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Informist, Wednesday, Apr. 30, 2025

By Srijita Bose

MUMBAI – Government bond prices ended lower on Wednesday as traders sold bonds at a profit, while others trimmed their stock due to fear of further escalation in tensions between India and Pakistan, dealers said. Traders also placed short bets on the 10-year benchmark 6.79%, 2034 gilt to make room for the supply of INR 300 billion of the new 10-year 2035 gilt to be auctioned on Friday. The 10-year benchmark 6.79%, 2034 bond ended at INR 103.04, lower than INR 103.14 on Tuesday. The yield on the bond ended at 6.36%, around 2 basis points higher than on Tuesday. 

Traders also reduced their exposure to gilts because Thursday is a market holiday, and they did not want to carry unhedged bets across the holiday, given the the tensions between India and Pakistan, dealers said. Prices of most gilts remained down though most of the day as demand was low, they said.

"Some people are looking for opportunities to pull down prices, and reacting to any development in India-Pakistan is a way since other sellers are also coming to sell in panic. They can then pick them (bonds) up when prices fall," a dealer at a primary dealership said. "It's mostly trading views, but the overall sentiment remains positive."

While primary dealers and private banks sold bonds, state-owned banks remained on the sidelines and did not buy bonds as they are waiting to buy the new 10-year gilt at the auction on Friday. At the auction, demand for the new gilt is expected to be firm, with most dealers expecting a large chunk of the bond to be picked up by both domestic and foreign banks, with some demand from mutual fund houses and foreign portfolio investors as well. Barring any surprises, the 10-year yield is expected to be steady on Friday around Wednesday's level of 6.36%, dealers said, adding that the coupon on the new 10-year gilt is expected to be around 1-3 basis points below this level.

Traders picked some higher yielding gilts maturing in up to six years due to expectations of further steepening of the yield curve as more rate cuts get priced in. The yield spread on the 10-year benchmark over the five-year benchmark 6.75%, 2029 gilt has widened to over 26 bps, and dealers expect the spread to increase to over 30 bps before the Reserve Bank of India's Monetary Policy Committee meets next in June, when it is widely expected to cut rates by at least 25 bps.

"Buying demand did not come today (Wednesday) as much," a dealer at a private sector bank said. "Some here-and-there trading happened and we heard some FPI flows too, but everyone is waiting for Friday's auction and more clarity on the geopolitical front."

FPIs are likely to have bought gilts in light volumes as the yield on the 10-year benchmark US Treasury note fell to 4.16% during the day from 4.24% at 1700 IST Tuesday. Gilt prices opened higher on Wednesday, tracking a fall in US yields. FPIs also boought gilts as Bloomberg's Emerging Market Local Currency Government Index increases India bonds' weightage to 4% at the month-end, dealers said. FPIs likely bought gilts maturing in up to 10 years, dealers said, although Clearing Corp. of India data as of 1819 IST showed FPIs sold gilts worth INR 12.44 billion through the fully accessible route. Foreign banks are likely to have sold gilts due to persisting geopolitical uncertainty amid tensions between India and Pakistan, dealers said.

Demand for long-term gilts was strong. The 'others' segment of the gilt market, consisting of insurance companies, provident funds, and the RBI, bought gilts worth INR 16.06 billion this week, data from Clearing Corp. of India showed. However, sales by foreign banks pulled down prices of these bonds. Investors also picked up higher yielding state bonds due to expectations of a rate cut as well as for replacement of bonds sold to the RBI through open market operation auctions, dealers said. 

The turnover in the government securities market was INR 605 billion on Wednesday, sharply lower than the turnover of INR 1.21 trillion on Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades through the wholesale digital rupee pilot for the fourth consecutive day.

OUTLOOK

Money markets will be shut on Thursday on account of Maharashtra Day. On Friday, gilt prices are seen taking cues from any further developments between India and Pakistan, dealers said. Without any further development, gilt prices are seen steady before the INR 360-billion weekly gilt auction at 1030-1130 IST. 

Traders have already placed short bets on the 10-year benchmark gilt to make room for the INR 300 billion of new 10-year 2035 gilt to be issued at the auction on Friday, and will watch out for the auction results for cues later in the day. 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 due to hope 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 Friday.

India Gilts: Remain dn as traders trim portfolios on India-Pakistan tensions

MUMBAI--1530 IST--Government bond prices across most tenures remained down as some traders sold bonds at a profit while others trimmed stock of gilts on fears of further escalation in tensions between India and Pakistan, dealers said. Traders also reduced their gilt exposure, since Thursday is a market holiday and they did not want to carry unhedged bets till Friday, dealers said.

"After yesterday's (Tuesday's) covering, today (Wednesday) some INR 10-20 billion worth shorts were placed on the 10-year (benchmark 6.79%, 2034 gilt), also because there is still uncertainty on the India-Pakistan situation," a dealer at a private bank said. "Also, people don't want to carry naked positions at this point so some sell-off and shorting is also because of that."

Traders also placed short bets on the 10-year benchmark 6.79%, 2034 gilt to make room for the INR-300-billion supply of the new 10-year 2035 gilt to be auctioned on Friday. At the auction, demand for the new gilt issue is expected to be firm with most dealers expecting a large chunk of the bond to be picked up by both domestic and foreign banks, with some demand from mutual fund houses and foreign portfolio investors as well. Dealers expect the coupon on the new 10-year gilt to be around 1-3 basis points below the secondary market yield of the 10-year benchmark gilt on Friday. 

FPIs likely bought gilts in light volumes as the yield on the 10-year benchmark US Treasury note fell to 4.16% at 1530 IST from 4.24% at 1700 IST Tuesday, and as Bloomberg's Emerging Market Local Currency Government Index had increased India bonds' weightage to 4% at the month-end, dealers said. FPIs likely bought gilts maturing in up to 10 years, dealers said, although Clearing Corp. of India data showed FPIs sold gilts worth INR 14.30 billion through the fully accessible route at 1530 IST. Foreign banks likely sold gilts due to persisting geopolitical uncertainty amid tensions between India and Pakistan, dealers said.

Volumes in the gilts market were at INR 504.80 billion at 1530 IST, nearly half of INR 1.03 trillion 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 6.32-6.40%.  (Srijita Bose)

India Gilts: Down amid India-Pakistan tensions, sales before gilt auction Fri

MUMBAI--1122 IST--Prices of government bonds were down across most tenures, reversing early gains as traders booked profits and trimmed portfolios due to fear of further escalation in tensions between India and Pakistan, dealers said.

The fall in bond prices was most pronounced in liquid bonds maturing in 10-15 years, most of which are kept in banks' trading portfolios, according to dealers. Traders trimmed positions to reduce exposure to risk, as Thursday is a market holiday and traders are unsure of what developments would await them on Friday, dealers said. Indian financial markets will be shut on Thursday for Maharashtra Day. 

Bilateral relations between India and Pakistan have been deteriorating after terrorists killed 26 people at a tourist spot in Pahalgam in Kashmir on Apr. 22. India blamed Pakistan for the terror attack and vowed to retaliate. On Tuesday night, the Pakistani army resorted to unprovoked firing across the Line of Control and the international border in Jammu & Kashmir, an Indian Army official told reporters on Wednesday. Bond traders fear retailiation from India triggering a larger geopolitical conflict. 

"Traders want to shut any risks because the border situations is still unceratain and tomorrow (Thursday) is holiday, so no one wants to carry extra risk," a dealer at a primary dealership said. "There are positives from RBI's side, but in the current time no one wants to add, in case tensions escalate at border."

Traders also sold papers maturing in 10-15 years to make room for the new 10-year 2035 gilt at the auction on Friday. "PDs (primary dealerships) must be selling for making space for Friday's auction," a dealer at a state-owned bank said. 

Prices of some short-term and long-term gilts were up. Traders favoured gilts maturing in up to six years on bets that the yield curve could steepen further as more rate cuts get priced in, dealers said. Investors' demand for long-term gilts remained strong. The 'others' segment of the gilt market, consisting of insurance companies, provident funds, and the Reserve Bank of India, have bought gilts worth INR 16.06 billion this week, data from Clearing Corp. of India showed.  

Traders expect foreign banks and portfolio investors to purchase gilts later in the day, dealers said. Traders in the foreign exchange market estimate foreign inflows up to $2 billion on Wednesday. As of 1122 IST, data from Clearing Corp. of India showed overseas investors sold gilts worth INR 9.53 billion through the fully accessible route. 

Volumes in the gilts market were at INR 255.85 billion at 1130 IST, lower than INR 575.05 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 6.32-6.40%.  (Cassandra Carvalho)

India Gilts: Up but 10-year bond's gains limited by new gilt sale Fri

MUMBAI--0912 IST--Prices of government bonds rose, tracking an overnight fall in US Treasury yields, dealers said. However, the benchmark 10-year 6.79%, 2034 gilt underperformed other tenures as traders placed short bets on the gilt to make room for the new 10-year 2035 gilt that will be sold at the weekly gilt auction Friday. Indian financial markets will be shut on Thursday for Maharashtra Day and Labor Day. 

The yield on the benchmark 10-year US Treasury note fell to 4.17% as of 0912 IST from 4.24% at the close of Indian market hours on Tuesday. US yields fell after the US consumer confidence index fell to a five-year low in April and the US job openings and labor turnover survey for March showed that job openings were also slightly down. Fed fund futures traders have priced in a 60% probability of a quarter-point rate cut by the US Federal Open Market Committee in June, as per the latest CME FedWatch tool.

Bond prices sustained the momentum seen on Tuesday after the Reserve Bank of India announced open market operation auctions to buy INR 1.25 trillion worth of gilts in May. However, volumes were low, and only seven gilts were traded as of 0912 IST on the RBI's Negotiated Dealing System-Order Matching platform. The market-wide turnover was INR 52.20 billion at 0912 IST, sharply lower than INR 240.30 billion at the same time Tuesday. 

"There are two reasons why the 10-year yield is being watched today (and is comparatively underperforming)," a dealer at a state-owned bank said. "One is because of the new 10-year on Friday. Second, because of this uncertainty, because of geopolitical tensions. Depending on whatever news we get during the day, our market may flare up (become volatile)."

Traders see a greater upside bias on the 10-year gilt yield Wednesday. However, bond purchases due to bets of at least 50-75 basis points of cuts in the repo rate in the remainder of 2025-26 (Apr-Mar) may prevent a sharp rise in yields, dealers said. 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: Seen tad up on fall in US yields; India-Pak tensions in focus

MUMBAI – Government bond prices are likely to rise slightly at open, tracking a fall in US Treasury yields and continuing the positive momentum from Tuesday after the Reserve Bank of India announced open market operation auctions to buy INR 1.25 trillion worth of gilts in May, dealers said. The 10-year benchmark 6.79%, 2034 bond is expected to underperform in the secondary market as traders are likely to place short bets on the gilt as the government will issue a new 10-year gilt at the auction Friday, they said. Indian financial markets will be shut on Thursday on account of Maharashtra Day. 

For the day, the yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.32-6.38%. On Tuesday, the 2034 bond ended at INR 102.14, or 6.34% yield. The yield on the bond ended 6 basis points lower from Monday as traders rushed to pick up gilts due to the higher than expected notified quantum for OMO auctions scheduled for May, dealers said.

Traders are likely to continue to buy gilts to refill their held-to-maturity books as they have sold gilts amounting to INR 1.2 trillion in April to the RBI under its OMO auctions. Since January, the RBI has bought INR 3.65 trillion worth of gilts through OMO auctions. The persistent liquidity infusing measures by the RBI have bolstered tarders' expectations of deeper policy rate cuts in 2025, dealers said. Dealers are of the view that the RBI's Monetary Policy Committee will likely lower the repo rate by another 50-75 basis points from 6.00% by the end of the current financial year.

Traders will continue to pick up shorter-tenure gilts due to hope that the yield curve could steepen further as more rate cuts get priced in, dealers said. On Tuesday, the yield spread on the 10-year benchmark, 6.79%, 2034 gilt over the five-year benchmark, 6.75%, 2029 bond widened to more than 25 basis points from 12 bps at the start of the month.

An overnight fall of 7 basis points in the 10-year benchmark US Treasury note is also expected to keep gilt prices supported Wednesday, dealers said. At 0730 IST, the yield on the 10-year benchmark US Treasury note was 4.17%, down from 4.24% at the Indian market close on Tuesday. However, gains are likely to be limited as traders remain cautious on any news on the escalation of military tensions between India and Pakistan following the terror attack in Pahalagam last week. Media reports Tuesday said Pakistan claimed it had shot down an Indian drone across the Line of Control. The news led to volatility in both gilts and the foreign exchange market on Tuesday. (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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