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Informist, Tuesday, May 13, 2025

By Vidhushi RajPurohit

MUMBAI – Prices of government bonds ended higher on Tuesday as traders bought gilts after the military tensions between India and Pakistan eased over the weekend, dealers said. An 18 basis points on-month fall in the headline inflation print for April bolstered traders' hopes of another repo rate cut in June, which further supported prices. However, during the day gains remained largely capped as traders sold gilts for profit.

The 6.79%, 2034 bond ended at INR 103.22, sharply up from INR 102.89 Friday. The 10-year benchmark yield ended at 6.33%, down by 5 basis points from Friday. The yield on the 10-year benchmark gilt fell to 6.32% during the day as traders flocked to buy gilts after India and Pakistan agreed to a full ceasefire on Saturday, dealers said. Indian money markets were shut Monday on account of Buddha Purnima.

At 3.16%, retail inflation in April was in line with the consensus estimates. According to an Informist poll, headline inflation was seen at 3.2% in April. Most traders had priced in inflation to be 3.2-3.5% and had said only a sharp divergence from these estimates would have led gilt prices to move significantly. Moreover, the implication of the lower print on further rate cuts was largely priced in which also prevented any sharp rise in the gilt prices, dealers said. Traders expect the Reserve Bank of India to cut the repo rate by another 50 basis points to 5.50% in 2025.

"The slight fall in India's consumer price inflation in April, which pushes it further below the Reserve Bank of India's 4% target, supports our view that the central bank will press ahead with more interest rate cuts over the coming months," Joe Maher, assistant economist at Capital Economics, said in a note Tuesday. 

Gilts maturing in five to 15 years remained in favour on expectations of more rate cuts and improved liquidity in the banking system, dealers said. Traders also preferred these papers as they await more clarity on the geopolitical situation, they said.

Consequently, traders expect a 5-6 bps steepening at the shorter end of the yield curve by the end of May. The spread of the 10-year benchmark gilt over the five-year benchmark 6.75%, 2029 gilt has widened to 32 bps from 27 bps on Apr. 30.

Increased supply pressure and investors' caution about buying duration papers led to sharper widening in the spread of the 40-year benchmark 7.34%, 2064 gilt over the 10-year benchmark gilt. The spread between the two widened to 53 bps from 45 bps on Apr. 30. The RBI's open market operation auctions to purchase gilts have been largely concentrated in papers maturing in five to 15 years, which further increased replacement demand of short-tenure papers in the secondary market, dealers said. 

"Going forward, it looks like there will be some pressure in the duration papers as there will be more longer-tenure papers in SGS (state government securities) auctions and already OMO (open market operations) auctions are lined up which will create replacement demand in shorter-end of the curve," a dealer at a primary dealership said. At the next OMO auction on Thursday, the RBI will buy papers maturing in 5-12 years.

Even at the state bond auction Tuesday, the cut-off for the 20-year paper was higher than market's expectation, which further hinted at lower appetite for duration papers, dealers said. For Punjab's 20-year bond, the RBI set the cut-off rate at 6.88%, 6 basis points higher than estimated in an Informist poll.

During the day, the rise in bond prices remained mostly capped as state-owned banks likely sold bonds at a profit. The yield on the 10-year benchmark 6.79%, 2034 gilt fell to a low of 6.32% from 6.38% close of market on Friday. The yield fell as fears of a full-blown war between India and Pakistan subsided. Prime Minister Narendra Modi's speech Monday also allayed fears of an all-out war between the two neighbours, boosting the risk appetite of investors, dealers said.

Gains were also capped on account of the rise in the 10-year US Treasury yield to 4.45% from 4.39% at 1700 IST on Friday. Foreign portfolio investors likely sold gilts due to rise in US yields, dealers said. FPIs Tuesday sold gilts worth INR 13.53 billion through the fully accessible route, data from Clearing Corp of India showed at 1730 IST. The narrowing in interest rate differential on the 10-year benchmark Indian gilt yield over the 10-year US yield makes it less attractive for overseas investors to buy gilts.

OUTLOOK

On Wednesday, investors will look to US Treasury yields and crude oil prices for direction, dealers said. Demand for bonds maturing between five and 15 years is seen robust as banks look to replenish stocks of bonds of similar maturities sold to the RBI in its open market operations auctions.

Traders will also closely track any developments on the border, dealers said. India and Pakistan agreed to end hostilities on Saturday. India's GDP growth estimates for Jan-Mar and 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 6.28-6.36% on Wednesday.

India Gilts: Remain unchanged as India CPI in line with expectations

MUMBAI--1631 IST--Government bond prices were little changed after the release of India's CPI inflation data for April. The inflation number was largely within expectations but a higher core inflation led gilt prices to pare some gains, dealers said.

"We have likely seen a bottoming out in inflation and from here the monsoon will start and there could be a spike in vegetable prices which could pick up the core inflation in the coming quarters," a dealer at a primary dealership said.

India's CPI inflation for April was 3.16%, the lowest in nearly six years, and lower than 3.34% in March. An Informist poll saw India's headline retail inflation rate falling to 3.2% in April. Most traders had priced in inflation to be 3.2-3.5% and had said only a sharp divergence from these estimates would have led gilt prices to move significantly. However, the core inflation remained unchanged from March at 4.1%, dealers said. Traders selling bonds at a profit also capped gains in gilts, they said.

Traders widely expect the Reserve Bank of India's Monetary Policy Committee to slash the repo rate by another 25 basis points in June, after cutting the policy rate by 25 bps each in February and April. At this juncture, a benign inflation print adds to the positive sentiment of the market, dealers said. India's 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.

Volume in the gilt market was INR 570.90 billion at 1630 IST, lower than INR 630.50 billion at the same time Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For rest of the session, the yield on the 10-year benchmark 6.79%, 2034 gilt is seen within 6.30-6.36%. (Srijita Bose)

India Gilts: Remain sharply up; profit booking, rise in US yields cap gains

MUMBAI--1430 IST--Government bond prices remained sharply up with gains capped as traders sold gilts at a profit. A rise in US Treasury yields over the weekend limited some inflows into gilts, dealers said.

Traders now await India's CPI print for April, due at 1600 IST, for further cues, they said. Demand at state bond auction was also firm for short-tenure papers, while investors showed some caution and refrained from aggressively buying longer-duration papers, dealers said. 

Cut-off for states' 10-year bonds was at 6.69-6.71%, against 6.70-6.71% estimated by an Informist poll of seven market participants. For Punjab's 20-year bond, the Reserve Bank of India set the cut-off rate at 6.88%, six basis points higher than the estimated figure from Informist poll. Dealers reasoned that banks do not prefer papers maturing in more than 15 years and for long-term investors, the 20-year bond tenure falls short of their liability requiements.

In the secondary market too, state bonds maturing in 3-14 years were being traded, acccording to Clearing Corp. of India website, as banks likely demanded them in place of bonds sold to the Reserve Bank of India through open market operations auctions. Traders also demanded shorter tenure gilts maturing in five years as they continued to reduce their exposure in longer-tenure bonds and as the yield curve is expected to steepen further on deeper rate cut hopes, dealers said. 

"The interest of most participants is still there for papers with shorter maturity and longer duration papers are not that attractive yet," a dealer at a state-owned bank said. 

During the day, traders expect the gains in the gilts market to remain capped as state-owned banks likely sell bonds at a profit. The yield on the 10-year benchmark, 6.79%, 2034 gilts fell to 6.32% from 6.38% at market close on Friday. The fall in the yields was on account of the subsiding fears of a full-blown war between India and Pakistan. 

Some gains were also capped on account of the rise in the 10-year US Treasury yield to 4.45% at 1420 IST from 4.39% at 1700 IST on Friday. Foreign portfolio investors likely sold gilts due to a rise in the US yields, dealers said. The narrowing in interest rate differential on the 10-year benchmark Indian gilt yield over the safe haven asset makes it less attractive for overseas investors to buy gilts.

Yield on government bonds also fell as traders expect the CPI print for April to have fallen to 3.2%, the lowest in nearly six years, according to an Informist poll of 10 economists. If the data is sharply above or below traders' expectations, the benchmark 10-year gilt yield could move by 2-3 bps upward or downward, respectively, dealers said.

Volume in the gilt market was INR 434.80 billion at 1430 IST, slightly higher than INR 415.80 billion at the same time Friday, 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 at 6.28-6.36%. (Vidhushi RajPurohit)

India Gilts: Remain sharply up; gains limited on sales by state-owned banks

MUMBAI--1216 IST--Prices of government bonds remained sharply up, but some gains were erased on strong profit-booking from state-owned banks, dealers said. Foreign portfolio investors and corporate entities purchased gilts in early trade, buoying gilt prices. 

Strong cut-offs at the state bond auction are expected, with demand from long-term investors such as insurance companies and pension funds likely, dealers said. An Informist poll estimated the cut-off yields on states' 10-year bonds at 6.70-6.71%. Additionally, replacement demand from banks after a slew of open market purchases of gilts by the Reserve Bank of India through auction may likely lead to aggressive bidding on state bonds, dealers said.

At the auction, state bonds' maturities were of 9-25 years. The central bank has bought over INR 4 trillion worth of gilts through OMO auctions since January, with two more auctions scheduled in the remainder of May. Some traders expect the central bank to announce one or two more auctions, while others expect the central bank's dividend to the government to aid systemic liquidity.  

Now that fears of rising tensions between India and Pakistan have ebbed, traders were focussed on expectations that the benchmark 10-year gilt yield would fall to 6.25% before the RBI's Monetary Policy Committee meeting in June, dealers said. Some traders preferred gilts maturing within 7-10 years for higher per-basis point price appreciation. "Yes there is portfolio readjustment (after the ceasefire). If someone is targeting (a profit) of 7-8 basis points, today (Tuesday) is a good chance to buy," a dealer at a state-owned bank said. 

Some, however, preferred short-term gilts as their yields are more sensitive to changes in policy rates. The five-year benchmark 6.75%, 2029 gilt hit the day's high of INR 102.94 from INR 102.64 on Friday, with its yield reversing the nearly-eight-basis-point rise seen in the previous trading session. Money markets were shut Monday for Buddha Purnima.  

Traders await India's CPI inflation print for April, due at 1600 IST. If the data is sharply above or below traders' expectations of 3.2%, the benchmark 10-year gilt yield could move by 2-3 bps upward or downward, respectively, dealers said.

Volume in the gilt market was INR 305.75 billion at 1130 IST, higher than INR 215.45 billion at the same time Friday, 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 6.28-6.36%. (Cassandra Carvalho)

India Gilts: Up sharply after India, Pakistan agree to ceasefire

MUMBAI--0930 IST--Government bond prices rose sharply Tuesday after India and Pakistan agreed to a full ceasefire on Saturday, dealers said. Prime Minister Narendra Modi's speech Monday also allayed fears of an all-out war between the two neighbours, boosting investors' risk appetite, they said.

"Sentiments are positive and we should be seeing some flows as well because of ease in India-Pakistan. Certainly, foreign banks are on the buying side right now," a dealer at a primary dealership said. "Some profit-booking will also be there, but with rate cut views and expectation of a soft inflation number, market will remain in an upside zone." Traders await India's April CPI inflation print for April at 1600 IST, which is expected to have fallen to 3.2%, the lowest in nearly six years, according to an Informist poll. 

Foreign and private banks bought bonds after selling on Friday, dealers said. Money markets were shut on Monday for Buddha Purnima. Traders also covered short bets placed earlier as fears of worsening geopolitical tensions between India and Pakistan faded, they said. However, state-owned banks are likely to have sold bonds at a profit as the yield on the 10-year benchmark gilt neared 6.32%, which capped the gains in gilts, they said.

Meanwhile, dealers also expect foreign portfolio investors to also pick up gilts, dealers said. Easing geopolitical tensions between India and Pakistan and optimism around trade after the US-China trade deal are expected to lure in FPIs to gilts, they said. A sharp rise in the rupee against the dollar also aided gilt prices, they said. However, a rise in the 10-year US Treasury yield to 4.46% from 4.39% at 1700 IST on Friday could deter some inflows, they said. 

Volume in the gilt market was INR 124.30 billion at 0930 IST, higher than INR 81.40 billion at the same time Friday, 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 6.28-6.36%.  (Srijita Bose)

India Gilts: Seen higher as tensions between India, Pakistan ease

MUMBAI – Government bond prices are seen opening higher after Prime Minister Narendra Modi's speech Monday allayed traders' fears of an all-out war between India and Pakistan, dealers said. Traders will look to unwind shorts bets placed before the weekend as fears of worsening geopolitical tensions between the two nuclear-armed neighbours faded, they said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.30-6.39% during the day. On Friday, the 10-year gilt closed at INR 102.89, or 6.38% yield. Money market were shut on Monday for Buddha Purnima.

In his address Monday, Modi said India had just paused attacks on terrorist camps and military sites in Pakistan. He said that over the next few days, India would evaluate Pakistan's resolve to the "understanding" both sides had arrived at on Saturday. He asserted that terror and dialogue, terror and trade couldn't go hand in hand, and hailed the armed forces for successfully striking terrorist camps at nine locations in Pakistan and Pakistan-occupied Jammu & Kashmir. On Saturday, both the countries agreed to a full and immediate ceasefire, with US President Donald Trump saying the US had mediated the discussions between the two parties. 

Traders will look out for India's April CPI inflation data, scheduled to be released at 1600 IST. India's headline retail inflation rate is expected to fall for the sixth month in a row in April, with an Informist poll of 10 economists suggesting consumer prices would have risen 3.2% last month. At 3.2%, the projected CPI inflation rate for April is the lowest since July 2019. Though traders have already priced a benign inflation print, any sharp divergence from expectations could lead to volatility in prices in the last hour of trade. 

Meanwhile, some dealers expect that foreign portfolio investors may also pick up Indian gilts after the US-China trade deal led to de-escalation in trade tensions between thge two countries. Easing of geopolitical tensions between India and Pakistan is also expected to bring in foreign investors, dealers said. However, a rise in the 10-year US Treasury yield to 4.46% at 0833 IST from 4.39% at 1700 IST on Friday could deter some inflows, others said.  (Srijita Bose)

End

US$1 = INR 85.33

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

Edited by Ashish Shirke

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