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Informist, Monday, Jun. 9, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended sharply lower Monday as stop-losses were triggered across tenures. Traders pared bets of further rate cuts after the Reserve Bank of India's Monetary Policy Committee unexpectedly cut the repo rate by 50 basis points Friday and changed its stance to 'neutral' from 'accommodative', dealers said.

"Once the yield on the 6.33%, 2035 gilt touched 6.25%, all other gilt yields rose and stop-losses were triggered across the (yield) curve," a trader at a primary dealership said. Stop-losses were triggered across bonds when the 2035 gilt hit the key 6.25% yield level and the most-traded 6.79%, 2034 gilt yield hit the 6.32% level, dealers said.

Foreign and private sector banks trimmed portfolios as most traders now expect chances of a 25 bps cut repo rate only in December. Traders who were expecting a deeper rate cut cycle sold gilts, in an extension from Friday, after RBI Governor Sanjay Malhotra said the MPC was left with "very limited space" to ease policy further. Before the MPC decision, traders had expected a terminal repo rate of 5.00-5.25%, which is now expected to be around 5.50%, the current repo rate.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.33, or 6.28% yield, compared with INR 100.67, or 6.24% yield at close Friday. The most-traded bond 6.79%, 2034 bond closed at INR 103.07, or 6.35%, compared with INR 103.48, or 6.29% Friday. The yield on the 2034 gilt closed at its highest in a month. The yield on the 15-year 6.92%, 2039 bond ended at 6.58%, its highest since Apr. 7.

Foreign banks, which sold gilts Monday, had net purchased gilts worth INR 57.42 billion Friday, especially when RBI Governor Sanjay Malhotra had announced a 50 bps cut in the repo rate. "That one-minute gap between the announcement of the repo cut and the stance change is when all traders bought, especially foreign banks," a trader at another primary dealership said. "People are stuck now." Some banks had also bought gilts ahead of US non-farm payrolls data for May, but shed their positions Monday after the strong jobs data, dealers said.

State-owned banks purchased gilts when the 2035 gilt yield rose to 6.28%, as these levels were lucrative to buy, dealers said. The purchases were likely as replacement for gilts sold to the RBI at its open market purchase auctions, dealers said. The central bank has bought gilts worth around INR 5.00 trillion through OMO auctions since January, most of which came from held-to-maturity books of state-owned banks. State-owned banks also purchased gilts Monday as they had surplus funds, dealers said. On Sunday, the RBI had net absorbed INR 2.45 trillion compared with INR 3.13 trillion Friday, central bank data showed.

Traders paid close attention to the spread between the repo rate and the 10-year 2035 gilt yield. With the repo rate at 5.50%, the spread between the two widened to 78 bps Monday, from a spread of 20 bps when the repo was 6.00% at close of Indian market hours Thursday.

"The spread between repo and 10-year (gilt yield) should normally be around 30-50 bps but today (Monday) its around 80 bps, a dealer at a state-owned bank said. "This will reduce most probably by the end of this week or beginning of next week, we are just waiting for market to stabilize."

"The spread between the effective repo and 10-year G-sec yield is around 100 bps," a dealer at a private sector bank said. "The TREPS (triparty repo rate) rate is at 5.15% right now."

Traders are hoping to find the next trading range for bonds, and for bond prices to stabilise after a slump in prices Friday and Monday, they said. Traders rebalanced their portfolios Monday after buying heavily since March on expectations of a terminal repo rate of 5.00%-5.25%. Bond prices were also weighed down by the rise in US Treasury yields over the weekend. The yield on the benchmark 10-year US Treasury note rose to 4.51% at 1700 IST, from 4.40% at the same time Friday. The yield on the benchmark US 10-year Treasury note surged to the key 4.50% level after US non-farm payrolls for May released Friday showed strength in the US labour market.

Though the US Federal Open Market Committee is largely expected to keep rates unchanged next week, market participants are now waiting for US CPI inflation for May on Wednesday for more cues about the US economy. India's CPI data for May is due Thursday. However, traders are unlikely to build portfolios ahead of the data after the central bank's indication of the terminal repo being around 5.50%, dealers said. 

Gilts maturing within 10-15 years--the "belly" of the yield curve--were the worst performers during the day. After the RBI announced a 100 bps cut in banks' cash reserve ratio Friday, the central bank is unlikely to announce more OMO auctions, which reduced appetite for these bonds, dealers said.

Demand from insurers for long-term gilts, especially for Separate Trading of Registered Interest and Principal of Securities offset some sales from traders in the out-of-favour long-term papers, dealers said. Fall in prices of short-term gilts were comparatively less due to the RBI's announcement Friday of a government bond buyback auction Thursday. The central government will buy back five gilts maturing in 2026-27 (Apr-Mar). The announcement was in line with traders' expectation after the central bank transferred a record high surplus to the Centre for FY25.

The turnover in the gilt market was INR 624.45 billion, far lower than INR 1.30 trillion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the eighth consecutive day, there were no trades using the wholesale digital rupee pilot.

OUTLOOK

On Tuesday, bond prices are likely to take cues from the movement of US yields after the release of US economic data, dealers said. If US yields fall, bond prices could recover from the sharp fall Friday and Monday.

However, bonds are expected to trade in a thin band as hopes of further rate cuts have faded after the MPC decision Friday. Traders see no significant cues that could pull down gilt yields, unless GDP growth or CPI inflation is significantly lower, or if US yields cool down, they said.

Traders may also take cues from the result of the INR 183.30-billion state bond auction Tuesday. Traders expect the spread between gilts and state bonds to widen after the MPC decision, they said.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.20-6.35% and that on the most-traded 6.79%, 2034 bond is seen at 6.25-6.32% Tuesday.

India Gilts: Fall more as stop-losses hit on 6.79% 2034 gilt at 6.32% yield

MUMBAI--1530 IST--Prices of government bonds fell more as traders, especially those from foreign and private sector banks, sold gilts as stop-losses were triggered on the 6.79%, 2034 bond when its yield rose to the 6.32-6.33% level, dealers said. Bond prices were down after the Reserve Bank of India's Monetary Policy Committee Friday reverted back to its 'neutral' stance from 'accommodative', which was adopted at its meeting in April. A rise in US Treasury yields over the weekend also weighed on gilts. 

"People were actually going long with the view that the terminal repo will be 5.00% or 5.25%," a trader at a primary dealership said. "Now, that view is gone, and because of the CRR (cash reserve ratio) cut, there won't be any more OMOs (open market purchase of gilts through auction) also. So, people are just liquidating their positions."

Traders from foreign and private sector banks were trimming their trading books. Foreign banks had net purchased gilts worth INR 57.42 billion Friday, especially when RBI Governor Sanjay Malhotra had announced a 50 bps cut in the repo rate. Some banks had also bought gilts ahead of US non-farm payrolls data for May, but shed their positions Monday after the strong jobs data, dealers said. Traders hit stop-losses on the 6.79%, 2034 gilt when its yield rose to the 6.32% level, and on the 6.33%, 2035 gilt when its yield rose to 6.28% level.

State-owned banks were buying gilts as replacement after sales to the Reserve Bank of India at its OMO purchase auctions, when the yield on the 6.33%, 2035 gilt hit the 6.28% level. These purchases were likely for their 'held-to-maturity' and 'available-for-sale' books, dealers said. The central bank bought gilts worth around INR 5.00 trillion through OMO auctions since January, most of which was from state-owned banks' held-to-maturity books. 

The turnover in the gilts market was INR 479.40 billion at 1530 IST, much lower than INR 1.10 trillion 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 6.25-6.30% and that on the 6.79%, 2034 gilt at 6.30-6.38%.  (Cassandra Carvalho)

India Gilts: Sharply down as US yields up; private sector banks, FPIs likely sell

MUMBAI--1213 IST--Government bond prices were sharply down as private banks and foreign portfolio investors likely sold gilts tracking a rise in US Treasury yields, dealers said.

Bond prices were down also as further rate cut hopes were dampened after the Reserve Bank of India's Monetary Policy Committee changed its policy stance to 'neutral' from 'accommodative', dealers said. However, bond prices recovered slightly after the yield on the 10-year benchmark 6.33%, 2035 bond rose above 6.28%, a level which traders found attractive to buy, they said. State-owned banks likely picked up gilts in light volumes, limiting the fall in bond prices, dealers said.

Prices across gilts fell as traders felt further rate cuts by the RBI's rate-setting panel is unlikely in the current year, dealers said. Though an expected boost in liquidity due to the 100 basis-point cut in cash reserve ratio of banks and hopes of further buyback auctions by the government is expected to keep bonds maturing in up to 10 years in favour, a rise in US yields and caution before US data dragged prices of these bonds down, they said. Moreover, expectations of further open market operation auctions by the RBI have also faded, dealers said.

"Levels are actually good to buy considering that there has been a 50 bps cut (in repo rate), so some move downwards (in yields) will be there, which is why people are holding onto their investment positions. But the domestic outlook on rates is not good, so buys are not coming in," a dealer at a state-owned bank said. "Moreover, US yields have risen over 10 bps and some positioning before CPI (inflation) data (both India and US) can be seen."

The yield on the benchmark US 10-year Treasury note surged to 4.50% after a higher-than-expected US non-farm payrolls data Friday showed the US labour market and the economy remain stable. With domestic rate cuts seen nearly done after the RBI's rate-setting panel delivered a 50 bps cut in the repo rate Friday, traders are now more keenly tracking US yields and data, dealers said. Though the US Federal Open Market Committee is largely expected to keep rates unchanged next week, market participants are now waiting for US CPI inflation for May on Wednesday for more cues about the US economy. India's CPI data for May is due Thursday.

Trading volumes in the secondary market remained dull. Turnover in the gilts market was INR 232.70 billion at 1130 IST, much lower than INR 782.70 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 6.25-6.30% and that on the 6.79%, 2034 gilt at 6.28-6.35%.  (Srijita Bose)

India Gilts: Down tracking rise in US ylds, reduced hopes of more rate cuts

MUMBAI--0915 IST--Prices of government bonds were down, tracking a rise in US Treasury yields over the weekend, dealers said. Dampened hopes of a deeper rate cut cycle after the Reserve Bank of India's Monetary Policy Committee changed its stance to 'neutral' from 'accommadative' also kept prices down, they said. 

"Outlook is not that positive for gilts now, we need some external trigger from US yields at this point, which is also not there today (Monday)," a dealer at a state-owned bank said. "So now, it will take some time for the market to recover from here."

The yield on the 10-year benchmark US Treasury note was 4.50% as of 0900 IST, up 11 basis points from the Indian market close on Friday. The rise in US yield is expected to weigh on gilt prices for the day as the market has already been left dejected from the lower probability of more rate cuts in the rest of 2025, dealers said. 

The MPC on Friday delivered a 50-bps cut in the repo rate to 5.50%, which was higher than 25-bps cut traders had priced in. However, the accompanied change in stance has been recieved poorly by the gilts market, with reduced hopes of more cut in policy rates, dealers said. Traders see the current yield of 6.25% on the 10-year benchmark gilt as a good level to pick up gilts, though there is a hesitation in the market because the MPC left little room for further monetary easing, they said. 

"Now, people will wait for the (US) FOMC (Federal Open Market Committee) meeting outcome to see whether there is any rate cut," a dealer at a private sector bank said. 

The turnover in the gilts market was INR 45.30 billion at 0915 IST, higher than INR 27.90 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 6.20-6.28%. For the 6.79%, 2034 gilt, dealers see the yield at 6.26-6.32%. (Vidhushi RajPurohit)

India Gilts: Seen down on rise in US yields, MPC's stance change 

MUMBAI – Prices of government bonds are likely to open slightly lower on Monday, tracking a rise in US Treasury yields over the weekend, dealers said. Gilt prices are also expected to be weighed down by the decision of the Reserve Bank of India's Monetary Policy Committee to change its stance to 'neutral' from 'accommodative', limiting the chance of more rate cuts. The losses will, however, be limited due to the INR 260-billion buyback auction for Thursday, which the RBI announced post market hours Friday, they said.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.20-6.28%. The gilt ended at INR 100.67 or 6.24% yield on Friday. For the most traded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.26-6.32%. The 2034 gilt closed at INR 103.48 or 6.29% yield on Friday.

The yield on the 10-year benchmark US Treasury note was 4.50% as of 0800 IST, up 11 basis points from the Indian market close on Friday. The rise in US yields was on account of better than expected US non-farm payrolls data, which showed a rise of 139,000 jobs in May, higher than analyst's estimate of 130,000 jobs in a Reuters poll.

On Friday, the MPC delivered a larger than expected 50-bps policy repo rate cut to 5.50%, while most traders were expecting a cut of 25 bps. However, along with a rate cut, the MPC also unexpectedly changed its policy stance to 'neutral', which led traders to expect the terminal repo rate to remain at 5.50%, they said. 

"There are limited things now to look forward to as further rate cut chances are now diminished," a dealer at a private sector bank said. "So, it will be both the rise in US yields and the Friday's disappointment which can lead the prices to be low today (Monday). OIS (overnight indexed swaps) rates will also be high so that can also put pressure on (gilt) prices."

Traders expect gilts maturing within five years to perform better on account of the central bank's liquidity boost to the banking system by way of a staggered cut in the cash reserve ratio, dealers said. The RBI on Friday announced it will cut the cash reserve ratio by 100 bps in four tranches of 25 bps starting Sept. 6. The move is expected to release INR 2.5 trillion into the banking system, RBI Governor Sanjay Malhotra said. 

Short-tenure gilt prices will also be supported by the announcement of a buyback auction, dealers said. After market hours on Friday, the RBI announced a buyback of five gilts maturing in 2026-27 (Apr-Mar). The announcement was in line with traders' expectation after the central bank transferred a record high surplus to the Centre for FY25. The Centre bought back INR 238.56 billion worth of gilts through an auction last week, against a notified amount of INR 250 billion. (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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