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Informist, Monday, Apr. 21, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply higher Monday as traders increasingly expect the 10-year benchmark gilt yield to fall to 6.25% before the Reserve Bank of India's next Monetary Policy Committee meeting in June, dealers said. The market is largely coming round to the consensus view that the rate-setting panel will cut rates by at least 50 basis points more in 2025.

The 10-year benchmark 6.79%, 2034 bond ended at INR 103.33, jumping up from INR 102.94 Thursday. The bond closed at a yield of 6.32%, 5 bps lower than Thursday. India's financial markets were shut on Good Friday. The closing yield on the 10-year benchmark gilt was its lowest since Nov. 9, 2021.

"Poeple are in a FOMO (fear-of-missing-out) zone, no one will want to go underinvested at these levels, so buying is coming from across segments," a dealer at a private-sector bank said. "There is a sense of confidence after the FIMMDA (Fixed Income Money Market and Derivatives Association of India's annual) conference also."

The FIMMDA-Primary Dealers Association of India annual conference took place over the long weekend in Bali, Indonesia. At discussions at the event, several gilt dealers reported there was optimism across the market about the downward trajectory of gilt yields, with hopes that the 10-year will eventually touch 6.10% in 2025.

Corporate entities, private-sector banks, and life insurance companies are likely to have bought gilts during the day, dealers said. Foreign banks and foreign portfolio investors also bought gilts on expectations of a deep rate-cut cycle by the RBI's rate-setting panel. Some traders took out profits and churned portfolios, particularly around the psychologically crucial 6.35% mark on the 10-year gilt yield, dealers said.

The five-year benchmark 6.75%, 2029 gilt underperformed the 10-year gilt Monday, even as hopes of deep rate cuts are expected to bring yields down on shorter-tenure bonds more than on longer-tenure gilts. Domestic traders said they had already stocked up the five-year gilt over the past week when it fell over 12 bps, and were looking to buy gilts maturing in seven years or more as they found the yields lucrative on more rate-cut hopes. However, FPIs and mutual funds continued to buy gilts maturing in three to seven years, making up for some of the lacklustre demand from banks, dealers said.

"There is some sort of front-running at these levels," a dealer at a state-owned bank said. "Short-term (bonds) have already been picked, now people are shifting to the mid-segment more."

Bonds maturing in 30-40 years rose sharply as yields on these have not fallen in line with bonds of shorter maturities since the April rate cut, a regular occurrence in a rate-cutting cycle, dealers said. The spread of the 40-year benchmark 7.34%, 2064 gilt over the 10-year 6.79%, 2034 gilt was 52 bps Monday, against 36 bps at the end of March. With short-term bonds now awaiting a fresh trigger for further gains, traders said long-term bonds look lucrative. Moreover, long-term investors were also querying for the 30-50 year papers for bond-forward rate agreements Monday due to the sharp fall in overnight indexed swap rates, which made the derivative transaction cheaper, dealers said.

Some traders also expect another series of open market operation auctions to be announced by the RBI, over and above the INR 400 billion left to be auctioned this month. The RBI has already bought an additional INR 400 billion through an OMO auction last week, which has increased traders' expectations of more such positive surprises, dealers said. On Tuesday, dealers expect the 6.10%, 2031; the 8.30%, 2040; and the 9.23%, 2043 bonds to be tendered the most as it is the first time the central bank has offered to buy these at auction. Among these, the 6.10%, 2031 bond with the highest outstanding is expected to be tendered the most by banks, which may lead to its cut-off price being set at a discount to Monday's valuations, dealers said.

At Monday's switch auction, state-owned banks swapped most of the shorter-tenure bonds for gilts maturing in 2033 to 2035, dealers said. The destination bonds were added to these banks' held-to-maturity portfolios, replacing those sold to the RBI so far through OMO auctions, they said. Banks bid aggressively at the auction, resulting in higher-than-expected cut-off prices on all bonds, they said.

The turnover in the gilts market was INR 928.75 billion Monday, sharply higher than Thursday's turnover of INR 380.25 billion, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There was a single trade worth INR 150 million in the 7.38%, 2027 gilt via the wholesale digital rupee pilot Monday whereas there were no trades via this method Thursday.

OUTLOOK

On Tuesday, government bond prices are seen opening steady ahead of the RBI's INR-200-billion OMO auction and INR-108.70-billion state bond auction. Later in the day, gilt prices may take cues from the results of both auctions.

Traders will also assess the ammendments to the liquidity coverage ratio framework by the RBI, announced after market hours Monday, which will come into effect on Apr. 1, 2026. Prices of short-term bonds could fall as banks may sell these bonds as the revised guidelines say they only need to maintain 2.5% run-off factor to internet- and mobile banking-enabled retail deposits. The earlier draft guidelines had proposed a 5% run-off factor in this regard, which faced opposition from the banking industry as their requirement of short-term bonds would have risen sharply.

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 these gilts have not been offered at OMO auctions before, which has excited traders. At recent OMO auctions, the new gilts on offer had a larger share of bids and stronger cut-off prices, dealers said. Banks are expected to tender the bonds at lesser discounts than at previous auctions as market conditions have improved. They are also likely to sell mostly from their held-to-maturity books.

Any sharp movement in US Treasury yields could also lead to movement in gilt prices. However, even as uncertainty on trade and tariffs by President Donald Trump persist, gilt prices are expected to follow domestic triggers as conditions for rate cuts by the RBI's rate-setting panel remain positive, dealers said. India's provisional GDP growth estimates for Jan-Mar and the financial year 2024-25 (Apr-Mar), due at the end of May, will be the next major triggers for gilts.

Some traders see bond yields rising slightly, as traders take out 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 6.28-6.38% on Tuesday.

India Gilts: Up more as foreign investors buy; hopes of deep rate cut persist

MUMBAI--1536 IST--Government bond prices rose further as foreign banks and foreign portfolio investors likely bought gilts, dealers said. Domestic traders also continued to buy gilts on increased hopes the Reserve Bank of India would cut its key repo rate by another 50 basis points by the end of 2025, and this drove prices sharply, they said.

"Everything is positive in the market right now, FPIs are also buying in short-mid segment," a dealer at a private sector bank said. "I was earlier thinking that 10-year will fall to 6.30% by end of April but right now it looks like we'll get there in next few days only...so market thinks it is a little underinvested now and buying."

Corporate entities, private sector banks, and insurance companies likely bought gilts as the yield on the 10-year gilt yield neared the day's low of 6.32%, a level last seen on Nov. 30, 2021. However, traders also booked profits and churned portfolios while staying invested in gilts, and this limited the rise in prices, dealers said.

Some traders also expect another series of open market gilt purchase auction announcement by the RBI, over and above the INR 400 billion to be auctioned during the month. At the OMO auction Tuesday, dealers expect more tenders of the 6.10%, 2031; the 8.30%, 2040; and the 9.23%, 2043 bonds as it is the first time that the central bank has offered to buy these at an OMO auction. Demand for longer-tenure bonds maturing in 30-40 years also rose as banks bought these gilts to replenish their portfolios because INR 3.25 billion of gilts have been sold to the central bank at OMO auctions since January, dealers said. There was also some demand for long-tenure bonds to replace the bonds that banks will sell to the RBI at the OMO auction Tuesday.

Volumes in the gilt market were INR 672.60 billion at 1530 IST, more than double the INR 254.10 billion at the same time on Thursday, 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 6.29-6.36%.  (Srijita Bose)

India Gilts: Up more on bets 10-year yield to fall to 6.25% before June MPC

MUMBAI--1434 IST--Prices of government bonds rose further on bets of the benchmark 10-year gilt yield falling to 6.25% before the Reserve Bank of India's next Monetary Policy Committee meeting in June, dealers said. Dealers also expect the central bank to announce more open market purchase of gilts, to the tune of INR 1.5 trillion, through auctions under its open market operations, over and above the quantum of INR 800 billion scheduled for April.

Traders are waiting for the result of the INR-280-billion switch auction. Demand at the switch auction was seen firm, with cut-off prices seen 7 paise above those indicated Thursday by Financial Benchmarks India Ltd. The government offered to switch seven gilts with the 6.22%, 2035 gilt; the 6.64%, 2035 gilt; the 6.67%, 2035 gilt; the 6.19%, 2034; and the 6.57%, 2033 gilt. Dealers expect the largest bids for the 6.22%, 2035; 6.67%, 2035 gilt; and the 6.19%, 2034 gilts. Banks are seen bidding aggressively for all the five gilts to refill their held-to-maturity books.

The central bank has offered to buy the 6.10%, 2031; 7.26%, 2032; 7.50%, 2034; 8.30%, 2040; and 9.23%, 2043 gilts at the OMO auction Tuesday. Some of the gilts have not been offered at OMO auctions before. As seen in recent OMO auctions, the new gilts on offer had a larger share of bids and stronger cut-off prices, dealers said. Banks bought gilts in the secondary market to refill their books after INR 3.25 trillion worth of sales to the central bank at OMO auctions since January, dealers said. Traders expect the RBI to announce additional auctions other than the ones already scheduled, as seen from the unexpected INR-400-billion OMO buy auction last week, dealers said.

"People were away last week because of the FIMMDA conference and the long weekend. Now everyone is back, so the volumes is good. They expect that the RBI will announce around 1-2 lakh crore (INR 1 trillion to INR 2 trillion) more of OMOs other than the announced ones (within the next two months), so that's also causing the rise in prices," a dealer at a state-owned bank said. Several traders attended the Fixed Income Money Market and Derivatives Association of India's annual conference held in Bali over the long weekend.

Prices of long-term gilts were sharply up on purchases by insurance companies and pension funds, dealers said. Banks and mutual funds preferred the shorter-end of the yield curve on expectations of at least 50 basis points more of cuts in the repo rate by the MPC in 2025. Gains were capped as traders sold gilts at a profit. State-owned banks were churning their portfolios to book profits but remained invested in the short-end and medium-tenures of the yield curve, dealers said.

Volumes in the gilt market were INR 487.90 billion at 1430 IST, more than double the INR 179.55 billion at the same time on Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Financial markets were shut on Friday for Good Friday. For the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.30-6.36%.  (Cassandra Carvalho)

India Gilts: Up as traders cover short bets, rupee rises against dollar

MUMBAI--0917 IST--Prices of government bonds rose as traders covered short positions, dealers said. Gilts also rose as the rupee appreciated sharply against the dollar as the dollar index fell to an over three-year low, and this spurred demand for bonds.  

"I don't see any reason for the rise, it's just short-covering because everyone is bullish," a dealer at a state-owned bank said. "If you see, someone has quoted at INR 103.25 on the 10-year (6.79%, 2034 gilt) which is just to cover most probably." The benchmark 10-year 6.79%, 2034 gilt yield hit 6.3275%, the lowest since Nov. 30, 2021. 

At the Fixed Income Money Market and Derivatives Association of India's annual conference over the long weekend in Bali, several gilt dealers were optimistic about the downward trajectory of Indian gilt yields, dealers said. Some dealers expect the 10-year benchmark gilt yield to fall to 6.25% in the near term and to 6.10% by the end of 2025.

Traders await the INR-280-billion switch auction later in the day. At the auction, the government will switch seven gilts with five papers. Demand at the auction is expected to be firm, with some traders estimating that the RBI will accept around INR 200 billion-INR 220 billion of bids at the auction. Demand for the 6.19%, 2034 gilt and the 6.22%, 2035 gilt is seen the most, as these gilts are expected to be tendered at prices sharply lower than current market levels, dealers 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 the Reserve Bank of India's open market gilt purchase auctions so far in the calendar year. The RBI has bought gilts worth INR 3.25 trillion through several OMO auctions since January.

Appreciation of the rupee against the dollar was also a positive for bond prices, dealers said. The rupee jumped to 85.10 per dollar at 0900 IST Monday from 85.37 at 1530 IST Thursday, driven by the fall in the dollar index to an over three-year low. 

Volumes in the gilt market were INR 94.55 billion at 0930 IST, more than double the INR 40.20 billion at the same time on Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Financial Markets were shut on Friday for Good Friday. For the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.30-6.40%.  (Cassandra Carvalho)

India Gilts: Seen tad dn as US ylds rise; demand at switch auction seen firm

MUMBAI - Prices of government bonds are seen opening a tad down on Monday due to a slight rise in the US Treasury yields over the weekend, dealers said. Bond prices are seen moving in a thin band until the result of the INR-280-billion switch auction. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.35-6.40%. On Thursday, the 10-year gilt ended at INR 102.94, or 6.37% yield. Financial markets were shut Friday for Good Friday, and gilts are not traded Saturdays. 

The government will switch seven gilts with five papers at the auction. Demand at the auction is expected to be firm, with some traders estimating an accepted quantum of around INR 200-220 billion. 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 Reserve Bank of India's open market gilt purchase auctions so far in the calendar year. The RBI has bought gilts worth INR 3.25 trillion through several OMO auctions since January.

On the global front, the yield on the 10-year benchmark US Treasury note rose to 4.35% at 0800 IST from 4.32% at close of Indian market hours on Thursday. Weekly jobless claims in the US for the week ended Apr. 12 fell by 9,000 to 215,000, against consensus estimates of 225,000. Comments from US Federal Reserve officials indicated that the US Federal Open Market Committee was unlikely to lower rates in the near term as US President Donald Trump's trade policies could likely push up inflation.

Post market hours on Thursday, the RBI announced that four states will raise INR 108.70 billion via bond sale Tuesday. The indicative calendar for Apr-Jun showed that 13 states were scheduled to borrow INR 177.00 billion at the auction, but dealers had expected the notified quantum to be below than that indicated, they 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. 

Some traders see bond yields rising slightly on profit booking and as investors look to purchase gilts at higher yields, dealers said. However, there may be positives for bond prices on the currency front. The rupee is seen opening sharply higher after the dollar index fell to an over three-year low.  (Cassandra Carvalho)

End

US$1 = INR 85.12

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

Edited by Rajeev Pai

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