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Informist, Friday, Apr. 25, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply down Friday on investors' fears about rising tensions between India and Pakistan, dealers said. Cut-off prices at the INR-270-billion gilt auction were largely as expected, with some positive surprises, but did not have much impact on prices in the secondary market, they said. The 10-year benchmark 6.79%, 2034 bond ended at INR 102.98, significantly lower than INR 103.29 Thursday. The yield on the bond ended 4 basis points higher at 6.36% from Thursday. 

"News on tensions between India and Pakistan drove down prices today, and people will see if there is further development to this over the weekend, so some risk-off sentiments," a dealer at a primary dealership said. "Foreign banks were the major sellers today with some private banks too... also 6.30% (yield on the 10-year gilt) looks to be a good resistance, so PSUs' (state-owned banks') profit-booking psyche was also keeping prices down."

Prices fell suddenly and sharply intraday on reports that Indian troops retaliated to Pakistan's gunfire along the Line of Control in Jammu and Kashmir, days after the terror attack in Pahalgam. Traders sold gilts to trim risks going into the weekend, dealers said. Traders also sold bonds at a profit, which kept bond prices down, they said. 

At the auction, both domestic and foreign banks bought the five-year 6.75%, 2029 gilt, dealers said. Expectations of a further steepening in the yield curve, closer to further rate cuts expected in June and August, led investors to bid more than 2.8 times the INR 150 billion notified for the five-year bond despite the geopolitical uncertainty, dealers said. Demand by long-term investors such as insurers and pension funds was firm for the 7.09%, 2054 bond at the auction, they said.

Long-term investors were also seen asking for 30-50-year papers for bond-forward rate agreements on Friday, dealers said. "There are good cash flows from insurers and the EPFO (Employees' Provident Fund Organisation) in the 30-50 year segment. FRAs (forward rate agreements) are also there," a dealer at another primary dealership said. This limited the fall in prices of longer-tenure bonds, which fared better than their shorter-tenure papers, dealers said. The yield on the 30-year benchmark bond rose only 2 basis points Friday despite the fresh supply, half the rise in the five- and 10-year benchmarks.

Sales by foreign banks to reduce their risky bets due to the rising tension between India and Pakistan led to a fall in prices for shorter-tenure gilts in the secondary market, dealers said. Some foreign portfolio investors likely bought higher-yielding gilts in the shorter tenures due to expectations of more rate cuts. FPIs also bought longer-tenure gilts maturing in around 30 years as well as green bonds, as yield spreads over the 10-year benchmark seemed attractive, dealers said. The 10-year benchmark US Treasury yield also fell to 4.30% during the day from 4.37% at 1700 IST Thursday, which also led some FPIs to turn to Indian gilts as prices slid, dealers said. FPIs bought gilts worth INR 7.70 billion under the fully accessible route, data from Clearing Corp. of India at 2030 IST showed.

Meanwhile, state-owned banks bought gilts to add to their held-to-maturity books as yields across the curve rose, dealers said. They mostly bought gilts maturing in seven to 15 years, in place of the bonds sold through open market operations to the Reserve Bank of India since January, they said. 

The turnover in the government securities market was INR 681.40 billion on Friday, sharply lower than the turnover of INR 1.06 trillion on Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades made through the wholesale digital rupee pilot on Friday, whereas there were two trades worth INR 100 million made on 7.10%, 2034 bond through the same method on Thursday. 

OUTLOOK

Gilts are not traded on Saturday. On Monday, gilt prices could take cues from US yields if they move sharply. Traders will also closely watch any further developments on India-Pakistan tensions over the weekend, dealers said. Without any major triggers, the 10-year gilt yield may move in a range of 6.32-6.38%, they said.

Some dealers see bond yields rising slightly, as traders book 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 the hope of further rate cuts by the RBI's rate-setting panel persists. India's provisional GDP growth estimates for Jan-Mar and 2024-25 (Apr-Mar) at the end of May, which could provide more clarity on rate cuts during the year, will be the next major triggers for gilts. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.40% on Monday.

India Gilts: Remain down on India-Pakistan tensions; auction result in view

MUMBAI--1530 IST--Government bond prices remained down despite gilt auction cut-off prices being along expected lines, dealers said. This was because of risk-off sentiment among traders due to rising tensions between India and Pakistan, they said. 

"Auction was mostly along expected lines. In fact, it was better considering the panic selling we saw in the morning," a dealer at a primary dealership said. "Some amount of FPI (foreign portfolio investors') buying could be coming but escalation of the Pahalgam situation is keeping prices down...yesterday (Thursday) liquidity announcements also did not come so that shorting has also been there today (Friday)." On Thursday, speculation that the Reserve Bank of India will announce additional liquidity infusion measures had resulted in a sharp rise in bond prices towards the end of trade.

At the gilt auction, both domestic and foreign banks bought the five-year 6.75%, 2029 gilt, which was bid over two-and-a-half times the total amount, dealers said. The 30-year 7.09%, 2054 bond saw firm demand from long-term investors such as insurance companies, they said. However, in the secondary market, longer tenure bonds were worse off than other tenures, they said.

FPIs likely bought higher yielding gilts in the shorter tenures 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 well as green bonds as yield spreads over the 10-year benchmark seemed attractive, they said. FPIs have bought gilts worth INR 7.58 billion through the fully accessible route, data from Clearing Corp. of India showed at 1530 IST. A fall in the 10-year benchmark US Treasury yield to 4.30% from 4.37% at 1700 IST Thursday also led FPIs to turn to Indian gilts, dealers said.

Volumes in the gilt market were INR 580.00 billion, slightly higher than INR 562.60 billion at 1530 IST 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 6.32-6.40%.  (Srijita Bose)

India Gilts: Slump on panic selling over rising India-Pakistan tensions

MUMBAI--1140 IST--Prices of government bonds slumped as traders sold gilts in panic on rising tensions between India and Pakistan. Traders were jittery that an escalation in tensions may lead to an open conflict between the neighbours after a terror attack in Jammu and Kashmir earlier this week led to a flurry of diplomatic steps, dealers said.

Hindustan Times posted a video on X, formerly Twitter, saying that the Indian army "reacted strongly" after Pakistani troops opened fire at "multiple locations along the Line of Control" in Jammu and Kashmir. LoC is the agreed upon border between the two countries under the Shimla Agreement, 1972, which Pakistan said it would hold in abeyance Thursday.

"The first reaction to any such situation is to cut risk, to cut my long positions whether they are on equity or debt," a dealer at a primary dealership said. "As a trader, that will be my first reaction. In the medium-term this may be a bond positive, but no one can afford to think of it like that when the situation is evolving."

The benchmark 10-year 6.79%, 2034 gilt fell to INR 102.96 as of 1108 IST, from INR 103.24 an hour ago, as traders sold gilts on fears of an escalation of tensions between India and Pakistan. Speculation of retaliation by the Indian government for the terror attack in Pahalgam has been rife for the past two days. On Tuesday, terrorists killed at least 26 people at a prime tourist spot near Pahalgam in south Kashmir. Amid fresh reports, the rupee and Indian equity markets tumbled Friday, with traders citing foreign portfolio investors exiting Indian assets.

As for the INR-270-billion gilt auction, demand was initially seen firm but the news of a border skirmish cast a shadow over demand from investors. Several traders were unsure of bidding estimates till the last minute due to volatility in the secondary market. The 7.09%, 2054 paper is expected to see a lower cut-off price than initially estimated as long-term bonds are seen the most risky amid such tensions, dealers said. However, positives such as lack of long bond supply next week, and investors' purchases for forward-rate agreements may prevent a rise in the cut-off above 6.83% yield, they said. The bond traded at a price of INR 103.55 in the secondary market as of 1108 IST, from INR 103.87 an hour ago.

Investors are also seen demanding higher yields for the 6.75%, 2029 paper at the auction, though the supply of both bonds is likely to sail through. Demand for banks' asset and liability management has decreased after the Reserve Bank of India's Liquidity Coverage Ratio framework was unveiled earlier this week, but banks have considerably reduced their gilt investments by selling bonds to the RBI at open market operation auctions and will still pick up the bond to fill up their portfolios, dealers said.

Volumes in the gilt market were INR 325.55 billion, higher than INR 258.70 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 6.32-6.40%. (Cassandra Carvalho)

India Gilts: Down ahead of INR 270-bln gilt auction, lack of OMO notice

MUMBAI--0930 IST--Prices of government bonds were down Friday as traders trimmed their stock of gilts to make room for fresh stock at the weekly gilt auction, dealers said. Bond prices were also down as the Reserve Bank of India did not announce any liquidity measures after market hours on Thursday, dealers said.

The government will sell INR 150 billion of the 6.75%, 2029 bond and INR 120 billion of the 7.09%, 2054 bond at the auction at 1030-1130 IST. Both papers are expected to garner robust demand. Recent inflows into long-term papers from insurance companies and pension funds have led long-term bond prices to rise sharply in the secondary market this week, and their presence at the auction is also expected to push cut-off prices higher.

Demand for the short-term paper is also seen firm as traders continue to bet on an at least 50 basis points of cut in the repo rate in 2025. This is despite decreasing interest in short-term gilts because of the central bank's final liquidity coverage ratio norms.

"Selling pressure before the auction will be there, but also there was no open market purchase of gilts announced yesterday (Thursday)," a trader at a primary dealership said. "The momentum is positive and so, it (bond prices) will go up again after bidding (for the auction) is over."

Bond prices rose sharply nearing the end of trade on Thursday as some traders speculated that the central bank would announce an open-market purchase of gilts through an auction, or some other measure to infuse liquidity in the banking system. Some traders had also said that the rise was likely due to large institutional investors picking up gilts on expectations of yields falling further during a rate-cut cycle. However, the RBI did not announce any OMO auction or other measures to ease liquidity, and this led to some sales on Friday.

An overnight fall in US Treasury yields is expected to support a rise in prices after the gilt auction, dealers said. The yield on the 10-year benchmark US Treasury note fell to 4.31% at 0914 IST from 4.37% at the time Indian markets closed on Thursday. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors. Dealers in the foreign exchange market said the rupee rose sharply against the dollar on Friday due to FPI inflows into the gilt market. On Thursday, foreign portfolio investors bought gilts worth INR 7.42 billion through the fully accessible route, data from Clearing Corp. of India showed at 0914 IST.

Volumes in the gilt market were INR 48.70 billion at 0930 IST, lower than INR 104.95 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 6.29-6.35%. (Cassandra Carvalho)

India Gilts: Seen tad down ahead of INR 270-billion weekly gilt auction

MUMBAI – Government bond prices are likely to open 4-7 paise lower on Friday due to some selling as traders make room to buy bonds at the weekly gilt auction, dealers said. However, an overnight fall in US Treasury yields is expected to keep gilt prices supported during the day.

For the day, the yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.35%. On Thursday, the 10-year gilt closed at INR 103.29, or 6.32% yield. In the first half of the trading day, dealers will concentrate on the INR 270-billion gilt auction, which is scheduled for 1030-1130 IST. The government will sell INR 150 billion of the 6.75%, 2029 bond and INR 120 billion of the 7.09%, 2054 bond at the auction. Demand for both gilts is seen firm and the auction is likely to sail through, dealers said. The result of the auction is expected to provide direction to the market later in the day.

An overnight fall of 5 basis points in the US 10-year benchmark note to 4.32% at 0755 IST from 4.37% when Indian markets closed Thursday, is expected to lead to more inflows from overseas investors during the day. On Thursday, foreign portfolio investors bought gilts worth INR 7.42 billion through the fully accessible route, data from Clearing Corp. of India showed at 0800 IST. A fall in US yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

Traders will continue to closely track the evolving geopolitical situation between India and Pakistan in the wake of a terror attack earlier this week in Jammu and Kashmir, dealers said. Any escalation in the conflict could drag down gilt prices, they said. (Vidhushi RajPurohit)

End

US$1 = INR 85.45

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

Edited by Saji George Titus

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