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Informist, Monday, Apr. 28, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply lower Monday as traders trimmed their portfolios amid uncertainty regarding escalating tensions between India and Pakistan, dealers said. The 10-year benchmark 6.79%, 2034 gilt was the worst off among all liquid benchmark gilts as traders who had heavy positions on the paper trimmed their exposure and on expectations that the Reserve Bank of India will issue a new 10-year gilt at Friday's weekly gilt auction, they said. The 10-year benchmark 6.79%, 2034 bond ended at INR 102.76, significantly lower than INR 102.98 Friday. The yield on the bond ended 4 basis points higher at 6.40% from Friday.

"People are waiting for further cues such as whether a fresh (10-year) paper will come this Friday and further OMO (RBI's open market operation) auctions will be announced, as well as more clarity on the Pahalgam situation," a dealer at a primary dealership said. "But at every dip (in market prices) there are buyers coming in so the fall (in prices) will also not be much because eventually yields will fall as more rate cuts come in."

Some traders expect the 10-year gilt to jump to 6.45% yield over the week as stop-losses get triggered, dealers said. Most banks booked profits on their trading portfolios and traded on intraday cues while staying invested in their held-to-maturity books, dealers said. State-owned banks also bought gilts to replenish their held-to-maturity books after selling to the Reserve Bank of India through OMO auctions since January, which led to a slight recovery in prices, they said. Investors also bought state bonds and other Separate Trading of Registered Interest and Principal of Securities as replacement for bonds sold at OMO auctions, they said. However, others waited for yields to settle and for more clarity on the developing situation between India and Pakistan to take further bets.

Traders also expected the central government to announce the sale of a new 10-year benchmark gilt this week, and placed short bets on the 10-year benchmark to make room for the new 10-year paper. As per the government's borrowing calendar for Apr-Sept, it will raise INR 60 billion through a three-year gilt and INR 300 billion through a 10-year bond Friday. 

Traders expected the central bank to announce a calendar of open market purchases of gilts through auctions for May. Traders estimated the RBI will likely buy bonds worth between INR 600 billion and INR 1 trillion through a series of three or four such OMO auctions, dealers said. "For prices to recover from here, another OMO auction needs to come...people are still holding on to their positions," a dealer at a state-owned bank said. 

Preference for short-term and medium-term securities maturing upto 10 years rose as banks' asset-liability desks picked up these gilts on expectation of a further steepening in yields on hopes of deeper domestic rate cut cycle, dealers said. This limited the fall in these papers even as geopolicital tensions between India and Pakistan remained strife, they said. Dealers speculated that foreign banks sold gilts after aggressively buying gilts earlier in the month. 

Longer-tenure investors such as life insurers and pension funds bought bonds maturing in over 30 years, which limited the fall in prices in these bonds, dealers said. The sell-off in bonds maturing in over 15 years was also limited as investors had not heavily bought these bonds when yields across the curve were falling, they said.

The turnover in the government securities market was INR 546.15 billion on Monday, sharply lower than the turnover of INR 675.45 billion on Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades made through the wholesale digital rupee pilot for the second consecutive day. 

OUTLOOK

On Tuesday, gilt prices are seen opening higher as the central bank post market hours said that it will buy INR 1.25 billion worth of gilts through four OMO auctions in May. This was higher than most traders' expectations, which could lead gilt prices to rise Tuesday. 

The RBI also announced that it will auction INR 300 billion worth of a new 10-year gilt on Friday. This could lead traders to place short bets on the 10-year benchmark gilt, and the bond could underperform in the secondary market compared to other benchmark gilts on Tuesday. Traders will also wait for results of INR 200 billion of OMO auction along with INR 247 billion state bond auction to take cues later in the day. 

At the OMO auction, the RBI has offered to buy the 7.04%, 2029, the 6.10%, 2031, the 7.26%, 2032, the 6.19%, 2034, and the 8.33%, 2036 gilts. Some dealers expect the 6.10%, 2031 bond, which has the highest outstanding among the five bonds, to be tendered the most by banks at a deeper discount to prevailing market prices than others. Some said that the 6.19%, 2034 bond, which the RBI offered to buy for the first time at the current OMO auction cycle will be tendered the most from banks' held-to-maturity books. Some dealers also said that banks mostly had the 7.04%, 2029 bond in their trading portfolios, which could lead to the bond being offered at a lesser discount to market prices than the other papers. 

Traders will also watch out for any further developments on India-Pakistan tensions, dealers said. Gilts could take cues from US yields if they move sharply. India's provisional GDP growth estimates for Jan-Mar and 2024-25 (Apr-Mar) due at the end of May, could provide more clarity on rate cuts during the year, which would be the next major triggers for gilts. Despite geopolitical uncertainty, gilt yields are expected to hold a strong resistance at 6.45%, and 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. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.42% on Tuesday.

India Gilts: Remain down; 10-yr bond hit worst as traders sell to reduce risk

MUMBAI--1530 IST--Government bond prices remained down as traders continued to sell bonds at a profit, dealers said. The 10-year benchmark 6.79%, 2034 gilt was the worst-off among liquid benchmark gilts as traders who were heavy on the paper trimmed their exposure to reduce risk amid geopolicital uncertainty and on expectations of the issuance of a new 10-year gilt at Friday's weekly gilt auction, they said.

"Market sentiment is still bullish, but the correction has come in after a long time," a dealer at a private-sector bank said. " Around 6.29% (yield on the 10-year benchmark) was (due to) euphoric buying and getting to that zone will not be easy... people are checking whether current levels are good enough to buy or the market could fall further from here... it's better to go a little light and miss out on 1 or 2 basis points than to be caught on the wrong foot." The yield on the 10-year gilt had touched 6.2953% Wednesday, the lowest in over three years.

Most banks booked profits on their trading portfolios and traded on intraday cues while staying invested in their held-to-maturity books, dealers said. State-owned banks also bought gilts to replenish their held-to-maturity books after selling to the Reserve Bank of India through open market operation auctions since January, which led to a slight recovery in prices, they said. Investors also bought state bonds and other Separate Trading of Registered Interest and Principal of Securities as replacement for bonds sold at OMO auctions, they said. However, others waited for yields to settle and for more clarity on the developing situation between India and Pakistan to take further bets.

Meanwhile, longer-tenure investors such as life insurers and pension funds bought bonds maturing in over 30 years, which limited the fall in prices in these bonds despite the geopolitical uncertainty, dealers said. The sell-off in bonds maturing in over 15 years was also limited as investors had not heavily bought these bonds when yields across the curve were falling, they said.

Volumes Monday were lower than in recent trading sessions as traders waited for more clarity before building aggressive positions. At 1530 IST, the volume was INR 402.85 billion, lower than INR 580.00 billion at the same time Friday, 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 6.34-6.42%.  (Srijita Bose)

India Gilts: Sharply down as traders trim portfolios on geopolitical risk

MUMBAI--1224 IST--Prices of government bonds were sharply down Monday as traders trimmed portfolios due to uncertainty regarding escalating tensions between India and Pakistan, dealers said. Foreign banks continued to trim gilts at a profit, while foreign portfolio investors bought gilts earlier in the day, dealers said. 

Preference for short-term and medium-term securities maturing upto 10-years increased, as longer-duration papers were riskier assets to hold at a time of uncertainty, dealers said. India and Pakistan exchanged fire across the Kashmir border for the fourth consecutive night, after India promised retaliation to the terror attack at Pahalgam. Domestic traders sold longer-tenure gilts. Dealers speculated that foreign banks sold gilts to foreign portfolio investors at a profit, after aggressively buying gilts earlier in the month. 
 

"Foreign banks are likely continuing their selling which they are doing from the past 3-4 days, some of it is profit booking and some because of the India-Pakistan tensions," a dealer at a primary dealership said.

Most traders expect the yield on the benchmark 6.79%, 2034 gilt to touch a yield of 6.40% this week, with some expecting it Monday itself. Purchases from state-owned banks are likely to prevent yields from crossing the key 6.40% level, dealers said. However, given the geopolitical uncertainty, some dealers see the yield touching 6.42% as well. 

Some traders expect the central government to announce the sale of a new 10-year benchmark gilt this week. The announcement is expected post market hours Monday. As per the government's borrowing calendar for Apr-Sept, it will raise INR 60 billion through a three-year gilt and INR 300 billion through a 10-year bond Friday. Some traders placed short bets on the 10-year 6.79%, 2034 gilt on expectations of the annoucnement of the new 10-year gilt, dealers said. 

Most traders expect the central bank to announce a calendar of open market purchases of gilts through auctions for  May sometime this week. Traders estimate the RBI will buy bonds worth between INR 600 billion and INR 1 trillion through a series of 3-4 such OMO auctions, dealers said. Bond prices will likely rise after the announcement, but due to the geopolitical uncertainty some traders see more scope for a fall in prices than for a rise. 

Volumes Monday were lower than in recent trading sessions. At 1230 IST, volume was INR 243.90 billion, lower than INR 357.55 billion at the same time Friday, 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 6.34-6.42%.  (Cassandra Carvalho)

India Gilts: Tad down on caution amid rising India-Pakistan tensions

MUMBAI--0959 IST--Prices of government bonds were a tad down after opening higher, tracking a fall in US Treasury yields over the weekend, dealers said. The gains were erased as traders sold gilts at a profit. Also, traders were cautious and refrained from any aggressive bets until some clarity on India's retaliation for the Pahalgam terror attack amid rising geopolitical tensions between India and Pakistan. 

Bond prices opened higher, tracking a fall in US Treasury yields over the weekend, dealers said. The benchmark 10-year US Treasury yield fell to 4.24% at 0959 IST from 4.31% at 1700 IST on Friday. Tracking the fall in US yields, traders ramped up bets of the Reserve Bank of India's Monetary Policy Committee cutting the repo rate by at least another 50 basis points in the rest of 2025, including a 25 bps cut in June.

However, gains were erased due to profit-booking, dealers said. Moreover, traders were unwilling to build aggressive positions amid rising geopolitical tensions between India and Pakistan after India vowed to retaliate for the terror attack in Pahalgam, which left 26 dead. After dialling down diplomatic relations with Pakistan, the Indian government is likely to retaliate through military means and traders are unsure of how much the situation could escalate, dealers said.

"Market is jittery right now, given something might happen geopolitically (with reference to the Pahalgam situation). So, I think traders will continue to pare positions only until we get something (clarity on the situation)," a dealer at a private sector bank said. "...There is uncertainty which is what scares traders, it will depend on what Pakistan's response to anything India does will be." 

Volumes in the gilt market were INR 39.20 billion at 0930 IST, lower than INR 44.60 billion at the same time on Friday, 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 6.32-6.38%.  (Cassandra Carvalho)

India Gilts: Seen tad up on fall in US yields; India-Pakistan tensions eyed

MUMBAI – Prices of government bonds are likely to open slightly higher Monday due to a fall in US Treasury yields over the weekend, dealers said. During the day, any news on tensions between India and Pakistan following the terror attack at Pahalagam in south Kashmir last week is expected to provide direction to the movement in gilt prices. 

For the day, the yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.32-6.38%. On Friday, the 2034 bond ended at INR 102.98, or 6.36% yield. Traders exited some of their positions to reduce risks as the strife between India and Pakistan escalated on Friday, which led the yield on the 2034 bond to close 4 basis points higher from Thursday. Traders were cautious and said that any significant escalation in the conflict could drag down gilt prices further.

However, dealers are of the view that Monday, gilt prices are likely to inch up as investors will look to buy gilts due to hope of further rate cuts by the RBI's rate-setting panel. Some traders also expect overseas investors and foreign banks to pick up gilts as the yield on the 10-year benchmark US Treasury note fell by 7 basis points to 4.24% at 0730 IST compared to the Indian market closing on Friday. US Treasury yields fell as traders hoped for relief in tariff-related disputes between the US and China after reports that China was considering exempting some US goods from the tariffs levied. Some traders also hoped that the US Fed would consider lowering policy rates soon to support the economy.

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.

Foreign portfolio investors brought gilts amounting to INR 7.70 billion on Friday through the fully accessible route, data from Clearing Corp. of India showed at 0800 IST. The amount was higher than INR 7.42 billion worth of gilts on Thursday.  (Vidhushi RajPurohit)

End

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

Edited by Deepshikha Bhardwaj

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