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Informist, Thursday, Apr. 17, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended higher Thursday due to purchases by foreign banks and corporate houses, dealers said. Short-term gilts rose more than other tenures, as traders continued to pick up the rate-sensitive instruments on bets of at least another 50 basis points of cut in the repo rate by the Reserve Bank of India's Monetary Policy Committee in the remainder of 2025, dealers said. Cut-off prices at the INR-300-billion gilt auction and the central bank's INR-400-billion open market purchase auction held Thursday were largely within expectations, with some positive surprises. The auction results boosted market sentiment, and some banks diversified their portfolios, even picking the usually-avoided green bonds in the secondary market. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 102.94, up from INR 102.82 Wednesday. The bond closed at a yield of 6.37%, lower than 6.39% Wednesday. In just the three working days this week, the 10-year gilt yield has fallen 7 bps. However, the fall in yields has been more pronounced at the shorter end of the curve. As the bond yield curve continued to steepen on rate cut bets, the 5-year gilt yield closed at 6.10%, its lowest closing level since Feb 23, 2022. The 5-year gilt yield fell 12 bps this week. Financial markets are shut Friday for Good Friday. 

As seen on Wednesday, bond prices rose during the day on purchases by foreign banks and corporate houses. Additionally, mutual funds also picked up short-term gilts on bets of a deeper rate-cut cycle this year, dealers said. Foreign banks have purchased gilts worth INR 50.76 billion this week, according to data from Clearing Corp. of India.  

"Some OMO cut-offs (prices) were bad, they've bid so low, but in the G-sec auction and some OMO papers also, cut-offs were good," a dealer at a private bank said. "Right now in secondary (market), it's mostly foreign banks who are buying, and definitely (there is) some positive momentum after the auctions."  

The RBI bought INR 400 billion worth of gilts, the full notified amount, at its open market operations auction Thursday. Some traders were surprised that the 6.54%, 2032 bond was the most-sold gilt at the auction, as they expected the 7.32%, 2030 bond to be so. The central bank likely focused on the 2032 bond as banks tendered the 2028 and 2030 bonds above current market prices, while the bonds maturing in 2032 and beyond were offered at a deep discount to market prices as these were being sold from banks' held-to-maturity portfolios, dealers said.

The short-term bonds were a part of the available-for-sale books of banks, dealers said. The cut-off prices at the gilt auction were largely within expectations, and the auction sailed through amid the RBI's open market operations and the widespread expectation of further rate cuts in India, dealers said.

Preference for state bonds remained strong this week, as banks looked to lock in higher yields to maintain a higher weighted-average-yield for their held-to-maturity portfolios at a time when government bond yields are plummeting, dealers said. Some banks have re-adjusted the ratios of investments in these portfolios in the new financial year. The ratio between investments in gilts and state bonds has remained constant for some, but others have increased the weightage for state bonds by 1-2%, dealers said. Some state-owned banks have allotted a 50:50 ratio to these securities for their portfolios. Moreover, trade volumes in state bonds have increased significantly in the secondary market, dealers said.  

"There is more confidence to buy state bonds because it's being traded more in the secondary market," a dealer at a private sector bank said. "Also, the overall supply of state bonds is expected to be much lower than indicated in the calendar, so good demand is seen both in primary and secondary markets."

The yield on Tamil Nadu's 6.63%, 2035 bond fell 3 basis points Thursday, while the 10-year benchmark gilt yield fell 2 bps. While some dealers expect the yield spread between the two securities to remain around 30 bps, some see the spread contracting to 20-25 bps. The yield spread between long-term state bonds and gilts of similar tenures has fallen to negative values at the past two state bond auctions. Some traders expect this to continue since the appeal for long-term gilts is currently waning, dealers said.  

While long-term gilts are currently out of favour with traders, some traders are shifting to medium-term tenures from 7-15 years on expectations of yields falling further, dealers said. Additionally, banks are buying some of these tenures for their held-to-maturity books, dealers said. Traders are also looking forward to the INR-280-billion switch auction Monday for this reason. Dealers expect to stock the five longer-term bonds at the switch auction -- bonds maturing in 2033-2035 -- in banks' held-to-maturity books, replacing bonds sold at RBI's open market gilt purchase auctions so far in the calendar year. 

The turnover in the gilt market was INR 388.80 billion Thursday, sharply lower than INR 797.70 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Volumes were relatively low as several traders were on leave due to the long weekend and to attend the Fixed Income Money Market and Derivatives Association of India's annual conference. There was no trade conducted via the wholesale digital rupee pilot Thursday, whereas there were two trades worth INR 100 million in the 7.10%, 2034 gilt via this method Wednesday. State-owned banks were likely sellers, along with primary dealerships, dealers said. 

OUTLOOK

Financial markets are shut Friday for Good Friday. On Monday, gilt prices may take cues from the movement of US Treasury yields over the weekend. Weekly jobless claims in the US for the week ended Saturday fell by 9,000 to 215,000, against consensus estimates of 225,000. Traders will track the speech by Federal Reserve Governor Michael Barr for cues on rate cuts by the Federal Open Market Committee in the US, dealers said. 

Later in the day, gilt prices may take cues from the result of the INR-280-billion switch auction. The government will switch seven gilts with 5 bonds via the auction. Demand at auction is expected to be firm, with some traders estimating an accepted quantum of around INR 200 billion. 

Post market hours on Thursday, the RBI announced that four states will raise INR 108.70 billion via bond sale Tuesday. This may be a positive for bond prices since the indicative calendar for Apr-Jun showed that 13 states were scheduled to borrow INR 177.00 billion at the auction, dealers said. 
 
The RBI also detailed its choice of bonds to buy at its scheduled OMO auction Tuesday. The RBI has offered to buy the 6.10%, 2031; 7.26%, 2032; 7.50%, 2034; 8.30%, 2040; and 9.23%, 2043 gilts at the auction. Some of the gilts have not been offered at OMO auctions before, which is what traders had hoped for. As seen in recent OMO auctions, the new gilts on offer had a larger share of bids and stronger cut-off prices, dealers said. 

Traders may also take cues from comments of RBI officials at the Fixed Income Money Market and Derivatives Association of India's annual conference over the long weekend in Bali, dealers said.

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 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. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.34-6.40% on Monday.

India Gilts: Little changed after auction results; fresh supply sails through

India Gilts: Little changed after auction results; fresh supply sails through

NEW DELHI--1555 IST--Government bond prices were little changed after the results of the Reserve Bank of India's bond buys and the government's gilt sales at auction earlier. The cut-off prices for the fresh supply were largely on expected lines, and the auction sailed through amid the RBI's open market operations and the widespread view of further rate cuts in India, dealers said.

State-owned banks bid aggressively to mop up a bulk of the INR-110-billion supply in the 6.79%, 2031 bond, dealers said. Private banks were also keen to get their hands on the paper, while mutual funds bought gilts maturing in five to seven years, both in the secondary market and at the auction. The bond's cut-off price was a tad higher than the median of an Informist poll, and it received bids over three times the notified amount, sign of a healthy appetite for the gilt, dealers said.

"There is about a 10-basis-point downside for the short-term bonds, especially the five- and seven-year bonds," a dealer at a state-owned bank said. "Meanwhile, the 10-year gilt (yield) is only expected to go down 3-4 bps from here, so even in capital returns the short-term bonds may perform better."

On the other hand, demand for the 6.98%, 2054 green bond and 7.09%, 2074 gilt was driven by life insurance firms, dealers said. Some traders said the INR 190 billion of long-term bond supply across two papers had led to less aggressive cut-off prices, with investors able to demand higher returns for the bonds on offer. A large state-owned life insurer bid for around INR 20 billion of the 50-year bond, while the green bond was picked up by a bevy of private life insurers, dealers said.

"You can see the aggression in the weighted average for the 30-year bond, and that's because the government is happy not having a greenium," a dealer at a private bank said. "So investors don't mind picking a green bond as long as get 2-3 bps extra return." The weighted average yield on the 2054 green bond was at 6.8631%, nearly 2 bps higher than the yield on the 30-year benchmark 7.09%, 2054 gilt in the secondary market.

However, demand through bond forward-rate agreements was slightly lower than usual as several traders from private and foreign banks were attending the Fixed Income Money Market and Derivatives Association of India's annual conference over the weekend, dealers said. Foreign banks continued to be buyers in the secondary market, driving up bond prices across tenures even as benchmark yields remained near three-year lows. This led to likely sales from primary dealerships and state-owned banks in the 10-year benchmark 6.79%, 2034 bond, though selling was not aggressive and prices may continue to drift higher by the close of trade, dealers said.

Meanwhile, the RBI bought INR 400 billion worth of gilts, the full notified amount, at its open market operation auction. Some traders were suprised that the 6.54%, 2032 bond was the most-sold gilt at the auction, pushing the expected frontrunner – the 7.32%, 2030 bond – to second place. The RBI likely pivoted to the 2032 bond as banks tendered the short-term bonds around current market prices, while the bonds maturing in 2032 and beyond were offered at a deep discount to market prices as they were being sold from banks' held-to-maturity portfolios, dealers said.

Banks have a 5% limitation on selling gilts from their held-to-maturity portfolios during the year. However, this limit does not apply to gilts sold to the RBI at OMO auctions.

The market turnover was INR 299.05 billion, lower than INR 573.90 billion at 1530 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.35-6.39%.  (Aaryan Khanna)

India Gilts: Up on likely foreign banks' buys as deep rate cut hopes persist

MUMBAI--1240 IST--Prices of government bonds were up as foreign banks likely bought gilts in the secondary market, dealers said. Mutual funds and corporate houses likely picked up gilts on expectations of further fall in yields on hopes of a deeper rate cut by the Reserve Bank of India's Monetary Policy Committee during the calendar year. 

"Market did not wait for auctions to pass to take cues...everything is positive and auctions will also go well, a dealer at a private bank said. "Most of the demand will go to the seven-year paper (at auction), but others will also see demand from long-term investors."

At the weekly gilt auction, demand is expected to be firm with both traders and investors bidding for the 6.79%, 2031 gilt. Banks and mutual funds bid for the paper to later sell in the secondary market, dealers said. The yield on the gilt fell by nearly 9 basis points on Wednesday and is over 1 basis point down Thursday as traders flock to pick up the gilt on expectations of a deeper rate-cut cycle. Banks will also look to pick up the paper for their asset-liability management purpose, dealers said.  

For the 6.98%, 2054 green bond and 7.09%, 2074 bond at the auction, demand from a big life insurer is expected to boost cut-off prices, dealers said. Demand from other insurers and pension funds is also expected for these bonds, they said. Some dealers expect a partial devolvement of the green bond as the RBI may not accept a higher yield premium demanded by investors, but see demand for the 50-year bond to be firm as the yield spread of the gilt over the 10-year benchmark has widened to 50 bps from 41 bps at the begining of the financial year on Apr. 2. 

Meanwhile, traders continued to pick up short-term gilts on bets of a deeper rate-cut cycle, dealers said. Gilts are currently pricing in another 25 bps rate cut in June, but hopes of further cuts during the year have increased after the RBI's rate-setting panel changed its stance to 'accommodative' from 'neutral' on Apr. 9, they said. Investors are also looking to buy shorter-tenure gilts maturing within seven years as they expect to swap some of these bonds at Monday's INR-280-billion switch auction, they said. Dealers expect to stock the five longer-term bonds at the switch auction -- bonds maturing in 2033-2035 -- in banks' held-to-maturity books, replacing bonds sold at RBI's open market gilt purchase auctions so far in the calendar year. 

At Thursday's INR-400-billion OMO auction, traders expect to sell at higher cut-off prices than earlier auctions as stress on liquidity has passed and gilt yields across maturities have fallen to over three-year lows, dealers said. While most banks are expected to tender the six bonds from their held-to-maturity books, some dealers also expect a part of the 7.37%, 2028 bond and the 7.32%, 2030 bond to be tendered from banks' trading portfolios at a lesser discount to current market prices than other papers, they said. 

The market turnover was INR 142.35 billion, higher than INR 122.50 billion at 1230 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.35-6.43%.  (Srijita Bose)

India Gilts: Off highs on caution before OMO, gilt sale auction

MUMBAI--0936 IST--Government bond prices were off highs on Thursday due to caution ahead of the Reserve Bank of India's INR 400-billion open market gilt purchase auction and the weekly gilts sale auction, dealers said. Prices rose briefly as foreign portfolio investors were likely to have bought gilts after US Treausury yields eased slightly overnight. The yield on the 10-year US Treasury note fell marginally to 4.31% from 4.33% at 1700 IST Wednesday.  

"Market is in a positive zone right now, people are just waiting for the auctions to be over to take cues," a dealer at a state-owned bank said. "There should be good tendering at OMO and cut-offs might not come at deep discount." 

State-owned banks are expected to be the biggest sellers at the OMO auction as they have most of the bonds in the held-to-maturity books, dealers said. Traders said most of the papers are likely to be tendered 15–20 paise below the prevailing market prices, with some expecting an even deeper discount for the 7.54%, 2036 bond and the 7.23%, 2039 bond. Some expect the 7.37%, 2028 and the 7.32% 2030 papers to have lower discounts since they will be offered by the RBI for the first time so far in an OMO auction.  

Demand for all three bonds at the INR 300-billion gilt auction is seen firm. Demand for the 6.79%, 2031 paper is seen the highest, with both traders and investors rushing to buy the bond cheaper than secondary market prices as hopes of a deeper rate-cut cycle by the RBI's Monetary Policy Committee firm up, dealers said. For the 6.98%, 2054 green bond, demand from life insurers and pension funds is expected to be firm, while for the 7.09%, 2074 gilt, long-term investors are expected to bid as they found the yield lucrative due to hope of further rate cuts, they said.

The market turnover was INR 47.35 billion, higher than INR 19.80 billion at 0930 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.35-6.43%.  (Srijita Bose)

India Gilts: Seen steady before RBI's OMO purchase; weekly gilt auction eyed

MUMBAI – Prices of government bonds are likely to open steady ahead of the Reserve Bank of India's INR 400-billion open market purchase auction of gilts and the INR 300-billion weekly gilts sale auction, dealers said. Results of both auctions will lend cues to gilt prices later in the day. Markets will be shut on Friday on account of Good Friday. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.35-6.43%. On Wednesday, the 10-year gilt ended at INR 102.82, or 6.39% yield. 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. At the OMO auction at 0930-1030 IST, 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. 

Traders expect to tender some of these bonds at a discount of 15-20 paisa below the prevailing market levels to clear their held-to-maturity books. Market participants expect the 7.32%, 2030 gilt and the 7.37%, 2028 gilt to be sold the most, as it is the first time the RBI has included these in its OMO auction. Most state-owned banks have large holdings of these bonds in their held-to-maturity books, dealers said.   

"The auction is at a time when the banking system's liquidity has returned to a comfortable surplus and, therefore, there is no sharp need for funds. So, banks will try to sell from their HTM books those who have a good quantum of holdings, even at a discounted rate," a dealer at a state-owned bank said. 

At the gilt sale auction at 1030-1130 IST, 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.

During the day, traders are likely to take positions for the INR 280-billion switch auction scheduled on Monday, as Friday is a holiday. Several traders are likely to be on leave on Thursday to attend the Fixed Income Money Market and Derivatives Association of India's annual conference over the long weekend in Bali, dealers said. (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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