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Informist, Monday, May 19, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended down Monday tracking a rise in US Treasury yields during the day, dealers said. Foreign banks were likely trimming gilts at a profit, while purchases from state-owned banks limited the fall in prices. 

The benchmark 10-year 6.79%, 2034 gilt closed at INR 103.49 or 6.29% yield, from INR 103.65 or 6.27% yield Friday. The yield on the benchmark 10-year US Treasury note rose to 4.56% at 1700 IST Monday, from 4.42% at the same time Friday. The yield spread between the two 10-year benchmark bills narrowed to 173 basis points Monday, from 185 bps Friday. 

A narrowing interest rate differential between the two benchmarks made Indian gilts less appealing to offshore entities, and foreign banks likely sold gilts at a profit during the day, dealers said. Primary dealerships and private banks were also likely sellers. 

"We were expecting bond prices to be higher because of the replacement demand after OMO (RBI's open market operation auction) but that has not happened since UST (US Treasury yields) are rising," a dealer at a state-owned bank said. "The OMO auction (result) was also delayed, so some negative sentiment must have sprung from that, people would've expected bad cut-offs."

Speculation that the Reserve Bank of India held its last purchase of gilts through open market operation auction Monday for the Apr-Jun quarter also weighed on gilt prices. As a result of which, some traders had expected tenders to be aggressive at the auction in a bid to make profit, they said. However, at the OMO auction of INR 250 billion, cut-off prices were largely on a par or above those indicated by Financial Benchmarks India Pvt. Ltd. Friday. 

At the OMO auction, the RBI accepted bids worth INR 192.03 billion, lower than the notified amount. However, cut-off prices were a positive for bond traders, indicating that dealers did not want to sell gilts at lower rates after nearly 5 months of OMO auctions. Traders had expected the lowest cut-off price on the 7.95%, 2032 gilt due to aggressive bidding since it was offered at an OMO auction for the first time this year. However, the central bank set a cut-off price of INR 110.28, sharply up from an Informist poll estimate of INR 110.06. 

Bond traders did not take cues from the result of the switch auction, wherein the government switched eight gilts worth INR 198.53 billion, against a notified amount of INR 280 billion. Cut-off prices were largely similar to those estimated in an Informist poll. 

"The switch was a non-trader sort of auction, it was a non-event," a dealer at a private sector bank said. "The result shows people may not want to part with short-term gilts right now because of expectations of liquidity (boost) and rate cuts."

Bond prices also tracked a rise in swap rates, along with the rise in US yields. US yields rose after Moody's Ratings Friday downgraded the US long-term issuer and senior unsecured ratings to 'Aa1' from 'Aaa'. The downgrade was due to an increase in government debt and interest payment ratios over the last decade, which have now ballooned to levels significantly higher than similarly rated countries, the ratings agency said. This raised concern about the fiscal position of the world's largest economy. Traders fear that the 10-year US yield could rise above the key 4.80% level. 

All eyes are now on the RBI's transfer of surplus to the central government for 2024-25 (Apr-Mar). Traders expect the transfer to be between INR 2.5 trillion and INR 3.5 trillion on the back of the central bank's profits in the foreign exchange market and the current market value of its gold reserves. India's gold reserves hit a record high of $86.34 billion as of May 9, RBI data showed. Some traders expect a record-high transfer of INR 4 trillion. Speculation that the RBI would lower its risk provisions, which could increase the surplus transfer, aided expectations of a record-high transfer. 

A dealer said that higher-than-expected GDP growth estimates for Jan-Mar also led to a fall in bond prices Monday. Traders expect a growth print of around 6.3-6.5%, whereas some economists have forecast a print of 6.8%. The need to cut rates at a greater pace would reduce if the GDP growth print is on the higher-end, which would lead to a fall in bond prices, dealers said. 

The turnover in the gilts market on Monday was at INR 545.90 billion, down from INR 765.90 billion Friday, 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 Monday, same as on Friday.

OUTLOOK

On Tuesday, gilt prices may take cues from the movement in the US Treasury yields after the release of US economic data and comments from US Federal Reserve officials, dealers said. 

At the weekly state bond auction, 11 states will raise INR 148.00 billion through bonds Tuesday. In the secondary market, demand for gilts maturing in up to 5 years is seen robust as traders prefer the shorter-end of the yield curve on expectation of further rate cuts. Preference for bonds maturing between seven and 15 years is also seen strong as banks look to replenish stock of papers with similar maturities sold to the RBI in its open market operations auctions.

Traders await the RBI's payment of its surplus transfer to the central government, which will add durable liquidity to the banking system. Traders also await the outcome of the central bank's meeting with bank executives Wednesday. The meeting will be conducted to discuss changes to the central bank's liquidity management framework, treasury officials told Informist. 

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 6.26-6.32% on Tuesday.

India Gilts: Down on rise in US ylds; OMO auction results on expected lines

MUMBAI--1550 IST--Prices of government bonds were down tracking an intraday fall in US Treasury yields, dealers said. Cut-off prices at the Reserve Bank of India's purchase of gilts through auction under its open market operations were largely along expected lines, slightly above those indicated by Financial Benchmarks India Pvt. Ltd. Friday. Some traders speculated that Monday's auction could be the last OMO purchase auction by the RBI in the Apr-Jun quarter, which also led some traders to trim stock of gilts, they said. 

The yield on the benchmark 10-year US Treasury note rose to 4.55%, from 4.51% at 0900 IST and 4.42% at 1700 IST on Friday. Swap rates and gilt yields moved higher during the day, tracking the rise in US yields. 

"UST has broken all technical levels and probably the last OMO is done so there is some profit-taking now," a dealer at a private sector bank said. Some traders expected the yield on the benchmark 10-year 6.79%, 2034 gilt to rise above 6.30% briefly during the day tracking the rise in US yields. 

Losses in gilt prices were limited due to purchases from state-owned banks, since current yield levels were seen lucrative on bets of at least two more rate cuts of 25 basis points each in the rest of 2025, dealers said. Traders also sold the 6.79%, 2034 gilt to purchase the 6.33%, 2035 gilt, which will be considered the next 10-year benchmark in a month's time. 

Prices of long-term gilts were sharply down due to less demand from investors, and traders' preference for short-term gilts in an ongoing rate cut cycle, dealers said. Additionally, the yield on the 30-year US Treasury note rose above the psychologically crucial 5.00% level, which reflected in prices of Indian long-term bonds as well, they said. 

Foriegn portfolio investors, who were largely on the sidelines Monday, were purchasing short-term gilts in light volumes, dealers said. Traders await the RBI's transfer of surplus to the central government for 2024-25 (Apr-Mar), likely due on Friday. Some traders expect the transfer to be a record high of INR 4 trillion. Traders' expectations of a record high transfer hinged on the central bank's profits in the foreign exchange market and current market value of its gold reserves, they said.  
 

Volume in the gilt market was INR 358.75 billion at 1530 IST, lower than INR 617.70 billion at the same time Friday, 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 6.25-6.30%.  (Cassandra Carvalho)

India Gilts: In thin band; caution ahead of OMO, switch auction results

MUMBAI--1353 IST--Government bond prices moved in a thin band as traders awaited further cues to trade because the yield on the 10-year benchmark 6.79%, 2034 bond had failed to break the psychologically crucial 6.25% level. Results of the gilt switch and Reserve Bank of India's open market operation auction are seen lending cues to gilt prices later in the day, dealers said. 

"Most of the people are waiting for RBI dividend and since yield (on the 10-year benchmark 6.79%, 2034 gilt) is already at 6.25-6.26% zone, people will not want to go very aggressive here," a dealer at a primary dealership said. "Today (Monday), some movement can be seen in the latter half after auction results are out, but USTs (US Treasury yields) is up so some pressure could be there."

The yield on the 10-year benchmark US Treasury note rose to 4.53% from 4.42% at 1700 IST on Friday after Moody's Ratings Friday downgraded the US long-term issuer and senior unsecured ratings to 'Aa1' from 'Aaa' due to ballooning US debt. Prices did not fall even as US yields rose, since traders expect a bumper surplus transfer by the RBI to the central government, which will eventually translate to greater liquidity in the banking system, dealers said. Most traders expect a record INR-3-trillion surplus transfer to the government. Expectations of a rate cut also remain firm but traders awaited further cues and refrained from placing large and aggressive bets as a June repo rate cut of 25 basis points was already priced in, they said.

At the OMO auction, traders expected the 7.18%, 2033 and the 7.54%, 2036 gilts to be tendered the most as banks hold a large chunk of these bonds since they were previous benchmark gilts, dealers said. Banks are likely to tender the two bonds 10-15 paise below Friday's indicative market prices according to Financial Benchmarks India Pvt. Ltd. The 7.10%, 2029 gilt is expected to be tendered at a lesser discount to market prices, dealers said. On other hand, banks may be more aggressive in tendering the 7.95%, 2032 bond at the auction as it is the first time the RBI has offered to buy the bond at an OMO auction in 2025.

The switch auction is also expected to be a success as banks are looking to book profit in short-term gilts and pick up bonds maturing in 2032-36, to replace bonds sold to the RBI through OMO auctions, dealers said. The 5.63%, 2026 gilt's switch with the 8.32%, 2032 bond was the favourite among banks, though the switch is only worth INR 20 billion. 

In a meeting last week, some members of the Fixed Income Money Market and Derivatives Association of India suggested that the association should not seek further bond purchases under open market operations due to comfortable liquidity. However, some traders continued to expect the RBI to announce more such auctions in the upcoming months. In April, RBI Governor Sanjay Malhotra had committed to maintain surplus liquidity in the banking system and said the surplus may be around 1% of banks' net demand and time liabilities. As of May 2, the net demand and time liabilities of the banking system was INR 230.33 trillion. The durable liquidity surplus is expected by economists to be near INR 6.00 trillion by the end of the month, after the RBI's surplus transfer.

Volume in the gilt market was INR 207.35 billion at 1330 IST, lower than INR 389.45 billion at the same time Friday, 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 6.24-6.30%.  (Srijita Bose)

India Gilts: Steady as traders await OMO, switch auction results for cues

MUMBAI – Prices of government bonds were steady due to cautions before the result of the INR 250-billion open market operation auction and the INR 280-billion swtich auction, dealers said. Rise in US Treasury yields over the weekend weighed slightly on gilt prices at open, dealers said.

For the first half of the day, traders will concentrate on the two auctions, dealers said. At the OMO auction, the Reserve Bank of India 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. Dealers expect banks to tender the five bonds closer to market levels. 

The 7.95%, 2032 paper is expected to be tendered the most by banks as it is the first time this year that the RBI has offered to buy this bond at OMO auction, dealers said. The bond has an outstanding amount of INR 1.49 trillion. At the auction, dealers are of the view that the longer tenure bonds--2034-2036--will also receive higher tendering from banks as these bonds will be sold from the held-to-maturity books. 

The demand at the switch auction, scheduled for 1030-1130 IST, is seen firm as dealers will look to replace the bonds sold to RBI at the OMO auctions with longer term bonds for their held-to-maturity books. The government will switch eight short-term gilts with eight long-term bonds.

Traders are also expected to continue positioning for further rates for this year, dealers said. At the current yield level of 6.27% on the 10-year benchmark 6.79%, 2034 bond, traders have priced in a 25 bps cut for June. 

"There are some people who are looking at 50 bps cut in June, so that kind of bullish sentiment will fuel up the market," a dealer at a private bank said. "If the auction results are positive then the market can rise despite the higher US yields."

The 10-year US Treasury benchmark note rose to 4.51% at 0900 IST, higher by nine basis points from Indian market close Friday. The rise in US yields was on account of Moody's downgrade of the US sovereign credit rating to 'Aa1' from 'Aaa'. The rating agency reasoned that it expected the US budget deficit to keep rising that raised concerns about the fiscal position of the world's largest economy. 

Trader also refrained from placing large bets due to caution ahead of the two auctions. Volume in the gilt market was INR 43.55 billion at 0930 IST, lower than INR 81.60 billion at the same time Friday, 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 6.24-6.30%. (Vidhushi RajPurohit)

India Gilts:Seen tad dn on rise in US ylds; OMO, switch auction results eyed

MUMBAI - Prices of government bonds will likely open slightly lower Monday, tracking a rise in US Treasury yields over the weekend, dealers said. The fall in prices is expected to be limited as traders focus on the INR 250-billion open market operation auction and the INR 280-billion switch auction, they said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.24-6.30%. On Friday, the 10-year gilt ended at INR 103.65, or 6.27% yield. Gilt prices will likely take cues from the result of the two auctions later in the day.

At the OMO auction, the Reserve Bank of India 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. The auction is scheduled at 0930-1030 IST. This will be the last tranche of the four auctions worth INR 1.25 trillion that the central bank announced for May. 

Of the five bonds, the 7.95%, 2032 paper is expected to be tendered the most by banks as it is the first time this year that the RBI has offered to buy this bond at OMO auction, dealers said. The bond has an outstanding amount of INR 1.49 trillion. The 7.18%, 2033 gilt is also expected to be tendered aggressively on account of its large outstanding figure of INR 2.01 trillion. Traders will likely tender these bonds closer to the prevailing market levels as, since January, they have already sold INR 4.65 trillion worth of gilts via OMO auctions. 

The demand at the switch auction, scheduled for 1030-1130 IST, is seen firm as dealers will look to replace the bonds sold to RBI at the OMO auctions with longer-term bonds for their held-to-maturity books. The government will switch eight short-term gilts with eight longer-term bonds. Dealers are of the view that banks' asset and liability managers will likely be the major participants at the auction.

On the global front, the yield on the 10-year benchmark US Treasury note rose to 4.49% at 0815 IST from 4.40% at close of Indian market hours on Friday. Moody's Ratings Friday downgraded the US long-term issuer and senior unsecured ratings to 'Aa1' from 'Aaa' and said it expected the US budget deficit to keep rising that raised concerns about the fiscal position of the world's largest economy. The agency joined Fitch Ratings and S&P Global in rating the US economy one notch below the top rating. Moreover, data released Friday showed that the University of Michigan's consumer sentiment index fell to 50.8 in May from 52.2 in April, driven partly by a surge in inflation expectations. (Vidhushi RajPurohit)

End

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

Edited by Akul Nishant Akhoury

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