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Informist, Thursday, May 29, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended mixed Thursday. The 10-year benchmark 6.79%, 2034 bond ended down as traders placed short bets on the gilt to make room for fresh supply of the 6.33%, 2035 gilt at the weekly gilts auction Friday, dealers said.

Traders also trimmed risk before India's GDP growth estimates for Jan-Mar and provisional annual estimate for the financial year 2024-25 (Apr-Mar), also due Friday. The GDP print could influence the Reserve Bank of India's monetary policy review, due Jun. 6, which will also be closely tracked by traders, they said.

At the auction, the government will sell INR 300.00 billion of the 2035 gilt, along with INR 60.00 billion of the 6.64%, 2027 gilt. Demand for both papers is likely to be firm, dealers said. Traders expect the 2035 gilt to replace the 2034 gilt as the 10-year benchmark gilt after the auction, as the former's outstanding would rise to INR 600.00 billion.

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 1700 IST showed trades worth INR 100.69 billion in the 6.79%, 2034 gilt, up from INR 94.49 billion Wednesday.

"There are short bets on the 2035 gilt, no doubt, but that has small outstanding, so there's a limit," a trader at a primary dealership said. "So people are shorting (placing short bets on) 2034, but the spread has widened too much, to around 8 basis points between the two. Ideally people should go long on 2034 and short on 2035. Let's see if this (the spread between the two gilts) reduces because of auction tomorrow (Friday)."

The 10-year benchmark 6.79%, 2034 gilt closed at INR 103.76, or 6.25% yield, compared with INR 103.86, or 6.24% yield, at Wednesday's close. The 6.33%, 2035 bond closed at INR 101.10, against INR 101.14 Wednesday. The yield on the 2035 bond was 6.17% at close, same as the previous day.

Traders also expect the Deposit Insurance and Credit Guarantee Corp. to bid for the 2035 gilt at the auction. The deposit insurer has been purchasing bonds of similar maturities in the secondary market this week, including minor sums Thursday, dealers said. A specialised subsidiary owned by the RBI, the deposit insurer regularly buys bonds around late May and late November, when banks make their biannual deposit insurance payments. The 'Others' segment of market participants, which includes insurance companies, provident funds, entities such as the deposit insurance corporation, and the RBI, net purchased gilts worth INR 59.07 billion in the secondary market from Monday to Wednesday, data from the Clearing Corp. of India showed. 

Demand for the 2027 gilt is seen from traders and asset and liability managers alike. Mutual funds are also likely to bid for the short-term gilt amid surplus liquidity and expectations of further rate cuts. Short-term bond prices were up in the secondary market Thursday as traders preferred the shorter end of the gilt yield curve on expectations of further rate cuts, and, moreover, views that RBI Governor Sanjay Malhotra would announce some measure to infuse liquidity in the banking system at the outcome of the rate-setting panel's meeting next week.

"If they are giving another 25 basis-point cut, then they have to give some liquidity measure," a dealer at a state-owned bank said. "It's no point giving a cut without liquidity because then policy transmission is not going to take effect." Bonds have priced in a cut of 25 bps at the outcome next week, and prices are likely to fall if only the rate cut is announced without any liquidity measure.

Traders expect the governor to announce more open market operation auctions and widen the Liquidity Adjustment Facility corridor on either side of the central bank's repo rate by 25 basis points each. Currently, the width of the corridor is 50 bps, with the floor Standing Deposit Facility rate at 5.75% and the ceiling Marginal Standing Facility rate at 6.25%, and the repo rate at the 6.00% midpoint. Bond yields may fall 4-5 bps if such an announcement is made, dealers said. 

Demand for short-term gilts in the secondary market was also due to excess funds with banks, since credit disbursal was slow, dealers said. Long-term gilts, on the other hand, were down during the day, possibly due to foreign banks selling them on behalf of foreign portfolio investors, dealers said. 

A rise in US Treasury yields weighed on gilt prices during the day. The yield on the 10-year benchmark US Treasury note rose to 4.53% at 1700 IST, from 4.51% at 0900 IST and 4.47% at the close of the Indian market Wednesday. US yields rose on investors' improved risk appetite for other asset classes after a US federal trade court blocked some of President Donald Trump's tariffs.

The turnover in the gilts market was INR 512.65 billion, lower than INR 701.45 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Thursday, same as the previous day.

OUTLOOK

Friday, bond prices are likely to take cues at the open from the overnight movement of US yields after the release of the US weekly jobless claims and GDP growth and comments from US Federal Reserve officials. Jobless claims for the week ended Saturday rose to 240,000, against a Dow Jones consensus estimate of 230,000. The first-quarter GDP in the US was revised to a 0.2% on-year contraction, compared with the consensus of a 0.4% shrinkage.

Later in the day, traders will take cues from the result of the weekly gilts auction of INR 360.00 billion, but movement of bond prices may be limited on caution ahead of the release of India's GDP growth estimates. The release is due 1600 IST.

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

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.20-6.30% Friday. The yield on the 6.33%, 2035 bond is seen at 6.14-6.24%.

India Gilts: 10-yr down on short bets before bond sale Fri, India GDP, MPC meet

MUMBAI--1530 IST--The price of the benchmark 10-year 6.79%, 2034 bond was down more than most tenures, as traders placed short bets on the gilt ahead of the weekly gilt auction of INR 360 billion, dealers said. Traders also trimmed risk ahead of key events lined up within the next 10 days, including India's GDP growth data for Jan-Mar due Friday and the Reserve Bank of India's Monetary Policy Committee's meeting from Jun. 4 to Jun. 6. 

At the auction Friday, the government will sell INR 300 billion of the 6.33%, 2035 gilt, and INR 60 billion of the 6.64%, 2027 gilt. Most traders are likely to consider the 2035 gilt as the new 10-year benchmark gilt after the auction on Friday, and traders expect bids for the gilt at the auction to be aggressive, they said. 

Traders trimmed risk ahead of the GDP growth print and MPC meeting outcome. Most traders expect growth of around 6.50% for the Jan-Mar quarter, though some expect prints as low as 6.00% and as high as 7.10%. As for the MPC outcome, bonds have priced in a rate cut of 25 basis points. Bond prices are likely to rise after the MPC outcome only if RBI Governor Sanjay Malhotra announces more open market purchase of gilts through auctions, or if the liquidity framework is adjusted to allow banks to keep more cash, or any such liquidity-infusion measure, dealers said.

"There's just some de-risking before the policy, which is usual," a trader at a primary dealership said. "Market is expecting a 25 bps cut, which is already priced in, so we don't see much movement after policy." 

Primary dealerships and private banks were likely to have been sellers, while state-owned banks were on the buying side, dealers said. Traders speculated that a state-owned finance company was purchasing gilts. The turnover in the gilt market was INR 388.30 billion as of 1530 IST, lower than INR 567.20 billion at the same time on Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the rest of the day, the yield on the 10-year benchmark 6.79%, 2034 gilt is seen at 6.23-6.26%. For the 6.33%, 2035 gilt, dealers see the yield at 6.16-6.20%.  (Cassandra Carvalho)

India Gilts: Steady before India GDP Fri; no surprises from RBI FY25 report

MUMBAI--1130 IST--Prices of government bonds were largely steady on caution before the release of India's GDP data for Jan-Mar and 2024-25 (Apr-Mar) on Friday, dealers said. An overnight rise in US Treasury yields and some caution before the INR 360-billion gilt auction Friday prevented any sharp buying by traders, they said. The Reserve Bank of India's annual report for FY25 did not lend any fresh cues to traders, keeping gilt prices steady. 

"It is wait and watch for now, as we want to see the (GDP growth) data and then everyone will have a clear idea of what to expect at MPC (Monetary Policy Committee) meeting," a dealer at a private sector bank said. "Market is positive now..prices opened down because US yields were slightly up and there were some people who also are placing short bets before auction."

The Reserve Bank of India released its annual report for FY25 Thursday. The report did not have any surprising elements for the market andm as such, had no major impact on the market movement, dealers said. 

"RBI's dividend figure was the major figure that the market awaited and that is already known. So, market did not move after the report," a dealer at a state-owned bank said. "They said they will bring some changes but even that is not clear so no cues from that angle for now." 

The central bank will review the liquidity management framework along with the monetary policy framework for FY26, the RBI report said. Traders expect the central bank to come up with further liquidity infusing measures at the policy review meeting next week, dealers said. Along with a policy rate cut, traders expect that the RBI could also expand the Liquidity Adjustment Facility corridor and announce further open market operation auctions in June. 

The turnover in the gilt market was INR 199.55 billion as of 1130 IST, lower than INR 341.70 billion at the same time on Wednesday, 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 6.16-6.20%.  (Vidhushi RajPurohit)

India Gilts: Mixed; traders place short bets before INR 360-bln bond sale Fri

MUMBAI--0920 IST--Prices of government bonds were mixed Thursday, with the benchmark 10-year, 6.79%, 2034 gilt slightly down as traders placed some short bets on the gilt to buy fresh stock of gilts at the primary auction Friday, dealers said. An overnight rise in US Treasury yields also led to some pressure on gilt prices at open, they said. Prices of most gilts remained supported as traders continued to place bets on further monetary easing by the Reserve Bank of India at its Monetary Policy Committee meeting next week. 

"There is a big auction tomorrow (Friday), and everyone wants to buy the (6.33%) 2035 gilt there. So, some selling will be there today (Thursday)," a dealer at a state-owned bank said. "But, before MPC (Monetary Policy Committee) meeting there is not much leeway to place shor bets because everyone wants to hold their positions."

The government will sell INR 300 billion of the 6.33%, 2035 gilt, and INR 60 billion of the 6.64%, 2027 gilt at the auction Friday. Traders expect firm demand for both the bonds at the auction, with more preference for the 2035 gilt because it will likely be considered as the new 10-year benchmark from next week, 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. As of 0920 IST, the total traded amount for the 6.79%, 2034 gilt rose to INR 99.99 billion on Thursday from INR 94.49 billion Wednesday. Traders were placing short bets on the 2034 gilt, which has an outstanding of INR 1.84 trillion, rather than the newer 10-year benchmark, which is slated for only its second auction and has an outstanding of INR 300 billion.

As of 0920 IST, the yield on the 10-year benchmark, US Treasury note was 4.51%, up from 4.47% at 1700 IST Wednesday. The increase in US yields led to some pressure on gilt prices, dealers said. However, most traders were of the view that ahead of significant domestic triggers in the form of India's GDP growth estimates and the RBI's policy review meeting, traders will not track offshore cues actively. Some traders expect the RBI to come up with more open market operation auctions after the policy meeting, while other expect a cut in the Cash Reserve Ratio Requirement. 

The turnover in the gilt market was INR 40.00 billion at 0920 IST, lower than INR 73.50 billion at the same time on Wednesday, 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 6.16-6.21%.  (Vidhushi RajPurohit)

India Gilts: Seen tad dn before weekly gilt auction, India Jan-Mar GDP Fri

MUMBAI – Prices of government bonds are likely to be slightly lower at open Thursday as traders are expected to place short bets on gilts to make space for fresh supply at the INR 370-billion gilt auction on Friday, dealers said. However, hope of further rate cuts and more liquidity infusion measures from the Reserve Bank of India at its Monetary Policy Committee meeting next week will keep gilt prices supported, they said. Traders also expect some caution ahead of India's GDP growth estimate for Jan-Mar, which is due Friday. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.20-6.26%. On Wednesday, the 10-year gilt ended at INR 103.86, or 6.24% yield, the lowest closing yield level since Sep. 30, 2021. Traders are expected to place short bets on the gilt ahead of the weekly gilt auction Friday, which includes the sale of the new 10-year 6.33%, 2035 gilt.

The outstanding on the gilt is currently INR 300 billion and after the auction, it will increase to INR 600 billion. Traders are expected to consider it as the new 10-year benchmark from next week, dealers said. For the 2035 gilt, dealers see a yield range of 6.16-6.20% for the day. On Wednesday, the gilt closed at INR 101.14 or 6.17% yield. 

At current yield levels, traders have priced in a 25 bps rate cut in June, dealers said. Traders await India's GDP growth estimates for clarity on the future rate cut trajectory, dealers said. The market widely expects the RBI's MPC to cut the repor rate by another 50 basis points in the remainder of 2025, but a GDP print lower than 6.5% for Jan-Mar is expected to fuel bets of deeper rate cuts, they said.

Some traders also expect further monetary easing from the RBI's MPC such as reducing Cash Reserve Ratio requirements by banks and another calendar for open market operation auctions, dealers said. During the day, prices will also be supported as some traders speculated that the Deposit Insurance and Credit Guarantee Corp. is likely to participate at the gilt auction Friday. The insurer was likely buying gilts in the secondary market this week, dealers said.  

On the global front, traders assesed minutes of the US Federal Open Market Committee's meeting in May. The minutes showed that Fed officials were worried about the "difficult tradeoffs" between the rising inflation and rising unemployment going ahead. Fed staff also warned about potential recession risks in the world's largest economy. As of 0805 IST, the yield on the 10-year benchmark, US Treasury note was 4.50%, up from 4.47% at 1700 IST Wednesday.  (Vidhushi RajPurohit)

End

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

Edited by Rajeev Pai

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