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Informist, Thursday, Apr. 24, 2025

By Srijita Bose

MUMBAI – Government bond prices reversed all intraday losses and ended higher on Thursday due to speculation that the Reserve Bank of India will announce more liquidity steps after market hours, including bond buys through open market operation auctions, dealers said. Prices remained lower through most of the day as traders sold bonds at a profit on expectations of a rise in the yield on the 10-year benchmark gilt in the near term. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 103.29, higher than INR 103.24 on Wednesday. The yield on the 2034 bond was 1 basis point lower at 6.32% from the previous day's close. Traders said volumes shot up towards the end of trade as a large institutional buyer drove up gilt prices, which had remained below the previous close since early trade.

"It looks to be someone who has news that something positive is coming," a dealer at a private sector bank said. "Sure, you can take a INR 10-15 billion punt sometimes, when you feel the market is mispositioned, but this looks to be a single entity buying nearly INR 100 billion, which is not a size that anyone can pick up lightly."

Traders rushed to cover their short bets as inflows into the market drove up prices, helping recover earlier losses and rise further. Traders had placed short bets ahead of INR 270 billion worth of gilt auction on Friday, but some dealers said the short bets were exaggerated on the 10-year gilt. A proxy for tracking short sales on 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 1710 IST showed trades worth INR 138.32 billion in the 6.79%, 2034 gilt. Foreign banks are also likely to have bought back a part of INR 95.55 billion worth of gilts they have sold on a net basis over the past two days in hope of further OMO auctions, dealers said.

Volumes surged towards the end of trade, and the 6.79%, 2034 bond saw trades worth nearly INR 272 billion between 1530 IST and 1700 IST, which was more than a quarter of the day's total volume, according to Clearing Corp. of India data. The turnover in the gilts market was INR 1.07 trillion on Thursday, lower than the turnover of INR 1.18 trillion on Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades worth INR 100 million made through the wholesale digital rupee pilot on 7.10%, 2034 bond on Thursday. 

Foreign portfolio investors also likely bought gilts maturing in three to seven years due to expectations of further steepening in the yield curve as more rate cuts get priced in, dealers said. Some FPIs also bought longer-tenure gilts maturing in around 30 years as yield spreads over the 10-year benchmark seemed attractive, they said. FPIs have bought gilts worth INR 4.22 billion through the fully accessible route, data from Clearing Corp. of India showed at 1740 IST. Traders also churned portfolios, with some opting for longer-tenure gilts while others went for high-yielding shorter-tenure gilts, while staying invested in gilts as yields are eventually expected to cool down due to hope of more rate cuts, dealers said. Meanwhile, mutual funds were to have been sellers of gilts due to month-end redemption pressures, dealers said.

Some state-owned banks added gilts maturing in seven to 15 years in light volumes to their investment books after being major sellers at the Reserve Bank of India's OMO auctions since January, at which the central bank purchased INR 3.45 trillion worth of gilts, dealers said. This limited some earlier losses, preventing the yield on the 10-year gilt from rising above 6.36%, they said. 

However, many banks are waiting for yields to rise further to build their investment portfolios. Some dealers expect the 10-year benchmark 6.79%, 2034 bond yield to rise to 6.37%-6.40% over the next few trading sessions. "We have slid from 6.70% to 6.30% (yield on the 10-year benchmark gilt) fairly fast in a very short period, so some retracement at this point has become necessary," a dealer at a state-owned bank said. "Though hopes of further rate cuts are firm and we will move towards 6.25% before the June policy (RBI's Monetary Policy Committee meeting), also MPC minutes were dovish...but it is essential to take a pause for the market rally to play out effectively."

Dealers said foreign banks sold gilts in early trade to book profits. Primary dealerships were also likely to have been sellers through most of the day, as they made room for fresh stock at the weekly gilt auction on Friday. At the gilt auction, demand for both gilts is seen firm, and the auction is likely to sail through comfortably.

OUTLOOK

On Friday, traders will await further cues from the results of INR 270 billion worth of weekly gilt auction, dealers said. Gilt prices may open lower due to some short sales by traders before the auction. 

If the RBI announces further liquidity measures or additional OMO auctions post market hours, gilt prices are likely to open higher, dealers said. 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. However, the fall in prices could be limited as investors will look to buy gilts as hope of further rate cuts by the RBI's rate-setting panel persist. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.40% on Friday.

India Gilts: Reverse losses; speculation RBI to announce more liquidity steps

MUMBAI--1635 IST--Government bond prices reversed losses on speculation the Reserve Bank of India would announce more liquidity steps, including bond buys through open market operation auctions, after market hours, dealers said. Traders said the spurt in trade volumes transacted after around 1530 IST suggested a large institutional buyer drove up gilt prices, which had remained below the previous close since early trade.

"Looks like some big corporate guys have come in to buy at these levels," a dealer at a primary dealership said. "It could also be some short-covering because the shorts were over done." 

According to Clearing Corp. of India data, the 6.79%, 2034 bond saw trades worth nearly INR 200 billion between 1520 IST and 1600 IST, against the total. With the purchases coming in, traders rushed to cover their short bets, driving up prices further. Foreign banks likely bought back a part of INR 95.55 billion worth of gilts they have sold on a net basis over the past two days in hopes of further OMO auctions, dealers said. 

Volumes in the gilt market were INR 1.00 trillion, lower than INR 1.06 trillion at 1630 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 6.30-6.40%.  (Srijita Bose)

India Gilts: Remain down; losses limited on state-owned banks' buys

MUMBAI--1233 IST--Prices of government bonds remained down, but losses were limited due to purchases by state-owned banks, dealers said. "These are not levels to build portfolios and the market is looking for a reason to book profit, but it is not finding that reason," a dealer at a state-owned bank said. Traders expect further upside in the 10-year benchmark 6.79%, 2034 gilt, to around 6.37-6.42%, which would be cheaper levels to build portfolios. 

State-owned banks' gilt purchases limited the losses, dealers said. These banks bought gilts worth INR 100.37 billion on Wednesday, most of which was for their available-for-sale and held-to-maturity books, they said. The Reserve Bank of India has bought gilts worth INR 3.45 trillion through open-market purchase auctions since January, most of which has been from state-owned banks' held-to-maturity books. Lower than expected supply of state bonds this month has increased demand for gilts from state-owned banks, dealers said.   

However, while some state-owned banks' purchases were for investment purposes, most activity in the gilt market was limited to held-for-trading books. The 10-year benchmark 6.79%, 2034 gilt was by far the most traded paper, with a turnover of INR 210.10 billion. The 7.10%, 2034 gilt was the second most traded paper on the RBI's Negotiated Dealing System-Order Matching platform, with a turnover of INR 22.00 billion. 

Dealers said foreign banks continued selling gilts to book profits. Primary dealerships were also likely sellers, as they made room for fresh stock at the weekly gilt auction on Friday. At the auction, the government will sell INR 150 billion of the 6.75%, 2029 bond and INR 120 billion of the 7.09%, 2054 bond. Demand for both gilts is seen firm, and the auction is likely to sail through comfortably. 

Volumes in the gilt market were INR 356.40 billion at 1230 IST, sharply lower than INR 726.40 billion at the same time on 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 6.30-6.40%. (Cassandra Carvalho)

India Gilts: Sharply down on profit-booking by foreign banks, PDs 

MUMBAI--0916 IST--Prices of government bonds were sharply down on Thursday as traders, especially those from foreign banks and primary dealerships, trimmed their stock of gilts at a profit, dealers said. Fears of escalating tensions between India and Pakistan also weighed on gilt prices. 

"We've seen such a huge rally consecutively for the past few days," a dealer at a private bank said. "We've fallen some 40 bps (basis points), so a 5 basis point rise wouldn't make a difference. I wouldn't be surprised if we touch 6.38% (yield on the 10-year benchmark 10-year gilt) today (Thursday)." Some gilt traders expect the yield on the 10-year benchmark gilt to hit 6.40%, at which level state-owned banks would aggressively purchase gilts, dealers said.

Foreign banks sold gilts worth INR 76.38 billion on Wednesday, according to data from Clearing. Corp of India. They continued to sell gilts at a profit on Thursday, dealers said, pulling down gilt prices. Fears of rising tensions between India and Pakistan after the terror attack in Pahalgam also spooked some bond traders, dealers said.  

Gilt prices opened slightly higher since minutes of the Reserve Bank of India's Monetary Policy Committee's meeting in April indicated a strong focus on growth, which was a positive for bond prices, dealers said. The minutes were published post market hours Wednesday. Committee members felt consumer prices were likely to be close to the central bank's target of 4%.

Volumes in the gilt market were INR 104.95 billion at 0930 IST, lower than INR 168.60 billion at the same time on 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 6.30-6.40%. (Cassandra Carvalho)

India Gilts: Seen up as MPC minutes signal growth focus, fuel rate cut hopes

MUMBAI – Prices of government bonds are likely to open slightly higher Thursday after minutes of the Reserve Bank of India's Monetary Policy Committee's meeting in April showed all members are concerned about domestic growth, dealers said. This could lead traders to stock up gilts on expectations of deeper rate cuts in 2025. However, retaliatory measures by India against Pakistan after the terror attack at Pahalgam in Jammu and Kashmir on Tuesday could weigh on gilt prices during the day, dealers said.

Traders expect prices of gilts to open around 6-8 paise higher after minutes of the MPC's April meeting, which were released post market hours Wednesday, were seen affirming traders' views that further repo rate cuts are on the anvil in the June and August monetary policy reviews. For the day, the yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.35%. On Wednesday, the 10-year gilt closed at INR 103.24, or 6.33% yield. 

The minutes showed that all six MPC members were worried about domestic growth and the risks from global uncertainty due to trade and tariffs. Several members expressed confidence consumer inflation would remain anchored to the RBI's 4% target. RBI Executive Director Rajeev Ranjan also said that the committee needs to continue to accord higher weight to growth amid the benign inflation outlook.

"The commentary (in the MPC minutes) was very dovish and today the market could react positively to it," a dealer at a private bank said. "At open, the prices might open higher, and selling could also be limited because of the chances of more cuts in policy rates."

At the current yield level of 6.32-6.33% on the 10-year benchmark gilt, traders are pricing in a 25 basis point repo rate cut and expect the yield to soften to 6.26-6.28% by June if further cuts are also priced in. Some traders also expect the yield to fall to 6.25% by the June policy review meeting in order to price in a terminal repo rate of 5.50% by the end of the year, which will amount to a 50 bps cut in the policy rate from the current level.

Gains in gilt prices will, however, be capped as late Wednesday the Indian government suspended the Indus Waters Treaty of 1960 with Pakistan and banned the entry of Pakistani nationals into India with immediate effect, signalling a significant escalation in bilateral tensions. The retaliation by the Centre comes after terrorists killed at least 26, mainly tourists, in Kashmir on Tuesday. The government also closed the integrated border check post at Attari with immediate effect and shrank the strength of the Pakistani High Commission in New Delhi. This retaliation may escalate and that could lead to concerns about higher government expenditure, dealers said. (Vidhushi RajPurohit)

End

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

Edited by Avishek Dutta

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