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Informist, Wednesday, May 14, 2025

By Vidhushi RajPurohit

MUMBAI – Government bond prices ended sharply higher Wednesday as traders stepped up purchases to position for a 25-basis-point repo rate cut in June, dealers said. Expectations of a higher dividend transfer by the Reserve Bank of India to the government for 2024-25 (Apr-Mar) and lower-than-expected cut-off yields at the Treasury bill auction Wednesday also boosted buying momentum.  

The 6.79%, 2034 bond ended at INR 103.53, sharply up from INR 103.22 Tuesday. The yield on the 10-year benchmark ended at 6.2855%, the lowest closing level since Oct. 7, 2021. The yield on the 10-year benchmark gilt fell to 6.2831% during the day, the lowest level since Oct. 8, 2021. The new 10-year, 6.33%, 2035 gilt also saw heavy purchases, which led the yield on the gilt to break the key 6.25% level, as it fell to a low of 6.2370% Wednesday.

Traders expect the yield on the 2035 gilt to fall to 6.20% by May-end on the view that the RBI's Monetary Policy Committee will cut the repo rate by another 50 bps in 2025 to 5.50%. For the current 10-year benchmark gilt, traders expect the yield to fall to 6.25% next week. Hopes of a repo rate cut in June strengthened after the headline CPI inflation for April fell to a 69-month low of 3.16% Tuesday, leading traders to pick up gilts after remaining hesitant last week due to the India-Pakistan conflict. Inflation is now below the RBI's medium-term target of 4% for three months in a row. 

"The war situation is over now, so that created a good trading momentum and people are expecting the RBI to announce dividends also, which made people jump into the buying side," a dealer at a private bank said. "No one wants to be left behind when everyone is looking at more rate cuts."

Gilt prices also remained up as traders expect the central bank's dividend to the government for FY25 to be around INR 2.5 trillion to INR 3.5 trillion, higher than INR 2.11 trillion transferred last year. A higher transfer of surplus by the RBI to the government could lead to a reduction in the latter's borrowing requirements, dealers said. The government has set a target to borrow INR 14.82 trillion through the sale of dated securities on a gross basis in the current financial year. 

In early trade, prices traded in a thin band as state-owned banks likely sold gilts at a profit. A fall in the rupee against the dollar in early trade also weighed on prices. However, lower-than-expected cut-off yields at the Treasury bill auction led prices to rise sharply. At the auction, the bidding was aggressive across tenures, dealers said. One bidder got the entire stock of the 91-day T-bills at the cut-off rate of 5.84%, three basis points lower than that estimated in an Informist poll. For the 364-day T-bill as well, two bidders got the entire stock. The cut-offs for the 182-day and the 364-day T-bills were also three and four bps lower than the poll estimates, respectively.

Traders bought gilts to replace bonds sold to the central bank under its open market operation auctions, dealers said. Since January, the RBI has bought gilts worth INR 4.40 trillion through OMO auctions. Since most of the gilts sold to the central banks were concentrated in 5-15-year tenures, traders picked up gilts of similar maturities in the secondary market, dealers said.

Traders expect gilts maturing in 7-10 years to remain in favour, on hopes of a bull-steepening of the yield curve, wherein the fall in yields of the shorter-tenure gilts will continue to be greater than those of longer-tenure bonds, dealers said. Traders were also buying state bonds in the secondary market as a replacement for bonds sold at OMO auctions.

Investors such as insurers and pension funds likely picked longer-tenure bonds, dealers said. The yield spread on the 7.34%, 2064 bond over the 10-year gilt was 54 bps Wednesday, making it attractive for investors to buy, they said.

The turnover in the gilts market Wednesday rose sharply to INR 1.20 trillion from INR 705.50 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Wednesday, the same as Tuesday.

OUTLOOK

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

The RBI has offered to buy the 7.10%, 2029, the 7.26%, 2032, the 7.50%, 2034, the 6.67%, 2035, and the 7.41%, 2036 gilts at the auction. Traders expect the 7.26%, 2032 and the 6.67%, 2035 gilts to be tendered the most by banks and the cut-off prices for the bonds are expected to be closer to secondary market levels. Banks are also likely to tender the other bonds at prevailing market prices or marginal discounts, dealers said. 

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

Traders also await the RBI's payment of its surplus transfer to the central government, due this month. Traders estimate the transfer to be INR 2.5 trillion to INR 3.5 trillion, which will boost the durable liquidity in the banking system. 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 6.28-6.34% on Thursday.

India Gilts: Sharply up as T-bill cut-off ylds lower than view, rate cut view

MUMBAI--1414 IST--Prices of government bonds rose sharply as the cut-off yields at the Treasury bills auction were lower than market expectations, dealers said. Hopes of a policy repo rate cut in June strengthened after headline CPI inflation print for April came in at a 69-month low, leading traders to pick up gilts after remaining hesitant last week due to the India-Pakistan conflict. However, some gains were capped as state-owned banks likely sold gilts at a profit, dealers said. 

At the auction for Treasury bills, the bidding was aggressive for all tenures, dealers said. Only one bidder got stock of the 91-day T-bill at the cut-off rate of 5.84%, three basis points lower than estimated in an Informist poll. The cut-offs for the 182-day and the 364-day T-bills were also three and four bps lower than the poll estimates, respectively. For the 364-day T-bill as well, only two bidders got the entire stock. 

"Things are looking clearer now, as the war situation is over and the inflation print also came low so it is a good time to buy gilts and position for a rate cut," a dealer at a primary dealership said. "The WPI (for April) was also benevolent so that is also a positive for the market." Though traders do not usually take cues from WPI as it is not an indicator for the Reserve Bank of India's Monetary Policy Committee while deciding its policy stance, traders said that with the CPI print and the WPI print both within view, investor confidence was boosted. 

Gilt prices also rose as traders expect the central bank's dividend to the government for 2025-26 (Apr-Mar) to be around INR 2.5 trillion to INR 3.5 trillion, higher than last year's figure of INR 2.11 trillion. A higher transfer of surplus by the RBI to the government could lead to a reduction in the latter's borrowing requirements, dealers said. The government has set a target to borrow INR 14.82 trillion through the sale of dated securities on a gross basis in the current financial year.

At 3.16%, retail inflation in April was slightly lower than 3.2% estimated in an Informist poll. After the print, traders are widely expecting another 25-basis-point cut in the repo rate by RBI's rate-setting panel in June, followed by another 25-bps cut later in the year. Hopes of rate cuts and improved liquidity in the banking system are expected to keep short-tenure gilts in favour, with traders expecting a further steepening in the yield curve, dealers said. Traders were also buying gilts before the RBI's INR 250-billion OMO auction Thursday, they said. At the auction, the RBI will buy papers maturing in 5-12 years. 

Volume in the gilt market was INR 779.65 billion at 1430 IST, higher than INR 435.55 billion at the same time Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.79%, 2034 gilt is seen within 6.28-6.34%. (Vidhushi RajPurohit)

India Gilts: Remain in thin band; fall in rupee, rise in US yields weigh 

MUMBAI--1209 IST--Prices of government bonds were in a thin band, as profit-booking by state-owned banks and a fall in the rupee against the dollar capped early gains, dealers said. The rupee reversed early gains and fell sharply to the day's low of 85.5125 against the dollar. Subsequently, bond prices also fell, but recovered losses as the yield on the 10-year gilt neared 6.34%, the upper end of the recent trading range.

While government bond yields have largely "decoupled" from US Treasury yields, some traders were concerned about the rise in the benchmark 10-year US yield this week, fearing it could touch the 4.80% level. The yield on the benchmark 10-year US Treasury note was 4.48% at 1209 IST, against 4.45% at 1700 IST Tuesday. 

State-owned banks continued to book profits as the yield on the benchmark 10-year 6.79%, 2034 gilt neared the 6.31% level. Traders are waiting for the 10-year yield to break 6.32% and sustain a fall to 6.30%.

"We're seeing strong profit-booking from PSU (state-owned) banks. We're not seeing any buys from corporates also. Yesterday (Tuesday), private banks (through which corporate houses usually trade gilts) were on the buying side. Foreign banks are likely sticking to yesterday's (Tuesday's) sales."
 

Traders placed short bets on the benchmark 10-year gilt to purchase the 6.33%, 2035 gilt issued on May 2, dealers said. The latter's yield hit a low of 6.2588% during the day, at which the spread between the two gilts was around 6 basis points.

"There is uncertainty among some traders on whether to take the 6.79%, 2034 as the indicative bond or the new 6.33%, 2035 bond," a dealer at a primary dealership said. "Already, the spread between the two has widened more than 5 bps and volumes on the new bond is also almost one-third the outstanding."

At the auction for Treasury bills, banks are likely to bid aggressively on the six-month and one-year bills, since only one bidder got stock of these papers at last week's auction. The bidder which got stock of both papers last week was a Japanese fund house, a dealer said. 

Volume in the gilt market was INR 298.00 billion at 1130 IST, lower than INR 305.75 billion at the same time Tuesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.79%, 2034 gilt is seen within 6.28-6.34%. (Cassandra Carvalho)

India Gilts: In thin band on profit-booking; traders await fresh cues

MUMBAI--0944 IST--Government bond prices were in a thin band after rising in early trade Wednesday as traders are likely to have sold bonds at a profit, dealers said. Prices rose in early trade after a benign CPI inflation print for April boosted sentiment towards a rate cut by the Reserve Bank of India's Monetary Policy Committee in June, dealers said. However, traders refrained from placing aggressive and large bets as they awaited further clarity on relations between India and Pakistan, even as the two agreed to a full ceasefire, they said.

"Yesterday (Tuesday) our CPI had come lower, and thereafter the US CPI print also was lower, which is giving some positive sentiment to the market," a dealer at a private sector bank said. "Some caution around geopolitics (between India and Pakistan) is still there, but the market should shake it off closer to the policy as rate cut expectations are still firm." 

Traders widely expect a 25-basis-point cut in the repo rate by RBI's rate-setting panel in June, followed by another 25-bps cut later in the year. With the repo rate seen at least at 5.50% by the end of the year, traders found shorter tenure gilts maturing within five years attractive as the yield curve is expected to steepen further, dealers said. Traders also churn portfolios between five- and 15-year bonds as they wish to stay invested in gilts amid some persisting uncertainty on the geopolitical front, they said.

Volume in the gilt market was INR 108.40 billion at 0930 IST, slightly lower than INR 124.30 billion at the same time Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 10-year benchmark 6.79%, 2034 gilt is seen within 6.30-6.36%. (Srijita Bose)

India Gilts: Seen steady as traders await fresh cues

MUMBAI – Government bond prices are expected to move in a narrow range as traders await further clarity on relations between India and Pakistan, and closely track any developments on the border. The yield on the 10-year benchmark 6.79%, 2034 gilt is expected to move within 6.30-6.36% during the day. The 10-year gilt closed at INR 103.22, or 6.33% yield on Tuesday. After India's CPI inflation data for April, there are no fresh triggers to trade, which could keep gilts in a narrow range, dealers said.

Traders will look to churn portfolios as they wish to stay invested in gilts while reducing exposure to longer-duration papers, dealers said. Traders still widely expect the Reserve Bank of India's Monetary Policy Committee to cut the repo rate by 25 basis points at its meeting in June, but will wait for more cues to place aggressive bets on further rate cuts during the year. 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. 

Some demand from banks for bonds maturing between five and 15 years is expected as they will look to replenish stocks of bonds of similar maturities sold to the Reserve Bank of India at its open market operations auctions. Meanwhile, longer-tenure bonds could also be picked up by long-term investors such as insurers and pension funds, dealers said. The yield spread on the 40-year benchmark 7.34%, 2064 bond over the 10-year gilt has widened to 53 bps, which dealers said makes it attractive for investors to buy.

Meanwhile, foreign banks and portfolio investors may stay on the sidelines as the global economic outlook remains uncertain due to US tariffs, dealers said. FPIs sold gilts worth INR 12.89 billion on Tuesday, while foreign banks sold INR 40 billion, according to data from Clearing Corp. of India.  (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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