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Informist, Wednesday, Jun. 4, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended slightly lower Wednesday as traders trimmed their holdings ahead of the Monetary Policy Committee's decision Friday, dealers said. Some traders who earlier expected the rate-setting panel to cut the repo rate by 50 basis points now only expect a 25 bps cut after a stronger-than-expected GDP growth in Jan-Mar. Bonds have already priced in a 25 bps cut, and only a few traders still expect a cut of 50 bps.

"Most of the traders are light (in gilt holding) because the view is that RBI will only cut (the repo rate by) 25 bps and may give a soft commentary," a dealer at a state-owned bank said. "Some 5-10% of market still expects a 50 bps cut but otherwise we think it will only be 25 bps. Market is hoping that RBI will lower CPI (inflation) forecasts or show concern on growth."

Bond yields may rise by 4-10 bps if the Reserve Bank of India's rate-setting panel cuts the repo rate by only 25 bps, without indicating chances of further cuts, dealers said. Traders also expect gilt yields to rise by 1-2 bps if the central bank doesn't announce any measures to boost the liquidity surplus in the banking system.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.90, or 6.21% yield, compared with INR 100.93, or 6.20% yield at close Tuesday. The most-traded bond 6.79%, 2034 gilt closed at INR 103.71, or 6.26%, compared with INR 103.74, or 6.25% Tuesday.

Volumes were lower than usual in the gilt market due to caution before the MPC decision, dealers said. The turnover was INR 424.05 billion, slightly lower than INR 430.45 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The volume in the most-traded 6.79%, 2034 bond was INR 154.40 billion, the lowest since Apr. 17.

Trade was limited to banks' held-for-trading books as current market prices are too expensive to purchase gilts to hold for longer periods in available-for-sale and held-to-maturity books, dealers said. Traders realigned their positions before the key decision, paring some bets as a 25 basis point cut is already priced in, they said.

Traders expect bond yields to rise after the next two to three months, as they expect only 50 bps more of cuts in the repo rate, including a 25 bps cut on Friday and the other likely in August or October, dealers said. This is likely when banks' asset and liability managers would step in to aggressively purchase gilts for held-to-maturity books, dealers said. 

"Market is expecting that there will just be one more cut maybe in August, so then after that there's nothing positive for gilts," a dealer at another state-owned bank said. "People are saying 10-year (gilt yield) falling below 6.00% is unlikely, it might touch that and come back up so there will a hardening in yields after the next cut."

State-owned banks were likely churning portfolios, dealers said. Foreign portfolio investors were likely to have been selling short-term gilts through foreign banks, dealers said. As of 1800 IST, Clearing Corp. of India data showed FPIs net sold gilts worth INR 7.11 billion through the fully accessible route Wednesday. However, foreign banks were purchasing gilts for their own trading books, they said.

An intraday rise in US Treasury yields weighed on gilt prices during the day, dealers said. The yield on the 10-year US Treasury note rose to 4.47% at 1700 IST, from 4.45% at 0900 IST and 4.42% at 1700 IST Tuesday.

For the fifth consecutive day, there were no trades using the wholesale digital rupee pilot Wednesday.

RUSH FOR T-BILLS

Aggressive cut-off yields at the weekly Treasury bill auction were likely due to surplus liquidity and bets of a steepening yield curve, dealers said. On Tuesday, surplus liquidity in the banking system rose to its highest since Jul. 5, 2022, on the back of government spending. The RBI Tuesday net absorbed INR 3.01 trillion from the banking system, higher than INR 2.77 trillion Monday, central bank data showed. State-owned banks and mutual funds were the most aggressive bidders at the auction, dealers said.

Traders expected the RBI to set 5.60% as the cut-off yields for both the 91-day and 364-day T-bills, according to an Informist poll. The RBI set the cut-off at 5.58% for 91-day T-bill and 5.60% for the 364-day T-bills. For the 182-day T-bills, RBI set the cut-off yield at 5.60%, lower than the poll estimate of 5.61%. The RBI also accepted non-competitive bids over and above the notified amount for each T-bill. This was INR 45.24 billion for the 91-day paper, up from INR 28.19 billion last week.

State-owned banks have surplus funds, which shot up due to a moderation in credit growth, dealers said. This has led to banks diverting these funds to high-quality liquid assets such as gilts and T-bills, which is also beneficial for statutory liquidity ratio requirements. Banks have also put cash in liquid mutual funds, dealers said.

Both standalone and bank primary dealerships also likely bid aggressively for T-bills to achieve their half-yearly 40% success rate mandate for T-bills, they said.

Traders also said that speculation of T-bill auctions being cancelled in the first half of 2025-26 (Apr-Mar) led to strong demand for these short-term securities.

"The government is sitting on a surplus after the RBI dividend so either buybacks will increase or T-bill auctions will reduce," a dealer at a state-owned bank said. On May 23, the central bank said it would transfer a surplus of INR 2.69 trillion to the central government for FY25. Another dealer expects the government to conduct buybacks worth INR 1 trillion to INR 1.5 trillion in 2025 itself.

On Friday, a finance ministry official had told Informist that there were still a lot of uncertainties on how expenditure would pan out, when asked about whether the government was mulling a cut in its short-term borrowing through Treasury bills.

OUTLOOK

Bond prices are likely to open steady Thursday due to lack of fresh triggers, dealers said. Traders may track the result of the buyback auction. The government will conduct its first buyback in over four months. It has offered to buy INR 250 billion worth of five gilts maturing in FY27 at the auction.

Bonds are expected to be tendered at levels close to those indicated by Financial Benchmarks India Pvt. Ltd., dealers said. Participation is seen firm, with state-owned banks being the major holders of the bonds to be bought back, they said. Mutual funds are also expected to participate in the auction.

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 Friday, on the rate outlook, as well as on inflation and growth.

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

India Gilts: Tad down as traders trim risk before RBI MPC outcome

MUMBAI--1451 IST--Prices of government bonds were down slightly as traders trimmed risk ahead of the Reserve Bank of India's Monetary Policy Committee's outcome Friday, dealers said. Some banks were realigning their portfolios, dealers said.

"Dealers were waiting for buying to come in the morning," a dealer at a private-sector bank said. "When that didn't happen and prices were steady, people started trimming their positions before the MPC (outcome)."

Bond prices largely traded in a thin band during the day, though an overnight rise in US Treasury yields and trimming of risk before the rate-setting panel's decision weighed on prices, dealers said. The yield on the 10-year US Treasury note rose to 4.46% as of 1451 IST, from 4.45% at 0900 IST and 4.42% at 1700 IST Tuesday. US yields rose after stronger-than-expected US job openings data Tuesday.

Lower-than-expected cut-off yields at the Treasury bill offset some losses, dealers said. The RBI set a cut-off of 5.58% on the 91-day T-bill, lower than an Informist poll estimate of 5.60%. Comfortable surplus liquidity in the banking system, along with bets of further rate cuts, led to aggressive cut-offs, dealers said. The surplus in systemic liquidity rose sharply Tuesday to the highest level since Jul. 5, 2022. Tuesday, the RBI had net absorbed INR 3.01 trillion from the banking system, higher than INR 2.77 trillion Monday, central bank data showed.

Traders also speculated that both standalone and bank primary dealerships bid aggressively to achieve their half-yearly 40% success rate mandate for T-bills. "Just before a rate cut would be a good time to fulfil the half-yearly 40% success rate because after this there's uncertainty, so PDs (primary dealerships) would have bid aggressively," a dealer at another private-sector bank said.

State-owned banks were churning their portfolios, dealers said. Foreign portfolio investors were likely to have been selling short-term gilts through foreign banks, dealers said. However, foreign banks were purchasing gilts for their own trading books, they said. 

The turnover in the gilts market was INR 206.25 billion at 1430 IST, lower than INR 295.90 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 6.33%, 2035 gilt is seen at 6.18-6.23%. For the 6.79%, 2034 gilt, dealers see the yield at 6.23-6.27%.  (Cassandra Carvalho)

India Gilts: Remain steady; T-bill cut-off yields better than view

MUMBAI--1240 IST--Prices of government bonds remained steady with most traders remaining on the sidelines as they await the Reserve Bank of India's rate-setting panel to announce the outcome of its three-day policy review meet Friday, dealers said. Some traders expect the yields on gilts to fall by at least 2 basis points on firm expectations of a 25 bps cut in repo rate by Friday, they said.

Gilt prices were down briefly on likely selling from foreign banks, dealers said. However, prices recovered as bets of a 25 bps cut in repo rate remained firm, they said, which spurred some buying from domestic banks. 

"Volumes are not rising much so any sudden selling is causing the prices to fall," a dealer at a private sector bank said. "We might see some brief volatility like this till the MPC day but overall it will remain mostly steady."

The cut-offs at the INR 190-billion T-bills auction were also slightly better than traders' expectations which supported the prices, dealers said. Traders expected the RBI to set 5.60% as the cut-off yields for both the 91-day and 364-day T-bills, according to an Informist poll. RBI set the cut-off at 5.58% for 91-day T-bill and 5.60% for the 364-day T-bills. For the 182-day T-bills, RBI set the cut-off yield at 5.60%, lower than the poll estimate of 5.61%.

Traders reasoned that an increase in the liquidity surplus in the banking system and strong demand by traders for short-tenure securities contributed to the lower cut-off yields. Systemic liquidity was in a surplus of INR 3.01 trillion Tuesday, the highest level since July 2022.

The turnover in the gilts market was INR 134.20 billion at 1230 IST, lower than INR 219.15 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 6.33%,2035 gilt is seen at 6.18-6.23%. For the 6.79%, 2034 gilt, dealers see the yield at 6.23-6.27%.  (Vidhushi RajPurohit)

India Gilts: Steady on caution as 3-day MPC meet begins, lack of fresh cues

MUMBAI--0920 IST--Prices of government bonds were steady as traders refrained from aggressive positioning before the outcome of the Reserve Bank of India's Monetary Policy Committee meeting, due on Friday, dealers said. Gilt prices are expected to remain in a narrow trading band owing to lack of incremental cues, they said.

"Till policy, people will be mostly on sidelines and prices will just oscillate around the current range," a dealer at a primary dealership said. "Now, market is just waiting for forward guidance by the MPC and then only we can see some movement."

Some traders expect some buying in light volumes by domestic banks on account of high liquidity surplus in the banking system. Systemic liquidity was in a surplus of INR 3.01 trillion Tuesday, as indicated by the RBI's net absorption of funds from the banking system, central bank data showed. The surplus figure was the highest since July, 2022. However, traders expect the gains to be capped as traders will remain cautious after already having positioned for a 25-basis-point repo rate cut on Friday, dealers said. 

Traders expect buying in short-tenure gilts, particulary those that the government will buy back through an INR 250-billion auction Thursday, dealers said. The gilts up for buyback are 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. Meanwhile, some traders were of the view that banks already have these papers in their books and would refrain from any further piling of gilts before the outcome of the policy review.   

The turnover in the gilts market was INR 44.30 billion at 0920 IST, lower than INR 15.15 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 6.33%,2035 gilt is seen at 6.18-6.23%. For the 6.79%, 2034 gilt, dealers see the yield at 6.23-6.27%.  (Vidhushi RajPurohit)

India Gilts: Seen steady on caution before MPC meet outcome Fri

MUMBAI – Prices of government bonds are likely to open steady Wednesday as traders will remain cautious before the Reserve Bank of India's Monetary Policy Committee announces the outcome of its three-day meeting Friday, dealers said. Ample liquidity in the banking system and firm expectations of a cut of 25 basis points in the policy repo rate are likely to support gilt prices during the day, 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 100.93 or 6.20% yield Tuesday. For the most taded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.23-6.27%. The 2034 gilt closed at INR 103.74 or 6.25% yield on Tuesday. 

The RBI's MPC begins its policy review meeting Wednesday and traders have already positioned for a 25-bps repo rate cut, dealers said. Traders await RBI Governor Sanjay Malhotra's policy statement to gauge the rate cut trajectory and any commentary on liquidity, inflation and growth, they said. If the MPC indicates any further cuts in the policy rate for the rest of 2025, traders expect the yield on the 10-year benchmark paper to ease further by around 5 bps, dealers said. 

Along with a cut in repo rate, some traders are of the view that the RBI is likely to widen the Liquidity Adjustment Facility corridor on either side of the central bank's repo rate by 25 basis points each. Some traders also expect the announcement to include a reduction in the requirement of minimum daily cash reserve ratio balance maintenance to around 80% of the fortnightly requirement from the current 90%.

Some traders were of the view that domestic banks are likely to continue picking up gilts Wednesday owing to comfortable liquidity in the banking system, which rose to a surplus of INR 2.77 trillion Monday, the highest since Nov. 5. Durable liquidity in the banking system as on May 16 was in a surplus of INR 3.49 trillion. However, prices are likely to remain in a thin band until the MPC meet outcome Friday, dealers said.

Short-tenure gilts are expected to remain in favour as traders see the yield curve steepening further. On Thursday, the Centre will buy back INR 250 billion worth of gilts maturing in 2026-27 (Apr-Mar) through an auction. Traders expect the government to come with more buybacks of short-tenure gilts and this will further support the prices of these gilts, dealers said.  (Vidhushi RajPurohit)

End

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

Edited by Ashish Shirke

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