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Informist, Wednesday, Apr. 9, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended higher after the Reserve Bank of India's Monetary Policy Committee unanimously changed its stance to 'accommodative' from 'neutral' and cut the repo rate by 25 basis points to 6.00% at its outcome Wednesday. Traders bet on another 50 bps of cuts in the repo rate in 2025, with expectations of a quarter point cut at the rate-setting committee's next meeting in June, dealers said.

The 10-year benchmark 6.79%, 2034 bond ended at INR 102.43, up from INR 102.21 Tuesday. The bond closed at a yield of 6.44%, its lowest close since Dec. 20, 2021, and down from 6.47% Tuesday. Bond prices, which had opened lower due to an overnight surge in US Treasury yields, reversed losses after RBI Governor Sanjay Malhotra in the post-policy press conference said the central bank would ensure a sufficient liquidity surplus in the banking system.

Nearing the end of trading hours, bond prices rose due to purchases by foreign banks and portfolio investors, traders said. Both these market participants likely sold gilts earlier in the day due to the rise in US Treasury yields, dealers said. As of 1740 IST, Clearing Corp. of India data showed that FPIs sold gilts worth INR 31.61 billion through the fully accessible route Wednesday.

Bets of further repo rate cuts this year increased after the central bank slashed its GDP growth and CPI inflation forecasts for 2025-26 (Apr-Mar). The CPI inflation estimate for FY26 was revised to 4.0% from 4.2% earlier, and the GDP growth estimate was cut to 6.5% from 6.7% earlier. Traders now see the policy repo rate at 5.50% by the end of 2025, doubling the expected quantum of rate cuts from six months ago.

Liquidity in the banking system is expected to continue remaining in a surplus, as assured by the RBI governor, dealers said. The net injected figure by the RBI showed the central bank absorbed INR 1.33 trillion on Tuesday. The surplus this month comes after systemic liquidity was in a deficit since mid-December, which also led to traders refraining from aggressive bond purchases that time. Surplus liquidity for transmission of monetary policy is seen pulling bond yields down in the near-term, dealers said.

"The gilt market works on 3-4 parameters; rates, inflation and growth, liquidity and US yields, and the governor has addressed most of these issues in a very refined manner and has boosted our confidence," a dealer at a state-owned bank said. "He (his comments) showed that further rate cut is possible and liquidity will be supported."

Bond prices had opened sharply lower tracking an overnight rise in US Treasury yields. The yield on the 10-year US Treasury note rose to 4.39% at 1700 IST, from 4.20% the same time Tuesday, briefly rising above the psychologically crucial 4.50% level overnight. Gilt prices fell further close to the start of the governor's address at 1000 IST as some traders reduced bets of a change in stance, dealers said. The gilt market had largely priced in a 25 bps cut and change in stance.

"The rate cut is indeed positive for our bond markets but the ongoing pressure on US bond yields restricts the full extent of the impact in India," said Umeshkumar Mehta, chief investment officer, Samco Mutual Fund, after the MPC rate decision.

After the MPC rate decision, the yield curve steepened further, wherein short-term rates fell faster than long-term bond yields. The benchmark five-year gilt yield fell to 6.2492%, its lowest since Feb. 23, 2022. With two rate cuts out of the way, the spread between the longest-tenure 50-year gilt yield over the 364-day Treasury bill yield, widened to 86 bps Wednesday from 37 bps as on Dec. 31. The 364-day Treasury bill yield is a proxy for the Centre's one-year borrowing cost. Cut-off yields at the Treasury bill auction Wednesday reflected the preference for short-term securities, with the 91-day Treasury bill cut-off set at 6.03%, 3 bps higher than the repo rate.

Traders also placed short bets on long-term gilts ahead of the INR 320-billion gilt auction Friday. The government will sell INR 160 billion of the 6.92%, 2039 gilt and INR 160 billion of a new 2065 gilt. Financial markets are shut on Thursday for Mahavir Jayanti, and traders expected yields to harden slightly nearing the end of trading hours Wednesday as they made room for fresh auction stock.

In the secondary market, corporate entities also drove demand for gilts, alongside foreign investors, dealers said. State-owned banks churned their portfolios, selling some tenures at a profit, but accumulating stock of gilts with the view that the next trading range for the 10-year benchmark gilt was 6.40-6.42%.

"Some state-owned banks have ample stock in their AFS (available-for-sale) and HTM (held-to-maturity) books, so they're profit booking but we see the yield (on the 10-year benchmark) at 6.40%, so some buying is there for that," a dealer at a state-owned bank said.

The turnover in the gilt market was INR 1.90 trillion on Wednesday, likely a record and more than double that of the INR 780.85 billion volume Tuesday, 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 fourth straight day.

OUTLOOK

On Friday, gilt prices may take cues from the movement of US yields, dealers said. Traders may trim gilts ahead of the INR 320-billion gilt auction. The government will sell INR 160 billion of the 6.92%, 2039 bond and INR 160 billion of a new 2065 bond.

Traders await clarity on the geopolitical scenario after the imposition of US President Donald Trump's reciprocal tariffs on over 60 countries and territories came into effect Wednesday. Financial markets around the world have been falling, and the RBI governor also said that the MPC is watchful of global uncertainties.

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 Friday.

India Gilts: Surge as mkt bets on another 50 bps of rate cut by MPC in 2025

MUMBAI--1545 IST--Government bond prices surged after comments by Reserve Bank of India Governor Sanjay Malhotra on banking system liquidity and the macroeconomic outlook provided relief to traders amid global uncertainties, dealers said. Traders across segments picked up gilts after comments from central bank officials indicated easier monetary policy conditions over the coming months. Traders now expect another 50 basis points of rate cuts in 2025, with 25 bps in June and another one in August or later, dealers said. 

"Everyone is buying in the market right now, the 10-year could eventually come to 6.20% after rate-cutting cycle is over, so no one will want to miss out at these levels," a dealer at a private bank said. "His (Malhotra's) statement exuberated such confidence that the market is reacting on that...except for profit-booking by some who are deep in-the-money, everyone is accumulating right now."

Foreign portfolio investors are likely to have remained on the sidelines after selling in early trade as US Treasury yields eased intraday, dealers said. Foreign banks are likely to have turned net buyers after selling gilts earlier in the day following Malhotra's comments on liquidity, they said. Traders rushed to pick up shorter tenure gilts maturing in up to 10 years as they see the yield curve steepening further. 

The market turnover was INR 1.65 trillion at 1530 IST, nearly thrice the volume of INR 568.00 billion at the same time on Tuesday, 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 6.42-6.50%.  (Srijita Bose)

India Gilts: Reverse losses, rise on RBI liquidity comments, fall in US ylds

MUMBAI--1331 IST--Prices of government bonds were sharply up, recovering early losses as comments by Reserve Bank of India Governor Sanjay Malhotra on banking system liquidity and the macroeconomic outlook suggested easier monetary policy conditions and a further fall in gilt yields was likely, dealers said. Traders firmed up their bets on a rate cut by the RBI's Monetary Policy Committee at its next meeting in June.

At the post-monetary policy press conference, Malhotra said the aim of the central bank was to ensure proper transmission of the repo rate.

"I again reiterate that we will provide sufficient liquidity for the purposes of monetary policy transmission. I don't want to give a number really, as to what kind of a surplus, but sufficiently in surplus. You mentioned linking it to NDTL. Well yes, that is the kind of number, around 1% or so, in the surplus range. Now that we are in easing cycle that is the kind of number we will be looking at and we'll keep it sufficiently surplus," Malhotra said in a response to a question at the conference. 

"I have never seen such dovish commentary in my recent days," a dealer at a private bank said. "He's so dovish, he's saying everything so straightforward to the face of people." The 10-year benchmark 6.79%, 2034 gilt yield fell to 6.4481% during the press conference, its lowest level since Dec. 31.  

The MPC unanimously cut the repo rate to 6.00% and changed its stance to 'accomodative' from 'neutral' on Wednesday. The central bank lowered its forecasts of GDP growth and CPI inflation for 2025-26 (Apr-Mar), spurring traders to bet on 50 basis points more of cuts in the repo rate by the rate-setting panel in 2025. The intraday fall in the yield on the 10-year US Treasury note to 4.36% at 1330 IST from 4.40% at 0900 IST aided the rise in bond prices, dealers said. However, the overnight jump in US Treasury yields remained a concern for gilt traders and weighed on prices, dealers said. The 10-year US yield briefly rose above the psychologically crucial 4.50% level overnight, from 4.20% at 1700 IST Tuesday.

The market turnover was INR 1.17 trillion, more than thrice the INR 314.45 billion volume at 1330 IST Tuesday, 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 6.42-6.50%.  (Cassandra Carvalho)

India Gilts: Recover most losses on softer MPC stance, easing US yields

MUMBAI--1207 IST--Government bond prices recovered most losses as the Reserve Bank of India's Monetary Policy Committee cut the repo rate by 25 basis points along with adopting a softer policy stance. With the policy stance at 'accommodative', dealers said the MPC could cut rates by another 50 bps in 2025, bringing the 10-year gilt yield to as low as 6.20%. While global inflationary fears and a sharp overnight rise in US Treasury yields continued to weigh on gilt prices, an intraday fall in US yields helped in recovery for gilts, dealers said.

Bonds maturing in five years and below were in favour, with traders selling bonds maturing in 30 years or more on the view the yield curve will "bull steepen" following the stance change – short-term yields will fall quicker and by a greater margin than those on long-term bonds. Traders expect the 10-year benchmark yield's spread over the five-year gilt to widen to nearly 25 bps in the coming months as further rate cuts are priced in, dealers said. The spread of the 6.79%, 2034 gilt over the five-year benchmark 6.75%, 2029 bond has widened 2 bps to nearly 18 bps after the rate decision.

"The commentary was positive but looks like we won't be testing 6.42% (yield on the 10-year benchmark gilt) after all if US yields don't soften from here," a dealer at a private bank said. "People are going for short-end from long-end to gain on a steepening yield curve." The 10-year US Treasury yield eased to 4.42% after touching 4.50% earlier in the day, up over 20 bps overnight. 

The RBI's rate-setting panel on Wednesday unanimously cut the repo rate to 6.00% and adopted an "accommodative" monetary policy stance, which RBI Governor Sanjay Malhotra said meant that the panel would only consider either cutting rates or maintaining status quo, going forward. He said the stance was not a guidance on the RBI's liquidity operations.

While the monetary policy outcome was a positive, traders continued to gauge the impact of the tariffs imposed by the US. Malhotra and the MPC both highlighted uncertainties on domestic growth and inflation projections due to the widespread tariffs imposed by US President Donald Trump's administration. The central bank revised down both its GDP growth and inflation forecasts for 2025-26 (Apr-Mar) by 20 bps each to 6.5% and 4.0%, respectively. The projections were a positive for bond prices as they made a stronger case for further rate cuts, dealers said.

Bonds maturing in 30 years and longer were out of favour as traders moved to bonds maturing in less than 10 years. The yield on the 40-year benchmark 7.34%, 2064 bond rose more than shorter-tenure gilts, especially ahead of the INR 160-billion supply in the segment at Friday's gilt auction, dealers said. 

The market turnover was INR 786.55 billion, significantly higher than INR 270.45 billion at 1235 IST Tuesday, 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: Off lows as MPC cuts repo rate, changes stance to accommodative

MUMBAI--1010 IST--Prices of government bonds recovered some losses after the Reserve Bank of India's Monetary Policy Committee cut the repo rate by 25 basis points to 6.00% and changed its stance to 'accomodative' from 'neutral', which the gilt market had priced in, dealers said. 

The three-day MPC meeting began Monday, and its outcome was announced on the day reciprocal tariffs by the US on its trading partners came into effect. RBI Governor Sanjay Malhotra's speech detailing the MPC decisions marked a focus on global uncertainties. The geopolitical turmoil also pushed up US Treasury yields, which limited the rise in bond prices, dealers said. Traders said Malhotra's speech was unexpectedly positive for bond traders. 

"The policy was dovish only but only thing is that because of US T (US Treasury yields)  we are reacting little negative," a dealer at a private bank said. The yield on the benchmark 10-year US Treasury note rose to 4.47% as of 1010 IST, from 4.20% at 1700 IST Tuesday.

Foreign portfolio investors, who were impacted by the rise in US Treasury yields were selling gilts in the secondary market, along with some domestic traders who had positioned heavily ahead of the MPC outcome, dealers said.

The market turnover was INR 340.05 billion at 0930 IST, higher than INR 127.90 billion at the same time Tuesday, 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: Slump on rise in US yields, bets of softer stance by MPC fall

MUMBAI--0937 IST--Government bond prices slumped Wednesday due to an overnight rise in US Treasury yields, dealers said. Traders also placed short bets on gilts as chances of the Reserve Bank of India's Monetary Policy Committee opting for a softer stance reduced due to global inflationary fears. Traders await RBI Governor Sanjay Malhotra's statement on policy decision at 1000 IST. 

The yield on the 10-year US Treasury bill rose to 4.49% at from 4.20% at 1700 IST on Tuesday. Investors fear that US President Donald Trump's imposition of reciprocal tariffs, which came into effect Wednesday, could lead to higher inflation. This could cause central banks across the globe to refrain from cutting rates, dealers said. According to media reports, Morgan Stanley, in an update on Tuesday, estimated that the US Federal Reserve might hold back any policy rate cuts this year due to inflationary concerns.

Dealers said that global inflationary concerns also make a case for the RBI's rate-setting panel to refrain from changing its stance to 'accomodative' from 'neutral' on Wednesday. Gilts are now pricing in a 50/50 chance of a softer stance while traders still widely expect the RBI panel to cut the repo rate by 25 basis points, dealers said. The repo rate currenty stands at 6.25%. 

"A lot is riding on the MPC's decision now, both on rates and liquidity," a dealer at a primary dealership said. "It all depends on the US markets, how this tariff situation unfolds and whether the trade war turns into a full-fledged war...my sense is that Malhotra will cut rates but not go for a stance change right now because he will not want to tie his hands in an environment of global uncertainty."

Foreign banks and portfolio investors likely sold gilts as US yields rose, dealers said. However, domestic traders remained cautious ahead of the outcome of the policy meeting, they said. 

The market turnover was INR 153.20 billion, higher than INR 52.90 billion at at 0930 IST Tuesday, 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 6.39-6.55%.  (Srijita Bose)

India Gilts: Seen steady before MPC decision; rise in US ylds to weigh

MUMBAI – Prices of government bonds are likely to be steady at open as traders await Reserve Bank of India Governor Sanjay Malhotra's announcement of the outcome of the Monetary Policy Committee's meeting, dealers said. However, a sharp rise of 14 basis points in the US 10-year Treasury note is expected to trigger some further sales of gilts by overseas investors, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.39-6.55% during the day, against the previous day's close of 6.47%, and will depend on the MPC's decision on policy rates. Most traders expect the rate-setting committee to cut the repo rate by 25 basis points to 6.00% and change its stance to 'accommodative' from 'neutral', which has been priced in, dealers said. Any commentary by Malhotra on US reciprocal tariffs on India will also be keenly eyed by traders. 

If the MPC announces just a 25-bps repo rate cut without a shift to a softer liquidity stance, dealers expect gilt prices to retrace the majority of their gains and fall. According to traders, the present level of 6.47-6.48% for the 10-year benchmark gilt accounted for a possible shift to a softer liquidity policy, and that a 25-bps cut in the repo rate was already priced in at the yield level of 6.55-6.58%. The 10-year benchmark gilt's yield might, therefore, increase to 6.54–6.55% Wednesday if there is no change in stance, dealers said.

On the other hand, if the MPC's decision aligns with traders' expectations, the benchmark 10-year gilt yield is seen falling up to 6.42% since the outcome has been largely priced in, dealers said. A brief fall below 6.40% is possible but not expected to sustain as profit-booking might limit the downward movement in the yield. 

Traders also await the INR 190-billion T-bill auction, scheduled for 1230-1330 IST. Traders are likely to trim gilt holdings nearing the end of market hours 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. RBI administered markets will be shut on Thursday for Mahavir Jayanti. 

On the global front, the $58-billion US Treasury note auction Tuesday saw the weakest demand in two years, leading yields on US Treasury notes to move higher. The yield on the 10-year US Treasury bill rose to 4.34% at 0750 IST from 4.20% at 1700 IST Tuesday. The threat of inflation in the world's largest economy posed by the implementations of tariffs also pushed Treasury yields higher. According to media reports, Morgan Stanley, in an update on Tuesday, forecast that the US Federal Reserve might hold back any policy rate cuts this year due to inflationary concerns. (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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