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Informist, Monday, Apr. 7, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended sharply lower Monday as traders trimmed positions at a profit ahead of the Reserve Bank of India's Monetary Policy Committee meeting decision due Wednesday. Foreign banks were likely selling Indian government bonds to invest in safe-haven assets such as US government debt after US President Donald Trump's announcement imposing import tariffs on over 60 countries and territories rattled financial markets globally, dealers said.

The 10-year benchmark 6.79%, 2034 bond ended at INR 102.15, down from INR 102.30 Friday. The bond closed at a yield of 6.48%, up from 6.46% Friday. Bond prices had opened lower due to rise in US Treasury yields over the weekend, and fell further during the day as traders trimmed positions and booked profits ahead of the MPC decision, dealers said. US yields also rose during the day, further weighing on local gilt prices.

The rate-setting panel's three-day meeting began Monday. Traders expect RBI Governor Sanjay Malhotra to announce a repo rate cut of 25 basis points and a change of stance to 'accommodative' from 'neutral', which the market has already priced in. However, some traders feel the MPC could cut the repo rate but may not announce any policy easing measures. 

Last week, the benchmark 10-year 6.79%, 2034 gilt yield fell 10 basis points on rate cut and stance change bets, furthered by a slump in US yields and crude oil prices. But, scope for a further rise in bond prices is limited until the MPC decision is known, leading traders to realign portfolios before the decision, dealers said. Some traders were cautious whether the rate-setting panel would reverse its current focus on growth, as seen in the minutes of its February meeting, to inflation, as Trump's announcements of tariffs could lead to rise in inflation globally, dealers said.

"We have to wait and see how the RBI will react (to Trump's tariffs and the US Federal Open Market Committee's rate trajectory)," a trader at a primary dealership said. "They (in the US) expect around five rate cuts (in 2025, by the US FOMC) but we still don't know what impact Trump tariffs will have, whether it will be stagflation or what else."

On Friday, US Federal Reserve Chair Jerome Powell said tariffs were likely to lead to inflation, and made it apparent that the FOMC would not be in a rush to cut rates. The yield on the 10-year US Treasury rose to 4.00% at 1700 IST from 3.87% at the same time Friday.

A fall in US Treasury yields and the sharp fall in crude oil prices were positive cues for bond traders. However, traders refrained from aggressive bets as there is no clarity yet on India's interest rate trajectory, dealers said.

Some traders reinvested funds from selling gilts into state bonds and Treasury bills which offered lucrative returns ahead of a possible rate cut, dealers said. Primary dealerships and banks were active in the T-bill market, some selling the securities at a profit as yields fell on expectations of a rate cut, dealers said. Mutual funds flocked to buy these short-term securities to match their liabilities.

The 91-day T-bill maturing on Apr. 24 was last traded at a yield of 5.80% and had a total trade volume of INR 550 million. A total of INR 12.50 billion of the 364-day T-bill maturing on Nov. 27 was traded at a yield of 6.16%. The yield on both bills is down from the 6.30% cut-off yield last week.

Mutual funds and some banks purchased gilts maturing in 15-20 years on hopes that the repo rate at the end of the MPC's rate cut cycle would 5.50%, dealers said. Mutual funds have been active in the gilt market as they've shifted funds from Indian equities to debt, dealers said. 

Some traders also switched between tenures of gilts to book profits while remaining invested ahead of the outcome of the MPC meeting. Some traders preferred the short-end of the yield curve on the view that the curve was steepening.

Preference for state bonds increased after the RBI Friday announced a sharply lower-than-indicated state bond supply for Tuesday, dealers said. The RBI said three states would look to raise INR 35.00 billion on Tuesday, whereas the state borrowing calendar for Apr-Jun had indicated that 12 states would aim to raise INR 209.00 billion this week. Some replacement demand from banks to refill their 'held-to-maturity' books after selling INR 2.65 trillion worth of bonds at RBI's open market gilt purchase auctions since January also increased demand for these securities. However, the spreads of state bonds over gilts is unlikely to compress further after narrowing sharply in the past month.

"Spreads have already compressed so because of the lower borrowing we'll see compression but maximum 2-3 basis points," a dealer at private bank said.

The turnover in the gilt market was INR 716.35 billion Monday, lower than INR 884.05 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades conducted using the wholesale digital rupee pilot for the second day. There had been no trades using the digital currency for 14 consecutive days till Wednesday.

OUTLOOK

On Tuesday, gilt prices may take cues from the movement of US Treasury yields, dealers said. Traders may take cues from the results of the INR 35-billion state bond auction and the RBI's INR 200-billion open market purchase of gilts. Cut-off yields at the state bond auction are seen aggressive, while cut-off prices at the OMO auction are seen at par with current market valuations, dealers said.

Traders may continue to realign their portfolios Tuesday as it will be the last day to do so before the MPC rate decision Wednesday, dealers said. Traders may take cues from the movement of crude oil prices and the rupee against the dollar. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.45-6.53% Tuesday.

India Gilts: Remain dn; T-bill, state bond demand rises before MPC outcome

MUMBAI--1528 IST--Prices of government bonds remained down as traders, primarily from foreign banks, trimmed stock of gilts at a profit, dealers said. Demand for state bonds and Treasury bills increased, lowering the interest in government bonds as traders awaited fresh cues on interest rates from the Reserve Bank of India's Monetary Policy Committee meeting outcome Wednesday, dealers said. 

"Last week there was 15 bps rally (fall in gilt yields) so now traders can't go much more below (yields can't fall further). Our market is there only (trading in a thin band) and this was expected," a dealer at a state-owned bank said. The selling pressure on gilts persisted during the day due to sales from foreign banks. Traders sold gilts at a profit, and some reinvested the funds into state bonds and Treasury bills which offered lucrative returns, dealers said. 

Primary dealerships and banks were active in the T-bill market, some selling the securities at a profit as yields fell on expectations of a rate cut, dealers said. The 91-day T-bill of April maturity was last traded at a yield of 5.70%, and a total of INR 12.50 billion of the 364-day T-bill maturing end of November was traded at a yield of 6.16%. This compared with cut-off yields on these securities set at 6.30% last week.

Mutual funds and some banks purchased gilts maturing in 15-20 years, on hope of the terminal repo rate being 5.50%, dealers said. Some traders also switched between tenures of gilts to book profits while remaining invested ahead of the MPC outcome, churning their portfolios. Banks purchased state bonds to refill their 'held-to-maturity' books. 

There was some caution among gilt traders, as dealers were concerned whether the rate-setting panel would reverse its current focus on growth, as seen in the minutes of its February meeting, to inflation, as US President Donald Trump's announcements of tariffs could stoke a rise in inflation globally, dealers said. Most dealers expect a 25-bps repo rate cut and a change of stance to 'accomodative' from 'neutral' to be announced Wednesday. Some traders, however, feel that the MPC could cut the repo rate but refrain from other policy easing measures. 

A fall in US Treasury yields, slump in crude oil prices and range-bound dollar index were positive cues for bond traders. However, until there was further clarity on India's rate cut cycle, traders refrained from aggressive bets, dealers said. 

The market turnover was INR 568.75 billion, slightly less than INR 618.70 billion at 1530 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 6.46-6.55%. (Cassandra Carvalho)

India Gilts: Remain down on profit-booking; MPC rate cut bets limit losses

MUMBAI--1327 IST--Government bond prices remained down as traders continued to sell bonds at a profit, dealers said. However, the losses were limited as traders continued to bet on a rate cut and a softer stance by the Reserve Bank of India's Monetary Policy Committee at the outcome of its meeting on Wednesday. 

"There is no change in view that will make the market give up gains, it is just profit booking...also looks like some big foreign bank or mutual fund could be trimming before MPC (Monetary Policy Committee's meeting outcome)," a trader at a primary dealership said. "Towards the end of the day, we could see some consolidation near Friday's levels." 

Demand from long-term investors limited the fall in gilts maturing in 30-50 years. They picked up longer tenure gilts as well as state bonds after the RBI on Friday announced much lower than indicated state bond supply for Tuesday, dealers said. The RBI said three states would look to raise bonds worth INR 35 billion on Tuesday, whereas the state borrrowing calendar for Apr-Jun had indicated that 12 states would aim to raise INR 209.00 billion via bonds this week. Some replacement demand from banks after selling nearly INR 2.65 trillion worth of bonds at RBI's open market gilt purchase auctions since January also limited the fall in prices of bonds maturing in up to 15 years, they said. 

The market turnover was INR 452.20 billion, higher than INR 390.70 billion at 1330 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 6.46-6.55%. (Srijita Bose)

India Gilts: Down as traders book profits, US yields rise

MUMBAI--0931 IST--Government bond prices fell on Monday as traders sold bonds at a profit with yields across benchmark tenures remaining near three-year lows, dealers said. A rise in US Treasury yields also dragged down prices, dealers said. 

"Most poeple have already positioned for the event and will now carry them through the outcome," a dealer at a private bank said. "Looks like traders (are) profit-booking or trying to drive down prices to pick up at cheaper levels later in the day...US yields are also a little higher, so some selling could be because of that."

The yield on the 10-year benchmark US Treasury note rose to 3.95% at 0931 IST from 3.87% at 1700 IST on Friday. Some foreign banks and portfolio investors are likely to have sold gilts, dealers said. Traders from domestic banks are also likely to have booked profits as the yield curve has shifted nearly 10-15 basis points down during the month, they said. However, the fall was limited as investors have already priced in a 25-bps rate cut and a softer stance at the outcome of the Reserve Bank of India's Monetary Policy Committee meeting on Wednesday. 

The market turnover was INR 108.85 billion, a tad higher than INR 106.85 billion at 0930 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 6.42-6.55%.  (Srijita Bose)

India Gilts: Seen steady as MPC meet starts; rate cut, stance change awaited

MUMBAI - Prices of government bonds are expected to be steady as the three-day meeting of the Reserve Bank of India's Monetary Policy Committee begins Monday, dealers said. Traders are likely to retain their bets on a repo rate cut and change in stance by the RBI's rate-setting panel, keeping prices buoyed till Wednesday, they said. The 10-year US Treasury yield has fallen below 4% and this is also likely to keep Indian gilt prices supported. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.44-6.50% during the day, around the same level as 6.46% Friday. Traders have already bet on a 25 basis points cut in the RBI repo rate and also on a potential change in the monetary policy stance to 'accommodative' from 'neutral'. Some dealers have also picked up gilts on expectation of a deeper rate-cut cycle in the current financial year. Market players currently expect nearly 

50-75 bps of rate cuts by the policy review committee through the rest of 2025-26 (Apr-Mar), dealers said.

The likelihood of a reduction in the repo rate is expected to keep demand in the 10-15-year segment higher as traders will look to lock in yields on the view that they may fall further after the MPC decision is known Wednesday. Long-term bonds are also expected to be picked up by investors for their greater price appreciation per basis point fall in the yield, ahead of a rate cut.

On the global front, the yield on the benchmark 10-year US Treasury note fell to 3.95% as of 0730 IST. The yield dropped below 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. The tariffs have raised fears of a recession in the world's largest economy. Data shows traders expect a 36.5% chance the US Federal Open Market Committee will cut the benchmark rate by least 25 bps in May, almost double the 18.5% that expected such a cut on Mar. 28, according to the CME FedWatch tool. 

Traders expect flows into India from overseas investors will pick up owing to the fall in US yields. A widening interest rate differential between the two countries makes the former more appealing to foreign investors. Meanwhile, a fall in crude oil prices is also expected to support gilt prices during the day, dealers said. Oil prices fell nearly 2% on Monday to $63.85 a barrel. Crude oil prices have fallen since China, the world's top oil importer, announced plans to ramp up retaliatory tariffs against the US on Friday.  (Vidhushi Rajpurohit)

End

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

Edited by Ashish Shirke

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