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Informist, Monday, May 5, 2025

By Vidhushi RajPurohit

MUMBAI – Prices of government bonds ended higher as market remained buoyant on positive triggers from a fall in crude oil prices, Reserve Bank of India's switch of two bonds worth INR 373 billion maturing in 2026-27 (Apr-Mar) with the government, and no escalation in tension between India and Pakistan, dealers said. Traders also picked up bonds before the INR-500-billion open market operation auction to purchase gilts by the RBI Tuesday, they said. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 103.26, significantly higher than INR 103.05 Friday. The yield on the bond ended 3 basis points lower at 6.32% from Friday. Traders covered their short bets, placed ahead of the weekend on fears that military tensions between India and Pakistan could worsen, dealers said. 

"Some traders rejoiced today (Monday) as nothing bad came in relation to the India and Pakistan conflict, and crude oil prices were also down, so that also kept prices supported," a dealer at a primary dealership said. "Some caution is still there because the situation is still dynamic, so the buying was not that aggressive at these levels."

Brent crude for July delivery fell to as low as $58.50 a barrel on Monday, which led gilts to rise. Traders also picked up gilts as the central bank on Wednesday switched two bonds worth INR 373 billion maturing in 2026-27 (Apr-Mar) with the government, the RBI said Friday. This is the first time since January 2023 that the RBI and the government have held gilt switches bilaterally. "In that fiscal year (FY27), the net supply is decreasing, there are less redemptions there so maybe the net borrowing will be lower," a dealer at a private bank said.

While traders across segments bought gilts Monday, foreign banks were likely the major buyers, dealers said. Foreign portfolio investors also bought fully accessible gilts worth INR 5.77 billion, as per data from Clearing Corp. of India at 1720 IST. Traders were also picking up short-tenure gilts on expectations of more rate cuts in 2025-26 (Apr-Mar), they said. 

Banks also bought gilts maturing in seven to 15 years on expectations of strong cut-off prices at the INR 500 billion open market operation auction Tuesday where the RBI has offered to buy seven gilts. Dealers are also of the view that shorter tenure gilts will likely outperform long-tenure bonds on account of some risk-off sentiments due to the heightened tension between India and Pakistan. 

"Long bonds are harder to get rid of, therefore, there is more interest in shorter papers," a dealer at a private bank said. "But, there is still room for more compression in spreads (of longer-tenure gilts) over the 10-year (benchmark) gilt, so that will keep those bonds also in favour."

Traders expect the yield spread on the 30-year benchmark, 7.09%, 2054 gilt, over the 10-year benchmark gilt to narrow to around 38 basis points by the end of the month. The spread has widened to nearly 44 bps from 37 bps at the beginning of April. The yield spread on the 15-year benchmark, 6.92%, 2039 gilt, over the 10-year benchmark has also widened to over 11 bps from an intraday spread of less than 9 bps on Friday.

Traders differed on views on the movement of the yield curve, with some expecting a flattening of the curve due to attractive spreads and because of the higher price appreciation per basis point fall in the yield, ahead of a rate cut. However, some are of the view that there will likely be a bull-steepening of the yield curve with the yields of the shorter tenure gilts falling faster than the longer-tenure bonds due to improved systemic liquidity. 

The turnover in the gilt market was INR 863.85 billion Monday, lower than INR 606.20 billion Friday, 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 sixth consecutive day.

OUTLOOK

On Tuesday, government bond prices are seen opening steady ahead of the RBI's OMO and state bond auctions. Later in the day, gilt prices may take cues from the results of both auctions, dealers said. 

The RBI has offered to buy the 7.06%, 2028, the 6.10%, 2031, the 8.32%, 2032, the 7.18%, 2033, the 7.10%, 2034, the 7.40%, 2035, and the 7.23%, 2039 gilts at the auction. Traders expect the previous 10-year benchmark, the 7.10%, 2034 gilt to be tendered the most by banks and the cut-off price for the bond is expected to be closer to the secondary market levels. Banks are also likely to tender the rest of the bonds at the auction at prevailing market prices or at lesser discounts than seen previously, dealers said. With over INR 4.00 trillion of buys through open market operations already complete in 2025 and another INR 1.25 trillion scheduled in May, banks will not be aggressive in seeking to book profits, 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 tensions, 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.

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 big trigger for gilts. Despite geopolitical uncertainty, gilt yields are expected to remain below 6.40% as investors will look to buy gilts on the 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 6.28-6.35% on Tuesday.

India Gilts: Remain sharply up, long-term bonds rise on attractive yields

MUMBAI--1450 IST--Prices of government bonds remained sharply up with buying interest in both short and long-term bonds from across market segments, dealers said. Traders rushed to pick up gilts to cover their short bets after remaining cautious last week because of fears of an escalation in military conflict between India and Pakistan. The yield spread on long-tenure bonds over the 10-year benchmark bond was also attractive for traders to pick up duration bonds, they said. 

"There is positive interest across the yield curve right now. The spreads are good and there are upcoming OMO auctions also, so everyone is mostly on the buying side right now," a dealer at a state-owned bank said. 

The yield spread on the 15-year benchmark, 6.92%, 2039 gilt, over the 10-year benchmark, 6.79%, 2034 gilt, has widened to over 11 bps from an intraday spread of less than 9 bps on Friday. Moreover, the spread of the 30-year benchmark, 7.09%, 2054 gilt over the 10-year benchmark gilt has widened to nearly 44 bps from 37 bps at the beginning of April. Dealers are of the view that there is room for the spreads to compress from current levels, which has led to buying interest from both investors and traders in long-term bonds. 

Traders were also picking up short-term papers on hopes of more rate cuts by the Reserve Bank of India's Monetary Policy Committee during the year. At the current yield level, the 6.32%, 2034 bond is pricing in a repo rate cut of 25 bps, dealers said. However, the yield is expected to fall to around 6.27-6.28% before the next policy review meeting in June, they said. 

Some private banks and corporate houses were likely booking profits in smaller quantities, dealers said. Volumes in the gilt market were INR 554.30 billion, higher than INR 487.55 billion at the same time Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the remainder of the day, the yield on the 6.79%, 2034 bond is seen at 6.30-6.35%. (Vidhushi RajPurohit)

India Gilts: Remain sharply up on fall in crude prices, early short covering

MUMBAI--1335 IST--Government bond prices remained sharply up as traders bought gilts on several positive cues. Traders found some confidence to buy gilts as diplomatic relations between India and Pakistan did not significantly worsen over the weekend, and they rushed to cover short bets placed on Friday, dealers said. A fall in crude oil prices also led traders to pick up gilts, they said.

"I think crude was a positive for the market. But otherwise also, people covered short (positions) which led to the sudden rise in prices," a dealer at a private sector bank said.

Brent crude for July delivery fell to as low as $58.50 a barrel on Monday, nearing lows last hit in February 2021. The contract was also down from $61.68 a barrel at the end of Indian market hours on Friday, which led gilts to rise. Meanwhile, foreign portfolio investors also likely bought gilts maturing within five years despite a rise in US Treasury yields, dealers said. Traders looked to shed long-duration gilts to reduce risk due to the ongoing tensions between the two nuclear-armed neighbours.

Demand for shorter-tenure gilts also remained firm due to expectations of a further steepening in the yield curve due to hopes of more rate cuts by the Reserve Bank of India's Monetary Policy Committee during the year. The repo rate could reach 5.25% as early as August, down 75 basis points from the current levels, State Bank of India Group Chief Economic Adviser Soumya Kanti Ghosh said in a report released Monday .

Banks also bought gilts maturing in seven to 15 years on expectations of strong cut-off prices at Tuesday's INR 500 billion open market operation auction, where the RBI has offered to buy seven gilts. Though banks have some of the bonds in their held-to-maturity portfolios, they are likely to tender these bonds at the auction nearly on a par with prevailing market prices or at lesser discounts than seen previously, dealers said. With over INR 4.00 trillion of buys through open market operations already complete in 2025 and another INR 1.25 trillion scheduled in May, banks will not be aggressive in seeking to book profits, they said. Moreover, the outlook for bond yields is positive and liquidity has turned comfortable, reducing the incentive to sell bonds below secondary market prices.

Dealers expect cut-off prices on the 7.06%, 2028, the 6.10%, 2031, and the 8.32%, 2032 gilts to be largely on par with indicative prices released by Financial Benchmarks India Ltd. Monday, provided the market does not move sharply Tuesday. The cut-offs on the 7.18%, 2033, the 7.10%, 2034, the 7.40%, 2035, and the 7.23%, 2039 gilt may be around 5-10 paisa below indicative prices for Monday.

Trade volumes on the newly issued 10-year 6.33%, 2035 gilt were robust as banks bought the bond to replenish their held-to-maturity books, dealers said. Traders who had aggressively placed short bets on the 6.79%, 2034 gilt on Friday to make room for the new bond at auction covered those bets Monday, leading prices to reverse from early losses. Traders said that with aggressive short bets placed on the outgoing 10-year benchmark, some found it difficult to cover their bets in the secondary market and were squeezed by holders of the bond.

At 1230 IST, the weighted average yield rate on the 6.79%, 2034 bond in the special repo segment of the Clearcorp Repo Order Matching System was at 3.01%, and the day's low rate was 0.01%. The market repo typically trades around the repo rate, and a lower yield shows that traders are desperate to borrow the bond, essentially giving away cash for free overnight.

Volumes in the gilt market were INR 407.00 billion, sharply higher than INR 210.85 billion at the same time Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the remainder of the day, the yield on the 6.79%, 2034 bond is seen at 6.28-6.35%.  (Srijita Bose)

India Gilts: Up on view of strong OMO cut-off prices, RBI-govt switch

MUMBAI--1018 IST--Prices of government bonds rose due to several positive triggers in the bond market. Traders were optimistic that cut-off prices at the Reserve Bank of India's purchase of gilts through auction under its open market operations Tuesday would be closer to current market prices than seen at previous auctions this year. Additionally, the central bank's switch of two bonds worth INR 373 billion maturing in 2026-27 (Apr-Mar) with the government was a positive cue. Gains were capped due to a rise in US Treasury yields over the weekend. 

The RBI has offered to buy seven gilts at the OMO auction Tuesday. The bonds chosen are the 7.06%, 2028, the 6.10%, 2031, the 8.32%, 2032, the 7.18%, 2033, the 7.10%, 2034, the 7.40%, 2035, and the 7.23%, 2039 gilts at the auction. Traders expect cut-off prices to be sold at a lesser discount than previous OMO auctions this year since the cut-off prices at the auction last Tuesday were better than expected. 

Announcement of the RBI's gilt switch with the government also boosted the rise in prices. The central bank on Wednesday switched two bonds worth INR 373 billion maturing in FY27 with the government, it said Friday. This is the first time since January 2023 that the RBI and the government have conducted a bilateral switch.

Additionally, relative calm on the geopolitical front over the weekend eased traders' fears of escalation in India-Pakistan tensions, they said.

Brent crude for July delivery fell to $59.03 a barrel in Asian trade at 1000 IST from $61.68 a barrel at the end of Indian market hours on Friday, which supported the rise in bond prices.

Traders who had aggressively placed short bets on the 6.79%, 2034 gilt on Friday to make room for the new 6.33%, 2035 bond covered those bets Monday. 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. At 1000 IST, data showed trades worth INR 99.92 billion in the 6.79%, 2034 gilt, down from INR 102 billion at the same time Friday. The weighted average yield rate was 3.06% at that time, and the day's low rate was 0.01%. 

Volumes in the gilt market were INR 286.55 billion at 1030 IST, sharply higher than INR 102.95 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 6.28-6.35%. (Cassandra Carvalho)

India Gilts: Seen higher after govt conducts switch operation with RBI

MUMBAI – Government bond prices are seen slightly higher Monday after the Reserve Bank of India Friday said that it switched two bonds worth INR 373 billion with the government on Wednesday. The rise in gilt prices could, however, be capped due to a rise in US Treasury yields. For the day, the yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.30-6.38%. On Friday, the 10-year gilt closed at INR 103.05, or 6.35% yield. 

"The switch news is a positive for the market, so some movement in the short-end could be seen," a dealer at a private sector bank said. "There could be some pressure because US-T (US yields) are up, but buying will come after the sell-off near end of market on Friday."

Demand for shorter-tenure gilts maturing within five years could also remain firm during the day as traders will look to cut down longer-duration papers to reduce their risks amid the tensions between India and Pakistan, dealers said. Any escalation in the conflict could drag down gilt prices, they said.

Meanwhile, demand for gilts maturing within 7-15 years could also pick up as banks will look to buy them in place of bonds that the RBI bought through open market operation auctions, they said. Traders will also buy gilts for Tuesday's INR 500 billion worth OMO auction.

Some gains in gilts could be capped after yield on the 10-year benchmark US Treasury note rose to 4.31% at 0830 IST from 4.23% at 1700 IST on Friday. US Treasury yields rose Friday after the higher-than-expected US non-farm payroll numbers in April. Data released on Friday showed that the US labour market remained resilient amid President Donald Trump's volatile trade policies. Non-farm payrolls rose by 177,000 in April, higher than a Reuters forecast of 130,000. The unemployment rate held steady at 4.2% in April.  (Srijita Bose)

End

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

Edited by Saji George Titus

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