More Stories

Informist, Friday, May 9, 2025

By Vidhushi RajPurohit

MUMBAI – Prices of government bonds recovered all losses and ended higher as traders covered their short bets placed earlier in view of escalation in the India-Pakistan tensions, they said. Positive cut-off prices at Friday's weekly gilt auction and replacement demand post the open market operation auction also spurred buys from traders. Prices had fallen earlier in the day due to the overnight escalation in border tensions and to avoid exposure to geopolitical risks going into the long weekend, they said. Money markets will be shut on Monday on account of Buddha Purnima. 

The 6.79%, 2034 bond ended at INR 102.89, up from INR 102.74 on Thursday. The 10-year benchmark yield ended at 6.38%, against 6.40% the previous day. Despite no news of the worsening of the border conflict, gains remained capped as the uncertainty regarding further development still loomed, dealers said. 

"There was some buying in huge size by some big player, mostly on account of short covering which pushed up the prices after the auction result," a dealer at a state-owned bank said. "Once there was some recovery, more people covered their short-bets as people had sold aggressively earlier in the day."

The government sold INR 160 billion each of the 6.92%, 2039 bond and the 6.90%, 2065 bond Friday. Cut-off prices at the gilt auction were in line with the median of estimates in an Informist poll. Some traders had feared that the auction might get devolved on primary dealerships due to negative sentiment in the market on account of the rising geopolitical tensions, which did not happen. The Reserve Bank of India set a cut-off price of INR 103.25 on the 6.92%, 2039 gilt and INR 99.18 on the 6.90%, 2065 gilt. Demand for STRIPS, or Separate Trading of Registered Interest and Principal of Securities, to the tune of around INR 20 billion in the 2065 gilt was also seen, dealers said.

"Demand at the auction was a big positive, especially on a day like today (Friday) when there is so much caution," the dealer said. "So, that was a big support to prices."  

Demand from banks was also there to refill their held-to-maturity books in place of bonds sold to the RBI through the OMO auction, dealers said. Traders were buying bonds maturing in seven to 15 years, which led to the rise in prices in the segment, they said. State-owned banks were the major sellers of the 6.64%, 2035 bond and the 7.54%, 2036 bond, as the banks held a major chunk of these bonds in their held-to-maturity books, dealers said. The 6.64%, 2035 bond was accepted in the largest quantum at INR 105.10 billion and the bond also received highest offers at INR 272.84 billion. 

"The cut-off prices (at OMO auction) were not bad, so traders started building up some positions as prices were down," a dealer at another state-owned bank said. "Traders also had to deploy the amount received from selling these bonds so that was a positive for the market."

The gilt prices were sharply lower Friday at open due to traders' "risk-off" sentiment as uncertainty on the geopolitical front mounted and added to that there was also caution before the two auctions. As tensions between India and Pakistan did not worsen during the day, this also provided traders some confidence to cover their short-bets, dealers said. 

The recovery in the prices did not translate to long-tenure papers as traders refrained from adding duration papers to their portfolio on the face of mounting uncertainty, they said. The 40-year benchmark, 7.34%, 2064 bond remained down, ending at INR 105.99, or 6.89% yield, lower than INR 106.10 or 6.89% yield. Traders expect a bull-steepening of the yield curve with the yields of the shorter-tenure gilts will continue to fall faster than the longer-tenure bonds. The yield on the five-year benchmark, 6.75%, 2029 bond fell by 4 basis points to 6.08% on Friday.

State-owned banks likely remained on the buying side Friday, dealers said. On Thursday, public sector banks brought gilts amounting to INR 160.68 billion. Meanwhile, private sector banks and foreign banks were likely selling gilts to reduce their risk exposure. Some dealers were also of the view that mutual funds were also likely trimming their holding of gilts due to some cash crunch. 

Traders continue to remain cautious owing to the long weekend ahead which led to low trading volume for the day. The turnover in the gilts market on Friday was at INR 699.80 billion, down from INR 1.27 trillion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot on Friday, against two trades in the 7.10%, 2034 bond worth INR 100 million on Thursday.

OUTLOOK

Money markets will be shut on Monday on account of Buddha Purnima. On Tuesday, government bond prices may closely track any developments on the border, dealers said. Tensions escalated Thursday between the two nuclear-powered countries after Pakistan attempted drone attacks at multiple targets in India and resorted to heavy artillery shelling across the Line of Control in Jammu and Kashmir. Any further military action between the two countries may lead to a further fall in prices and the 10-year gilt yield may rise to 6.45%, dealers said. 

Gilts may also take cues from the movement in US Treasury yields and crude oil prices over the weekend. Demand for bonds maturing between five and 15 years is seen robust as banks look to replenish stocks of bonds in similar maturities sold to the RBI at open market operation auctions. 

India's GDP growth estimates for Jan-Mar and the annual estimate for 2024-25 (Apr-Mar), due at the end of May, could be the next big trigger for gilts. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.36-6.42% on Tuesday.

India Gilts: Reverse losses on short-covering, replacement post OMO auction

MUMBAI--1545 IST--Government bond prices reversed all losses and rose as traders covered short bets placed on Thursday, as tensions between India and Pakistan did not significantly escalate during the day, dealers said. Traders also brought after selling gilts worth INR 250 billion to the Reserve Bank of India through open market operation auction on Friday, they said. However, gains were capped as traders trimmed their exposure going into the long weekend, dealers said. RBI-administered markets are shut on Monday for Buddha Pournima.

Cut-offs at the RBI's open market operations auction were largely in line with market expectations, dealers said. "OMO auction was good, banks which had the bonds in their HTM (held-to-maturity) books got to clear them. Many PSU banks likely had the 6.64% 2035 bond and that they got to sell," a dealer at a state-owned bank said. Demand from banks to refill their held-to-maturity books in place of bonds sold to the RBI through OMO auction came in bonds maturing in seven to 15 years, which led to the rise in prices in the segment, dealers said.

As tensions between India and Pakistan did not worsen during the day, traders hoped that the nuclear-armed neighbours would refrain from going into a full-blown war, which gave traders some confidence to buy, dealers said. However, traders remained cautious and did not want to carry the duration risk into the long weekend due to uncertainty on the geopolitical front, they said. Longer tenure bonds continued to underperform due to muted demand from traders. Instead, they picked up shorter-tenure gilts and the benchmark liquid papers such as the 6.75%, 2029 gilt and the 10-year 6.79%, 2034 bond to reduce the per-basis risk. Traders also preferred Treasury bills to reduce their investment risks, dealers said. 

Volume in the gilt market was INR 472.85 billion at 1530 IST, less than half of INR 1.06 trillion at the same time on Thursday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. The yield on the 10-year benchmark 6.79%, 2034 gilt is seen within 6.37-6.45%.  (Srijita Bose)

India Gilts: Off lows; little changed after gilt auction on expected lines

MUMBAI--1339 IST--Prices of government bonds were off lows as traders covered intraday short bets before the gilt auction cut-off was released with the view that the cut-off prices would not be as low as initially expected, dealers said. Bond prices were little changed after the cut-offs were along expected lines. Bond prices remained down as traders refrained from aggressive purchases ahead of the long weekend, amidst a sharp escalation in tensions between India and Pakistan, dealers said. 

The government sold INR 160 billion each of the 6.92%, 2039 bond and the 6.90%, 2065 bond Friday. Cut-off prices at the gilt auction were in line with the median of estimates in an Informist poll. The Reserve Bank of India set a cut-off price of INR 103.25 on the 6.92%, 2039 gilt and INR 99.18 on the 6.90%, 2065 gilt. Demand at the auction was slightly weak, as reflected in the cut-offs, which were around 35 paise and 17 paise below current market prices. The 40-year gilt price had already tanked in the secondary market, trading 85 paise below Thursday's close of INR 100.20 before the auction results were announced. Long-term gilts remained out of favour as traders did not want to carry the duration risk into the long weekend amidst uncertainty on the geopolitical front, dealers said. 

Demand for the long-term gilts for forward rate agreements from pension funds was likely, dealers said. Demand for STRIPS, or Separate Trading of Registered Interest and Principal of Securities, to the tune of around INR 20 billion in the 2065 gilt was also seen, dealers said. Some traders had expected the long-term gilt to be partially devolved by around INR 30 billion-INR 40 billion. Others had expected the auction for the long-term gilt to be cancelled. 

Demand for the 15-year paper was better, due to replacement demand for gilts maturing in 7-15 years after the RBI's purchase of gilts of similar maturities through auctions under its open market operations since January. Traders expect cut-off prices at OMO auction held earlier in the day to be around those indicated by Financial Benchmarks India Pvt. Ltd. Thursday. The RBI offered to buy up to INR 250 billion of the 6.54%, 2032, the 7.57%, 2033, the 6.19%, 2034, the 6.64%, 2035, and the 7.54%, 2036 gilts.

Foreign banks were likely trimming gilts in the secondary market, while state-owned banks were lapping up the supply at the lucrative yield levels, dealers said. On Thursday, the benchmark 10-year 6.79%, 2034 gilt yield traded above the 6.40% level for the first time since Apr. 28. 

"Gilts have recovered because the market view was that auction wouldn't be as bad as it looked in the morning," a trader at a primary dealership said. "But the gains are likely to be short-lived as no one would want to take risk into weekend." RBI-administered markets are shut Monday for Buddha Pournima.

Volume in the gilt market was INR 368.20 billion at 1339 IST, lower than INR 633.40 billion at the same time Thursday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. The yield on the 10-year benchmark 6.79%, 2034 gilt is seen within 6.37-6.45%. (Cassandra Carvalho)

India Gilts: Sharply dn on India-Pak tensions, caution before gilt auction

MUMBAI--1021 IST—The governmnet bond prices were sharply lower Friday due to traders' "risk-off" sentiment as uncertainty on the geopolitical front mounted, dealers said. Traders were also cautious ahead of the INR 320-billion auction of gilts, they said.  

"Overall sentiment is down due to nervousness around India-Pakistan issue, no one knows what could happen next," a dealer at a state-owned bank said. "But I am not changing my rate view so I still see 6.25% levels (on the 10-year gilt yield), but it could just come in a little later...today (Friday) there could be some intraday short-covering and also support from PSUs (state-owned banks) buying."

Prices recovered slightly after opening sharply lower on buys by state-owned banks, dealers said. However, sales from foreign banks and portfolio investors kept prices sharply down. On Thursday, foreign banks sold INR 106.25 billion worth of gilts, data derived from Clearing Corp. of India showed.

At the Reserve Bank of India's open market operations auction Friday, the RBI has offered to buy INR 250 billion of the 6.54%, 2032, the 7.57%, 2033, the 6.19%, 2034, the 6.64%, 2035, and the 7.54%, 2036 gilt at the auction. Some dealers said that banks could tender aggressively at the auction from their held-to-maturity books. Others, especially from state-owned banks said that with gilt prices falling since Thursday, traders would want to tender the bonds at lesser discounts or on a par to Financial Benchmarks India Pvt. Ltd.'s levels as they will look to book some profits in their held-to-maturity books. Traders expect the 6.64%, 2035 bond to be tendered the most at the auction. 

At the weekly gilt auction, demand is seen firm for both 6.92%, 2039 gilt and the 6.90%, 2065 gilt. The 15-year gilt is expected to be picked up by banks as a replacement for bonds sold to the RBI through OMO auctions. Rising border tensions have reduced risk appetite of traders for longer duration bonds, but long-term investors such as insurance and pension funds are expected to pick up the 6.90%, 2065 bond at the auction, dealers said. However, due to uncertainty around geopolitical tensions, primary dealers demanded higher premiums to commission for the bonds in case of devolvement. The RBI set 14 paise at cut-off for the 15-year bond, and 30 paise at cut-off for the 40-year gilt at the underwriting auction. 

Volume in the gilt market was INR 81.40 billion at 0930 IST, higher than INR 65.40 billion at the same time Thursday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. The yield on the 10-year benchmark 6.79%, 2034 gilt is seen within 6.37-6.45%. (Srijita Bose)

India Gilts:Seen dn before INR 320-bln auction, to track cross-border tension

MUMBAI – Government bond prices are likely to open lower Friday, as traders are expected to closely track any developments on tensions between India and Pakistan, dealers said. Traders may also place short bets ahead of the INR 320-billion auction of gilts, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.37-6.45% during the day. On Thursday, the 10-year gilt closed at INR 102.74, or 6.40% yield. 

Reports of overnight military activity between India and Pakistan may weigh on gilts, dealers said. With overnight shelling along the Line of Control and international border between the two countries, a few media reports indicated India captured a Pakistani pilot after a fighter jet was shot down. However, there was no official confirmation from either side. Traders may also look to sell gilts to avoid exposure to geopolitical risks going into the long weekend, they said. Money markets will be shut on Monday on account of Buddha Purnima. 

The RBI has offered to buy the 6.54%, 2032, the 7.57%, 2033, the 6.19%, 2034, the 6.64%, 2035, and the 7.54%, 2036 gilts to the tune of INR 250 billion through OMO auction on Friday. The cut-offs accross papers are seen 15-25 paise lower than prevailing market prices before the auction begins at 0930 IST, dealers said. Banks could tender aggressively at the auction, they said.

The weekly gilt auction at 1030-1130 IST is expected to sail through, despite weaker demand for the 6.90%, 2065 bond as rising border tensions have reduced appetite for long-duration papers. Demand from banks is also expected for the 6.92%, 2039 gilt as replacement for bonds sold to the RBI at OMO auction, dealers said.  (Srijita Bose)

End

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

Edited by Deepshikha Bhardwaj

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.