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Informist, Friday, May 16, 2025

By Vidhushi RajPurohit

MUMBAI – Prices of government bonds closed slightly higher, buoyed by hopes of more rate cuts and expectation of a bumper surplus transfer by the Reserve Bank of India to the central government, dealers said. Firm demand at the weekly gilt auction for INR 250 billion also kept prices up. The yield on the current 10-year benchmark, 6.79%, 2034 gilt fell to 6.2515%, the lowest since Oct. 4, 2021, when the repo rate was at 4.0%. Gains were capped as traders sold gilts at a profit, dealers said. 

"Market was up today as there were no negative triggers and everyone is positioning for more rate cuts," a dealer at a state-owned bank said. "The auction results were also positive especially for short-tenure bonds."

The 6.79%, 2034 gilt settled at INR 103.65, higher than INR 103.61 Thursday. The yield on the 2034 gilt closed at 6.27%, same as on Thursday. The 6.33%, 2035 gilt ended at INR 100.78, up from INR 100.73 the previous session. The yield closed at 6.22%, down from 6.23% Thursday. Traders are increasingly betting on more than two rate cuts in the remainder of 2025, after the benign CPI inflation reading of 3.16% for April.

The yield on the 2034 gilt is expected to fall to 6.15% if the RBI's Monetary Policy Committee cuts the repo rate by 25 basis point in June and signals more cuts for the year. The 2035 gilt yield will likely fall to 6.10%, dealers said. 

The government sold INR 110 billion worth of the 6.79%, 2031 bond and INR 140 billion worth of the 7.09%, 2074 bond at the gilt auction Friday. Cut-off prices at the gilt auction were slightly better than the median of estimates in an Informist poll. For the 2031 bond, the RBI set the cut-off price at INR 103.86, three paise higher than the poll estimate. The bond was likely picked by traders and banks' asset and liability managers.

Demand in the primary market was also higher because of banks' demand to replace gilts sold to the central bank at its open market operation auctions, dealers said. Since January, the RBI has bought INR 4.65 trillion worth of gilts through OMO auctions, and it is scheduled to conduct another INR-250-billion auction on Monday. The auction is the last tranche of the INR-1.25-trillion worth of gilt buys that the central bank announced for May. 

Some traders expect the RBI to announce more auctions in the upcoming months. "Banks do not have any significant need for funds but it is mostly the RBI's commitment of maintaining the 1% of NDTL (net demand and time liabilities), which is why all these auctions are there," a dealer at another state-owned bank said. "Therefore, it looks like it (RBI) will announce more OMOs till the liquidity is around INR 3 trillion." 

Currently, the net demand and time liabilities of the banking system is around INR 228.61 trillion, so the liquidity infusion will need be around INR 2.29 trillion to keep it at 1%. On Thursday, the RBI had net absorbed--a proxy for liquidity surplus--INR 2.23 trillion from the banking system.  

After the gilt auction result, some traders sold gilts in the secondary market to book profit and to reduce their exposure to risk ahead of the weekend, dealers said. Private banks and primary dealerships were likely on the selling side, they said. Meanwhile, state-owned banks were picking up gilts maturing in five to seven years. 

Short-tenure gilts remained in favour as traders expect further steepening of the yield curve, dealers said. The yield spread of the 10-year benchmark 6.79%, 2034 gilt over the five-year benchmark 6.75%, 2029 bond has steepened to over 31 bps from 13 bps at the end of March. The 6.75%, 2029 bond fell to a low of 5.93% during the day and traders expect it to fall to around 5.80-5.85% by June, dealers said. 

Prices of longer-tenure bonds also rose after fears of a full blown war between India and Pakistan ebbed this week, dealers said. The spread on the 40-year benchmark 7.34%, 2064 gilt over the 10-year benchmark 6.79%, 2034 gilt has widened to 54 bps from 45 bps a month ago. At the auction, too, demand for the 7.09%, 2074 bond was bid firmly by insurers and pension funds, dealers said. Some demand for the bond from foreign banks was also seen, they said. 

The turnover in the gilts market on Friday was at INR 765.90 billion, down from INR 899.00 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades in the 6.33%, 2035 bond worth INR 100 million using the wholesale digital rupee pilot on Friday.

OUTLOOK

Gilts are not traded Saturday. On Monday, gilt prices may take cues from the movement of US Treasury yields over the weekend. Later in the day, gilt prices may take cues from the result of the INR-280-billion switch auction and the INR 250-billion open market operation auction. The government will switch eight gilts with eight bonds via the switch auction.
 
At the OMO auction, the RBI has offered to buy the 7.10%, 2029, the 7.95%, 2032, the 7.18%, 2033, the 7.73%, 2034, and the 7.54%, 2036 gilts. As seen in recent OMO auctions, traders will likely tender these bonds closer to the prevailing market levels, dealers said. 

In the secondary market, 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, which they estimate to be around INR 3 trillion. 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 6.24-6.30% on Monday.

India Gilts: Remain up after auction cut-offs meet view; long-term bonds rise

MUMBAI--1538 IST--Government bond prices remained higher after cut-off prices at the gilt auction were largely in line with expectations, with firm demand for the 6.79%, 2031 gilt, which added to the market's buying sentiment and kept prices up, dealers said. Gains in prices were capped as traders sold bonds at a profit. Meanwhile, longer-tenure bonds also picked up after more than a week of lacklustre demand in the segment after the nervousness around India-Pakistan tensions waned, dealers said.

Private sector banks and state-owned banks sold bonds at a profit as the yield on the 10-year bond fell to levels last seen in October 2021, which earlier led gilts to give up most gains, dealers said. Some traders also refrained from placing aggressive bets ahead of the weekend. However, with no major data or events lined up for the weekend, the buying momentum remained firm, which led to a recovery in prices, dealers said. 

At the auction, traders bid aggressively for the 2031 bond hoping to buy it at attractive levels before yields fell more due to hopes of further rate cuts, dealers said. Banks' asset-liability managers and mutual funds also bid for the bond, they said.

"The cut-off for 2031 paper was much finer as there is more demand in papers maturing within 10 years as everyone is looking at rate cuts," a dealer at a state-owned bank said. "As the war is over now, even for long-tenure bonds, the demand has picked up."

Prices of longer-tenure bonds rose as traders were buying bonds after remaining on the sidelines for the past week when India-Pakistan tensions were rife, dealers said. The spread on the 40-year benchmark 7.34%, 2064 gilt over the 10-year benchmark 6.79%, 2034 gilt has widened to more than 55 basis points from 49 bps a month ago. At the auction too, demand for the 7.09%, 2074 bond was bid firmly by insurers and pension funds, dealers said. Some demand for the bond from foreign banks was also seen, they said. 

A case of up to 50 bps rate cut by the Reserve Bank of India's Monetary Policy Committee in June is building, which has led to increased demand for shorter-tenure bonds. Dealers also said foreign portfolio investors also picked up these bonds Friday, with a fall in US Treasury yields also supporting the buying sentiment. However, some FPIs also sold shorter-tenure bonds to invest in other segments of the market, in order to capture attractive yields on their rate-cut views, dealers said. As of 1500 IST, FPIs had bought INR 2.54 billion worth of bonds through the fully accessible route, data from Clearing Corp. of India showed. 

Volume in the gilt market was INR 617.70 billion at 1530 IST, slightly lower than INR 651.60 billion at the same time Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the day, the yield on the 10-year benchmark 6.79%, 2034 gilt is seen within 6.23-6.30%. (Srijita Bose)

India Gilts: Remain up; demand for 2031 gilt at auction seen firm

MUMBAI--1210 IST--Prices of government bonds remained up on bets of further rate cuts by the Reserve Bank of India's Monetary Policy Committee, dealers said. The rise in prices was also due to expectations of the central bank transferring a surplus of around INR 3 trillion to the central government for 2024-25(Apr-Mar), along with an overnight fall in US Treasury yields. 

Traders await the result of the weekly auction of INR 250 billion of gilts Friday. The government will sell INR 110 billion of the 6.79%, 2031 bond and INR 140 billion of the 7.09%, 2074 bond. The cut-off price on the 2031 bond is seen at INR 103.83, as per the median of an Informist poll. Traders and banks' asset and liability managers are both seen picking up the bond. Bonds are pricing in at least 50 basis points more of cuts in the repo rate this year, with expectations of another 25-bps cut gaining traction. Based on this view, traders have increased their preference for short-term gilts. 

As for the long-term 2074 gilt, the cut-off yield is expected to be 2-3 bps higher than secondary market levels. "We're seeing a shift towards short-term, so long-term is not preferrable right now," a dealer at a state-owned bank said. "Of late, at state bond auctions, cut-offs on the longer-end have not been aggressive."  

In the secondary market, state-owned banks were churning portfolios, booking profits while remaining invested in gilts, dealers said. Primary dealerships and some private banks were also selling bonds at a profit. Demand for Separate Trading of Registered Interest and Principal of Securities was seen in papers maturing in 2045-2047, a dealer said. Some traders were hesitant to conduct aggressive trades at current market prices. The yield on the 10-year benchmark 6.79%, 2034 bond hit a low of 6.2515% earlier in the day, levels last seen on Oct. 4, 2021.  

Volume in the gilt market was INR 227.95 billion at 1230 IST, higher than INR 208.20 billion at the same time Thursday, 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 6.23-6.30%. (Cassandra Carvalho)

India Gilts: Up on fall in US yields, profit-booking caps gains

MUMBAI--0938 IST--Government bond prices were up Friday, tracking an overnight fall in US Treasury yields, dealers said. The rise in prices was limited as traders sold bonds for profit after the yield on the 10-year benchmark gilt fell to an intraday low of 6.25%, the lowest since Oct. 4, 2021, when the repo rate was at 4.0%. Traders also await the result of the auction of INR 250 billion worth of gilts at the weekly auction, they said. 

"There is no negative in the market right now, US T (US Treasury yields) are down and rate cut hopes are building there (in the US) also, so sentiment is good...I am hoping for some FPI (foreign portfolio investor) flows also," a dealer at a private sector bank said. "And today (Friday), the auction papers won't have much downside impact in the secondary market too, so good buying should come."

The yield on the 10-year benchmark US Treasury note fell to 4.43% from 4.51% at 1700 IST Thursday. Traders have increased their expectation of a rate cut by the US Federal Open Market Committee by September after a slew of economic data. According to the CME FedWatch tool, 51.3% of Fed fund futures now expect a 25-basis-point rate cut by the US central bank at its September meeting, against 49% a day ago.

Back home too, traders built expectations of further rate cuts by the Reserve Bank of India's Monetary Policy Committee. Traders widely expect another 50 bps of rate cut by the panel during the year, with a 25 bps cut at its next meeting in June. Expectations of further steepening of the yield curve led traders to continue to buy shorter-tenure gilts, dealers said. The yield on the 10-year benchmark 6.79%, 2034 gilt over the five-year benchmark 6.75%, 2029 bond has steepened to over 32 bps from 13 bps at the end of March. Demand for bonds maturing between five and 15 years is seen robust also because banks are looking to replenish their stocks of bonds of similar maturities that they sold to the RBI at its open market operations auctions.

The weekly gilt auction is expected to sail though due to firm demand and lower supply of bonds than previous auctions in the current financial year, dealers said. The 6.79%, 2031 bond is expected to be bid for aggressively by banks for their asset-liability management books, dealers said. Traders are also likely to bid for the bond as they expect the yield curve to steepen on hope of further rate cuts, they said. Some dealers also expect FPIs to pick up the paper at the auction, dealers said.

Insurers and pension funds are likely to pick up the 7.09%, 2074 gilt at attractive yields on expectations of further rate cuts, dealers said. This is despite dwindling demand for longer-tenure bonds in the secondary market, as traders choose shorter-tenure bonds due to persisting caution amid tensions between India and Pakistan, they said.

Volume in the gilt market was INR 81.60 billion at 0930 IST, higher than INR 36.40 billion at the same time Thursday, 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 6.23-6.30%.  (Srijita Bose)

India Gilts: Seen up as US ylds fall; INR 250-bln bond auction to lend cues

MUMBAI – Government bond prices may open higher due to an overnight fall in US Treasury yields following a flurry of economic data, dealers said. However, gains may be capped as traders will await results of the weekly gilts auction at which the government will supply INR 250 billion worth of gilts. 

The yield on the 10-year benchmark 6.79%, 2034 gilt is seen at 6.25-6.34% on Friday. The 10-year gilt ended at INR 103.61, or 6.27% yield on Thursday. The yield for the on-the-run 6.33%, 2035 gilt is seen at 6.20-6.27% on Friday. The 10-year gilt ended at INR 100.73, or 6.23% yield on Thursday.

The US producer price index 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. The yield on the 10-year benchmark US Treasury note fell to 4.43% at 0801 IST from 4.51% at 1700 IST on Thursday. Markets are now pricing in that the US Federal Open Market Committee will cut rates by September. According to the CME FedWatch tool, 51.3% of Fed fund futures now expect a 25-basis-point rate cut by the US central bank at its policy review in September, against 49% a day ago, while nearly 23% expect a 50-bps cut by the Fed.

At the gilt auction, 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. The 2031 bond is expected to be bid for aggressively by banks for their asset-liability management purposes, with some expecting foreign portfolio investors to also pick up the paper, dealers said. Traders are also likely to bid for the bond as they expect the yield curve to steepen on hope of further rate cuts, they 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 Reserve Bank of India at its open market operations auctions.

Meanwhile, longer-tenure investors such as insurers and pension funds are likely to pick up the 2074 bond at attractive yield levels on expectations of further rate cuts, dealers said. The yield spread on the bond over the 10-year benchmark gilt has widened to 56 bps from 45 bps on Apr. 29.  (Srijita Bose)

End

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

Edited by Deepshikha Bhardwaj

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