and traders have a good appetite, especially after selling gilts yesterday (at the RBI's open market operation purchase), so now everyone is waiting for the result to get cues for the next half of the day," a dealer at a state owned bank said. "No one wants to go light into the MPC meeting, so the auction is a good opportunity to pick up gilts at good prices."

The fall in yield on the benchmark 10-year US Treasury note to 3.98% from 4.09% at 1700 IST on Thursday is also seen as positive for gilts. US yields are expected to fall further as reciprocal tariffs announced by US President Donald Trump on Thursday, Indian time, are seen dragging the world's largest economy into a recession, leading to further rate cuts by the US Federal Reserve.

Traders now await the US March employment report at 1900 IST for cues on the US economy to gauge the rate cut trajectory of the Federal Open Market Committee this year. Any strong sign of a slowdown in the US economy is expected to bring flows from overseas investors into the domestic debt market, dealers said. Foreign portfolio investors sold INR 16.97 billion worth of fully accessible route gilts on Thursday, according to Clearing Corp. of India data, which dealers said was likely to be profit booking, dealers said.

The marketwide turnover was INR 368.40 billion, against INR 374.25 billion at 1330 IST on Thursday, 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 6.45-6.55%. (Vidhushi RajPurohit)

India Gilts: Up as 10-year US yield falls below 4% for first time since Oct

MUMBAI--0955 IST--Prices of government bonds rose, as the 10-year US Treasury yield fell below the psychologically crucial 4% mark for the first time since early October, dealers said. 

The yield on the benchmark 10-year US Treasury yield fell to 3.98% as of 0955 IST from 4.09% at 1700 IST on Thursday. Investors fled to safe-haven assets amid fears of a global economic slowdown after US President Donald Trump announced a slew of reciprocal tariffs on around 60 countries Thursday Indian time. Fears of a recession in the US have led to bond traders betting on at least a 50% chance of the US Federal Open Market Committee delivering four rate cuts of 25 basis points each in the rest of 2025. Traders await the US March employment report due at 1900 IST, and a speech by US Federal Reserve Chair Jerome Powell for further cues on the FOMC's rate cut trajectory.

On the domestic front, the central government will sell INR 60 billion of the 6.64%, 2027 bond and INR 300 billion of the 6.79%, 2034 bond at 1030-1130 IST. This is the first scheduled gilt auction for 2025-26 (Apr-Mar). Dealers said the auction is expected 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.

A positive surprise on cut-off prices for the large supply of the 10-year benchmark gilt may lead to traders buying gilts aggressively in the secondary market ahead of the MPC outcome, but gains before the bidding were capped due to profit-booking, dealers said. This also led the 6.79%, 2034 gilt to lag most of its peers Friday, with traders trimming theur bond holding on the view they would be able to pick up the gilt cheaper at the auction, dealers said.

A fall in crude oil prices also aided the rise in gilts. Brent crude for June delivery fell to $69.50 a barrel at 0955 IST from $71.08 a barrel at the end of Indian market hours on Thursday. Crude prices fell as traders feared oversupply of the commodity, with Trump's sweeping tariffs expected to dent demand and the Organization of the Petroleum Exporting Countries and its allies unexpectedly deciding to increase production from May. 

"It's a lot of positives for market, UST (10-year US yield) breaking 4 (percent) and crude is also down," a dealer at a private bank said. "I think bidding will be aggressive at the auction."

The marketwide turnover was INR 149.05 billion, slightly higher than INR 100.65 billion at 0930 IST on Thursday, 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 6.45-6.55%. (Cassandra Carvalho)

India Gilts: Sales before auction may offset gains from fall in US yields

MUMBAI – Prices of government bonds are seen opening a tad higher, tracking an overnight fall in US Treasury yields. However, the gains may be capped as traders may trim stock of bonds, especially the benchmark 10-year 6.79%, 2034 gilt, ahead of the INR 360-billion gilt auction, dealers said. 

During the day, the yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.45-6.55%, compared with 6.50% on Thursday. The central government will sell INR 60 billion of the 6.64%, 2027 bond and INR 300 billion of the 6.79%, 2034 bond at 1030-1130 IST. This will be the first scheduled gilt auction for 2025-26 (Apr-Mar). Bond prices ended lower on Thursday as dealers trimmed holdings to make room for the fresh auction stock.

Cut-off prices at the auction will lend cues to the market later in the day. Dealers said the auction is expected 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. Strong cut-off prices may spur traders to ramp up bets of a rate cut ahead of the MPC outcome, but gains may be capped due to profit-booking, dealers said.

On the global front, the yield on the benchmark 10-year US Treasury note fell to 4.01% as of 0800 IST from 4.09% at 1700 IST Thursday. The yield hovered around the psychologically crucial 4% mark as investors fled to safe-haven assets amid fears of a global economic slowdown after US President Donald Trump announced a slew of reciprocal tariffs on around 60 countries Thursday Indian time.

Fears of a recession in the US have led to bond traders betting on at least a 50% chance of the US Federal Open Market Committee delivering four rate cuts of 25 basis points each in the rest of 2025. Traders await the US March employment report due at 1900 IST, and a speech by US Federal Reserve Chair Jerome Powell for further cues on the FOMC's rate cut trajectory. (Cassandra Carvalho)

End

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

Edited by Deepshikha Bhardwaj

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