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Informist, Friday, May 30, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds slumped after India's GDP growth for Jan-Mar was 7.4%, higher than an Informist poll estimate of 6.8% and traders' expectations of around 6.5%. Traders sold gilts because while a 25-basis-point rate cut in June is still on the table, the trajectory for further rate cuts in 2025 has become uncertain after the GDP data, dealers said. Some traders' expectations of a 50 bps cut in June also diminished after the data, they said.

The 10-year benchmark 6.79%, 2034 gilt closed at INR 103.50, or 6.29% yield, compared with INR 103.76, or 6.25% yield, at Thursday's close. The 2034 yield closed at an almost two-week high. The 6.33%, 2035 bond closed at INR 100.72, against INR 101.10 Thursday. The yield on the 2035 bond was 6.23% at close, higher than 6.18% the previous day. The spread between the two gilts narrowed slightly to 6 bps from 7 bps Thursday.

"Q4 (Jan-Mar) GDP is usually on the higher side and this time because of higher tax payments it's even better," a dealer at a private-sector bank said. "Annual GDP is still low, so I think there will be one 25 bps cut in June and one 25 bps cut in August." The government left its GDP estimate for the financial year 2024-25 (Apr-Mar) unchanged at 6.5%.

Other traders said that the Kumbh Mela had contributed to the rise in GDP in Jan-Mar. India's GDP growth rose to a four-quarter high in Jan-Mar, due to higher government capital expenditure and a pick-up in construction activity, data released by the statistics ministry Friday showed.

Gilt prices also fell near the end of the day's trade tracking a rise in overnight indexed swap rates. The five-year swap rate closed at 5.68%, from 5.64% Thursday, while the one-year swap rate closed at 5.60%, from 5.57% the previous day. Swap rates rose after the GDP print, as traders unwound bets of further rate cuts in 2025 after June.

State-owned banks, which were selling for profit earlier in the day, were likely buyers when prices fell after the GDP data, dealers said. "People were looking to buy because the view is that 10-year will fall to 6.00%, so this (the fall in gilt prices) offered good levels (to buy)," a dealer at a state-owned bank said. 

Bond traders also tracked the result of the weekly gilts auction of INR 360 billion. The government sold INR 60 billion of the 6.64%, 2027 gilt and INR 300 billion of the 6.33%, 2035 gilt. The auction results were largely along expected lines, some dealers said.

Others said the cut-off price on the 2035 gilt was weaker than expected, which led to a further fall in the gilt's price in the secondary market after the auction. The gilt had opened lower Friday as traders placed short bets to pick up fresh stock at the auction. Its cut-off price at the auction was INR 100.97, slightly lower than an Informist poll estimate of INR 101.00.

Dealers said they favoured the short-term 2027 gilt at the auction owing to surplus liquidity in the banking system, but avoided aggressive bets on the 2035 gilt for fear of the Jan-Mar GDP growth being 7.0% or above. Views of a print above 7.0% gained traction Friday, dealers said. Earlier, most had expected a print of 6.5% or below.

Dealers also speculated that the large auction size contributed to the slightly lower cut-off on the 2035 gilt. State-owned banks and the Deposit Insurance and Credit Guarantee Corp. were possibly the largest bidders for the 2035 gilt, dealers said. The deposit insurer picked up around INR 70 billion to INR 80 billion of the gilt, dealers said. Traders are likely to consider the 2035 gilt as the benchmark 10-year gilt starting Monday, as its outstanding would increase to INR 600 billion after this auction.

As for the 2027 gilt, the central bank accepted just five bids for the paper. Traders speculated that a large state-owned bank and mutual funds picked up the paper. The cut-off price on the 2027 paper was INR 102.19, against an Informist poll estimate of INR 102.15.

Foreign banks were likely to have been placing short bets on gilts during the day. Foreign portfolio investors also sold gilts, dealers said. As of 1800 IST, data from the Clearing Corp. of India showed FPIs sold gilts worth INR 40.76 billion through the fully accessible route.

The turnover in the gilts market was INR 545.05 billion, slightly higher than INR 512.65 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 Thursday.

OUTLOOK

Gilts are not traded Saturday. Monday, bond prices are likely to open sharply higher after the RBI, after market hours, announced a buyback auction of INR 250 billion. The announcement was unforeseen. Traders said they had expected a buyback only in the Jan-Mar quarter of FY26. Moreover, the government had made no provision for gilt buybacks in FY26.

Gilts may also take cues from the movement of US Treasury yields over the weekend. On the domestic front, caution may set in ahead of the RBI's Monetary Policy Committee's three-day meeting starting Jun. 4. Bonds have priced in a 25 bps cut at the outcome, but traders await RBI Governor Sanjay Malhotra's commentary on the rate outlook and any announcement to boost the surplus liquidity in the banking system. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.25-6.30% Monday. The yield on the 6.33%, 2035 bond is seen at 6.15-6.25%.

India Gilts: Fall as India Jan-Mar GDP tops view; rate cuts seen more modest

MUMBAI--1626 IST--Government bond prices fell after India's Jan-Mar GDP was much higher than traders' estimates, dealers said. Hopes of another 50 basis points in rate cuts by the Reserve Bank of India's Monetary Policy Committee for the remainder of 2025 dwindled after the print, leading to a sell-off across bonds.  

India's Jan-Mar GDP registered a growth of 7.4%, higher than the 6.8% estimated in an Informist poll. Though some sections of the market had increased their expectations to around 7.0%, most traders were expecting a print of 6.5% or below, and sold bonds after the print was released, dealers said.

The higher GDP print dashed hopes of more than two rate cuts this year. Though most traders are still widely expecting a 25 bps cut in the repo rate by the RBI's rate-setting panel at its June meeting, expectations of another 25 bps cut later in the year took a hit, dealers said.

However, some dealers said the high GDP print could be an anomaly. "Market will likely sustain levels now as the Jan-Mar high GDP could be a one-time thing due to the Kumbh Mela," a dealer at a state-owned bank said. "There was initial panic, but now the market is not that negative, so looks like June cut is still on the table."

The turnover in the gilts market was INR 446.40 billion at 1630 IST, lower than INR 429.40 billion at the same time Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the remainder of the session, the yield on the 10-year benchmark 6.79%, 2034 gilt is seen at 6.25-6.30%. For the 6.33%, 2035 gilt, dealers see the yield at 6.20-6.26%.  (Srijita Bose)

India Gilts: Mixed; 2035 gilt falls further on lower-than-view cut-off price

MUMBAI--1415 IST--Prices of government bonds were mixed after the cut-off prices at the weekly gilt auction differed from traders' expectations. Most gilt prices were little changed and the price of the 6.33%, 2035 gilt fell further, after its cut-off at the auction was INR 100.97, a tad lower than an Informist poll estimate of INR 101.00. The 6.33%, 2035 gilt price fell to INR 101.01 in the secondary market after the auction result, from INR 101.09 earlier and INR 101.10 at Thursday's close. Early gains in the 6.79%, 2034 bond were also erased, reflecting the lower-than-expected auction cut-off price.  

However, the movement in bond prices across tenures was limited due to caution before India's GDP growth for Jan-Mar and provisional estimate for 2024-25 (Apr-Mar), due at 1600 IST. The weaker-than-view cut-off on the 2035 gilt was likely due to fears of GDP growth for Jan-Mar printing at 6.8% or above. Till Thursday, most dealers had expected a print of around 6.5%, compared with an Informist poll estimate of 6.8%. Some had expected a reading above 7.0% due to spending for the Kumbh Mela held in Jan-Feb. 

"If it (GDP for Jan-Mar) is around 6.3-6.4% there will be some buying but not that sharp rally because people have already priced in aggressively for rate cuts," a dealer at a private sector bank said. "If the reading is more than 6.8% then prices can go down because then people who would have positioned for deeper rate cuts will try to sell off. A June (rate) cut would still be on the table but after that could be uncertain."

Short-term bond prices rose slightly, after aggressive bids on the 6.64%, 2027 paper. The cut-off price on the 2027 paper was INR 102.19, against an Informist poll estimate of INR 102.15. 

"Liquidity is in surplus so people have taken the 2027 bond," a dealer at state-owned bank. "Longer end (the 2035 bond) was slightly bad because market is saying GDP will be higher, 7.00% and above."

The turnover in the gilts market was INR 250.60 billion at 1430 IST, lower than INR 340.95 billion at the same time on Thursday, 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 at 6.22-6.28%. For the 6.33%, 2035 gilt, dealers see the yield at 6.14-6.25%.  (Cassandra Carvalho)

India Gilts: Mixed before India GDP; 10-yr benchmark tad up on short covering

MUMBAI--1221 IST--Government bond prices were mixed. While most bonds were in a thin band as traders awaited results of the INR 360 billion auction and the release of India's GDP data, price of the 10-year benchmark 6.79%, 2034 gilt was slightly up as traders covered some short bets placed before the gilt auction, dealers said. Meanwhile, the on-the-run 10-year 6.33%, 2035 gilt was down as traders placed short bets and looked to pick up the gilt at the auction where INR 300 billion of the bond was offered by the government, dealers said.

"People are waiting for the triggers...some price action could be seen after the auction results but most people will wait for the GDP number," a dealer at a private sector bank said. "Right now some short-covering is happening but it's mostly a traders' market right now." According to an Informist poll of 19 economists, India's GDP growth is seen rising to a four-quarter high of 6.8% in Jan-Mar from 6.2% the previous quarter.

Both traders and asset-liability managers of banks bid for the 10-year bond at the auction, dealers said. Most traders expect volumes on the 6.33%, 2035 bond to surpass that of the 6.79%, 2034 bond after the outstanding on the bond increases after the auction and takes over as the 10-year benchmark paper over the coming week, they said. Some traders also speculate Deposit Insurance and Credit Guarantee Corp. to pick up the bond at the auction and see the cut-off price at par to slightly higher than current market levels, against the estimate INR 101.00 by an Informist poll. 

Demand for the 6.64%, 2027 bond at the auction is also seen firm. Banks' asset-liability managers and mutual funds are expected to pick up the bond at the auction due to strong expectations of at least another 50-basis-point rate cut by the Reserve Bank of India's Monetary Policy Committee for the remainder of 2025, dealers said. 

Meanwhile, prices on some longer-tenure bonds were up. The 7.34%, 2064 was off highs after rising 30 paise in early trade. Long-term investors such as insurers and pension funds likely switched between gilts maturing within 29 to 50 years, dealers said. Investors also likely picked up these bonds due to attractive yield spreads, they said. The yield on the 7.34%, 2064 over the 10-year benchmark 6.79%, 2034 has widened to 59 bps from 45 bps a month ago. 

Trade volumes also remained muted as traders refrained from placing large and aggressive bets before the events, dealers said. The turnover in the gilts market was INR 112.65 billion at 1130 IST, around the same level as INR 191.35 billion at the same time on 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 at 6.22-6.28%. For the 6.33%, 2035 gilt, dealers see the yield at 6.14-6.21%.  (Srijita Bose)

India Gilts: Mostly steady before INR 360-bln bond sale, India GDP data

MUMBAI--0920 IST--Prices of government bonds were largely steady Friday with the 10-year benchmark, 6.79%, 2034 gilt price up due to an overnight fall in US Treasury yields, dealers said. Prices of other gilts were broadly steady due to caution before the INR 360-billion gilt auction and release of the India's GDP data at 1600 IST. The new 10-year 6.33%, 2035 gilt price was slightly down as traders sold some of their holdings to pick up fresh stock of the gilt at auction, dealers said. 

"Right now, auction is there, so even impact of US yields is not impacting on all gilts," a dealer at a state-owned bank said. "The size of auction is big and everyone is waiting to see how it goes." The yield on the 10-year US Treasury yield was at 4.42% at 0910 IST, down by 11 basis points from the Indian market close on Thursday. 

At the auction at 1030-1130 IST, the government will sell INR 300 billion of the 6.33%, 2035 gilt and INR 60 billion of the 6.64%, 2027 gilt. Traders are expected to bid aggressively for the 2035 gilt as they expect it to replace the current 10-year benchmark 2034 gilt after the auction. Some traders also expect demand from index funds and Deposit Insurance and Credit Guarantee Corp. at the auction. 

Gilt prices were also largely steady on caution before the release of India's GDP growth data for Jan-Mar and the provisional annual estimate for 2024-25 (Apr-Mar). According to an Informist poll, India's GDP growth is seen rising to 6.8% in Jan-Mar from 6.2% the previous quarter. Most traders expect a print of around 6.5% for the quarter ended March. The reading is expected to provide clarity on the future rate cut trajectory by the Reserve Bank of India's Monetary Policy Committee, which is scheduled to meet next week for the June policy review. The outcome of the meeting is on Friday, and traders expect the MPC to cut the policy rate by 25 basis points.

The turnover in the gilts market was INR 52.60 billion at 0920 IST, around the same level as INR 40.00 billion at the same time on 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 at 6.22-6.28%. For the 6.33%, 2035 gilt, dealers see the yield at 6.14-6.21%.  (Vidhushi RajPurohit)

India Gilts: Seen up on fall in US yields; gilt auction, India GDP data eyed 

MUMBAI – Prices of government bonds are likely to open higher Friday, tracking an overnight fall in US Treasury yields, dealers said. The gains are likely to be capped due to caution before the INR 360-billion gilt auction and the release of India's GDP growth estimates, they said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.22-6.28%. On Thursday, the 10-year gilt ended at INR 103.76, or 6.25% yield. "The gilt will likely open 8 to 9 paise higher because of fall in US yields, but then the main focus will be on the demand at the auction," a dealer at a state-owned bank said. 

The yield on the 10-year US Treasury yield was at 4.42% at 0800 IST, down by 11 basis points from the Indian market close on Thursday. US yields fell after a US appellate court reinstated the US administration's tariffs. The court paused the US Court of International Trade's earlier ruling that stated that US President Donald Trump lacked the authority to impose extensive tariffs on nearly all countries, and nullified the tariffs. Yields also fell after soft weekly jobless claims data for the week ended Saturday, which showed unemployment claims rose to 240,000, against a Dow Jones consensus estimate of 230,000.

For the first half of the day, traders are likely to focus on the INR 360-billion gilt auction. The government will sell INR 300 billion of the 6.33%, 2035 gilt and INR 60 billion of the 6.64%, 2027 gilt. Traders are expected to bid aggressively for the 2035 gilt as they expect it to replace the current 10-year benchmark 2034 gilt after the auction, as the former's outstanding would rise to INR 600 billion. For the day, the yield on the 6.33%, 2035 bond is seen at 6.14-6.21%. The gilt closed at INR 101.10 or 6.18% yield on Thursday. 

Some traders also speculated that the Deposit Insurance and Credit Guarantee Corp. is likely to participate in the gilt auction and bid for the 2035 gilt. The deposit insurer has been seen actively purchasing gilts in the secondary market this week, dealers said. Demand for the 2027 gilt is also expected to be firm from both traders and banks' asset and liability managers. Short-term gilts have been in favour with traders amid surplus liquidity and expectations of further rate cuts.

The movement of gilt prices will depend largely on the GDP growth data for Jan-Mar and the provisional annual estimate for 2024-25 (Apr-Mar), which is expected to provide clarity on further rate cuts by the Reserve Bank of India's Monetary Policy Committee, dealers said. The RBI's policy review committee is scheduled to meet on Wednesday and will release the outcome of the meeting on Jun. 6. 

According to an Informist poll, India's GDP growth is seen rising to 6.8% in Jan-Mar from 6.2% the previous quarter. Most traders expect a print of around 6.00-6.50% for the quarter ended March. A reading below 6.5% is expected to firm up hopes of a deeper rate cut cycle and the terminal repo rate falling to 5.25%, dealers said. However, a reading above 6.50% is expected to dampen such hopes; if the figure is above 6.8%, there could be a sell-off in the gilts market by traders who were positioning for a 50 bps repo cut in the remainder of 2025, they said.  (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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