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Informist, Tuesday, Apr. 29, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply higher in a volatile trading session Tuesday after the Reserve Bank of India announced the purchase of gilts worth INR 1.25 trillion in four tranches in May under its open market operation auctions, dealers said. While most traders had expected an OMO notice this week, the notified quantum was much above what they had expected, they said. News that Pakistan had shot down an Indian quad-copter in Kashmir erased some of the gains in gilts, but prices rose close to the day's highs after better-than-expected cut-offs at both the RBI's OMO auction and state bond auction.

The 10-year benchmark 6.79%, 2034 bond ended at INR 103.14, significantly higher than INR 102.76 Monday. The yield on the bond ended 6 basis points lower at 6.34% from Monday. The momentary fall in bond prices on rising tension between India and Pakistan provided a good opportunity for traders to purchase gilts at cheaper levels and prices recovered losses almost immediately, dealers said.

State-owned banks booked profits after the market opened, when the yield on the 10-year benchmark gilt yield hit the 6.33% level. However, they reverted to purchasing gilts when yields rose and the 10-year gilt yield hit 6.35%, dealers said. Family offices and corporate entities also bought gilts. Foreign banks bought short-term gilts while insurers picked up bonds maturing in 30-50 years, dealers said.

"The only negative in the market now is geopolitical tensions between India and Pakistan. Other than that, sentiments are quite positive," a dealer at a private sector bank said. "Some pressure will be there in the 10-year due to new auction paper, but demand across segments will be good and the additional liquidity will also help."

Traders had placed short bets on the 10-year benchmark gilt Monday on expectations of a new 10-year gilt being auctioned Friday. Traders covered some of these short bets Tuesday even as their expectations turned true, as the transition to the new 10-year gilt is expected to take at least two months. As per the Apr-Sept borrowing calendar, the government will sell the new 10-year gilt only once a month. Moreover, demand for the erstwhile 10-year benchmark gilts such as the 7.18%, 2033 gilt and 7.10%, 2034 gilts remained strong, due to purchases from domestic banks to refill their held-to-maturity books, dealers said. Foreign portfolio investors also picked up these gilts since they are listed under the fully accessible route, they said.

At the OMO auction, cut-off prices for all the five bonds bought by the RBI were higher than those estimated by dealers in an Informist poll. Cut-off prices for the 7.04%, 2029 gilt; the 7.26%, 2032 gilt; and the 6.19%, 2034 gilt were much higher than Monday's indicated levels by the Financial Benchmarks India Private Ltd., as overall market sentiment turned positive Tuesday due to RBI's notice to buy gilts through OMO auctions for May. Apart from private banks and foreign banks, state-owned banks which have generally tendered bonds at deep discount at the previous OMO auctions also tendered bonds at a lesser discount or at par with prevailing market prices on Tuesday, dealers said.

Banks were the major participants at the OMO auction and tendered most bonds from their held-to-maturity books. However, some banks offered the 7.04%, 2029 bond from their trading portfolios as well, dealers said.

Banks also rushed to pick up state bonds at Tuesday's auction for their held-to-maturity books after selling gilts to the RBI at the OMO auction, which led to lower cut-off yields in the primary market, dealers said. This month, market participants have sold gilts worth INR 1.2 trillion to the RBI through OMO auctions. 

"Auction cut-offs pulled up the market in the second half of the day," a dealer at a state-owned bank said. "There are more OMO auctions now where people will get better levels to sell, so today (Tuesday) also no one wanted to sell at deep discounts."

Gilts maturing within 15 years fared better than longer-tenure bonds due to demand from banks after the central bank said it would infuse an additional INR 1.25 trillion of liquidity into the banking system through four tranches of OMO auctions in May. Private banks and FPIs bought shorter-tenure gilts due to hope that the yield curve could steepen further as more rate cuts get priced in, dealers said. The yield spread on the 10-year benchmark, 6.79%, 2034 gilt, over the five-year benchmark, 6.75%, 2029 bond has widened to over 25 basis points from 12 bps at the start of the month.

Apart from long-term investors such as insurers and pension fund houses, some traders from domestic and foreign banks also picked up longer-tenure gilts as the yield spread of the 40-year 7.34%, 2064 gilt over the 10-year benchmark bond is expected to compress further by 2-4 bps, they said. The yield spread between these two bonds stood at nearly 46 bps Tuesday.

The turnover in the government securities market was INR 1.21 trillion on Tuesday, sharply higher than the turnover of INR 544.30 billion on Monday, 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 third consecutive day.

OUTLOOK

On Wednesday, gilt prices are seen taking cues from any further developments between India and Pakistan, dealers said. Traders to place short bets on the 10-year benchmark gilt as the government will issue a new 10-year gilt at auction on Friday, and the bond could underperform in the secondary market compared to other benchmark gilts on Tuesday.

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 remain below 6.40% as investors will look to buy gilts on hopes of further rate cuts by the RBI's rate-setting panel. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.28-6.40% on Wednesday.

India Gilts: Recover from day's lows as auction cut-offs better than expected

MUMBAI--1544 IST--Government bond prices rose from the day's lows as cut-offs at both the state bond auction and the Reserve Bank of India's open market operation auction were better than expected, dealers said. Prices had earlier erased some gains after a news report that Pakistan had shot down an Indian quadcopter in Kashmir. 

"State bond auction cut-offs were far more aggressive than expected and that led to the immediate recovery from the day's lows," a dealer at a private sector bank said. "Demand across segments should pick up as the yield curve steepening pays out, but for now the upside to yields seems to done with, if geopolitical situation does not significantly worsen from here." 

At the OMO auction, cut-off prices for all the five bonds bought by the RBI were higher than those estimated by dealers in an Informist poll. Cut-off prices for the 7.04%, 2029 gilt, the 7.26%, 2032 gilt, and the 6.19%, 2034 gilt were much higher than Monday's indicated level by the Financial Benchmarks India Private Ltd., as overall market sentiment turned positive Tuesday due to RBI's notice to buy gilts through OMO auctions for May. Banks also rushed to pick up state bonds at Tuesday's auction for their held-to-maturity books after selling gilts to the RBI at the OMO auction, which led to lower cut-off yields in the primary market, dealers said. This month, market participants have sold gilts worth INR 1.2 trillion to the RBI through OMO auctions. 

Gilts maturing within 15 years fared better than longer-tenure bonds due to demand from banks after the central bank said it would infuse an additional INR 1.25 trillion of liquidity into the banking system through four trances of OMO auctions in May. Foreign banks likely bought shorter-tenure gilts due to hope that the yield curve could steepen further as more rate cuts get priced in, dealers said. The yield spread on the 10-year benchmark, 6.79%, 2034 gilt, over the five-year benchmark, 6.75%, 2029 bond has widened to over 25 basis points from 12 bps at the start of the month. 

Insurers and pension fund houses continued to pick up longer-tenure gilts maturing in over 30 years, dealers said. Some traders from domestic and foreign banks also picked up longer-tenure gilts as the yield spread of the 40-year 7.34%, 2064 gilt over the 10-year benchmark bond is expected to compress further by 2-4 bps, they said. The yield spread between these two bonds currently stands at over 46 bps.

Volumes in the gilts market were at INR 1.03 trillion at 1530 IST, sharply higher than INR 402.85 billion at the same time Monday, 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 6.30-6.36%.  (Srijita Bose)

India Gilts: Off highs on report of escalation in India-Pakistan tensions

MUMBAI--1327 IST--Prices of government bonds were off the day's high in a choppy trading session on profit-booking by traders, dealers said. Bond prices also erased some gains after a news report about Pakistan shooting down an Indian quad-copter in Kashmir.

Bond prices were sharply up in early trade after the Reserve Bank of India, post market hours Monday, announced open market purchase of gilts worth INR 1.25 trillion through four auctions in May. However, they erased some gains on news of escalation in military tensions between India and Pakistan. Gilt traders have been edgy after India vowed to retaliate against a terror attack that killed 26 people in Pahalgam, Kashmir, last week. 

"There was some news from TV9 about an Indian Army operation, but I think it would've been in Kashmir only, not Pakistan, but that's what moved the market the first time," a dealer at a state-owned bank said.

The momentary fall in bond prices after the news flash provided a good opportunity for traders to purchase gilts at a cheaper level and prices recovered losses almost immediately. State-owned banks booked profits at market open, when the yield on the 10-year benchmark gilt yield hit the 6.33% level. However, they reverted to purchasing gilts when yields rose and the 10-year gilt yield hit 6.35%, dealers said. Family offices and corporate entities also bought gilts. Foreign banks bought short-term gilts while insurers picked up bonds maturing in 30-50 years, dealers said.

"I think INR 103.20 (price of the 10-year benchmark gilt) is a good level to sell, so there would've been some profit-booking at that level, but now at this level (INR 103.01) there's good buying momentum," a dealer at a private bank said. 

Traders covered short bets placed on the 10-year benchmark gilt Monday. They had placed these short bets on expectation of a new 10-year gilt to be auctioned Friday. The government will sell a new 10-year 2035 gilt Friday, but the transition to this gilt is expected to take at least two months, dealers said. The new 10-year 2035 bond was dealt at 6.32% in the secondary market Tuesday.

As per the Apr-Sept borrowing calendar, the government will sell a 10-year gilt only once a month. Moreover, demand for the erstwhile 10-year benchmark gilts such as the 7.18%, 2033 gilt and 7.10%, 2034 gilts remained strong, due to purchases from domestic banks to refill their held-to-maturity books. Foreign portfolio investors also picked up these gilts since they are listed under the fully accessible route, dealers said.

Traders await the results of the RBI's OMO auction and the state bond auction for direction of bond prices, dealers said. Private banks likely tendered gilts at the OMO auction at par with Financial Benchmarks India Pvt. Ltd. Monday, because prices had risen in the secondary market since then. State-owned banks, however, tendered gilts at a discount of around 15-20 paise to those indicated by Financial Benchmarks India Pvt. Ltd. Monday, dealers said.

Volumes in the gilts market surged to INR 741.30 billion at 1330 IST, sharply higher than INR 287.20 billion at the same time Monday, 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: Surge as RBI May OMO INR-1.25-tln buy size larger than expected

MUMBAI--0907 IST--Prices of government bonds surged Tuesday after the Reserve Bank of India announced the purchase of gilts worth INR 1.25 trillion through four auctions in May under its open market operations. While most traders expected an OMO notice this week, the notified quantum was above what they had expected, they said. Gains were capped as traders sold gilts at a profit. 

The RBI will conduct auctions to purchase gilts worth INR 500 billion on May 6 and INR 250 billion each on May 9, May 15 and May 19, it said in a release post-market hours Monday. Traders had anticipated OMO purchases worth INR 600 billion to INR 1 trillion in May. Since late January, the central bank has purchased gilts worth INR 3.45 trillion through its open market operations auctions.

"The OMO size was much higher than what everyone had expected I think, and also market had already worsened recently," a dealer at a state-owned bank said. "So because of that, the gap-up (fall in yield) of 5 basis points (on the 10-year benchmark 6.79%, 2034 gilt) was already expected. Traders who have sold their positions will now begin to cover shorts (short bets)."

Traders will now focus on the RBI's OMO auction of INR 200 billion at 0930 IST-1030 IST. The central bank has offered to buy five gilts – the 7.04%, 2029; the 6.10%, 2031; the 7.26%, 2032; the 6.19%, 2034, and the 8.33%, 2036 gilts. Traders expect the cut-off price on the 2029 gilt to be closer to current market prices. The cut-off prices on the other gilts are seen 15-20 paise below those indicated by Financial Benchmarks India Pvt. Ltd. Monday. 

Volumes in the gilts market surged to INR 255.90 billion at 0930 IST, sharply higher than INR 39.20 billion at the same time Monday, 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 6.30-6.36%. (Cassandra Carvalho)

India Gilts: Seen higher as RBI to buy INR 1.25 tln worth of gilts via OMOs

MUMBAI – Prices of government bonds are likely to open 5-7 paise higher on Tuesday as the Reserve Bank of India announced open market operation auctions to buy INR 1.25 trillion worth of gilts in May, dealers said. However, the 10-year benchmark, 6.79%, 2034 gilt is expected to underperform as the government on Monday said it would auction INR 300 billion worth of a new 10-year gilt on Friday. During the day, any news on tensions between India and Pakistan following the terror attack in Pahalagam, south Kashmir, last week is also 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 6.32-6.42%. On Monday, the 2034 bond ended at INR 102.76, or 6.40% yield. After market hours on Monday, the central bank said it would buy INR 1.25 trillion worth of gilts through four OMO auctions in May. The amount exceeded the expectations of most dealers, who had anticipated INR 600 billion to INR 1 trillion, and this is likely to push gilt prices up on Tuesday, dealers said.  

The RBI also announced it would auction INR 300 billion worth of a new 10-year gilt on Friday. This could lead traders to place short bets on the current 10-year benchmark gilt, and the bond could underperform in the secondary market compared to other benchmark gilts on Tuesday, dealers said. In the first half of the day, the focus is likely be on the two auctions, dealers said. At the OMO auction at 0930-1030 IST, the central bank has offered to buy five gilts – 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 of INR 1.52 trillion among the five bonds, to be tendered the most by banks at a deeper discount to prevailing market prices than others. Some said the 6.19%, 2034 bond, which the RBI has offered to buy for the first time in the current OMO auction cycle, will be tendered the most from banks' held-to-maturity books. State-owned banks are likely to have hold a large chunk of the 6.19%, 2034 bond, which has an outstanding quantum of INR 1.34 trillion, dealers said. Some dealers also said banks mostly had the 7.04%, 2029 bond in their trading portfolios, which could lead to the bond being offered at a lower discount to market prices than the other papers. (Vidhushi RajPurohit)

End

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

Edited by Ashish Shirke

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