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Informist, Friday, May 23, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended higher Friday on expectation of the Reserve Bank of India transferring a record-high surplus to the central government for 2024-25 (Apr-Mar). Gilts had priced in a transfer of around INR 3.00 trillion. Post market hours, the central bank said it would transfer a surplus of INR 2.69 trillion to the government for FY25. 

Traders also awaited the outcome of the central bank's review of the economic capital framework. After market hours, the central bank said it raised the contingent risk buffer to 7.50% from 6.50% in FY25, putting it in a range of 4.50-7.50%. 

"We are just waiting for dividend now, we have been waiting since 2:30 pm (1430 IST)," a dealer at a state-owned bank said during market hours. "We haven't yet thought of the possibility that dividend may not come today (Friday)."

Gains were capped due to caution before the release, as some traders expected the announcement during market hours. However, bond prices remained up during the day due to strong demand at the weekly gilt auction and an overnight fall in US Treasury yields.

The 10-year benchmark 6.79%, 2034 gilt yield fell over 12 basis points the past two weeks on hope of a high surplus transfer and speculation of the central bank lowering its risk provisions. The 6.33%, 2035 gilt yield also fell over 12 bps in the same period. On May 22, 2024, when the central bank, during market hours, announced a transfer of INR 2.11 trillion for FY24, the 10-year benchmark bond yield closed 4 bps lower than the previous day's close. 

The benchmark 10-year 6.79%, 2034 gilt closed at INR 103.76 or 6.25% yield, from INR 103.62, or 6.27% yield, Thursday. The 6.33%, 2035 bond closed at INR 100.87 or 6.21% yield, from INR 100.70, or 6.23%, on Thursday. 

Earlier in the day, bond prices took cues from the result of the weekly gilt auction of INR 270 billion. The government sold INR 150 billion of the 6.75%, 2029 bond and INR 120 billion of the 7.09%, 2054 bond. Traders were slightly disappointed with the cut-off price of INR 103.49 on the 2029 bond. An Informist poll estimated the cut-off at INR 103.48. However, closer to the publication of the result, some traders bet on a cut-off of INR 103.53. Prices of short term bonds rose more than other tenures in the secondary market, with the 2029 bond touching the day's high of INR 103.62.

Both traders and asset liability managers of domestic banks, especially those of state-owned banks were the major bidders at the bond's auction, dealers said. Mutual funds, who missed out on stock of Treasury bills at the auction Wednesday, also likely bid aggressively on the bond.    

Demand for the long-term paper at the auction was intially seen moderate. Traders preferred short-term gilts and the appeal in "duration papers" decreased, they said. The gilt yield curve steepened further in May, with yields on short-term gilts falling greater than their long-term counterparts. This is due to expectations of a record surplus transfer boosting durable liquidity and at least two more cuts of 25 basis points each in the repo rate in the remainder of 2025, dealers said.

However, the cut-off price on the 2054 bond was INR 103.39, higher than a median estimate of INR 103.32 in an Informist poll. Strong demand from insurance companies for separate trading of registered interest and principal of securities, and forward rate agreements, dealers said. Traders estimate that INR 20 billion- INR 40 billion of the gilt was purchased for forward rate contracts. 

Long term bonds are still out of favour for most traders and investors. However, some said that the widening spread between long-term gilts over the 10-year benchmark 6.79%, 2034 gilt was lucrative to purchase. The yield spread of the 2054 bond over the 2034 gilt was 54 bps Friday, from 55 bps Thursday and 42 bps on Apr. 30. 

Traders also preferred investing in short-term state bonds. Corporate houses and state-owned banks were picking up these bonds, due to preference for short-term securities. The average indicated yield for the 5-year state bond was 6.17% Friday, compared with 6.20% Thursday and the 5.85% closing yield on the 2029 gilt Friday. 

"Corporate houses have comfortable liquidity now so they're shifting asset classes very frequently," a dealer at another state-owned bank said. "There's demand in short-term state bonds nowadays from them."

State-owned banks were aggressively purchasing gilts during the day, dealers said. Foreign banks and portfolio investors were likely selling gilts, capping gains, dealers said. 

Bond prices opened higher tracking an overnight fall in US yields. The yield on the 10-year benchmark US Treasury note was 4.53% at 1700 IST, from 4.58% at the same time Thursday. The 10-year US yield hit the 4.63% level Thursday, after the US House of Representatives passed a spending bill, which includes tax cuts. Domestic and foreign banks had sold gilts in a panic Thursday due to speculation of US yields rising further.  

The turnover in the gilts market was at INR 574.10 billion Friday, slightly higher than INR 516.80 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Friday, same as the previous day.

OUTLOOK

Gilts are not traded Saturday. On Monday, bond prices are likely to open lower due to the surplus transfer being less than most traders' expectations, dealers said. Some traders had even estimated a surplus of INR 4.00 trillion. The raise in the band of the Contingent Risk Buffer may also weigh on bond prices.

The movement in US Treasury yields over the weekend may lend cues at market open, though the impact of the offshore cue may be limited due to the domestic trigger.  

Traders will now focus on India's GDP growth estimates for Jan-Mar and for FY25, due on May 30, though traders are unlikely to position aggressively for the data, they said. Traders expect a print of 6.0-6.5% in Jan-Mar, against an Informist poll estimate of 6.8%. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.24-6.32% on Monday, while the 6.33%, 2035 bond is seen at 6.20-6.25%

India Gilts: Remain up; insurers' auction demand boosts long-term bonds

MUMBAI--1442 IST--Prices of government bonds maturing in 30 to 50 years rose sharply, more than most tenors, due to strong demand from insurance companies for the 7.09%, 2054 gilt at the weekly gilt auction, dealers said. The 2054 gilt touched a day's high of INR 103.85 in the secondary market. Demand from insurers was unexpectedly firm at the auction, possibly due to purchases through forward rate agreements. Traders estimate that INR 20 billion-INR 40 billion of the gilt was purchased through these contracts.

"The auction was in line mostly. The surprise was the long-term paper," a trader at a primary dealership said. "There was a lot of separate trading of registered interest and principal of securities, and forward rate agreement demand for the paper from insurers, which pushed the cut-off (price) higher."

Short-term bond prices gave up some gains as the cut-off price on the 6.75%, 2029 bond was lower than traders' latest estimates. Closer to the release of the auction result, traders had bet on a higher cut-off price of around INR 103.53 and the 2029 gilt rose to the day's high of INR 103.62 in the secondary market at the time. The cut-off price on the 2029 gilt was INR 103.49, against a median estimate of INR 103.48 in an Informist poll. Some mutual funds which were unable to get hold of treasury bills Wednesday picked up the gilt at the auction, along with domestic banks. 

Gains were capped due to likely sales by foreign banks and some state-owned banks, dealers said. Dealers had also expected gilt prices to rise further, tracking the sharp fall in overnight indexed swap rates. The five-year OIS rate hit a day's low of 5.60%. However, bond prices gave up some gains after the auction result due to caution ahead of the Reserve Bank of India's transfer of surplus, which is expected to come during market hours Friday.

Volume in the gilt market was INR 405.45 billion at 1430 IST, higher than INR 318.90 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 6.20-6.30%.  (Cassandra Carvalho)

India Gilts: Remain up; traders eye INR 270-bln auction results, RBI surplus

MUMBAI--1145 IST--Government bond prices remained up as traders bought gilts, after selling aggressively on Thursday, as US Treasury yields eased, dealers said. Traders await the result of the INR 270-billion gilt auction and the Reserve Bank of India's surplus transfer to the central government, which is expected to be announced later in the day, they said. 

Demand for the 6.75%, 2029 gilt at the auction is expected to be strong and bid for aggressively by banks and mutual funds, dealers said. Asset-liability managers will look to lock in the current yield of the bond as they expect bull steepening in the yield curve--the yield on short-tenure papers will fall faster than long-tenure bonds--on hope of further rate cuts, they said. Some also expect foreign portfolio investors to pick up the bond at the auction. The yield spread of the 10-year benchmark 6.79%, 2034 over the five-year 6.75%, 2029 bond has widened to nearly 41 bps from over 26 bps at the start of the month.

For the 7.09%, 2054 bond, while moderate demand from insurers and pension funds was seen at the auction, traders were likely to have refrained from bidding for the bond, dealers said. Even in the secondary market, longer-tenure bonds have underperformed due to uncertainty in the global economic outlook, which in turn has led to a rise in the yields on these bonds globally, they said. 

"The auction should be good, some tail in the long-end, but seeing aggressive demand for the five-year paper so that should help sail the auction through," a dealer at a state-owned bank said. "RBI dividend is also expected to come today anytime after 1500 IST, so market should be within this range until then...but it also depends on auction cut-offs."

Meanwhile, traders who had trimmed their holdings near the end of trade on Wednesday on fears that US yields could rise further bought them back on Thursday as the yield on the 10-year US Treasury note eased to 4.54% at 1150 IST from 4.62% at 1700 IST Wednesday, dealers said. A part of the buys were also on expectations of a record-high surplus transfer of around INR 2.5 trillion to INR 3.5 trillion by the RBI to the government. The RBI's central board of directors is likely to meet Friday to discuss and approve the transfer of surplus to the Centre, Informist had reported earlier, citing two finance ministry officials.

Volume in the gilt market was INR 183.70 billion at 1130 IST, around the same as INR 156.85 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 6.20-6.30%.  (Srijita Bose)

India Gilts: Up on fall in US yields, buying before RBI's surplus transfer

MUMBAI–-0920 IST--Prices of government bonds rose Friday, tracking an overnight fall in US Treasury yields, dealers said. Traders also stepped up purchases after prices fell sharply at close Thursday. Traders expect gains to be capped due to some caution ahead of the INR 270-billion weekly gilt auction and as traders await the Reserve Bank of India's surplus transfer to the government for 2024-25 (Apr-Mar).  

"The levels are good to build positions right now before the dividend annoucement, so there is buying in the market," a dealer at a state-owned bank said. "The pressure from US yields have also cooled off somewhat, so that is also a positive for now."

The yield on the 10-year US Treasury yield was at 4.54% at 0918 IST, down 5 basis points from the Indian market close on Thursday. Gilt prices plunged Thursday, tracking a sharp rise in US yields as the US House of Representatives passed a spending bill, which includes tax cuts. US yields cooled off slightly due to buying by traders as prices fell. "Our market reacted yesterday (Thursday) to US yields, so it is picking up now as their (US) yields eased," a dealer at a private sector bank said. 

Traders were also buying gilts on expectations of a high surplus tranfer of around INR 2.5 trillion to INR 3.5 trillion by the RBI to the governement. The RBI's central board of directors is likely to meet Friday to discuss and approve the transfer of surplus to the Centre, Informist had reported earlier, citing two finance ministry officials. Traders expect the announcement of the meeting to come during market hours, which is expected to lead to some volatility in the market depending on the actual surplus figure. During the day, the yield on the 10-year benchmark 6.79%, 2034 gilt is seen within 6.20-6.30%.

Traders also await the INR 270-billion weekly gilt auction at 1030-1130 IST. At the auction, the government will sell INR 150 billion of the 6.75%, 2029 gilt and INR 120 billion of the 7.09%, 2054 gilt. The 2029 gilt is expected to recieve firm demand from banks and mutual funds, with some demand also expected from banks' asset-liability managers, dealers said. The 2054 gilt is also expected to be picked by life insurance companies and other long-term investors. However, some dealers were of the view that demand for the 2054 gilt could be weak on account of lower apetite for longer-term gilts amid gepolitical uncertainities.

Volume in the gilt market was INR 62.25 billion at 0930 IST, around the same as INR 65.55 billion at the same time Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.  (Vidhushi RajPurohit)   

India Gilts: Seen tad up as US ylds fall; gilt auction, RBI's surplus eyed 

MUMBAI – Prices of government bonds are likely to open slightly higher Friday, tracking an overnight fall in US Tresury yields, dealers said. However, gains will be limited as traders will remain cautious ahead of the INR 270-billion weekly gilt auction, they said. Traders will also await the announcement of the Reserve Bank of India's surplus transfer to the government, which is expected Friday. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.20-6.30%. On Thursday, the 10-year gilt ended at INR 103.62, or 6.27% yield. 

At the auction on Friday, the government will sell INR 150 billion of the 6.75%, 2029 gilt and INR 120 billion of the 7.09%, 2054 gilt. The 2029 gilt is expected to recive firm demand from banks and mutual funds, with some demand also expected from banks' asset-liability managers, dealers said. The 2054 gilt is also expected to be picked by life-insurance companies and other long-term investors. 

The RBI's central board of directors is likely to meet Friday to discuss and approve the transfer of surplus to the Centre, Informist had reported earlier, citing two finance ministry officials. Traders expect the surplus to be INR 2.5 trillion to INR 3.5 trillion. Gilt prices are likely to plunge if the figure is below the lower end of the expected range, dealers said. Traders will also take cues from any change in the central bank's economic capital framework after the RBI board's review, likely to be announced Friday.

"The yields can go up by 4-5 basis points in case the dividend transfer is lower than what we are expecting and there will be sharp buying if the figure meets the estimate and is in a high range," a dealer at a private sector bank said. "The meeting will be during market hours so prices can be really volatile today (Friday)."

On the global front, the yield on the 10-year US Treasury yield was at 4.53% at 0807 IST, down by 6 basis points from the Indian market close on Thursday. The yield eased slightly Friday as some traders purchased bonds as prices plunged Thursday after US House of Representatives passed a spending bill, which includes tax cuts. Investors remained wary of the weakening debt profile of the world's largest economy as the bill is expected to increase US debt by $3.8 trillion over the next decade, as estimated by the Congressional Budget Office. (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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