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Informist, Wednesday, May 28, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended higher on Wednesday, led by the new 10-year 6.33%, 2035 gilt. Broad-based buying came from traders picking up gilts in expectation of further monetary easing from the Reserve Bank of India next week, while the 2035 bond was likely a favourite of some mutual funds building their holdings of the bond, anticipating that it would become the new benchmark, dealers said.

The benchmark 10-year 6.79%, 2034 gilt closed at INR 103.86, or 6.24% yield, compared with INR 103.75, or 6.25% yield, at Tuesday's close. The benchmark yield ended at its lowest level since Sept. 30, 2021. The 6.33%, 2035 bond closed at INR 101.14, near the day's high, against INR 100.93 on Tuesday. The yield on the 2035 bond fell to 6.17% at close from 6.20% the previous day.

Despite the fresh supply of the bond at Friday's auction, traders preferred to pick up the 6.33%, 2035 bond as it is likely to become the new 10-year benchmark gilt next week. The government will sell INR 300 billion of the 2035 gilt, along with INR 60 billion of the 6.64%, 2027 gilt. With the psychologically crucial 6.20% mark broken intraday and investors holding onto the gilt anticipating bond yields to rise further, dealers said buyers far outnumbered sellers through the day.

Moreover, the spread of the 6.79%, 2034 gilt over the 2035 gilt widened by over 1 basis point to over 6 bps Wednesday. Banks and primary dealerships were short-selling the older bond, which has an outstanding of INR 1.84 trillion, rather than the newer 10-year benchmark, which is slated for only its second auction. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The total traded amount for the 6.79%, 2034 gilt rose to INR 94.49 billion on Wednesday from INR 90.75 billion Tuesday.

"Even though supply is there in the new bond, traders can only go short on the 6.79%, 2034 bond right now because of the outstanding," a dealer at a primary dealership said. "The new bond will only be short-sold starting next month, when the limits on short selling goes up with its outstanding and after the FIMMDA (Fixed Income Money Market and Derivatives Association of India) notified it as liquid." The self-regulatory body designates bonds as liquid and illiquid at the beginning of the month, with a higher short selling limit for liquid securities, which did not include the 6.33%, 2035 bond in the May release. 

Traders continued to pile into bonds, with the RBI's Monetary Policy Committee seen cutting the policy repo rate by at least 25 basis points next week to 5.75%. While a rate cut is already reflected in the price, traders bet on additional measures such as open market operation announcements over the next week, or a cash reserve ratio cut to be announced with the repo rate cut. Concerns over rising US Treasury yields have also ebbed, along with global bond yields declining since Tuesday, after measures by the Japanese government to cut ultra-long-term bond supply, dealers said.

Some sections of the market also expect the RBI to establish an asymmetric Liquidity Adjustment Facility corridor, by moving the Standing Deposit Facility or reverse repo rate to 50 bps below the policy repo rate from the current 25 bps. This would effectively work as an additional rate cut, as overnight money market rates would be anchored near the lower end of the policy corridor amid the prevailing surplus liquidity, dealers said. This also led to aggressive bidding at the Treasury bill auction Wednesday, with cut-off yields on the 91-day, 182-day and 364-day T-bills at their lowest since mid-2022. 

"Banks have made a specific plea to the RBI to widen the corridor, push the lower end of it to 50 bps below the repo rate," a dealer at a private bank said. "I don't know whether such a thing will materialise, but you can't stop market from hoping that overnight rates will go sub-5.40% starting next week." On Wednesday, the weighted average rate in the call market was 5.80% and in the triparty repo market was 5.71%.

Mutual funds were consistent buyers through the day, and bank traders were also looking to run up bond prices before the MPC meeting and then looking to exit at a profit before the event, dealers said. Foreign portfolio investors likely remained on the sidelines without significant activity, while there was some speculation of buying by foreign banks to build up their positions before the policy review.

Another key contributor was Deposit Insurance and Credit Guarantee Corp., which has been buying gilts maturing in up to 15 years this week. The insurer's buys were likely to be the cause of a jump in gilt prices in early trade, particularly of the 6.33%, 2035 bond. A specialised subsidiary of the RBI and independently operated, the deposit insurer regularly buys gilts when banks deposit their twice-yearly deposit insurance payments at the end of May and November.

"We picked up some of the short-term bonds today (Wednesday)," a dealer at a state-owned bank said. "I didn't really understand why the new 10-year (6.33%, 2035 bond) outperformed so heavily, but there were enough bonds offering decent prices to buy before MPC."

Meanwhile, some traders remained cautious before the release of the US Federal Open Market Committee's minutes later Wednesday, as well as key US and India data later this week. India's Jan-Mar GDP growth print, scheduled on Friday, is hotly anticipated and seen around 6.5% by traders, against the median estimate of 6.8% in an Informist poll of economists. A lower than expected GDP reading would lead to a further rise in gilt prices, as traders would firm up bets of the terminal repo rate at 5.25% from the current 6.00%, dealers said.

The turnover in the gilts market was at INR 701.45 billion Wednesday, lower than INR 394.85 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Wednesday, against two trades worth INR 100 million the previous day.

OUTLOOK

On Thursday, bond prices are likely to take cues from the overnight movement of US yields at open, after the release of minutes of the US Federal Open Market Committee's May meeting at 2330 IST Wednesday. Traders also await India's GDP growth estimates for Jan-Mar and for 2024-25 (Apr-Mar), due on Friday.

Traders may continue to position for a rate cut and further liquidity infusions from the RBI to be announced at the MPC's meeting in June. The preference for short-term gilts, particularly from state-owned banks, is likely to continue, dealers said.

Traders may place short bets on heavily traded gilts ahead of the INR 360-billion weekly gilt auction on Friday, particularly in the second half of Thursday's trade, dealers said. The government will sell INR 300 billion of the 6.33%, 2035 gilt and INR 60 billion of the 6.64%, 2027 gilt at 1030-1130 IST Friday. Demand at the auction is seen robust for both bonds, with the 2035 gilt expected to become the 10-year benchmark gilt next week. The 2027 bond would be mopped by asset-liability managers at banks, and by mutual funds, due to their preference for short-term bonds amid surplus liquidity and expecting further rate cuts.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.20-6.27% on Thursday. The yield on the 6.33%, 2035 bond is seen at 6.14-6.20%.

India Gilts: Stay up as traders see yields fall more, Deposit Insurance Corp buy

MUMBAI--1430 IST--Prices of government bonds remained up and trade volumes remained high driven by traders' rush to pick up gilts before yields decline further following the Reserve Bank of India's policy review meeting in June, dealers said. Mutual funds and some insurance firms were also actively buying in the market Wednesday, they said. 

The market remained buoyed by the sudden jump in prices at Wednesday's open, possibly on account of buying by the Deposit Insurance and Credit Guarantee Corp. in the secondary market, dealers said. Some traders speculated that the corporation would also participate at the weekly gilts auction Friday, which further boosted buying sentiment, they said.

"There have been no negative sentiments in the market this week, and then the talk of DICGC being in the market amplified buying sentiments," a dealer at a state-owned bank said.

The cut-offs at the Treasury bills auction were largely in line with traders' expectations. The RBI set a cut-off yield of 6.62% on the 91-day T-bill, 9 basis points lower than last week's cut-off rate of 5.71%. The cut-off yield was also down from an estimated 5.63% in an Informist poll. For the 182-day and 364-day T-bills, the RBI set the cut-off yield at 5.63%, which was 3 bps and 2 bps below the respective poll estimates.

The demand at the auction was aggressive as it was the penultimate auction before the Reserve Bank of India's Monetary Policy Committee meeting outcome and the market widely expects another policy rate cut, dealers said. "If the rate cut is of 25 bps, then the SDF (standing deposit facility) rate will be 5.50%, or if there is a 50 bps cut then it will be 5.25%. So when there are such chances ahead, then no one wants to miss out and people went aggressively at the auction," a dealer at another state-owned bank said.

Some gains were capped as some traders were also possibly placing short bets on gilts ahead of the INR 360-billion gilts auction Friday. The auction includes INR 300-billion worth of the 6.33%, 2035 gilt, which is expected to receive firm demand. The 2035 gilt will be considered the next 10-year benchmark after the auction, dealers said.

A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1430 IST showed trades worth INR 94.49 billion in the 6.79%, 2034 gilt, slightly up from INR 90.75 billion Tuesday. Traders expect the short bets to increase Thursday, a day before the auction. 

The turnover in the gilts market was INR 532.25 billion at 1430 IST, higher than INR 246.40 billion at the same time Tuesday, 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 6.20-6.25%. For the 6.33%, 2035 gilt, dealers see the yield at 6.17-6.21%.  (Vidhushi RajPurohit)

India Gilts: Remain up on buys from domestic banks, firm rate-cut view

MUMBAI--1200 IST--Government bond prices remained up on buys from state-owned and private sector banks, dealers said. Deposit Insurance and Credit Guarantee Corp. also likely picked up bonds maturing in up to 15 years, which led prices and trade volumes to rise, they said.

Firm expectations of further rate cuts by the Reserve Bank of India's Monetary Policy Committee, with at least a 25-basis-point cut expected in June also led to buys by asset-liability managers, dealers said. Some dealers said inflows from foreign portfolio investors and foreign banks could have also led to the jump in prices. Foreign banks had sold INR 39.9 billion worth of gilts on Tuesday, while FPIs sold INR 12.7 billion through the fully accessible route, data from Clearing Corp. of India showed. 

"Rate cut views are still firm and the base case is a 25-bps cut in June," a dealer at a state-owned bank said. "Plus, liquidity is also a positive, so all those who were underinvested are buying now...but also looks like people are buying the 6.33% (2035 bond) to sell after the auction (Friday)...they will still wait for GDP number." Prices of the on-the-run 6.33%, 2035 bond was also sharply up before the INR 300 billion supply on Friday and on expectations that the bond will near a yield of 6.10% after the June MPC policy review, dealers said.  

India's GDP growth estimates for Jan-Mar, due Friday, is the next trigger for bonds to further price in rate cuts by the RBI's rate-setting panel. While some traders expect the Monetary Policy Committee to cut the repo rate by 50 bps in June, they await the GDP print to see whether it comes at 6.0% to take further aggressive bets, dealers said. 

At the Treasury bills auction, primary dealers and mutual funds likely bid aggressively, dealers said. "The past few auctions have seen aggressive bidding from PSUs (state-owned banks) and offshore players, but this time I think PDs (primary dealers) will also tender aggressively," a dealer at a primary dealership said. "We didn't get it last time also and the need is there so we will go for these levels, if we still don't get it this time then we will look for extreme shorter-tenure bonds."

The turnover in the gilt market was INR 384.05 billion at 1230 IST, more than double of INR 187.60 billion at the same time on Tuesday, 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 6.20-6.25%. For the 6.33%, 2035 gilt, dealers see the yield at 6.17-6.21%.  (Srijita Bose)

India Gilts: Up on fall in 6.33% 2035 gilt yield below 6.20%, rate cut view

MUMBAI--0920 IST--Prices of government bonds rose Wednesday as traders continued to buy gilts ahead of the Reserve Bank of India's Monetary Policy committee meeting in June, dealers said. A fall in the yield on the new 10-year, 6.33%, 2035 gilt below the key 6.20% level also spurred buying. The gilt's yield fell to a low of 6.1767%. 

"The 6.20% level (on the 6.33%, 2035 gilt) is a technical one and market was waiting for it to break," a dealer at a private sector bank said. "It briefly fell below 6.20% in last few day, but today (Wednesday) it looks like it will sustain. So, everyone wants buy now."

Some dealers said inflows from foreign investors could also have led to a jump in prices. Trade volumes also picked up as traders rushed to buy gilts. The turnover in the gilt market was INR 73.50 billion at 0930 IST, higher than INR 37.05 billion at the same time on Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. 

Prices are expected to remain around the current range as traders await India's GDP growth estimates for Jan-Mar, due on Friday, dealers said. "Everyone is waiting for GDP data now. This week, there is nothing major to track before the data comes," a dealer at a private sector bank said. "There is positive sentiment in the market, so buying momentum is conintuing."

During the day, the yield on the 10-year benchmark 6.79%, 2034 gilt is seen at 6.20-6.25%. For the 6.33%, 2035 gilt, dealers see the yield at 6.17-6.21%.  (Vidhushi RajPurohit)

India Gilts: Seen tad up on rate cut view; traders eye India GDP data Fri

MUMBAI – Prices of government bonds are likely to open a tad higher Wednesday as some traders are expected to continue accumulating gilts on firm expectations of a policy rate cut in June, dealers said. Traders will, however, refrain from positioning aggressively ahead of India's GDP growth estimates for Jan-Mar and the INR-360-billion weekly gilt auction, both of which are scheduled Friday. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.20-6.26%. On Tuesday, the 10-year gilt ended at INR 103.75, or 6.25% yield. Traders will await the result of the INR 190-billion Treasury bill auction Wednesday. The auction is expected to recieve strong demand from traders owing to their preference for short-term securities, dealers said.

Even in the secondary market, demand for gilts maturing in up to five years remains steady as traders bet on a repo rate cut at the next policy review in June. The Reserve Bank of India's Monetary Policy Committee is scheduled to start its three-day policy meeting on Jun. 4 and the outcome will be announced on Jun. 6.

Meanwhile, primary dealerships are expected to place short bets on gilts Wednesday to make space for fresh supply at the weekly gilt auction Friday. At the auction, the government will sell INR 60 billion of the 6.64%, 2027 gilt and INR 300 billion of the 6.33%, 2035 gilt. Traders will likely consider the 2035 gilt as the new 10-year benchmark after the auction, dealers said. For the 2035 gilt, dealers see a yield range of 6.18-6.22% for the day. On Tuesday, the gilt closed at INR 100.93 or 6.20% yield. 

Volumes in the gilt market are expected to remain low until the release of the India's GDP growth estimates for Jan-Mar and FY25, due on Friday. An Informist poll estimated the Jan-Mar reading at 6.80%. Most traders expect the print in the range of 6.00-6.80%. 

On the global front, yields on US Treasury bonds have been declining since Tuesday after US President Donald Trump's decision to delay higher tariffs on the European Union. Trump on Sunday set Jul. 9 as the deadline to allow for talks between Washington and the European Union, from Jun. 1 earlier. The yields also fell after a news report Tuesday said Japan would consider trimming the issuance of super-long bonds. As of 0805 IST, the yield on the 10-year benchmark, US Treasury note was 4.46%, against 4.47% at 1700 IST Tuesday. Any further intraday fall in US yields is likely to lead to a rise in gilt prices, dealer said.  (Vidhushi RajPurohit)

End

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

Edited by Avishek Dutta

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