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Informist, Wednesday, Apr. 23, 2025

By Vidhushi RajPurohit

MUMBAI – Government bond prices ended lower after a day of high volatility, erasing most gains from the early trading hours, dealers said. Heavy profit-booking from foreign banks weighed on gilt prices during the day. Likely buying from state-owned banks erased some of the losses near the close, dealers said. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 103.24, down from INR 103.30 on Tuesday. The yield on the 2034 bond was 1 basis point up at 6.33% from the previous day's close. Gilt prices fell across tenures after the yield on the 10-year benchmark gilt fell below 6.30%, the lowest level since Nov. 10, 2021. "Those who bought at 6.60% made a good profit when we touched 6.30%, that's a good 30 bps spread, so obviously there'll be some selling after a rally in prices," a trader at a primary dealership said.

Volumes also surged on the heavy offloading of gilts, likely by offshore traders, as the yields on the bonds fell in early trade. The turnover in the gilts market was INR 1.18 trillion on Wednesday, higher than the turnover of INR 962.70 billion on Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. 

However, long-term investors continued picking up bonds maturing in 30 years and more, to lock in higher yields on rate-cut expectations. For the long-tenure bonds, dealers also said that the spread of the 7.34%, 2064 bond over the 10-year benchmark gilt is still high and there is room for further compression. On Wednesday, the spread narrowed to 45 bps from 47 bps at Tuesday's close. Dealers were of the view that in the upcoming days, the spread could dip to around 36-37 bps. 

"Long-tenure gilts have underperformed for so long, so now it is natural for the prices to pick up and the spread is also good right now," a dealer at another state-owned bank said. "Flattening (of spreads) has already happened, but by June we will likely see more."

At open, gilt prices surged on traders' expectations of a deeper rate cut cycle in 2025. Traders expect the repo rate to be lowered to 5.50% by the end of the year, which will amount to an additional 50 bps cut in the policy rate. At the yield level of 6.30% on the 10-year benchmark gilt, traders are pricing in a 25-bps rate cut and expect the yield to soften to 6.26-6.28% by June when pricing in further policy easing. 

"Today was a day of built-up momentum. There was no new cue. In the morning there was positive buying momentum and then once yield fell to 30 (6.30%), profit booking started and then the selling just continued," a dealer at a state-owned bank said.

Foreign banks and foreign portfolio investors trimmed their stocks of emerging market debt such as Indian government bonds due to positive sentiment in the US after US President Donald Trump denied intentions to fire US Federal Reserve Chair Jerome Powell. US Treasury yields fell after the news, boosting investors' confidence in US assets. The yield on the 10-year US Treasury note was at 4.31% at 1700 IST, down from 4.40% at the Indian market close on Tuesday.

Likely buying of gilts from state-owned banks when the yield on the 10-year benchmark bond touched 6.34% kept the prices from sliding sharply, dealers said. Bond traders also awaited minutes of the Monetary Policy Committee meeting held in April, which were due after market hours. Traders did not take positions ahead of the release, but now, they would likely assess each MPC member's views on growth, inflation, and the terminal repo rate, dealers said.

"The MPC minutes are not expected to give any surprises as much of it will be on the same lines to what traders are currently pricing in," a dealer at a private bank said. "The (RBI) governor has already signalled a dovish stance, so nothing significant is expected, but any cue on how many more rate cuts will be looked out for."

OUTLOOK

On Thursday, traders will assess the MPC minutes and details of gilts for Tuesday's open market operation auction released post-market hours Wednesday, dealers said. The RBI has offered to buy the 7.04%, 2029; 6.10%, 2031; 7.26%, 2032; 6.19%, 2034; and 8.33%, 2036; gilts at the auction. This will be the last tranche of the four scheduled auctions for April. Some traders expected the RBI to include the 10-year benchmark, 6.79%, 2034 gilt at the auction, the absence of which might lead to some selling Thursday, dealers said.  

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

Some dealers 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 6.28-6.36% on Thursday.

India Gilts: Remain down on profit-booking as 10-yr hits 6.30%; PSU bks buy

MUMBAI--1449 IST--Prices of government bonds remained down as traders booked profits as the yield on the benchmark 10-year 6.79%, 2034 gilt hit the crucial level of 6.30%, dealers said. Purchases by state-owned banks offset some losses, and bond prices came off lows briefly in the second half of the day. 

"The moment it (the yield on the 10-year benchmark) hit 6.29% they started selling. Some traders want to buy at 6.40% (yield on the 10-year benchmark) so they're waiting for that," a dealer at a state-owned bank said. Earlier in the day, the yield on the benchmark 10-year gilt hit 6.2981%, the lowest since Nov. 10, 2021. 

Along with domestic traders, foreign banks also booked profits, dealers said. This was likely due to positive sentiment in the US after US President Donald Trump denied wanting to fire US Federal Reserve Chair Jerome Powell. US Treasury yields fell after the news, boosting investors' confidence in US assets. The yield on the benchmark 10-year US Treasury note fell to 4.34% from 4.40% at the Indian market close Tuesday. Consequently, foreign banks and foreign portfolio investors were trimming their stock of emerging market debt such as Indian government bonds, dealers said.

Unlike most tenures, long-term gilt prices were sharply up on purchases by investors such as insurance companies and pension funds, dealers said. Dealers speculated that some banks were also buying these bonds as they expect yields to fall further in a rate-cut cycle. Moreover, lower-than-expected supply of state bonds, especially those of longer tenures, has also driven demand for gilts of similar maturities, dealers said. So far in April, states have borrowed only INR 291.70 billion, against an indicated sum of INR 661.50 billion. Of this, only two bonds issued were of 30 years and above. Six bonds maturing in 30 years or above were issued by states in March. 

Bond traders await minutes of the Monetary Policy Committee meeting held in April, which is due after market hours. Traders are not taking positions ahead of the release, but will track each member's views on growth, inflation, and the terminal repo rate, dealers said. Dealers expect the terminal repo to be anywhere between 5.00-5.50%.

Volumes in the gilt market jumped to INR 951.15 billion at 1430 IST from INR 514.75 billion at the same time Tuesday, 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 6.28-6.36%. (Cassandra Carvalho)

India Gilts: Reverse early gains, fall on spurt of profit booking

MUMBAI--1210 IST--Prices of government bonds plunged Wednesday on the likely selling of gilts by foreign banks to take out profits, dealers said. Trade volumes surged as selling momentum took hold as the yield on the 10-year benchmark, 6.79%, 2034 gilt fell below 6.30% in early trading hours. Volumes in the gilt market doubled to INR 656.55 billion at 1130 IST, from INR 341.05 billion at 1030 IST, and also sharply higher than INR 306.80 billion at the same time on Tuesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform.

"The 6.30% (yield on the 10-year benchmark gilt) was a crucial level and as the yield fell below it, market started booking profits," a dealer at a state-owned bank said. "The market rallied at open without any new news, so now all those gains got erased."

Gilt prices across tenures fell, with the 10-15-year segment being impacted the most. Foreign banks and private sector banks were the major sellers, dealers said. State-owned banks likely bought gilts which supported prices. Some dealers were of the view that the fears of retaliation by the Indian government after terrorists on Tuesday killed at least 26 people in Pahalgam in south Kashmir added to the downward momentum in prices. However, most traders dismissed the cause and reasoned that the situation is still evolving, and it is be too soon for gilt prices to react to it. 

"People will give the reason as India-Pakistan tensions, but actually at 6.30%, further downside in yields is limited," a dealer at a private bank said. "It is a good time to cut (long) positions, since there is nothing to play for in the minutes also: the rate cuts are priced in." 

The gilt is currently pricing in a 25-basis-point repo rate cut in June, dealers said. For the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.28-6.35%. (Vidhushi RajPurohit)

India Gilts: Up on fall in US ylds, expectations of more rate cuts

MUMBAI--0915 IST--Prices of government bonds were slightly higher at open on account of a fall of 5 basis points in the US 10-year benchmark note yield, dealers said. Positive momentum from traders' expectations of a deeper rate cut cycle in India in 2025 also kept gilt prices up. 

"This is the continuation of the buying momentum that was there as there are strong chances of more rate cuts this year," a dealer at a private sector bank said. "Yesterday (Tuesday), there was a brief reversal because of the LCR norms and that led to selling, but traders again want to position for rate cuts."

Heading closer to the next meeting of the Reserve Bank of India's Monetary Policy Committee in June, the 10-year benchmark, 6.79%, 2034 gilt is likely to drop to 6.25% as some traders see room for further softening in yields. On Wednesday, the yield on the 2034 gilt fell to 6.2981%, the lowest level since Nov. 10, 2021. The gilt is currently pricing in a 25-basis-point repo rate cut and bets of more rate cuts could lead to further easing of yields, dealers said.  

A fall in US Treasury yields also kept gilt prices up, dealers said. The yield on the 10-year US Treasury note fell to 4.35% at 0930 IST from 4.40% at the Indian market close on Tuesday. 

Some traders expected gilt prices to be lower due to fears of retaliation by the Indian government after terrorists on Tuesday killed 26 people in Pahalgam in south Kashmir. Retaliation is seen increasing government expenditure, thereby raising concerns of higher supply of government bonds, dealers said. However, the news did not impact gilt prices as dealers reasoned that the situation was still evolving, and it would be too soon to expect any negative triggers for government securities. 

Volumes in the gilt market were INR 256.40 billion at 0930 IST, higher than INR 143.10 billion at the same time on Tuesday, 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 6.28-6.34%. (Vidhushi RajPurohit)

India Gilts: Seen tad down on fear of retaliation to terror attack in J&K

MUMBAI – Prices of government bonds are seen slightly lower at the open on Wednesday due to fear of retaliation by India against the terror attack in Jammu and Kashmir on Tuesday, dealers said. Some banks are likely to continue to sell liquid gilts maturing in up to 10 years after the revised liquidity coverage norms were released. Overnight easing of US Treasury yields and bets on more rate cuts by the Reserve Bank of India's Monetary Policy Committee through the financial year are expected to prevent any sharp selling. 

Traders expect prices of gilts to open around 5-6 paise lower after terrorists on Tuesday killed 26 people at a prime tourist spot in Pahalgam in south Kashmir. According to reports, several others suffered grievous injuries and the number of fatalities is expected to rise. "The terror attack might spark some fear of retaliation which could lead to some selling of gilts, but it will also depend on how it evolves," a dealer at a state-owned bank said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.34% for the day. On Tuesday, the 10-year gilt closed at INR 103.30, or 6.32% yield.

On Monday, gilt prices had fallen, dragged down by the revised norms for banks' liquidity coverage ratio. Prices of short-tenure gilts had fallen more as the new guidelines halved the additional run-off factor for internet and mobile banking-enabled retail deposits of banks to 2.5%, dealers said. Some traders are likely to continue selling these liquid gilts on Wednesday due to lower requirements for the liquidity coverage ratio.

Banks had built up positions to meet these norms that were to apply from Apr. 1. However, the new governor of the Reserve Bank of India had in February put off the implementation of these norms by at least a year. The new, revised norms will apply from Apr. 1, 2026.  

Any sharp fall in gilt prices will, however, be prevented on account of a fall in the 10-year benchmark US Treasury note, dealers said. The yield on the US 10-year benchmark note eased to 4.34% at 0749 IST from 4.40% at the Indian market close on Tuesday. Any further intraday fall in US yields could spur inflows from overseas investors, dealers said. Traders are also likely to continue to bet on more rate cuts this financial year, which is expected to keep gilt prices supported during the day.

Currently, dealers expect the RBI's rate-setting panel to deliver around 50 bps of policy rate cuts this year, which will lower the repo rate to 5.50%. At the present yield level of 6.32% on the 10-year benchmark gilt, a 25 bps rate cut is being priced in. Some dealers expect the yield to touch 6.30% by the end of April. (Vidhushi RajPurohit)

End

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

Edited by Tanima Banerjee

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