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Informist, Friday, Apr. 11, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended higher across most tenures on bets of another 50 basis points of cuts in the repo rate by the Reserve Bank of India's Monetary Policy Committee in 2025, dealers said. The 10-year 6.79%, 2034 gilt ended steady, as gains from a strong auction result were offset by profit-booking. Traders also placed short bets on the gilt to purchase other bonds across the yield curve, dealers said. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 102.42, from INR 102.43 Wednesday. The bond closed at a yield of 6.44%, flat against Wednesday's close. The yield on the five-year benchmark 6.75%, 2029 gilt fell 4 basis points from Wednesday's close, with the spread between the five-year and the 10-year gilts widening to 22 bps from 15 bps Tuesday, the day before the MPC cut the repo rate.

Prices of short-term gilts – the yields of which are more sensitive to rate cuts – were up more than other tenures, as traders bet on at least two more 25-basis-point rate cuts in 2025, likely in June and August, dealers said. Traders placed short bets on the benchmark 10-year gilt, as they favoured short-term papers, with some traders preferring paper maturing in 7-15 years. 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 143.59 billion in the 6.79%, 2034 gilt, up from INR 99.67 billion on Thursday.

"Even though some say that duration (10-15 year papers) are juicy (lucrative to buy) right now, if we're having another 2 rate cuts at least this year then short-term is still the best to buy now," a dealer at a private bank said. Bonds maturing in 2031 also gained more than gilts maturing in above ten years.

The slump in short-term gilt yields was also due to expectations of sustained surplus liquidity in banking system, after RBI Governor Sanjay Malhotra said the central bank would ensure a sufficient liqudity surplus of around 1% of banks' net demand and time liabilities, at the post-policy press conference Wednesday. RBI data showed the central bank absorbed INR 1.86 trillion on Thursday, up from INR 1.33 trillion Tuesday. Bond yields had fallen sharply Wednesday, with the 10-year benchmark gilt falling to 6.4288%, its lowest since Dec. 2021. Money markets were shut Thursday for Mahavir Jayanti.

Other than short-term gilts, some traders booked profits in these papers and picked up gilts maturing in 10-15 years on the view that the relative fall in these yields compared to short-term gilts could be greater since short-term gilts had already fallen sharply, dealers said. Additionally, domestic banks looked to refill their held-to-maturity books, after INR 2.85 trillion worth of gilt sales of similar tenures to the central bank at open market auctions since January.

"The 5-10-year segment is mainly driven by liquidity, whereas in papers of 10 years (maturity) and above the uncertainty is more," a dealer at a state-owned bank said. "It's all about positioning versus refilling held-to-maturity books now." 

The demand for state bonds and Treasury bills also increased, with the yield of the 91-day T-bill maturing next week at 6.00% Friday. Mutual funds rushed to pick up the rate-sensitive securities on bets of further cuts in the repo rate. Some state-owned banks have readjusted their portfolios to accomodate gilts and state bonds in a 50:50 ratio, dealers said. Banks wanted to push up the weighted average yield of their portfolio with higher-yielding state bonds, since gilt yields are on a downward trajectory, dealers said.

Traders expect the benchmark 10-year gilt to fall to 6.40% next week as hopes of further rate cuts are firmed up, dealers said. State-owned banks, who were net buyers earlier this week, have been churning their portfolios as the yield on the 10-year benchmark has approached the psychologically crucial level. Foreign banks likely continued to sell gilts Friday, after selling papers worth INR 211.71 billion this week. Private banks were also likely on the selling side. Bond prices temporarily erased gains due to sales from these banks when China hiked tariffs on US imports to 125%, on fear of increasing geopolitical uncertainty and an escalating trade war that has sent global financial markets into turmoil.

Gilt prices were down at the market open, tracking a surge in US Treasury yields, dealers said. The yield on the benchmark 10-year US Treasury note rose to 4.44% at 1700 IST, from 4.39% at the same time Wednesday. However, gilts recovered losses early in the day on the optimism on domestic rate cuts.

As for the weekly gilt auction, the government sold INR 160 billion of the 6.92%, 2039 gilt and the same quantum of a new 2065 gilt. The coupon on the new gilt was set at 6.90%, in line with an Informist poll estimate. Strong demand from domestic banks saw the cut-off price on the 6.92%, 2039 gilt set at INR 103.36, slightly beating the market view. Insurance companies and pension funds bid aggressively for the 40-year paper. Investors' demand linked to forward-rate agreements pulled the coupon lower to match the prevailing yield on the benchmark 7.34%, 2064 paper, dealers said.

The turnover in the gilt market was INR 792.15 billion, lower than INR 1.90 trillion on Wednesday, 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 fifth straight day.

OUTLOOK

Gilts are not traded Saturday. Financial markets are shut for Ambedkar Jayanti Monday. On Tuesday, gilt prices may open higher after the RBI post market hours announced an OMO purchase of INR 400 billion worth of gilts via auction Thursday. The RBI has offered to buy the 7.37%, 2028, 7.32%, 2030, 6.54%, 2032, 7.18%, 2033, 7.54%, 2036 and 7.23%, 2039 gilts Thursday. This is in addition to the four tranches of OMO buys totalling INR 800 billion the RBI had already announced for April.

Gilt traders were expecting the OMO auction announcement Friday which would provide details of the already-scheduled auction on Apr. 22. The surprise announcement will be a positive for bond prices, dealers said. 

On Tuesday, traders will await CPI inflation for March due at 1600 IST. An Informist poll of 11 economists estimated the print at 3.6%, while gilt traders estimate a range of 3.4-3.7%.

Gilt prices may also track the movement of US Treasury yields at open. Traders await clarity on the geopolitical scenario after the escalation in the US-China trade war. Financial markets around the world have been in turmoil, 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 6.39-6.50% on Tuesday.

India Gilts: Erase gains on profit-booking, escalating US-China trade war

MUMBAI--1454 IST--Prices of government bonds erased gains as traders sold gilts due to fear of an escalating global trade war, dealers said, after China hiked tariffs on US imports to 125%. Some traders sold gilts at a profit, which also weighed on prices, they said. Gilt prices were up earlier as cut-offs at the INR-320-billion gilt auction were better than what some traders had expected, they said.

Foreign banks are likely to have sold gilts in the secondary market after China hiked tariffs on US imports to 125%, on fear of increasing geopolitical uncertainty and an escalating trade war that has sent global financial markets into turmoil. The selling pressure increased as domestic banks sold gilts at a profit when prices roses after the gilt auction cut-offs were released. 

As for the auction, the government sold INR 160 billion of the 6.92%, 2039 gilt and the same quantum of a new 2065 gilt. Strong demand from domestic banks saw the price on the 6.92%, 2039 gilt set at INR 103.36, against an Informist poll estimate of INR 103.35. Insurance companies and pension funds bid aggressively on the 40-year paper. The coupon on the new gilt was set at 6.90%, in line with an Informist poll estimate. Mutual funds were also active bidders at the auction, dealers said.  

Domestic banks bid aggressively for the 2039 paper primarily to refill their books after selling similar-maturity gilts worth INR 2.85 trillion to the Reserve Bank of India through open market auctions since January, dealers said. Additionally, some traders purchased the paper on the view that the 'belly' of the yield curve, papers maturing in 10-15 years, had scope to fall further in a rate cut cycle, dealers said.

Short-term bond yields have fallen this week, as traders see a 'bull-steepening' of the yield curve – wherein short-term rates fall faster than long-term yields. The yield on the 5-year benchmark has fallen 9 basis points since Tuesday, after the Reserve Bank of India's Monetary Policy Committee cut the repo rate to 6.00% and changed its stance to 'accomodative' from 'neutral' on Wednesday. 

"There is uncertainty (globally) so there's heavy selling from the offshore side (foreign banks) but the RBI (Reserve Bank of India) has given us the assurance of liquidity and scope for more (rate) cuts. By next week, the 10-year (6.79%, 2034 gilt) should be at 6.40%, so it's good to buy right now," a dealer at a state-owned bank said. 

The market turnover was INR 647.55 billion, lower than INR 1.30 trillion at 1430 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Trade volumes picked up after the auction cut-offs were published, but were lower than Wednesday's levels, possibly because many traders were on leave due to the long weekend, dealers said. Money markets were shut Thursday for Mahavir Jayanti, and will be shut Monday for Ambedkar Jayanti. During the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.40-6.46%.  (Cassandra Carvalho)

India Gilts: Up as INR 320 bln bond auction seen sailing through

MUMBAI--1201 IST--Government bond prices were up as the INR 320 billion gilt auction is expected to sail through on hopes of easier monetary conditions during the year, dealers said. A rise in US Treasury yields continued to weigh on gilt prices, capping the gains, they said.  

Domestic banks are expected to pick up the benchmark 15-year bond at the auction, with view of a further 50-basis-point rate cut by the Reserve Bank of India's Monetary Policy Committee by end of 2025 and replacement demand against sales of gilts at the central bank's open market gilt purchase auctions since January, dealers said. Both investors and traders are seen picking up the gilt to lock in yields as they see yields across tenures falling on view of more domestic rate cuts. 

"Demand should be good at auction. Price action is supported and a good amount of shorts built on 15-year (6.92%, 2039) paper so that covering will happen," a dealer at a primary dealership 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 1150 IST showed trades worth INR 63.75 billion in the 6.92%, 2039 gilt. "There is mixed reaction for longer-tenure (2065 gilt), but there too, only 1 bp tail is expected...spread is also looking good right now," the dealer said.

For the new 2065 gilt, traders expect firm demand from long-term investors such as life insurers and pension funds. The yield spread of the current 40-year 7.34%, 2064 gilt over the 10-year benchmark gilt has widened by nearly 4 bps to 45 bps during the week. Traders were cautious about the larger supply of the new 40-year paper, with INR 160 billion worth of the bond auctioned, but said investors will look to lock in yields to capture higher price gains when yields fall after further rate cuts, dealers said. Meanwhile, demand for bond forward-rate agreements in the longer-tenure bond at auction as well as others of similar duration in the secondary market was seen firm, they said. 

The market turnover was INR 291.85 billion, lower than INR 564.20 billion at 1130 IST 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 6.40-6.50%.  (Srijita Bose)

India Gilts: Reverse early losses on bets of 50 bps more rate cuts in 2025

MUMBAI--0946 IST--Government bond prices reversed early losses as traders bet on a further 50 basis point rate cut by the Reserve Bank of India's Monetary Policy Committee in 2025 after the panel on Wednesday slashed the repo rate by 25 bps and adopted a softer stance, dealers said. Prices opened lower Friday as US Treasury yields rose from Wednesday when Indian markets closed, dealers said. Markets were shut Thursday for Mahavir Jayanti. 

The yield on the 10-year US Treasury note rose to 4.44% from 4.39% at 1700 IST Wednesday. US yields rose after President Donald Trump Wednesday increased the effective tariffs on China to 145% while announcing a 90-day pause on most higher reciprocal tariffs and temporarily reducing the rate of levies to 10% on all other major import partners. Foreign portfolio investors likely sold due to the narrowing of interest rate differential between US yields and yields on Indian gilts, which makes the latter less appealing to them, dealers said.

"Domestic market sentiments are positive right now and I think it will not go above 6.45% significantly if US T(US yields) are well behaved...the selling pressure is also because of that (US yields) and mostly FPIs are selling," a dealer at a private bank said. "If the auction cut-offs (prices) are good then yield could touch 6.40% also today (Friday), but it may not sustain there."

Traders await the INR 320 billion gilt auction, where the government will look to raise INR 160 billion each of 6.92%, 2039 gilt and a new 40-year bond, to take further cues in the latter half of the day. Demand for both the papers is expected to be firm with long-term investors demanding the new 2065 bond and, banks and mutual funds demanding the 2039 paper, dealers said.

Replacement demand from banks for the 15-year paper at auction and for gilts maturing in seven to 15 years in the secondary market is expected after they sold nearly INR 2.85 trillion worth of gilts at RBI's open market gilt purchase auctions since January, they said. Traders expect 50 bps more cut in the repo rate by the RBI's rate-setting panel--25bps each in June and August or sometime later in the year--leading them to pick up gilts at a yield they found lucrative, dealers said. 

The market turnover was INR 95.20 billion, lower than INR 117.45 billion at 0930 IST 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 6.40-6.50%.  (Srijita Bose)

India Gilts: Seen tad down on rise in US ylds, caution before gilt auction

MUMBAI – Prices of government bonds are expected to open lower on Friday due to a surge in US Treasury yields, dealers said. Traders are also likely to sell gilts ahead of the INR 320-billion weekly gilt auction at 1030-1130 IST Friday. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.42-6.48% during the day, against 6.44% at close on Wednesday. US President Donald Trump Wednesday announced a 90-day pause on most higher reciprocal tariffs and temporarily reduced the rate of levies to 10% on all major import partners of the US, except for China. Following the announcement, the yield on the 10-year US Treasury note rose by 7 basis points to 4.46% at 0740 IST from 4.39% at 1700 IST Wednesday.

A narrowing interest rate differential between US yields and yields on Indian gilts could trigger further outflows, dealers said. So far this week, overseas investors have sold INR 46.12 billion of fully accessible gilts, Clearing Corp. of India data showed. Moreover, foreign banks have been on the selling side for the entirety of the week, having sold INR 211.78 billion worth of gilts till Wednesday. Traders will also keep an eye on the next steps the US and China take in their ongoing trade war, with the US increasing the tariff on import of Chinese goods to 145%.

The first half of the day is expected to be focused on the weekly gilt auction, through which the government will sell INR 160 billion of the 6.92%, 2039 bond and INR 160 billion of a new 2065 bond. Traders are likely to trim their holdings of the 15-year 6.92%, 2039 gilt in the secondary market to make space for picking up the gilt at auction, dealers said. Dealers also expect good investment demand from life insurance companies for the new 2065 bond. The result of the auction is expected to dictate the gilt price later during the day, dealers said. 

Yields on short-term gilts are expected to fall this month as dealers expect the Reserve Bank of India's Monetary Policy Committee to cut the repo rate by 25 bps each in both June and August. Bond yields fell Wednesday after the rate-setting panel cut the repo rate by 25 bps to 6.00% and changed its stance to 'accommodative' from 'neutral'.

"Prices (of government bonds) today will take cues from the auction result and US yields will cause some pressure on prices," a dealer at a state bank said. "We will also look out for an OMO auction details that could come today." Earlier this month, the central bank announced it would purchase INR 800 billion worth of gilts in April, and so far it has bought gilts amounting to INR 400 billion. (Vidhushi RajPurohit)

End

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

Edited by Deepshikha Bhardwaj

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