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Informist, Friday, May 2, 2025

By Srijita Bose

MUMBAI – Government bond prices ended steady Friday as the cut-offs at the INR 360-billion gilt auction were in line with market expectations. The gains were capped due to uncertainty about tensions between India and Pakistan, dealers said. The 10-year benchmark 6.79%, 2034 bond ended at INR 103.05, marginally higher than INR 103.04 on Wednesday. The yield on the bond ended at 6.35%, less than 1 basis point lower from Wednesday. Money markets were shut on Thursday for Maharashtra Day.

"People trimmed portfolios due to weekend, but at the auction demand was really good across all segments," a dealer at a state-owned bank said. "Today (Friday), people were going for short-end more, but I think personally, the seven to 10-year segment (on bonds) still seem good looking at the spreads and should pick up somewhat."

Demand for both the gilts at the auction was firm as both banks and corporate players are likely to have participated, dealers said. The 6.64%, 2027 gilt received aggressive bidding from banks for both their asset and liability requirements and for their trading books, dealers said. Due to fears of the conflict between India and Pakistan escalating, traders trimmed risks by selling off duration papers and picking up shorter-tenures papers, which was evident at the auction as well, they said. The cut-off price for the 2027 gilt was INR 101.49, slightly higher than INR 101.45 estimated in an Informist poll of 14 market participants. 

The cut-off for the new 10-year, 2035 gilt was in line with market's expectations as the coupon on the gilt was set at 6.33%, the same as the median in the poll. The new 10-year gilt received bids worth nearly INR 1.30 trillion at the auction. Some traders were of the view that the bond would gradually replace the current 10-year benchmark gilt after two more auctions of the paper. The next auction for 10-year gilt is scheduled for May 30 for INR 300 billion. Most dealers expect the yield spread of the benchmark 10-year gilt over the new 10-year gilt to remain at around 3 bps during the month. 

Foreign banks bought both the papers at the auction, dealers said. Meanwhile, traders were divided on participation by foreign portfolio investors at the auction. While some speculated that FPIs would buy around INR 100 billion of the 2035 gilt, others said FPIs were unlikely to purchase the new gilt at the auction. Some dealers also said that FPIs were likely to have bought the 2027 gilt at the auction and bought gilts maturing within 15 years in the secondary market. Till 1753 IST, FPIs had bought gilts worth nearly INR 8 billion through the fully accessible route, data from Clearing Corp. of India showed. Appreciation in the Indian currency also kept gilt prices supported, dealers said. The rupee rose to a high of 83.7525 against the dollar earlier in the day from the close of 84.4875 on Wednesday.

Corporate houses and mutual funds, both of which were thought to have large cash balances, likely bought the new 2035 at the auction and gilts maturing under seven years in the secondary market, dealers said. Insurers and pension fund houses also picked up gilts maturing over 30 years as some expect the yield spread on the 40-year benchmark, 6.34%, 2064 gilt over the 10-year benchmark bond to narrow by another 5 bps as more rate cuts get priced in, dealers said. The current yield spread between the two gilts stands at nearly 46 bps. 

Some investors also bought gilts maturing in seven to 15 years in place of the bonds sold to the Reserve Bank of India through open market operation auctions since January, dealers said. However, the purchases were limited as most traders were satiated after buying at the gilt auction, they said.

"People have made short bets and some selling was by PDs (primary dealers) as well due to auction," a dealer at a primary dealership said. "But the range in the market should stay for some time and some clear trigger is needed for bond yields to move down from here."

The turnover in the government securities market was INR 608.70 billion on Friday, slightly higher than INR 605 billion on Wednesday, 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 fifth consecutive day.

OUTLOOK

Gilts are not traded on Saturdays. On Monday, gilt prices are seen taking cues from any further developments between India and Pakistan, dealers said. If there are no developments, gilt prices could move in a narrow range, they said.

Demand for shorter-tenure gilts maturing within five years could remain firm during the day as traders will look to cut down longer-duration papers to reduce their risks amid geopolitical turmoil, dealers said. Demand for gilts maturing within seven to 15 years could also pick up as banks will look to buy them in place of bonds that the RBI bought through OMO auctions, they said. Traders will also position for Tuesday's INR 500 billion worth OMO auction.

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 be the next major triggers for gilts. Despite geopolitical uncertainty, gilt yields are expected to remain below 6.45% as investors will look to buy gilts on 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 Monday.

India Gilts: Tad up as weekly gilt auction result in line with expectations

MUMBAI--1510 IST--Prices of government bonds rose slightly as the cut-offs at the INR 360-billion gilt auction were in line with traders' expectations, dealers said. Demand for both the gilts at the auction was firm as both banks and corporate players are likely to have participated. Gains were capped on account of uncertainity regarding tensions between India and Pakistan. 

"Auction was good and traders bid aggressively for the gilts. Those who did not get the 10-year bond at the auction will start buying the current 10-year benchmark paper so that is also keeping prices up," a dealer at a primary dealership said.  

The 6.64%, 2027 gilt received aggressive bidding from banks for both their asset and liability requirements and also for their trading books, dealers said. In light of the fear of a military conflict between India and Pakistan, traders are trimming risks by selling off duration papers and picking up shorter-tenures papers, which was evident at the auction as well, they said. The cut-off price for the 2027 gilt was INR 101.49, slightly higher than INR 101.45 estimated in an Informist poll of 14 market participants. 

The cut-off for the new 10-year, 2035 gilt was in line with market's expectations as the coupon on the gilt was set at 6.33%, the same as the median in the poll. Dealers said the new 10-year gilt recieved bids worth INR 1.30 trillion at the auction. Some traders were of the view that the bond would gradually replace the current 10-year benchmark gilt after two more auctions of the paper. The next auction for 10-year gilt is scheduled for May 30 for INR 300 billion. 

Appreciation in the Indian currency also kept gilt prices supported, dealers said. The rupee rose to 83.7550 against the dollar earlier in the day from the close of 84.4875 on Wednesday. "The rupee apppreciating is another reason (the bond market is supported)," a dealer at a private sector bank said. "We actually were expecting some selling might come in the evening but doesn't look like it. Maybe because of rupee only, because our bonds become attractive."

Volumes in the gilts market were INR 431.30 billion at 1510 IST, lower than INR 504.80 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 6.32-6.38%. (Vidhushi RajPurohit)

India Gilts: In thin band as traders await gilt auction result

MUMBAI--1209 IST--Prices of government bonds were in a thin band on Friday, recovering early losses. Traders await the result of the weekly gilt auction of INR 360 billion, dealers said. 

At the gilt auction, the coupon on the new 2035 gilt is seen at 6.33%, according to the median in an Informist poll of 14 participants. As for the 2027 gilt, the poll estimated the cut-off price at INR 101.45. Demand for both gilts is seen firm. Dealers expect asset and liability managers of private sector banks to pick up the short-term gilt. The new 10-year gilt would draw participation from across market segments at the auction, dealers said. Dealers did not expect significant demand for Separate Trading of Registered Interest and Principal of Securities, they said. 

Traders were divided on participation by foreign portfolio investors at the auction. Some traders speculated that FPIs would buy around INR 100 billion of the 2035 gilt, while some said FPIs were unlikely to purchase the new gilt at the auction. Others said FPIs could purchase the 2027 gilt. FPIs were also active in the secondary market during the day, dealers said.

"FPIs might bid for the 2027 bond because they have been actively buying papers maturing in five years and below in the secondary market to remain invested in the Indian bond market, but reducing duration papers because of the uncertain situation between India and Pakistan," a dealer at a state-owned bank said.

A large corporate is expected to bid aggressively for the 2035 gilt for a quantum between INR 50 billion and INR 100 billion at the auction after selling heavily in the secondary market earlier this week. Private banks, through which some corporates trade gilts through constituent subsidiary general ledger accounts, have net sold gilts worth INR 136.77 billion so far this week, according to data from Clearing Corp. of India. Sales through constituent deals contributed to 16.2% of outright volumes in the secondary market on Tuesday, and 10% on Wednesday. 

"We didn't hear all that much FPI interest. The large conglomerate was heard pretty aggressively," a dealer at a private bank said, referring to the 10-year bond at the auction.

If the cut-off price of the 2027 gilt and coupon on the 2035 gilt are on par with or better than market expectations, prices in the secondary market are expected to rise. However, a rise in US Treasury yields and uncertainty amid tensions between India and Pakistan may weigh on bond prices. Traders are likely to trim some gilt holdings towards the end of market hours to reduce exposure to risk before the weekend. 

Volumes in the gilts market were INR 188.20 billion at 1220 IST, lower than INR 313.45 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 6.32-6.38%. (Cassandra Carvalho)

India Gilts: Mixed, 10-year down before sale of new 2035 gilt

MUMBAI--0924 IST--Prices of government bonds were mixed on Friday. Bond prices were a tad lower at open due to a rise in US Treasury yields. The benchmark 10-year 6.79%, 2034 gilt was down more as traders placed short bets on the gilt to make room for the new 2035 gilt being auctioned at 1030-1130 IST, dealers said.  

At the auction, the government will sell INR 60 billion of the 6.64%, 2027 bond and INR 300 billion of a new 10-year, 2035 gilt bond. Demand is seen firm for both papers, though traders are more attentive to the 2035 gilt since it will eventually become the benchmark 10-year gilt, dealers said. The coupon on the new gilt is seen at around 6.32-34%, though estimates may be revised depending on changes in secondary market prices, dealers said.

"I think coupon (on the new 2035 gilt) should be 6.32%. Today (Friday) it's not traded in when-issued yet, but on Wednesday it was 6.32%," a dealer at a state-owned bank said.

Traders placed short bets on the current 2034 benchmark as they want to stock up on the new 2035 gilt at the auction, they said. A proxy for tracking short sales in 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 0924 IST showed trades worth INR 102.00 billion in the 6.79%, 2034 gilt. Dealers expect this number to rise to around INR 120 billion Friday. 

Traders expect foreign portfolio investors to purchase gilts in the secondary market during the day, which is likely to push up prices. FPIs are also expected to pick up at least INR 100 billion of the new 2035 gilt at the auction, dealers said. Corporate entities are also expected to be strong bidders, along with participation from banks and primary dealerships. 

A rise of 7 basis points in the US 10-year benchmark note to 4.24% at 0735 IST, compared to 4.17% when Indian markets closed on Wednesday, weighed on gilt prices. Indian financial markets were shut on Thursday. US yields rose after data showed the US manufacturing sector contracted further in April amid higher input prices due to tariff-related constraints, possibly delaying rate cuts by the US Federal Open Market Committee this year.

Volumes in the gilts market were INR 44.45 billion at 0930 IST, lower than INR 98.05 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 6.30-6.37%. (Cassandra Carvalho)

India Gilts: Seen steady before INR 360-bln weekly gilt auction

MUMBAI – Government bond prices are likely to open steady on Friday ahead of the weekly gilt auction for INR 360 billion, dealers said. A rise in US Treasury yields since the Indian market closed on Wednesday is likely to weigh on gilt prices. Indian money markets were 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 Wednesday, the 10-year gilt closed at INR 103.04, or 6.36% yield. In the first half of the trading day, dealers will concentrate on the INR 360-billion gilt auction, which is scheduled for 1030-1130 IST. At the auction, the government will sell INR 60 billion of the 6.64%, 2027 bond and INR 300 billion of new 10-year, 2035 bond.

Demand for both the gilts is expected to be firm, with most dealers expecting a large chunk of the new 10-year 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 said. Most 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, dealers said. 

A rise of 7 basis points in the US 10-year benchmark note to 4.24% at 0735 IST from 4.17% when Indian markets closed on Wednesday is likely to weigh on gilt prices, dealers said. Traders will also continue to closely track the evolving geopolitical situation between India and Pakistan in the wake of the terror attack in Jammu & Kashmir last week, dealers said. 

Any escalation in the conflict could drag down gilt prices, they said. Some traders could also trim their gilt holdings later in the day ahead of the weekend to reduce any unhedged exposure as traders may be unsure of the developments that will await them on Monday, they said. (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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