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Informist, Tuesday, Jun. 3, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds rose Tuesday as traders, who had sold bonds from their portfolios after a stronger-than-expected GDP print for Jan-Mar last Friday, covered these sales ahead of the Reserve Bank of India's Monetary Policy Committee meeting outcome Friday, dealers said. 

Traders picked up gilts on expectations that the RBI would widen the Liquidity Adjustment Facility corridor by 25 basis points each on either side of the repo rate. Bond yields could rise by 1-2 bps if the RBI doesn't widen the corridor, dealers said. Traders widely expect the RBI's Monetary Policy Committee to cut the repo rate by 25 bps on Friday, which is largely priced in, dealers said.

"Who won't want to buy now?" a dealer at a state-owned bank said. "We're nearing a rate cut and everyone expects the Standing Deposit Facility rate to be widened (further by 25 bps from the repo rate). There was too much selling after GDP (for Jan-Mar) on (last) Friday."

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.93, or 6.20% yield, compared with INR 100.84, or 6.21% yield, at close Monday. The most-traded bond, the 6.79%, 2034 gilt, closed at INR 103.74, or 6.25%, compared with INR 103.65, or 6.27%, Monday.

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 1730 IST showed trades worth INR 92.81 billion in the 6.79%, 2034 gilt, down from INR 102.53 at the same time Monday. The 6.79%, 2034 gilt remains the most traded paper on the RBI's Negotiated Dealing System-Order Matching platform, even though traders had expected the 6.33%, 2035 gilt to replace the 2034 gilt as the 10-year benchmark after the gilt's auction last Friday. Traders now expect the transition to occur only after the MPC outcome, or even one or two weeks later.

"If you see, the selling is happening in the 6.79%, 2034 bond, but the buying is happening in the 6.33%, 2035 bond," a dealer at another state-owned bank said. "... market is just in wait and watch mode, all changes will happen after the MPC (decision)." 

A comfortable surplus liquidity in the banking system also aided the rise in bond prices. On Monday, the RBI had net absorbed INR 2.77 trillion from the banking system, higher than the INR 2.32 trillion Sunday, central bank data showed. This, coupled with slow growth in credit offtake, led to a preference for gilts, dealers said. 

State-owned banks were likely buyers, along with minor purchases from foreign banks, dealers said. Foreign banks turned net buyers Monday to likely position themselves ahead of the MPC decision, after net selling gilts worth INR 90.62 billion last week. A large corporate entity was purchased gilts maturing within 5-7 years, dealers said. Mutual funds picked up 5-year gilts and state bonds, a dealer said. 

Primary dealerships were likely on the sidelines Tuesday, dealers said, after net sales worth INR 573.04 billion since May 8. Demand at the weekly gilt auction of INR 320 billion is likely to hinge on the MPC outcome, especially since both bonds being auctioned are longer-tenure bonds, which are currently out of favour, dealers said. The government will sell INR 160 billion each of the 6.92%, 2039 bond and the 6.90%, 2065 bond at 1230-1330 IST Friday. 

As for the MPC decision, traders speculate that the central bank's focus could be on liquidity, and commentary from RBI Governor Sanjay Malhotra could indicate further rate cuts, dealers said. Traders expect the six-member rate-setting panel's voting pattern to be unanimous. Some traders even speculate that the MPC could cut rates by 50 bps, despite the strong GDP print for Jan-Mar. SBI Research, in a note, advocated for a 50 bps cut in the repo rate Friday. Traders expect short-term gilt yields to fall by around 10-15 basis points more in the medium term on the expectation of further rate cuts and liquidity boosting measures.

"I think 5-year (6.75%, 2029 gilt) and the 10-year (6.79%, 2034 gilt) also look good right now," a dealer at a private sector bank said. "There is definitely going to be more bull-steepening of the (gilt yield) curve, but to position, the 10-year paper is liquid, so it's better."

The steepening of the state bond yield curve was reflected in the results of the state bond auction Tuesday. States raised INR 281.77 billion through bonds, against a notified amount of INR 294.00 billion. Cut-off yields on longer-term papers were higher than expected, even though aggressive demand from state-owned banks pulled cut-off yields on the 10-year gilts slightly lower than estimates.   

The turnover in the gilts market was INR 430.45 billion, almost the same as INR 425.45 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Tuesday, for the fourth consecutive day.

OUTLOOK

Bond prices are likely to open steady Wednesday due to caution as the RBI rate-setting panel's three-day meeting starts, dealers said. The meeting will start on Wednesday and the outcome will be announced on Friday. The MPC is widely expected to cut the policy repo rate by 25 bps to 5.75%. Traders may track the result of the Treasury bill auction of INR 190 billion due to the preference for short-term securities. 

Gilts may also take cues from the movement of US Treasury yields overnight, after the release of US economic data and comments from US Federal officials, 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% Wednesday.

India Gilts: Erase some gains on higher cut-off ylds at state bond auction

MUMBAI--1555 IST--Government bond prices remained up due to firm expectations of rate cut by the Reserve Bank of India's Monetary Policy Committee on Friday. Bonds gave up some gains after cut-off yields on some state bonds at auction were higher than expected, which left traders disappointed, dealers said.

"We're seeing a move in secondary market now because some of the cut-offs (yields) on state bonds were bad," a trader at a primary dealership said. "On the 11-, 12-, 13-year bonds, we did not expect such bad cut-offs." 

At the state-bond auction, 12 states raised INR 281.77 billion against INR 294 billion worth of bonds offered by states. Madhya Pradesh accepted a partial amount of INR 7.77 billion for its 16-year bond against INR 20 billion offered. State-owned banks were likely sellers in the secondary market after picking up chunk of bonds at the auction, dealers said. 

Traders picked up bonds maturing in seven and eight years as they found yield spreads attractive, dealers said. The yield sread on the 10-year benchmark 6.33%, 2035 bond over the seven-year benchmark 6.79%, 2031 bond was above 19 bps while that of the 10-year bond over the five-year benchmark is at nearly 36 bps.

Expectations that the RBI will announce further measures to boost liquidity at Friday's policy outcome also kept prices up, dealers said. More traders are now expecting that the central bank on Friday will widen the Liquidity Adjustment Facility corridor to 50 basis points on either sides of the RBI's repo rate from 25 bps currently. 

The turnover in the gilts market was INR 312.25 billion at 1530 IST, higher than INR 313.10 billion at the same time on Monday, 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 6.18-6.24%. For the 6.79%, 2034 gilt, dealers see the yield at 6.24-6.28%.  (Srijita Bose)

India Gilts: Up on bks, corporates likely buys; firm bets on Fri MPC outcome

MUMBAI--1255 IST--Government bond prices rose on likely buys from banks and corporate houses, dealers said. Firm expectations of a 25-basis-point rate cut by the Reserve Bank of India's Monetary Policy Committee, along with the hope of some liquidity measures by the central bank on Friday, supported the rise in prices, they said.

Prices on bonds maturing in seven to 10 years were up the most as traders switched between these bonds to position for Friday's policy outcome, dealers said. Traders are widely expecting two rate cuts for the remainder of 2025, but after the India GDP print for Jan-Mar on Friday, which came at a four-quarter high of 7.4%, they were seen pushing back their expectation of the second 25-basis-point cut after June to sometime later in the year, dealers said. Some traders expect the RBI to widen the Liquidity Adjustment Facility corridor by another 25 bps on each end of the band from the current 25 bps on either side of the band, while others expect the RBI to announce more government bond purchases through open market operation auctions or a cut in the cash reserve ratio of banks.

"People are taking positions before MPC, but today I think sdl results will also be important, it could give a reality-check," a dealer at a primary dealership said. "Liquidity is giving a suppport because its come above the 1% NDTL (net demand and time liabilities) target now but I think foreign banks are also buying for their proprietary books." On Monday, the RBI had net absorbed INR 2.77 trillion from the banking system, the highest since Nov. 5, central bank data showed. RBI Governor Sanjay Malhotra had said in April that the central bank would aim to maintain a surplus liquidity around 1% of banks' net demand and time liabilities, and as of May 16, that would amount to a liquidity surplus figure of INR 2.3 trillion.

At the state bond auction, traders were divided on their expectations in buying bonds maturing in 10-20 years, dealers said. Some dealers expected good demand in bonds maturing up to 15 years on rate cut expectations and after the central bank made some state government bonds eligible for Separate Trading of Registered Interest and Principal of Securities. However, others said that the spreads on state bonds over gilts were not attractive enough and that demand for "STRIP-ing" these bonds will remain muted. Meanwhile, muted demand from long-term investors such as insurance and pension funds could also lead to higher cut-off yields and some of the bonds to be not accepted at the auction, dealers said. An Informist poll estimated cut-off yields on states' 10-year bonds to be around 6.64-6.65%. Prices in the secondary market could take cues from the results of the auction later in the day, dealers said. 

The turnover in the gilts market was INR 219.15 billion at 1230 IST, higher than INR 145.75 billion at the same time on Monday, 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 6.17-6.24%. For the 6.79%, 2034 gilt, dealers see the yield at 6.22-6.28%.  (Srijita Bose)

India Gilts: Steady on lack of fresh cues, caution before MPC meet result Fri

MUMBAI--0920 IST--Prices of government bonds were steady as traders said there were no incremental cues in the market, dealers said. Traders also refrained from placing aggressive bets before the Reserve Bank of India's Monetary Policy Committee announces the outcome of its three-day policy review meeting on Friday, they said. 

"Position has already been built for a (rate) cut. Now, the only thing due is the commentary from the (RBI) governor," a dealer at a private sector bank said. "From here, prices might not move that much, and we can see some consolidation till the outcome of MPC."

Traders are of the view that as in the secondary market, shorter-tenure gilt will continue to remain in favour owing to rate cut expectations and comfortable liquidity in the banking system. On Monday, liquidity in the banking system was in a surplus of INR 2.77 trillion. Moreover, as on May 16, durable liquidity was in a surplus of INR 3.49 trillion. 

Traders do not expect any sharp movement in gilt prices until the result of the state bond auction Tuesday. At the auction, 12 states are scheduled to raise INR 294 billion. Trade volumes in the gilt market were also low. The turnover in the gilts market was INR 14.00 billion at 0920 IST, lower than INR 92.75 billion at the same time on Monday, 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%. For the 6.79%, 2034 gilt, dealers see the yield at 6.25-6.28% (Vidhushi RajPurohit)

India Gilts: Seen steady due to lack of fresh cues; MPC meet result Fri eyed

MUMBAI – Prices of government bonds are likely to open steady owing to lack of any incremental cues in the market, dealers said. Some caution before the outcome of the Reserve Bank of India's Monetary Policy Committee meeting, due on Friday, is expected to keep gilt prices broadly steady, they said. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.18-6.23%. The gilt ended at INR 100.84 or 6.21% yield Monday. For the most taded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.25-6.28%. The 2034 gilt closed at INR 103.65 or 6.27% yield. 

"Market will open at same level only as no big event is there today (Tuesday). Volume will also not be that high because there is a general wait in the market for the MPC decision," a dealer at a private sector bank said. 

For the first half of the day, dealers will focus on the INR 294-billion state bond auction at 1030-1130 IST. At the auction, traders expect short-tenure bonds to recieve firm demand from traders as even in secondary market, these bonds are in favour owing to rate cut expectations. 

"The yields for short-tenure bonds are falling more than longer-tenure bonds, so traders will look to buy these bonds at the auction as well," a dealer at a state-owned bank said. 

The RBI's rate setting panel will commence its three-day policy meeting Wednesday and the market widely expects it to cut the policy repo rate by 25 basis points to 5.75%. At the current yield level of 6.21%, traders have already positioned for a 25 bps cut in the repo rate and they expect prices to move in a narrow band till the MPC announces its decision Friday. Along with a cut in repo rate, some traders also expect the RBI to announce flexible cash reserve ratio requirement or a wider Liquidity Adjustment Facility corridor, dealers said. (Vidhushi RajPurohit)

End

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

Edited by Saji George Titus

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