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Informist, Wednesday, May 21, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended sharply higher on expectations that the Reserve Bank of India would boost liquidity in the banking system by revising the existing liquidity framework, dealers said. Traders await the outcome of the meeting the RBI held on Wednesday with some banks to discuss changes to the liquidity management framework.

Prices were also buoyed by expectations of cut-off yields on Treasury bills at the weekly auction Wednesday being lower than initially estimated. The RBI set a cut-off yield of 5.71% on the 91-day T-bill, lower than an Informist poll estimate of 5.74%. State-owned banks and primary dealerships were likely the most aggressive bidders at the auction, dealers said. 

"The T-bill cut-off just reflects liquidity (expectations)," a dealer at a private sector bank said. "It's all about liquidity right now."

Expectations of further rate cuts also remained firm, and preference for short-term gilts continued, dealers said. Corporate entities and state-owned banks also picked up state bonds maturing in five to seven years, dealers said. 

The benchmark 10-year 6.79%, 2034 gilt closed at INR 103.82, or 6.24% yield, from INR 103.67, or 6.27% yield, Tuesday. The benchmark yield has fallen 20 basis points since the RBI's Monetary Policy committee cut rates and softened its stance in April. The 6.33%, 2035 bond closed at INR 100.91, or 6.21% yield, from INR 100.78, or 6.22%, on Tuesday. 

Foreign portfolio investors also purchased short-term gilts, such as those maturing in three to five years, dealers said. However, as of 1800 IST, Clearing Corp. of India data showed that foreign portfolio investors sold gilts worth INR 13.14 billion through the fully accessible route Wednesday. Bets of at least 50 basis points of more cuts in the repo rate in the remainder of 2025 continued to drive demand for short-term gilts across market segments, dealers said. 

The yield curve has steepened further, with the yield spread of the 7.34%, 2064 gilt over the 6.75%, 2029 bond widening to over 95 bps Wednesday, from 63 bps on Apr. 9, when the MPC changed its stance to 'accommodative', and from 32 bps on Dec. 31.

State-owned banks have aggressively purchased short-term gilts for their 'held-to-maturity' books, after sales of nearly INR 5 trillion largely from these books to the central bank at OMO auctions since January. 

"Already duration papers don't look good because of the bull-steepening (of the gilt yield curve)," a dealer at a state-owned bank said. "We can also churn our HTM portfolios quicker because if these bonds mature then we can add new bonds irrespective of the 5% limit on trade from HTM books." 

Additionally, low-credit disbursements in Jan-Mar led to banks diverting funds to gilt purchases, dealers said.

Bond prices opened lower, tracking an overnight rise in US Treasury yields. The yield on the benchmark 10-year US Treasury note rose to 4.54% at 1700 IST from 4.46% at the Indian market close on Tuesday. Later in the day as well, bond prices erased some gains after the T-bill auction results due to profit-booking from state-owned and private sector banks. Insurance companies were also likely trimming gilts, dealers said. 

The turnover in the gilts market on Tuesday was at INR 988.75 billion Wednesday, sharply higher than INR 581.50 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades in the 6.33%, 2035 bond using the wholesale digital rupee pilot Wednesday, worth INR 100 million, whereas no trades were conducted through this method Tuesday.

OUTLOOK

On Thursday, traders may take cues from any rumours on the outcome of the RBI's meeting with bank officials Wednesday. At the meeting, the bankers likely recommended the expansion of the Liquidity Adjustment Facility corridor to 50 basis points on each side, from the current 25 bps. Other discussions likely included no more bond purchases via open market operation auctions and shifting the operating target of monetary policy from weighted average call rate to Secured Overnight Rupee Rate, or SORR, which the RBI introduced in the December policy meeting, the dealers said.

Gilt prices may also take cues from the movement in US Treasury yields after comments from US Federal Reserve officials, dealers said. In the secondary market, demand for gilts maturing in up to 5 years is likely to continue as traders prefer the shorter end of the yield curve on the expectation of further rate cuts, along with demand to replenish banks' 'held-to-maturity' books.

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 was held 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 on May 30, could be the next big trigger for gilts. Traders expect a print of 6.00-6.50%, against some economists' estimates of 6.8%, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.20-6.25% on Thursday.

India Gilts: Remain higher on hope of boost in liquidity post RBI-banks meet

MUMBAI--1612 IST--Prices of government bonds remained up on expectations that the Reserve Bank of India would revise the existing liquidity management framework to enhance the liquidity surplus in the banking system, dealers said. Aggressive cut-off yields at the weekly Treasury bill auction of INR 190 billion also reflected this sentiment, dealers said. Traders await the outcome of RBI's meeting with some bank executives to review the liquidity framework Wednesday. 

The yield on the 6.33%, 2035 gilt fell below the key 6.20% level, and that of the benchmark 10-year 6.79%, 2034 gilt fell below the key 6.25% mark. Dealers speculated that corporate entities and mutual funds were purchasing gilts. 

"I think the strategy right now is make money on the rumours and sell on the fact," a dealer at a state-owned bank said.

Bond prices rose sharply at around 1200 IST on expectations that cut-off yields at the T-bill auction would be lower than initially expected. The cut-off yield on the 91-day bill was 5.71%, lower than an Informist poll estimate of 5.74%. State-owned banks likely bid aggressively at the auction, dealers said.

Dealers said that low credit disbursal along with surplus liquidity from sales at the RBI's open market operation auctions increased demand for gilts, dealers said. State-owned banks were purchasing short-term gilts to add to their 'held-to-maturity' books, while simultaneously booking profits, dealers said. Some private sector banks also sold gilts at a profit.    

Volume in the gilt market was INR 873.55 billion at 1612 IST, higher than INR 509.95 billion recorded as of the same time Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.  (Cassandra Carvalho)

India Gilts: Reverse losses on speculation new RBI framework to up liquidity

MUMBAI--1325 IST--Government bond prices reversed all losses and were up sharply on speculation that the Reserve Bank of India could revise the current liquidity management framework to ease the availability of liquidity with banks. Firm bets of further rate cuts also led to a rise in prices, dealers said. 

RBI officials are expected to meet some bank executives Wednesday to discuss the liquidity management framework. State-owned banks and private-sector banks bought gilts on firm expectations of rate cuts, dealers said. 

Traders preferred gilts maturing in up to 15 years on expectations of a "bull steepening" in the yield curve, dealers said. Demand from banks to buy gilts in place of bonds sold to the RBI at the open market operations auctions since January was also firm as they wished to capture the current yields on expectations that yields will fall further as more rate cuts get priced in.

"Big PSUs (public-sector undertakings) sold a lot at the OMO, so they have extra liquidity in their hands. So they are coming in aggressively at T-bills (auction) and in the secondary market too," a dealer at a state-owned bank said. "Plus, RBI dividend is also expected to be good, so that is also leading to buys."

Traders anticipate a record-high transfer of surplus, in the range of INR 3.0 trillion to INR 4.0 trillion, to the central government from the RBI. The quantum of the surplus is likely to be announced Friday. "If the number is right of INR 3 trillion–INR 3.5 trillion, then we will see a rally, and the new 10-year (6.33%, 2035 bond yield) could fall to 6.10% before the June policy," a dealer at a private-sector bank said. 

Trade volumes surged after 1130 IST. Volume in the gilt market was INR 611.20 billion at 1330 IST, more than twice the volume of INR 263.55 billion recorded as of the same time Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.  (Srijita Bose)

India Gilts: Down on rise in US ylds; RBI-banks meet on liquidity framework eyed

MUMBAI–-0920 IST--Prices of governemnt bonds were down Wednesday, tracking an overnight rise in US Treasury yields, dealers said. Volumes were low due to lack of fresh cues. Volume in the gilt market was INR 22.55 billion at 0920 IST, sharply lower than INR 94.10 billion at same time Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. 

"Market is really thin right now, most people seem to be on sidelines as there is no positive trigger in the market . So, even some selling is leading to a fall in prices," a dealer at a state-owned bank said. 

The yield on the 10-year benchmark US Treasury note was 4.51% at 0920 IST, 5 basis points higher than at the Indian market close on Tuesday. Traders expect foreign banks and overseas investors to sell gilts due to the narrowing interest rate differential between the two 10-year benchmark yields of the US and Indian government bonds. 

Traders expect firm demand at the INR 190-billion Treasury bill auction at 1030-1130 IST. Mutual funds and large private sector banks are likely to bid aggressively due to their preference for short-term securities, dealers said. Demand for short-term gilts is likely to be firm during the day due to expectations of rate cut.

Officials from the Reserve Bank of India and banks are expected to meet on Wednesday to discuss the liquidity management framework. Traders expect the talks to include a shift in the operating target of monetary policy from the weighted average call rate to a new benchmark rate called the Secured Overnight Rupee Rate, or SORR, which the central bank proposed to introduce in December.  (Vidhushi RajPurohit)

India Gilts: Seen tad down on rise in US yields; traders eye rupee movement

MUMBAI – Prices of government bonds are likely to open slightly lower Wedesday, tracking an overnight rise in US Treasury yields. However, a fall in the dollar index is expected to lead to a rise in the rupee, which is likely to support gilt prices, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.25-6.32%. On Tuesday, the 10-year gilt ended at INR 103.67, or 6.27% yield. The yield on the 10-year benchmark US Treasury note was at 4.51% at 0800 IST, 5 basis points higher than at the Indian market close on Tuesday. A rise in US yields narrows the interest rate differential between the two countries, making the former attractive to overseas investors, which could lead to some outflows from the gilts market. 

US Treasury yields rose due to the growing concerns about the world's largest economy and comments by US Federal Reserve officials on the impact of Trump's trade policies. Cleveland Fed President Beth Hammack cautioned that current trade developments could lead to stagflation, although other administration policies might offset this.

Consequently, the dollar index, which measures the strength of the dollar against a basket of six major currencies, weakened further. At 0805 IST, the index was at 99.74, down from 100.01 Tuesday and sharply lower than 100.38 on Monday. The fall in the dollar index is likely to lead the rupee to open higher and this could support gilt prices, dealers said. 

"The fall in dxy (dollar index) will likely be a strong cue and could lead the gilt price to be higher at open," a dealer at a state-owned bank said. "Later in the day, how the traders and long-term investors move will determine the prices." Market participants also await the outcome of the Reserve Bank of India's meeting with banks on liquidity management framework, likely on Wednesday.

Traders expect strong demand at the INR 190-billion Treasury bill auction Wednesday. Mutual funds and large private sector banks are likely to bid aggressively, along with possible bids from foreign investors, due to their preference for short-term securities, dealers said. Even in the secondary market, demand for gilts maturing in up to five years is likely to remain firm as traders prefer the shorter end of the yield curve on expectations of further rate cuts, along with demand to replenish banks' 'held-to-maturity' books.  (Vidhushi RajPurohit)

End

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

Edited by Deepshikha Bhardwaj

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