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Informist, Wednesday, Apr. 16, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended sharply higher on Wednesday as foreign banks and portfolio investors bought gilts on bets of at least another 50 basis points of cuts in the repo rate by the Reserve Bank of India's Monetary Policy Committee in the remainder of 2025, dealers said. Prices also rose on demand from domestic banks ahead of the central bank's INR 400-billion purchase of gilts through an auction under its open market operations.

The 10-year benchmark 6.79%, 2034 bond ended at INR 102.82, up from INR 102.64 Tuesday. The bond closed at a yield of 6.39%, lower than 6.41% Tuesday. This is the lowest closing yield level for the benchmark bond since Dec. 16, 2021.

Bond prices rose in the second half of the day due to foreign inflows, dealers said. Foreign portfolio investors bought gilts worth INR 5.09 billion through the fully accessible route Wednesday, according to data from Clearing Corp. of India at 1715 IST.

"FPIs have started buying but there's strong demand in the 7-15 year segment so it's looking like a very strategic buying," a dealer at a private sector bank said. The erstwhile 10-year benchmark 7.10%, 2034 gilt yield fell 4 bps Wednesday to 6.41%, near the psychologically crucial 6.40% level. Foreign investors have been trimming their stock of short-term gilts to buy papers maturing in 10-15 year, dealers said.

THE CASE FOR SHORT-TERM GILTS

Prices of gilts maturing in up to seven years have been rising on rate cut expectations in 2025. Traders prefer purchasing these tenures in a rate cut cycle since these yields are more sensitive to changes in interest rates. The yield spread between the five-year benchmark gilt and 50-year benchmark gilt has widened to 76 bps from 32 bps as on Dec. 31. The spread had widened to nearly 63 bps after the MPC cut the repo rate for the second time this year on Apr. 9, leading to a 'bull-steepening' of the yield curve--wherein the fall in short-term rates is greater than that in other tenures.

As traders now bet on a terminal repo rate of 5.00-5.50% by the end of 2025, demand for short-term gilts has increased. The five-year 6.75%, 2029 gilt yield fell 7 basis points Wednesday to 6.12%. This is lowest yield level on the five-year benchmark since Feb. 23, 2022. Similarly, the 6.79%, 2031 gilt yield fell 9 bps Wednesday, to 6.22%. This is despite the INR-110-billion auction of the bond scheduled Thursday.

Short-term gilts were also more appealing to traders Wednesday after the central bank announced a switch auction for Monday. The government will switch seven gilts maturing in 2026-29, worth a total of INR 280 billion with five government bonds maturing in 2033-2035 at the auction. Traders expect strong demand at the auction, with switches worth at least INR 200 billion, dealers said.

"The (rally in the) five-year looks to be done right now...today (Wednesday) FPIs also bought this paper," a dealer at a mutual fund house said. "Now, the mid-to-long segment should become more lucrative." Mutual funds were selling short-term gilts at a profit Wednesday, dealers said. 

Traders from domestic banks switched between gilts of similar tenures to book profits while remaining invested as they anticipate further rate cuts which would pull down gilt yields, dealers said. Some also switched gilts maturing within five years with others maturing in seven to 15 years as they found the yield of these tenures lucrative on expectations of a deeper rate cut, they said.

AUCTIONS LINED UP

Along with the switch auction scheduled for Monday, traders await the INR-400-billion OMO auction and INR-300-billion gilt auction Thursday. At the OMO auction, the central bank has offered to buy six gilts--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 gilt.

Some banks bought these bonds Wednesday as they did not have these in their stock and some traders picked up these gilts to fill their held-to-maturity books ahead of the OMO purchases by the RBI. Dealers expect most banks to tender these six bonds below prevailing market prices as most would want to pare these bonds from their held-to-maturity books, dealers said. Some of the papers, such as the 7.32%, 2030 gilt and the 7.18%, 2033 gilt, are also present in banks' trading portfolios and could be tendered at lower discounts than others at the auction, they said.

Traders also took positions ahead of the gilt auction Thursday. The government will sell INR 110 billion of the 6.79%, 2031 bond; INR 50 billion of the 6.98%, 2054 green bond; and INR 140 billion of the 7.09%, 2074 bond. Demand for all three gilts is seen firm, even for the green bond--for which investors usually demand higher yields--due to demand from long-term investors, dealers said.

Bond prices traded in a thin band earlier in the day, due to lack of fresh triggers. Volumes in long-term gilts were comparatively lower.

Under the Separate Trading of Registered Interest and Principal of Securities, INR 4.40 billion of principal of the newly issued 6.90%, 2065 paper was traded, according to data from the Clearing Corp. of India.

The turnover in the gilt market was INR 797.70 billion Wednesday, sharply higher than INR 599.40 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades worth INR 100 million in the 7.10%, 2034 gilt using the wholesale digital rupee pilot Wednesday. No trades were conducted via this method for six straight days till Tuesday.

OUTLOOK

On Thursday, gilt prices are likely to open steady ahead of the back-to-back OMO and gilt auctions, dealers said. Prices may take cues from the overnight movement of US Treasury yields at open. The results of both auctions will lend cues to bond prices later in the day. 

Traders expect the 10-year benchmark to trade in a range of 6.35%-6.45% until US yields soften significantly. Traders also await India's provisional GDP growth estimates for Jan-Mar and for 2024-25 (Apr-Mar) which are due end of May. Some traders see bond yields rising slightly, as traders book profits and investors look to purchase gilts at higher yields, dealers said.

Indian financial markets are shut Friday for Good Friday. Traders may take positions for the INR-280-billion switch auction on Thursday itself. Traders may also trim the stock of gilts near the end of trade to reduce exposure to any risk over the extended weekend. Traders await clarity on the trade scenario after the latest escalation in the US-China trade war.

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 6.35-6.45% on Thursday.

Several traders are likely to be on leave Thursday to attend the Fixed Income Money Market and Derivatives Association of India's annual conference over the long weekend in Bali, dealers said.

India Gilts: Up, volumes rise as banks buy ahead of INR-400-bln OMO auction

MUMBAI--1525 IST--Prices of government bonds were up and volumes rose on purchases by domestic banks ahead of the Reserve Bank of India's INR-400-billion purchase of gilts via an auction under its open market operations, dealers said. Dealers also speculated that foreign investors bought Indian gilts after US President Donald Trump imposed a 245% tariff on imports from China. An intraday fall in US Treasury yields also helped gilt prices rise. 

Traders await the OMO auction Thursday, wherein the central bank has offered to buy six gilts--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. Some banks bought these bonds as they did not have these in their stock and some traders picked up these gilts to fill their held-to-maturity books ahead of the OMO purchases by the RBI. Most of the papers to be tendered at the auction are expected to be from banks' held-to-maturity books.  

Foreign portfolio investors were likely buying gilts at this buoyed prices, dealers said. The US has now imposed 245% tariffs on imports from China. The escalating trade war between the world's two largest economies raised fears about investment in the Asian country, which likely spurred inflows into Indian markets, dealers said. 

A fall in US yields during Indian trading hours aided the rise in gilt prices, dealers said. The yield on the benchmark 10-year US Treasury note fell to 4.31% at 1430 IST from 4.40% at 1700 IST Tuesday.

Short-term gilt prices continued to rise this week, as traders bet on a deeper rate cut cycle by the RBI's Monetary Policy Committee this calendar year. The 7.02%, 2031 gilt was up 41 paise at INR 104.04 from 103.61 Tuesday, with trades totalling INR 24 billion. Trading in long-term gilts was comparatively muted, but the delivery for Separate Trading of Registered Interest and Principal of Securities in the 6.90%, 2065 gilt from the auction last Friday was likely Wednesday. Clearing Corp. of India showed INR 4.40 billion of the newly issued 2065 paper traded as principal.

Traders also prepared for the INR 300 billion gilt auction Thursday. The government will sell INR 110 billion of the 6.79%, 2031 bond, INR 50 billion of the 6.98%, 2054 green bond, and INR 140 billion of the 7.09%, 2074 bond. Demand for all three gilts is seen firm, even for the green bond--for which investors usually demand higher yields--due to demand from long-term investors, dealers said.

At 1530 IST, the turnover was INR 573.95 billion, higher than INR 421.45 billion at the same time Tuesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. For the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.40-6.45%.  (Cassandra Carvalho)

India Gilts: In thin band; FPIs likely buy light volumes as US yields fall

MUMBAI--1250 IST--Government bond prices moved in a thin band as several domestic traders were absent from desks due to the annual conference of the Fixed Income Money Market and Derivatives Association of India. Foreign banks and portfolio investors are likely to have bought gilts as US Treasury yields fell overnight, dealers said. 

The yield on the 10-year US Treasury note fell to 4.30% from 4.40% at 1700 IST Tuesday. FPIs likely bought due to expectations of a deeper rate cut cycle in India by the Reserve Bank of India's Monetary Policy Committee, dealers said. Traders widely expect the repo rate to fall to 5.50% by the end of 2025 with the 10-year gilt yield nearing 6.25%, but hope of a deeper cut to 5.00-5.25% have increased as the decisively lower CPI inflation is expected to persist and the outlook for growth remains cloudy at best, they said. 

"Many people are absent today (Wednesday) and most banks are already invested accross tenures and without further cues another rally looks unlikely from here, though prices will be supported," a dealer at a private bank said. "It depends on how US yields react from here...some people are switching between portfolios but not going aggressive before OMO (open market operations auctions)." 

Traders from domestic banks switched between gilts of similar tenures to book profits while remaining invested as they anticipate further rate cuts which would pull down gilt yields, dealers said. Some also switched gilts maturing within five years with others maturing in seven to 15 years as they found the yield in the 'belly' lucrative on expectations of a deeper rate cut, they said. Late Tuesday, the RBI also announced the government would switch seven gilts maturing within five years worth a total of INR 280 billion with five longer-tenure gilts. Dealers expect demand at the switch auction to be firm, with banks looking to replace these bonds for their held-to-maturity portfolios after selling INR 2.85 trillion worth gilts to the RBI at OMO auctions so far this calendar year. 

Traders also await RBI's INR 400 billion worth of six gilts purchase through OMO auction on Thursday to take further trading cues. At the OMO auction, dealers expect most banks to tender these six bonds below prevailing market prices as most would want to pare these bonds from their held-to-maturity books, dealers said. Some of the papers, such as the 7.32%, 2030 gilt and the 7.18%, 2033 gilt, are also present in banks' trading portfolios and could be tenderd at lower discounts than others at the auction, they said. 

At 1230 IST Wednesday, the market turnover was INR 187.05 billion, significantly lower than INR 300.15 billion at the same time Tuesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.40-6.45%.  (Srijita Bose)

India Gilts: Steady, volumes muted in truncated week with FIMMDA event

MUMBAI--0940 IST--Government bond prices were steady on Wednesday as traders refrained from taking aggressive bets in a holiday-truncated week. Trading was also limited as many traders were absent from treasury desks to attend the Fixed Income Money Market and Derivatives Association of India's annual conference which begins Thursday, dealers said.

Trading volumes were dull. The market turnover was INR 30.25 billion on Wednesday, significantly lower than INR 99.70 billion at 0930 IST Tuesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform.

"Many people flew out early to attend the FIMMDA conference, others are absent because its already a short week," a dealer at a private bank said. "I think market will be mostly range-bound. CPI is done with and further rate cut hopes are there but the move will only happen next week onwards...no further triggers are there this week if US T (US Treasury yields) behaves well."

Though data released Tuesday showed CPI inflation was lower than expected, this did not change traders' views on rate cuts as they already expect a deeper rate-cutting cycle supported by the 'accomodative' policy stance of the Reserve Bank of India, dealers said. However, traders await further triggers to decide on trading strategies, they said. Gilts are currently pricing in part of another 25-basis-point rate cut in June, they said. During the day, the yield on the 6.79%, 2034 bond is seen at 6.40-6.45%.  (Srijita Bose)

India Gilts: Seen tad up as Mar CPI data affirms rate cut bets, US ylds fall

MUMBAI – Prices of government bonds are likely to open slightly higher on Wednesday after India's softer-than-expected CPI data for March kept traders' expectations intact of further policy easing by the Reserve Bank of India's Monetary Policy Committee, dealers said. Prices are also likely to be supported by an overnight fall in US Treasury yields. The gains could, however, be capped by some profit-booking, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.39-6.44% during the day, around the same range as 6.41% at close on Tuesday. 

Data released on Tuesday showed India's CPI inflation for March was at a 67-month low of 3.34%, against the estimate of 3.6% in an Informist poll. This is seen by economists as providing room for deeper interest rate cuts by the MPC in 2025-26 (Apr-Mar).

"As the inflation trajectory remains well anchored below 4% over the next two-three quarters, while downside risks to growth persist, we see enough room for the RBI to prioritise growth. The RBI's shift in stance to accommodative, along with proactive liquidity infusion, signals a willingness to continue monetary easing. We continue to expect another 75-100 basis point repo rate cut to 5.00-5.25% by end-FY2026," economists at Kotak Bank said in a research report on Tuesday.

Traders are expected to continue to pick up short-term gilts due to expectations of rate cuts as yields on these bonds are more sensitive to change in rates, dealers said. The yield on the 5-year benchmark, 6.75%, 2029 gilt has already fallen by 27 basis points since March-end. Some traders might book profits if gilt prices continue to rise, dealers said.

An overnight fall of 7 bps in the 10-year benchmark US Treasury note to 4.33% at 0810 IST might also keep gilt prices supported during the day, dealers said. However, some traders were of the view that bond prices are likely to move in a thin band until US yields soften significantly. (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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