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Informist, Thursday, May 15, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended higher on Thursday as traders expect the Reserve Bank of India to transfer a surplus of around INR 3 trillion to the central government for 2024-25 (Apr-Mar), dealers said. Some traders also bought gilts with the view that the RBI's Monetary Policy Committee could cut the repo rate by 50 basis points in June, against initial expectations of a 25 bps cut, they said. 

Bonds have priced in a surplus transfer of INR 3 trillion to the central government. The transfer would add to durable liquidity in the banking system and could lead to a possible reduction in the government's borrowing in FY26. Some traders expect a number higher than INR 3 trillion. If so, bond yields could fall by 4-5 bps. A number lower than INR 2.75 trillion would lead to a rise of at least 5 bps in gilt yields, dealers said.

"Everyone is buying now, because we're expecting some phenomenal number for the RBI dividend," a dealer at a state-owned bank said. "And there is a view that now the June cut will be 50 bps (up from expectations of a 25 bps earlier)."

Gilt traders had firmed expectations of at least two cuts of 25 bps each in the repo rate in the remainder of 2025, dealers said. After a benign CPI inflation reading of 3.16% for April, the possibility of a third 25-bps-cut in October or December, or a 50 bps cut in June has increased, they said. Traders expect the yield on the newly-issued 6.33%, 2035 gilt to hit 6.15% before the MPC's meeting in June. 

The 6.79%, 2034 bond ended at INR 103.61, up from INR 103.53 Wednesday. The yield on the 10-year benchmark ended at 6.2742%, down from 6.2855% Wednesday. The 6.33%, 2035 gilt ended at INR 100.73, or 6.2302% yield.

Bond prices opened sharply lower due to speculation that an RBI board meeting was going to be held Thursday. After a sharp rise in bond prices Wednesday, traders were cautious in case the surplus transfer is announced post market hours, and trimmed excess stock of gilts. The RBI's central board meeting was held Thursday, it said in a press release. However, the agenda of the meeting was a review of the Economic Capital Framework, not the surplus transfer.

Gilt prices reversed losses on purchases by private sector banks and primary dealerships after Informist reported that the central bank's board is likely to meet on May 23 to discuss and approve the transfer of surplus to the central government, dealers said.

Bond prices were also lower in early trade due to an overnight rise in US Treasury yields, dealers said. The yield on the benchmark 10-year US Treasury note rose to 4.51% at 1700 IST, from 4.46% at the same time Wednesday. This week, the 10-year US yield rose above the psychologically crucial 4.50% level, for the first time in more than a month.

US yields rose as investors' risk appetite for other asset classes increased after a series of trade deals between the US and its trade partners. Fears of a ballooning fiscal debt in the world's largest economy, due to US President Donald Trump's push for tax cuts while easing tariffs on trade partners, also pushed up US Treasury yields, dealers said. 

Gilt prices have not tracked US yields for the past few weeks due to a slew of domestic factors. However, bond yields opened lower due to lack of fresh triggers Thursday, along with a narrowing yield spread between gilt yields and US yields. The yield spread between the two countries' 10-year benchmark notes narrowed to 176 bps, which some traders called a "historic low". The spread was 231 bps in late February.

Gilt traders also tracked the movement of Indian rupee, which fell sharply against the dollar during the day. "People are tracking the rupee, because FPIs track the rupee. So when they (FPIs) decide on their trades as per the movement of the rupee, we also get an idea of FPIs' movements (trades in gilts)," a dealer at a state-owned bank said. The rupee settled at 85.5500 Thursday, sharply lower than 85.2700 a dollar at 1530 IST Wednesday.

Traders preferred the short-end of the gilt yield curve on expectations of a "bull-steepening" of the curve, wherein short-term gilt yields fall more than their longer-end counterparts. The yield of the five-year 6.75%, 2029 gilt was down by 3 bps Thursday at 5.9554%. 

Traders expect the 6.33%, 2035 gilt to become the next 10-year benchmark gilt only after the bond's next auction in June. However, traders have begun actively trading the bond, with the expectation that its yield will fall below 6.15% before the next MPC meeting. The 2035 gilt yield closed at 6.23% Thursday.

Bond prices were little changed after the results of the central bank's purchase of gilts under the open market operation auction for INR 250 billion. Cut-off prices were sharply lower than expectations. However, traders said they were still making a profit by selling bonds at a discount of 10-20 paise below those indicated by Financial Benchmarks India Pvt. Ltd. Wednesday, since bond prices have risen sharply in the past week.  

OUTLOOK

On Friday, government bond prices may take cues from the overnight movement of US Treasury yields after a slew of economic data in the US. Producer price index in the US fell 0.5% in April, against The Wall Street Journal's consensus estimate of a 0.3% increase. Retail sales grew 0.1% last month, in line with estimates. Jobless claims in the US for the week ended Saturday were 229,000, slightly higher than expected.

Later in the day, gilt prices may take cues from the results of the gilt auction of INR 250 billion, dealers said. The government will sell INR 110 billion of the 6.79%, 2031 bond and INR 140 billion of the 7.09%, 2074 bond. Both papers are largely preferred by investors and the auction is expected to sail through, especially due to its relatively small notified amount.

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. 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 6.25-6.30% on Friday.

India Gilts: Reverse losses; caution eases as RBI transfer likely next week

MUMBAI--1551 IST--Prices of government bonds recovered losses on purchases by private sector banks after Informist reported that the Reserve Bank of India's board is likely to meet on May 23 to discuss and approve the transfer of surplus to the Centre for the financial year 2024-25 (Apr-Mar), dealers said.

Traders also bought gilts on the view that the newly-issued 6.33%, 2035 gilt yield would hit 6.15% before the Reserve Bank of India's Monetary Policy Committee meeting in June, they said. The gilt was last traded at a yield of 6.23%.

"US (Treasury) yields have tried to play spoilsport, but the market is resilient," a dealer at a private sector bank said. "People want to add positions in a quiet market and traders are setting up for a mini-rally before the MPC."

Traders had trimmed positions in early trade due to speculation that the RBI's board meeting for surplus transfer was Thursday. Wednesday, private sector banks bought gilts worth INR 13.53 billion, according to data from Clearing Corp. of India. Traders from these banks and primary dealerships trimmed portfolios earlier in the day on caution ahead of the possible RBI release. Bonds have priced in a transfer of around INR 3 trillion, and the 10-year benchmark, 6.79%, 2034 gilt yield may rise by 3-5 basis points if the amount is sharply lower than expectations. 

"We've priced in a (INR) 3 lakh crore (INR 3 trillion) (surplus transfer) figure already," a dealer at a private sector bank said. "More than the transfer and US yields, it's the levels also. We've rallied too much yesterday (Wednesday), so some of this (the sales) is a retracement of that." 

Gilt prices were down earlier, tracking an overnight rise in US Treasury yields. The 10-year benchmark US Treasury note yield rose to 4.52% from 4.46% at 1700 IST Wednesday. Foreign investors likely continued to trim stock of gilts as the yield spread between US Treasuries and Indian gilts has been narrowing since the start of the week, dealers said. As of 1551 IST, the yield spread between the two countries' 10-year benchmark notes narrowed to 176 basis points, which some traders called a "historic low". The spread was 231 bps in late February. Foreign portfolio investors have sold gilts worth INR 9.49 billion in the secondary market this month, data from Clearing Corp. of India showed as of 1551 IST. 

Bond prices were little changed after the results of the central bank's purchase of gilts under the open market operation auction for INR 250 billion. Cut-off prices were sharply lower than expectations. However, traders said they were still making a profit by selling bonds at a discount of 10-20 paise below those indicated by Financial Benchmarks India Pvt. Ltd. Wednesday, since bond prices have risen sharply in the past week.  

Volume in the gilt market was INR 651.60 billion at 1530 IST, lower than INR 897.75 billion at the same time Wednesday, 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 at 6.25-6.30%. (Cassandra Carvalho)

India Gilts:Off lows on PSU bks' buys; caution before RBI's surplus transfer

MUMBAI--1232 IST--Government bond prices were off lows Thursday as traders bought gilts due to attractive levels based off their rate cut expectations, dealers said. Prices were sharply down earlier on caution ahead of Reserve Bank of India's surplus transfer to the central government. Traders speculated that the RBI board met Thursday to discuss the surplus transfer to the government and the announcement could come after market hours, dealers said. 

Traders estimate the surplus transfer at INR 2.5 trillion to INR 3.5 trillion, which will boost durable liquidity in the banking system. 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 ending March.

"There are rumours in the market that RBI board is meeting today (Thursday), so the outcome should come today itself, maybe after market hours," a dealer at a primary dealership said. "So all those guys who bought so agressively yesterday (Wednesday) should be selling now...also the rally was a bit overdone before RBI dividend and GDP numbers come out, so some balancing out is happening now." India's GDP growth estimates for Jan-Mar and for 2024-25 (Apr-Mar) are due on May 30. 

Private banks and foreign banks likely sold gilts after aggressively buying on Wednesday, which had led to a sharp fall in prices earlier, dealers said. A rise in the 10-year benchmark US Treasury yield to 4.54% from 4.46% at 1700 IST Wednesday also dragged down gilt prices, they said. Meanwhile, state-owned banks were likely picking up gilts, which helped recover some losses, dealers said. Traders are waiting for further triggers to trade.

Traders are awaiting the results of INR 250 billion worth open market operation where the RBI has offered to buy five gilts through an auction. The cut-off prices across bonds at the auction were seen nearly 7-13 paise lower than indicative prices published by Financial Benchmarks India Pvt. Ltd. Wednesday. At the auction, most dealers expect the 6.67%, 2035 bond to be tendered the most which has the highest outstanding among the bonds offered to be bought by the RBI at the auction Thursday. Others also said banks hold a large chunk of the 7.10%, 2029 and the 7.26%, 2032 gilts, which could lead to a higher tendering of these bonds at auction. 

Trader also refrained from placing large bets due to caution. Volume in the gilt market was INR 285.00 billion at 1230 IST, significantly lower than INR 369.75 billion at the same time Wednesday, 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 at 6.27-6.34%. (Srijita Bose)

India Gilts: Down on rise in US ylds, caution before INR-250-bln OMO auction

MUMBAI--0931 IST--Government bond prices were down Thursday due to a rise in US Treasury yields, dealers said. Traders also awaited fresh cues and refrained from buying gilts aggressively before the INR-250-billion gilt buy auction by the Reserve Bank of India through open market operations at 1000-1030 IST, they said.

The yield on the 10-year benchmark US Treasury note rose to 4.53% from 4.46% at 1700 IST Wednesday. Some traders are concerned about the rise in the benchmark 10-year US yield this week, fearing it could rise above the 4.80% level, which led traders to pare off some bets in gilts, dealers said. Traders will also keep an eye on US retail sales data, due after market hours Thursday, dealers said. 

At the OMO auction, dealers expect banks to tender the five bonds that the RBI offered to buy to be closer to market levels. "Since the market has rallied since last auction, banks may want to offload the bonds at good prices, maybe at slight discounts...but cut-offs should be mostly at par to FBIL (Financial Benchmarks India Pvt. Ltd.) prices," a dealer at a primary dealership said. Traders expect the the 6.67%, 2035 gilts to be tendered the most by banks, with cut-off prices for the bonds closer to secondary market levels. 

"In the secondary market, it will take some time to see a sharp fall in yields, of course some institutional investor could come and take the yield to 6.25% (on the 10-year benchmark 6.79%, 2034 bond), but most people will wait for fresh triggers," the dealer said. Since the yield on the 10-year benchmark gilt already touched the lowest level since Oct. 8, 2021 on Wednesday, traders said they will wait for fresh triggers to take aggressive bets. Meanwhile, demand for bonds maturing between 5 and 15 years is expected to rise during the day as banks look to replenish stocks of bonds of similar maturities sold to the RBI at its OMO auctions, dealers said. 

Trader also refrained from paling large bets due to caution. Volume in the gilt market was INR 36.40 billion at 0930 IST, significantly lower than INR 108.40 billion at the same time Wednesday, 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 6.27-6.34%. (Srijita Bose)

India Gilts: Seen steady before INR 250-bln OMO auction

MUMBAI – Government bond prices may open steady ahead of the Reserve Bank of India's INR 250 billion worth of gilt buys at an open market operation auction at 0930-1030 IST, dealers said. Later in the day, gilt prices may take cues from the results of the auction, they said. The yield on the 10-year benchmark 6.79%, 2034 gilt is seen at 6.26-6.34% on Thursday. The 10-year gilt ended at INR 103.53, or 6.29% yield on Wednesday.

Since the yield on the 10-year benchmark gilt already touched the lowest level since Oct. 8, 2021 on Wednesday, a sharp fall from current levels could take some time as traders will wait for fresh triggers to take aggressive bets. RBI's payment of its surplus transfer to the central government, due later this month, could be the next big trigger for bonds, dealers said. Traders estimate the transfer at INR 2.5 trillion to INR 3.5 trillion, which will boost durable liquidity in the banking system. 

At Thursday's OMO auction, 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. Traders expect the 7.26%, 2032 and the 6.67%, 2035 gilts to be tendered the most by banks, with cut-off prices for the bonds closer to secondary market levels. Banks are also likely to tender the other bonds at the prevailing market prices or at marginal discounts, dealers said. However, some banks could tender the bonds at deep discounts to current prices as yields touched fresh lows on Wednesday, they said.

During the day, 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 at its OMO auctions, dealers said. Traders will also pick up shorter-tenure bonds maturing within five years as the yield curve is expected to steepen further on hope of rate cuts, they said. Meanwhile, trade volumes in the on-the-run 10-year 6.33%, 2035 gilt is expected to pick up and the yield could inch towards 6.20% as more traders pick up the bond in place of the 6.79%, 2034 bond. The 6.33%, 2035 bond ended at INR 100.66, or 6.24% on Wednesday. 

A rise in US Treasury yields could cap gains during the day, dealers said. The yield on the 10-year benchmark US Treasury note rose to 4.54% at 0800 IST from 4.46% at 1700 IST Wednesday. This could lead to a selloff by foreign portfolio investors as the yield spread on the Indian gilt yield over the US bond yield has squeezed, making the former less attractive for them. Some traders have also been concerned about the rise in the benchmark 10-year US yield this week, fearing it could touch the 4.80% level. Traders will also keep an eye on US retail sales data, due after market hours Thursday, dealers said.  (Srijita Bose)

End

US$1 = INR 85.55

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

Edited by Ashish Shirke

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