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Informist, Monday, Jun. 2, 2025

By Srijita Bose and Aaryan Khanna

MUMBAI – Government bond prices ended higher Monday after the Centre announced it would buy back INR 250 billion worth of gilts maturing in the financial year 2026-27 (Apr-Mar) through an auction Thursday. Firm expectations of a 25 basis-point rate cut by the Reserve Bank of India's Monetary Policy Committee Friday supported the rise in prices, dealers said. 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.84, or 6.21% yield, compared with INR 100.72, or 6.23% yield, at close Friday. The most-traded bond, the 6.79%, 2034 gilt, closed at INR 103.65, or 6.27%, compared with INR 103.50, or 6.29%, Friday.

"There was selling on Friday, which was mostly from people who were hoping for a 50 bps cut in June," a dealer at a state-owned bank said. "But with buyback auction and a 25 bps cut on Friday, which seems like a done deal, investor demand came in."

Gilt prices had given up some early gains during the day on likely sales by a large institutional investor and primary dealerships. However, near the end of trade, prices rose again on likely purchases by asset-liability managers of state-owned banks, dealers said.

Corporate activity is likely to play a larger role in gilt prices ahead of the policy outcome as traders are likely to keep to the sidelines, dealers said. Some large corporate houses were buying short-term gilts, while others were selling gilts maturing in five and 10 years. There was mixed feedback on demand from mutual funds, which faced redemption pressures at the month-end last week. Meanwhile, the Deposit Insurance and Credit Guarantee Corp. of India's purchases of 10- and 15-year bonds ended Friday and the deposit insurer was not heard from on Monday, dealers said.

The recovery from Friday, when traders dumped gilts after India's GDP growth in Jan-Mar was well above consensus estimates at 7.4%, started early Monday. The buyback announcement affirmed traders' expectation that liquidity would remain well in surplus even if the Monetary Policy Committee does not cut rates as deeply as hoped for earlier, dealers said. The government will buy the 7.27%, 2026 bond; the 6.99%, 2026 bond; the 6.97%, 2026 bond; the 7.33%, 2026 bond; and the 8.24%, 2027 bond at auction Thursday.

The government's spending on the buyback will add liquidity into the banking system, less than two weeks after its cash balances were bolstered by the RBI's record surplus transfer of INR 2.69 trillion for FY25. Traders expect buybacks of up to INR 750 billion for FY27 bonds in the current fiscal year, lower than buybacks worth INR 881.64 billion in FY25 of bonds maturing in the current fiscal.

Bonds maturing under five years, including the gilts to be bought at auction, did not react much to the announcement as yields on these had already fallen sharply heading into the policy week. Bonds maturing in up to two years had been well bid over the last two weeks, taking cues from a slide in Treasury bill cut-off yields, dealers said. Some sections of the market expect the RBI to widen its Liquidity Adjustment Facility corridor asymmetrically, bringing the standing deposit facility rate to 50 bps below the policy repo rate from the current spread of 25 bps. This would be akin to a 50-bps cut in the policy rate, as the overnight rate will continue to hug the lower end of the LAF corridor with surplus liquidity in the banking system, dealers said.

"The chatter is indeed there, but it's very unlikely to happen," a dealer at a private-sector bank said. "The RBI has historically only taken these decisions at the end of a rate-cut cycle, so doing it when another rate cut is still on the table and potentially more could come seems like a move driven more by banks looking to make it happen rather than a smart decision by the RBI."

Some dealers said tenders at the buyback auction are not likely to be aggressive and banks will demand higher prices to offload gilts, leading to the government not buying back the entire notified amount. However, traders picked up the five-year benchmark 6.75%, 2029 gilt as well as 2031 bonds ahead of the policy meeting on hopes the RBI would announce further liquidity infusion measures and yields on these tenures would fall the most, dealers said.

Meanwhile, gilts maturing in above 10 years continued to underperform the rest of the market, especially with the gilt supply of INR 320 billion this week split evenly between the 14- and 40-year bonds. Investors, including insurance companies and state-owned banks, all added gilts maturing in less than five years to their books, with limited incremental demand for longer-term bonds, dealers said. 

The turnover in the gilts market was INR 425.45 billion, slightly higher than INR 545.05 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Monday, same as the last two days.

OUTLOOK

Tuesday, bond prices are likely to steady owing to the lack of significant domestic cues scheduled overnight and caution ahead of the RBI rate-setting panel's three-day meeting which begins Wednesday, dealers said. The RBI is widely expected to cut the policy repo rate by 25 bps to 5.75%.

Gilts may also take cues from the movement of US Treasury yields overnight, though the impact of the offshore trigger may be limited ahead of the domestic monetary policy meeting. Traders await RBI Governor Sanjay Malhotra's commentary on the rate outlook as well as inflation and growth Friday.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.18-6.25%. The most-traded 6.79%, 2034 bond is seen at 6.22-6.30% Tuesday.

India Gilts: Gains erased in 10-year; traders pare bets on change in rate view

MUMBAI--1449 IST--Most gains in bond prices were erased on likely sales by a large institutional investor and primary dealerships, dealers said. State-owned banks were churning portfolios, they said. Traders preferred short-term gilts owing to comfortable liquidity in the banking system and the announcement of the government's INR 250-billion bond buyback.

"This selling has been since morning, now there's no buying interest in 10-year, so we're seeing a fall now," a dealer at a state-owned bank. "Many were expecting a 50 bps cut at MPC (Monetary Policy Committee outcome on Friday) so they are reducing positions before that."

After India's GDP growth for Jan-Mar, released Friday, was stronger than traders' estimates, hopes of more than 50 basis points of rate cuts in the remainder of 2025 faded, and traders trimmed positions. Low trade volumes amplified the movement of bond prices, dealers said. Some traders were also expecting a 50 bps cut at the outcome of the Reserve Bank of India's monetary policy meeting Friday, and sold gilts after the strong GDP growth print of 7.4%. 

Traders, especially those from domestic banks, continued to buy gilts on expectations that the rate-setting panel would deliver a cut of 25 bps Friday. However, traders preferred buying short-term gilts, maturing in 5-7 years, and sold the benchmark 6.33%, 2035 gilt. 

Short-term bonds, especially the five-year 6.75%, 2029 gilt, remained up on comfortable surplus liquidity in the banking system and the central bank's announcement of the INR 250-billion bond buyback scheduled for Thursday. Sunday, the RBI had net absorbed INR 2.32 trillion from the banking system, higher than INR 2.10 trillion Friday, data from the central bank showed.

Turnover in the gilts market was INR 260.25 billion at 1430 IST, marginally higher than INR 250.60 billion at the same time Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.19-6.24%. In the case of the 6.79%, 2034 gilt, dealers see the yield at 6.26-6.30%.  (Cassandra Carvalho)

India Gilts: Remain up on INR 250-bln buyback auction; 5-yr bond up most

MUMBAI--1254 IST--Government bond prices remained up on expectations of a further flush of liquidity with the government offering to buy back INR 250 billion worth of gilts maturing in 2027, dealers said. Strong expectations of a 25-basis-point cut in repo rate by the Reserve Bank of India's Monetary Policy Committee on Friday also supported the rise in gilt prices. The 6.75%, 2029 bond was up 10 paise, the most among benchmark gilts, on likely purchases by banks and mutual funds, dealers said.

"After the GDP data, the aggressive buying that was coming before has gone down but there are still expectations of a rate cut on Friday," a dealer at a state-owned bank said. "Buyback (auction) announcement is currently leading to buys in the short-term bonds."

Bonds maturing up to seven years have performing better than other tenures on expectations of further rate cuts and comfortable liquidity conditions. However, with a higher GDP print of 7.4% for Jan-Mar, some traders have pared their expectations of two more rate cuts in the remainder of 2025. Some dealers said that a sharp fall in short-term bond yields was unlikely now with fewer rate cuts in the vicinity, while others said that if RBI continues to provide liquidity support there is space of a further fall in their yields. Some traders expect the RBI to bring changes in the liquidity management framework with a wider Liquidity Adjustment Facility corridor, while others expect the RBI to announce more bond purchases through open market operation auctions or a cut in the cash reserve ratio of banks. 

At the buyback auction, some traders expect banks to tender bonds higher to current market levels, dealers said. "Right now, buyback is giving the market some boost, but we will have to wait and see if the RBI accepts bids at higher levels," a dealer at a primary dealership said. "Since most of these bonds are currently out of the money, banks will demand higher prices, but if the buyback auction is not good, then there are chances that RBI will resort to T-bill (auction) cancellations to save the costs."

Turnover in the gilts market was INR 145.75 billion at 1230 IST, marginally higher than INR 143.15 billion at the same time on Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.19-6.24%. In the case of the 6.79%, 2034 gilt, dealers see the yield at 6.25-6.28%.  (Srijita Bose)

India Gilts: Up on bets of 25 bps rate cut, Friday's buyback announcement 

MUMBAI--0920 IST--Prices of government bonds were up Monday as traders continued to place bets of a 25-basis-point cut in the repo rate at the June policy review meeting, dealers said. Prices were also supported, as the Reserve Bank of India after market hours on Friday announced an INR 250-billion buyback auction for Thursday, they said. 

"There is a recovery in prices after the sell-off on Friday," a dealer at a state-owned bank said. "People are still pricing in a rate cut but after the GDP data, the degree of aggression has come down." Friday, gilt prices slumped after India's GDP growth print for Jan-Mar came in at 7.4%, higher than an Informist poll estimate of 6.8%. The reading was also sharply higher than most traders' expectations of around 6.5%. 

Traders are of the view that despite the high GDP growth reading, the RBI's Monetary Policy Committee will deliver a 25 basis cut in policy rate. At the current yield of 6.21% on the 10-year benchmark, 6.33%, 2035 gilt, traders have already priced in a 25 bps repo rate cut, dealers said. Before the policy outcome Friday, some traders expected the yield to fall to 6.19%. 

"This is a fresh week, so traders will look to leverage their positions now. But there is a wait in the market about what to expect in terms of further rate cuts," a dealer with a private sector bank said. Traders expect some caution before RBI Governor Sanjay Malhotra's policy statement to gauge the tone and outlook on growth and inflation. 

The turnover in the gilts market was INR 92.75 billion at 0920 IST, higher than INR 52.60 billion at the same time on Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%,2035 gilt is seen at 6.20-6.24%. For the 6.79%, 2034 gilt, dealers see the yield at 6.25-6.28%.  (Vidhushi RajPurohit)

India Gilts: Seen tad up on buyback announcement; MPC meet outcome Fri eyed

MUMBAI – Prices of governmenet bonds are likely to open higher Monday after the Reserve Bank of India announced an INR 250-billion buyback auction Friday, dealers said. The gains will, however, be capped as traders will continue to assess the higher-than-expected GDP growth print for Jan-Mar and the future rate cut trajectory of the RBI's Monetary Policy Committee, they said.  

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.16-6.24%. The gilt ended at INR 100.72 or 6.23% yield Friday. For the most taded, and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.25-6.30%. The 2034 gilt closed at INR 103.50 or 6.29% yield. 

"Prices could maybe open 5 paisa higher, as the buyback is a positive for the market," a dealer at a private sector bank said. "But some caution is also likely as there is policy on Friday."

Post market hours Friday, the RBI announced a gilt buyback auction worth INR 250 billion. Traders were not expecting a buyback auction, which will likely keep gilt prices supported, dealers said. The government had also not made any provision for gilt buybacks in 2025-26 (Apr-Mar) in the Budget tabled in February. 

India's GDP growth print for Jan-Mar was 7.4%, higher than an Informist poll estimate of 6.8%. The reading was also sharply higher than most traders' expectations of around 6.5%. Post the release, the hopes of some traders for a 50 basis point cut in the repo rate in June were dashed. Traders still expect the RBI's MPC to lower the policy rates by 25 bps Friday at the outcome of the three-day policy review meet.  

"People already sold a lot after GDP. From here, we won't see much sell-off as now everyone will wait for (RBI) Governor's (Sanjay Malhotra) statement and tone," a dealer at another private sector bank said. 

Most traders only expect a rate cut, but some dealers also expect the RBI's MPC to announce some liquidity infusing measures such as a cut in the cash reserve ratio requirement. After the policy outcome, traders also expect the RBI to come up with an open market operation auction calendar for June to purchase gilts, dealers 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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