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Informist, Tuesday, Apr. 15, 2025

By Cassandra Carvalho 

MUMBAI – Prices of government bonds ended sharply higher Tuesday after the Reserve Bank of India Friday announced an additional purchase of INR 400 billion of gilts via an auction Thursday under its open market operations, dealers said. Bond prices did not react significantly to the lower-than-expected CPI inflation print for March as the data did not change traders' views on the rate cut cycle. Also, profit sales, likely by mutual funds, offset the small gains after the CPI data release. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 102.64 Tuesday, up from INR 102.42 Friday. The bond closed at a yield of 6.41%, lower than Friday's close of 6.44%. During the day, the 10-year yield briefly fell to 6.4023%, the lowest since Dec. 20, 2021. Financial markets were shut on Monday for Ambedkar Jayanti.

India's CPI inflation for March printed at a 67-month low of 3.34%, against the estimate of 3.6% in an Informist poll. The print was also below most traders' expectations of 3.5-3.6%, though some had expected a reading as low as 3.2%. Though the reading was lower than the consensus, the implication of the lower print on rate cuts was largely priced in, dealers said. The momentary rise in bond prices after the data release was offset by selling gilts at a profit, likely by mutual funds.   

"Market was mostly pricing in the CPI to be somewhere around 3.3-3.7%, and anyway the expectation is of further rate cuts, and the view remained unchanged," a dealer at a private bank said. "Market is expecting another 50 bps of cut still but there is (are) global uncertainties and the next domestic trigger is growth... the fall in gilts (gilt yields) will take some time."

Bond prices rose in early trade in reaction to the RBI's late Friday surprise announcement of a INR-400-billion OMO auction. The RBI has offered to buy six gilts on Thursday, namely the 7.37%, 2028, the 7.32%, 2030, the 6.54%, 2032, the 7.18%, 2033, the 7.54%, 2036, and the 7.23%, 2039 papers. This auction is over and above the INR 800 billion of government bonds the RBI announced to buy through four auctions in April. So far this month, the central bank has purchased INR 400 billion worth of gilts through two auctions under its open market operations.

The rise in bond prices at the open was also aided by a fall in US Treasury yields. The yield on the 10-year benchmark US Treasury note fell to 4.35% at 0900 IST from 4.44% At 1700 IST Friday. However, the yield rose to 4.40% by the time the gilt market shut Tuesday, which weighed on gilt prices near the end of trading hours, dealers said. 

Traders covered some short bets during the day on expectations of a terminal repo rate of 5.00-5.50%, possibly by the end of the calendar year. The base case expectation is for another 50 bps of cuts in the repo rate by the RBI's Monetary Policy Committee in 2025. The rate-setting panel has cut the repo rate by 25 bps each in February and April.

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 125.89 billion in the 6.79%, 2034 gilt, down from INR 143.59 billion at the same time Friday. State-owned banks switched between gilts of similar tenures to book profits while remaining invested in gilts as they anticipate further rate cuts which would pull down gilt yields, dealers said. Private and foreign banks were likely buying gilts on rate-cut bets, while mutual funds booked profits. Some mutual funds sold gilts as they preferred investing in Indian equities after the Indian benchmark indices rose Tuesday, dealers said.

Some traders preferred short-term gilts--whose yields are more sensitive to rate changes--on expectations that their yields would fall further in a rate cut cycle, dealers said. State-owned banks picked up gilts maturing in 2-3 years based on this view, dealers said. Some traders preferred papers maturing in 10-15 years on expectations that the spread of these gilts over the benchmark 10-year 6.79%, 2034 gilt would compress further in a rate-cutting cycle. The 6.92%, 2039 gilt was the second-most traded paper on the RBI's Negotiated Dealing System-Order Matching platform Tuesday after the benchmark 10-year paper, Clearing Corp. of India data showed. 

"Earlier we were switching between short-term but now since that has dried up (yields have fallen), we're switching between belly (papers maturing in 10-15 years), then we'll move onto to long-term as spreads compress further," a dealer at a state-owned bank said.  

Foreign portfolio investors were likely selling short-term gilts to pick up gilts maturing in 7-15 years, dealers said. Foreign portfolio investors bought gilts worth INR 11.83 billion Tuesday, via the fully accessible route, Clearing Corp. of India data at 1830 IST showed.   

Long-term investors such as the Employees' Provident Fund Organisation and pension funds were selling the previous 40-year benchmark 7.34%, 2064 gilt to pick up the freshly-issued 6.90%, 2065 gilt, dealers said. Despite having an outstanding amount of only INR 160 billion, the 2065 gilt, which was issued Friday, had trade volumes of INR 12.75 billion on Tuesday. 

Demand from long-term investors drove down cut-off yields at the INR-30-billion state bond auction. Only one bid was accepted for Telangana's 2056 bond, and dealers speculated that the EPFO purchased the entire stock. Also, cut-offs were lower than expected due to lower supply. Three states raised INR 30 billion, whereas the Apr-Jun state borrowing calendar had indicated that 10 states would raise INR 157.50 billion Tuesday. Some banks purchased the bonds to refill their held-to-maturity books, after sales of around INR 2.85 trillion to the central bank in OMOs since January, most of which were gilts from the held-to-maturity books. 

However, the cut-off yields failed to spur demand for these securities in the secondary market as the spread between state bonds and gilts is not expected to fall any further. The spread on Tamil Nadu's 10-year bond yield over that of the 10-year benchmark gilt yield narrowed to 30 bps at the auction Tuesday. The spread between the 10-year state bond and 10-year gilt was 38 bps a month ago. 

The turnover in the gilt market was INR 599.40 billion Tuesday, lower than INR 792.15 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 sixth straight day.

OUTLOOK

On Wednesday, gilt prices may take cues from the overnight movement of US Treasury yields, dealers said. Traders await clarity on the trade scenario after the escalation in the US-China trade war. Financial markets around the world have been in turmoil, and RBI Governor Sanjay Malhotra last week said that the Monetary Policy Committee 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 Wednesday.

India Gilts: Sharply up; little changed after Mar CPI as rate cut view unch

MUMBAI--1637 IST--Government bond prices remained sharply up, largely unchanged after the release of India's CPI inflation for March. Though the reading was lower than consensus estimates, traders said the implication of the lower print on rate cuts was largely priced in, dealers said.

CPI inflation in March was at 3.34%, lower than the consensus 3.61% view in an Informist poll and the lowest print in over five years. Consumer inflation in Jan-Mar averaged 3.7%, a tad higher than the Reserve Bank of India's downwardly revised forecast of 3.6% for the quarter. The print made no change to the expectations of at least another 50 basis points of repo rate cuts to 5.50% among traders for 2025, dealers said.

"The CPI data was mostly priced in, and at this point even the MPC (Monetary Policy Committee) is focussing more on growth than inflation so we would not see a sharp movement in gilts even if the print was a little higher than this," a dealer at a private bank said. "There is also some profit-booking coming in because yields have already fallen so much and there is still uncertainty on the global front...I think the movement from here will be mostly range-bound."

Price on the 10-year benchmark 6.79%, 2034 gilt rose briefly after the release of the data, with the yield falling to the psychologically crucial level of 6.40%. However, the rise was capped as traders sold bonds at a profit, dealers said.

The market turnover was INR 513.05 billion on Tuesday, lower than INR 704.65 billion at 1630 IST Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the remaining of the day, the yield on the 6.79%, 2034 bond is seen at 6.39-6.46%.  (Srijita Bose)

India Gilts: Remain up on RBI's OMO announcement; India Mar CPI awaited

MUMBAI--1505 IST--Prices of government bonds remained up on purchases by domestic banks after the Reserve Bank of India announced Friday the purchase of an additional INR 400 billion through an open market auction, dealers said. The rise in prices was capped as traders awaited the release of India's CPI inflation for March, due at 1600 IST. 

The RBI has offered to buy six gilts on Thursday, namely; the 7.37%, 2028, 7.32%, 2030, 6.54%, 2032, 7.18%, 2033, 7.54%, 2036 and 7.23%, 2039 papers. Some of these papers, such as the 6.54%, 2032 and 7.23%, 2039 gilts are held in banks' trading books, while the other papers are largely stocked in held-to-maturity books, dealers said. At the auction, state-owned banks are expected to bid aggressively on held-to-maturity stock, driving down prices, as seen at past auctions held since January. However, some traders also expect gilts from trading books to be tendered at prices closer to current market valuations, they said.

"For trading papers, the cut-offs (prices) will be higher because if someone has bought this paper on Friday (when prices were lower than current market valuations), they can sell at a profit at the auction because the market has rallied since then," a dealer at a private bank said.  

Traders may take cues from India's CPI inflation print for March. Gilt traders largely expect the inflation to be around 3.5-3.6%, but some expect a reading of 3.2% on the downside and 3.7% on the upper end. Bond prices are unlikely to react to the data significantly if it is along expected lines, dealers said. If the print is above 4%, the yield on the benchmark 10-year 6.79%, 2034 gilt could rise by 3-4 basis points. If the data is lower than 3%, the yield on the 10-year gilt could fall below the psychologically crucial 6.40% level, but may not be sustained due to profit-booking, since the yield has already softened 2 bps last week itself, dealers said. Moreover, some traders are still uncertain about when the RBI's Monetary Policy Committee will cut rates next. Most traders expect another 25 bps cut in June. 

The cut-off yields at the INR-30-billion state bond auction were lower than expected, due to less supply. However, the cut-offs failed to spur demand for these securities in the secondary market as the spread between state bonds and gilts is not expected to fall any further. The spread of Tamil Nadu's 10-year bond yield over that of the 10-year benchmark gilt yield narrowed to 30 bps at the auction Tuesday. The spread between the 10-year state bond and 10-year gilt was 38 bps a month ago. 

At 1530 IST, the market turnover was INR 426.65 billion, lower than INR 648.00 billion at the same time on Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.39-6.45%. (Cassandra Carvalho)

India Gilts: Remain sharply up; short-term bonds surge most on rate-cut view

MUMBAI--1215 IST--Government bond prices remained sharply up, with short-term bonds rising the most, as traders continued to hope for further rate cuts by the Reserve Bank of India's Monetary Policy Committee, supported by an 'accommodative' monetary policy stance, dealers said. The RBI saying it would buy an additional INR 400 billion worth of gilts through an open market operations auction this week continued to aid prices. 

"No one will look to aggressively sell at this point...but prices are going up further because everyone is holding onto these levels and additional buying is also limited," a dealer at a state-owned bank said. "There are expectations of more rate cuts and the terminal rate dropping to 5.25% by year-end... but gilts will price in these cuts going forward when there is more clarity on data."

Shorter tenure bonds maturing within five years outperformed others as traders expect the yield curve to steepen more on hopes of further rate cuts during the year, dealers said. The yield spread on the 10-year benchmark gilt over the five-year 6.75%, 2029 gilt has widened to over 22 basis points on Tuesday from nearly 15 bps before the RBI's rate-setting panel slashed the repo rate to 6.00%. 

Meanwhile, long-term investors continued to pick up gilts maturing in 30 years and more, as the supply of state bonds at auction continued to undershoot the indicated supply. On Tuesday, three states looked to raise INR 30.00 billion against INR 157.50 billion indicated in the Apr-Jun borrowing calendar. However, other traders, especially from domestic banks, switched towards shorter duration gilts on hopes of a deeper rate-cutting cycle, leading to a limited rise in prices for long-term bonds.

Traders refrained from selling aggressively or taking profits in the secondary market as domestic sentiments remained positive, dealers said. Some traders are increasingly expecting a deeper rate-cutting cycle, while others await further global and domestic cues to increase their bets on the same, dealers said. Gilts have not fully priced in a 25-basis-point rate cut, with the 10-year benchmark gilt yield expected to move near 6.30% when it's priced in fully, they said.  

Traders await India's CPI inflation data for March, due at 1600 IST, which is expected to stay unchanged at 3.6%, according to an Informist poll. Traders expect the yield on the 10-year benchmark to touch 6.39% if the data comes near 3.2%. 

The market turnover was INR 277.85 billion on Tuesday, lower than INR 312.50 billion at 1230 IST 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 6.39-6.46%. (Srijita Bose)

India Gilts: Up after RBI announces more OMO buy auction, US yields ease

MUMBAI--1049 IST--Government bond prices jumped Tuesday after the Reserve Bank of India Friday said it would buy INR 400 billion worth of gilts through an open market operations auction this week, over and above the INR 800 billion it had earlier said it would buy this month. Prices also rose as US Treasury yields started falling from Monday when the Indian market was closed, dealers said. 

"There are so many positives in the domestic market that even with the risk-off sentiment, offshore flows are coming in," a dealer at a private bank said. "The additional OMO announcement was also a good boost...and now no one should look to sell at deep discounts, so that will also be good for the market."

The yield on the 10-year benchmark US Treasury note fell to 4.36% from 4.44% at 1700 IST Friday as President Donald Trump excluded electronic devices, including smartphones and computers, and semiconductors from reciprocal tariffs, providing relief to investors. 

Tuesday, foreign banks and portfolio investors, as well as private banks were likely buyers, dealers said. Domestic traders also increased their gilt exposure due to the hope of a deeper-than-expected rate-cutting cycle by the RBI's Monetary Policy Committee as they expect downside risks to growth are higher and inflation is benign, dealers said.

Traders also picked up gilts maturing in seven to 15 years as they look to sell the six bonds at RBI's OMO auction on Thursday at higher cut-off prices than prevailing market levels, a divergence from earlier auctions, as liquidity and monetary policy conditions are expected to remain benign, dealers said. 

Traders are increasingly expecting the RBI's rate-setting panel to cut the repo rate by another 75 basis points in the calendar year against 25 bps expected earlier. In fact, economists at Nomura and Kotak Mahindra Bank now see the repo rate falling by 100 bps to 5.00% by the end of 2025 due to concerns about growth amid trade tensions between the US and China, the world's two largest economies.

The market will now look to India's CPI inflation data for March, scheduled to be released at 1600 IST. CPI for March is expected to have stayed unchanged at 3.6%, according to an Informist poll.

The market turnover was INR 183.75 billion on Tuesday, higher compared to INR 140.40 billion at 1030 IST 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 6.39-6.46%.  (Srijita Bose)

India Gilts: Seen up after RBI's INR 400-bln OMO buy notice, Mar CPI eyed

MUMBAI – Prices of government bonds are likely to open slightly higher after the Reserve Bank of India on Friday announced an INR 400-billion open market purchase of gilts through an auction, dealers said. This auction is an additional purchase of bonds by the RBI, over and above what has already been announced for April. The easing of US Treasury yields over the weekend is also expected to keep gilt prices up. 

Meanwhile, caution before the release of India's CPI print for March at 1600 IST could keep gains capped, dealers said. Indian financial markets were shut Monday on account of Ambedkar Jayanti.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.40-6.46% during the day, around the same range as 6.44% at close on Friday.

At the OMO auction, the RBI has offered to buy the 7.37%, 2028, the 7.32%, 2030, the 6.54%, 2032, the 7.18%, 2033, the 7.54%, 2036, and the 7.23%, 2039 gilts on Thursday. The RBI had already announced it would buy INR 800 billion of government bonds through four auctions in April and had also announced the dates for these auctions. The latest auction is over and above these four auctions, the RBI release said. So far this month, the central bank has purchased INR 400 billion worth of gilts through two open market auctions.

Traders were expecting the RBI to detail the bonds for an already-scheduled auction on Apr. 22, and thus the news of an additional INR 400 billion worth of OMO auction for Thursday came as a positive surprise.

The gains in gilt prices will, however, be capped as traders await the CPI inflation data for March. An Informist poll of 11 economists estimated the print at 3.6%, while traders' estimates range between 3.4% and 3.7%. Dealers said a print of 3.4-3.5% could further boost expectations of the MPC cutting the repo rate by 25 bps each in both June and August. This is likely to lead to a further fall in short-term gilt yields in April, dealers said. Bond yields fell last week after the RBI's MPC cut the repo rate by 25 bps to 6.00% and changed its stance to 'accommodative' from 'neutral'. 

On the global front, US Customs and Border Protection Friday said 20 product categories were exempt from the 125% tariff imposed by US President Donald Trump on Chinese imports and the 10% baseline tariff on imports from other countries. Computers, smartphones, memory chips, and several other categories of products were exempted from tariffs imposed earlier this month, the White House said in a release. The pullback of tariffs led to a fall of 9 basis points in the 10-year benchmark US Treasury note, which was at 4.35% at 0800 IST, down from 4.44% at Indian market closing hours Friday.

Traders now await the announcement of tariff rates by the US administration for imported semiconductors which is likely this week. US Commerce Secretary Howard Lutnick said the tariffs were likely to come into effect in a month or two. (Vidhushi RajPurohit)

End

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

Edited by Saji George Titus

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