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Informist, Tuesday, Apr. 8, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds were up as traders picked up bonds on expectations of the Reserve Bank of India's Monetary Policy Committee cutting the repo rate by 25 basis points to 6.00% at the outcome of its meeting on Wednesday, dealers said. Bond prices had opened lower, tracking an overnight rise in US Treasury yields, and traded in a narrow band until the results of the central bank's open market purchase of gilts through auction. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 102.21, up from INR 102.15 Monday. The bond closed at a yield of 6.47%, down from 6.48% on Monday. Most traders expect RBI Governor Sanjay Malhotra to announce a cut of 25 bps in the repo rate and a change in the committee's stance to 'accomodative' from 'neutral', both of which the gilt market has priced in, dealers said. The yield on the benchmark 10-year US Treasury note rose to 4.20% at 1700 IST from 4.00% at the same time on Monday.

Traders dismissed the result of the central bank's INR 200-billion open market purchase of gilts through auction as it was largely on expected lines, even as some bond cut-offs were poorer than expected. Traders shifted their attention to the outcome of the MPC's three-day meeting, due at 1000 IST Wednesday. 

Traders covered the short bets they had placed earlier, ahead of the key event, with dealers speculating that foreign banks and foreign portfolio investors also turned buyers after trimming gilt holdings earlier in the day, and on Monday. 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 1700 IST showed trades worth INR 99.79 billion in the 6.79%, 2034 gilt, up from INR 56.00 billion on Monday. 

"There's some short-covering now because of MPC, all focus is on that now," a dealer at a private bank said. "It's possible that FPIs are buying before the meeting because they sold around 6.5 thousand crore (INR 65 billion) yesterday (Monday) so they wouldn't want to miss out." 

As for the MPC rate decision, if it is as per traders' expectations, the benchmark 10-year 6.79%, 2034 gilt yield is not seen sustaining a fall below 6.42% since the outcome has been priced in, dealers said. The yield could briefly fall below the 6.40% level but profit-booking would limit the downward movement. 

An Informist poll of 15 economists forecast a rate cut of 25 bps, but economists were divided on whether the committee would opt for a softer stance. In case the MPC cuts rates but does not change its stance, the benchmark 10-year gilt yield could rise 3-8 bps, dealers said. 

Traders will also be watchful of the central bank's forecast for India's GDP growth and CPI inflation for 2025-26 (Apr-Mar), both of which are expected to be lowered, dealers said. The tone of the RBI governor's address will also be closely gauged. Signs of a restrictive tone even if monetary policy is eased could push up gilt yields. 

At the OMO auction, cut-off prices of most bonds were within traders' expectations. The RBI bought five gilts – the 6.54%, 2032, 8.24%, 2033, 7.73%, 2034, 7.54%, 2036 and 7.23%, 2039 gilts. Traders had estimated the accepted amount for the 6.54%, 2032 and 7.23%, 2039 bonds to be the largest, which was as per forecast. The RBI accepted INR 57.55 billion for the 6.54%, 2032 bond and INR 64.01 billion for the 7.23%, 2039 paper.

Some traders were disappointed with the cut-off prices at the OMO auction, especially on the 7.23%, 2039 gilt. The cut-off on the bond was set at a price of INR 105.35, against an estimate of INR 105.65 in an Informist poll. State-owned banks bid aggressively at the auction, driving down prices, as they booked profits, dealers said. 

"The market is seeing (demand for) a mixture of both, state bonds and g-sec to replenish (held-to-maturity) portfolios after the OMO sales," a dealer at state-owned bank said. Replacement demand from banks after the OMO sales aided the rise in bond prices in the latter half of trading, dealers said. The RBI has bought gilts worth INR 2.85 trillion since January via auction, including Tuesday's INR 200-billion purchase.

The cut-off yields at the state bond auction were aggressive, especially due to the small notified size of INR 35 billion, dealers said. The cut-off yield on Haryana's 14-year bond was set at 6.81%, lower than the estimate of 6.85% in an Informist poll. However, some banks did not find the 14-30 year tenures of state bonds appealing as the maturities did not match their liabilities, dealers said. The spread of Tamil Nadu's 2035 bond in the secondary market over that of the benchmark 10-year gilt was 35 bps on Tuesday. Traders do not expect the spread between the two 10-year securities to fall below 30 bps this quarter. 

In the secondary market, traders preferred the short end of the yield curve on the view that the curve was steepening, where the short-end of the curve was falling faster than the longer end. Demand for the 7.32%, 2030 paper has been consistent this month, with the gilt yield falling 11 bps since the end of March. Dealers estimate that the yield could fall another 5-10 bps after a possible rate cut Wednesday. Based on the same view, Treasury bill yields have also been falling, and some expect the cut-off yields to be set below 6% at the auction on Wednesday. 

Some traders also preferred the benchmark 10-year and 15-year gilts, for their higher capital gains, dealers said. "For trading (held-for-trading books), we're leaning towards the 10-year and 15-year, they have a good upward movement of prices," a dealer from a state-owned bank said. Mutual funds were likely to have bought gilts during the day, while state-owned banks switched between gilts of similar tenures to book profits while remaining invested ahead of a possible rate cut. 

The turnover in the gilt market was INR 780.85 on Tuesday, slightly higher than INR 716.35 billion Monday, 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 third straight day.

OUTLOOK

On Wednesday, gilt prices may open steady ahead of the RBI governor's address at 1000 IST, dealers said. Traders may also take cues from any comments from the MPC on banking system liquidity or on US President Donald Trump's imposition of 26% reciprocal tariff on India.

Traders await the INR 190 billion T-bill auction, scheduled for 1230-1330 IST. 

RBI-administered markets will be shut on Thursday for Mahavir Jayanti, so traders may trim gilts nearing the end of market hours on Wednesday, ahead of the INR 320-billion gilt auction on Friday. The government will sell INR 160 billion of the 6.92%, 2039 bond and INR 160 billion of a new 2065 bond on Friday.

Traders may also 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 6.39-6.55% on Wednesday.

India Gilts: Reverse losses on rate cut bets Wed after OMO cut-offs meet view

MUMBAI--1527 IST--Prices of government bonds were up, reversing earlier losses as traders ramped up rate cut bets after cut-off prices at the Reserve Bank of India's INR-200-billion open market purchase of gilts through auction were in line with expectations, dealers said. The central bank's Monetary Policy Committee is largely expected to announce a 25-basis-point rate cut Wednesday, dealers said. 

Bond yields have priced in a rate cut of 25 bps and a stance change to 'accomodative' at the Monetary Policy Committee meeting's outcome Wednesday, dealers said. An Informist poll of 15 economists forecast a rate cut of 25 bps, but economists were divided on whether the committee would opt for a softer stance. In case the MPC cuts rates but does not change its stance, the benchmark 10-year 6.79%, 2034 gilt yield could rise 3-6 bps, dealers said. 

"Now people are taking bets ahead of the policy," a trader at a primary dealership said. "The OMO (result) was broadly in line (with expectations), though it did surprise some people because it (cut-off yields) was slightly higher, but that has been the trend because PSUs (state-owned banks) are profit-booking from HTM (held-to-maturity books)." 

At the OMO auction, cut-off prices of most bonds were within traders' expectations. The RBI bought five gilts – the 6.54%, 2032, 8.24%, 2033, 7.73%, 2034, 7.54%, 2036 and 7.23%, 2039 gilts. Traders had estimated the accepted quanta for the 6.54%, 2032 and 7.23%, 2039 bonds to be the largest, which was as per forecast. The RBI accepted INR 57.55 billion for the 6.54%, 2032 bond and INR 64.01 billion for the 7.23%, 2039 paper. The relatively-low size of the auction, compared with INR-500 billion auction sizes last month, limited banks' ability to offload stock at the auction, dealers said. 

The cut-off yields at the state bond auction were aggressive, especially due to the small size of the auction, dealers said. However, some banks did not find the concentration of tenures in the 14-30 year segment appealing as the maturities did not match their liabilities, dealers said. The cut-off yield on Haryana's 14-year bond was set at 6.81%, lower than the estimate of 6.85% in an Informist poll.

In the secondary market, traders preferred the short-end of the yield curve on the view that the curve was steepening, where the short-end of the curve was falling faster than the longer-end. Demand for the 7.32%, 2030 paper has been consistent this month, with the gilt yield falling 11 bps since the end of March. Dealers estimate that the yield could fall another 5-10 bps after a possible rate cut Wednesday. Based on the same view, Treasury bill yields have also been falling, and some expect the cut-off yields to be set below 6% at the auction Wednesday. 

The market turnover was INR 568.00 billion at 1530 IST, slightly higher than INR 565.45 billion at the same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the day, yield on the 6.79%, 2034 bond is seen at 6.46-6.51%.  (Cassandra Carvalho)

India Gilts: Recover most losses as traders continue to bet on MPC rate cut

MUMBAI--1230 IST--Government bond prices recovered earlier losses as traders continued to bet on a 25-basis-point rate cut by the Reserve Bank of India's Monetary Policy Committee on Wednesday, dealers said. Prices of bonds were down in early trade due to an overnight rise in US Treasury yields and due to looming fears of an escalating trade war between the US and China. 

"Most of the selling from FPIs (foreign portfolio investors) looks to be done with...and domestic sentiments are still keeping the market in a good zone," a dealer at a state-owned bank said. "Market tried to test the 6.50% level (on the 10-year benchmark gilt yield) but immediately buying interest came in because tommorow's (Wednesday's) event is still there...don't see a sharp move from here before MPC plays out, if there is no incremental news on tariffs." 

State-owned banks were likely on the buying side, while FPIs and foreign banks continued to sell, dealers said. Traders likely switched between different tenures of gilts to book profits while remaining invested ahead of the outcome of the RBI's policy review meeting. While some traders preferred the short-end of the yield curve on the view that the curve will steepen further, others preferred to invest in bonds maturing in 10-20 years as they found the yields lucrative, because of expections that the repo rate could be slashed to as low as 5.50% by end of 2025, dealers said.

Some replacement demand from banks was also seen after selling bonds at the RBI's open market gilt purchase auctions, dealers said. At Tuesday's INR 200 billion OMO auction, state-owned banks continued to tender bonds at a significant discount to Monday's market prices as they still had the papers offered in their held-to-maturity books. However, private banks wanted to sell the bonds on par with market levels as they wanted to book profits, especially when banking system liquidity has returned to a surplus and is expected to remain comfortable during the rest of the month, dealers said.

The market turnover was INR 272.25 billion at 1230 IST, lower than INR 365.20 billion at the same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the day, yield on the 6.79%, 2034 bond is seen at 6.46-6.51%.  (Srijita Bose)

India Gilts: Down as US yields rise; losses limited before RBI OMO auction

MUMBAI--0930 IST--Goverment bond prices opened down Tuesday due to an overnight rise in US Treasury yields, dealers said. However, the losses were limited in early trade as traders refrained from placing aggressive bets before the Reserve Bank of India's INR 200-billion open market operations purchase of gilts and the INR 35-billion auction of state government bonds, dealers said.

"There is a lot of uncertainty in the global markets and FPIs (foreign portfolio investors) will want to move to safer markets to risk-off opportunities," a dealer at a private sector bank said. "Now we have to see what the MPC's (Monetary Policy Committee's) comments on these global cues are, and whether there is a stance change or not.... Right now market will move in a range-bound manner but OMO and state bond auction results will give cues in the second half."

Traders widely expect the RBI's Monetary Policy Committee to cut the repo rate by another 25 basis points Wednesday along with a softer stance indicating further cuts during the year. However, investors fear that US President Donald Trump's imposition of reciprocal tariffs could lead to higher inflation, which could cause central banks across the globe to refrain from cutting rates, dealers said. This could also deter the RBI from cutting rates in the future, they said. 

Fears of an escalating trade war between the US and China also kept investors on tenterhooks. Dealers said foreign banks and investors likely continued to sell gilts as the yield on the 10-year US Treasury note rose to 4.15% from 4.00% at 1700 IST Monday. 

At the RBI's OMO auction, dealers expect participants to tender all the bonds at a discount to Monday's market prices. However, a large chunk of the 7.23%, 2039 bond could be sold from banks' trading books at a higher cut-off price than the other four gilts that the RBI has offered to buy, dealers said. Traders also expect good replacement demand from banks as well as demand from long-term investors to help the state bond auction sail through.

The market turnover was INR 53.90 billion at 0930 IST, lower than INR 104.64 billion at the same time Monday, 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 before state bond, OMO purchase auctions

MUMBAI – Prices of government bonds are likely to open steady ahead of the Reserve Bank of India's INR 200-billion open market operation purchase of gilts and the INR 35-billion auction of state government bonds, dealers said. Meanwhile, an overnight rise in US Treasury yields is expected to weigh on gilt prices. Domestic traders are likely to continue to adjust their trading portfolios to position for the outcome of the RBI's Monetary Policy Committee meeting on Wednesday, dealers said. 

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 its close of 6.48% on Monday. Traders expect the first half of the day to be concentrated on the two auctions, with the results seen dictating the trajectory of prices for the rest of the day. The RBI has offered to buy the 6.54%, 2032 gilt, the 8.24%, 2033 gilt, the 7.73%, 2034 gilt, the 7.54%, 2036 gilt, and the 7.23%, 2039 gilt at the OMO auction. Cut-off prices at the OMO auction are expected to be on par with current market valuations as dealers are expected to be less aggressive in tendering the bonds to the RBI. In Jan-Mar, dealers already sold INR 2.45 trillion worth of gilts at deep discounts to the RBI through OMO auctions.

Traders are expected to bid aggressively at the state bond auction, as the notified amount of INR 35 billion is sharply lower than the indicated borrowing figure of INR 209 billion for this week. Dealers are likely to pick up the higher-yielding state bonds for their 'held-to-maturity' books. 

"Demand at the (state bond) auction will be good as banks have cleared so much of their HTM books in the back-to-back OMO auctions," a dealer at a state bank said. "The supply is also very low, so that will also cause good bidding."

Meanwhile, an overnight rise in US Treasury yields is expected to lead to some shedding of gilts by foreign banks, dealers said. The yield on the 10-year US Treasury bill rose by 17 basis points to 4.17% at 0800 IST from 4.00% at 1700 IST on Monday. US President Donald Trump's reciprocal tariffs are seen as raising risks of inflation, which could cause central banks across the globe to refrain from cutting rates, dealers said. The risk of higher inflation could lead the US Federal Open Market Committee to slow down the pace of rate cuts in the near term.

On the domestic front, the RBI rate-setting panel's three-day meeting began on 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. Some traders feel the MPC could cut the repo rate but not announce any liquidity easing measures. (Vidhushi RajPurohit)

End

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

Edited by Avishek Dutta

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