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Informist, Wednesday, Jun. 11, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply lower Wednesday on speculation that the Reserve Bank of India will announce a variable rate reverse repo auction, dealers said. Prices were up earlier as traders found bond prices attractive and covered some short bets placed Tuesday, they said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.16, or 6.31% yield, compared with INR 100.25, or 6.29% yield at close Tuesday. The most-traded 6.79%, 2034 bond closed at INR 102.90, or 6.37% yield, compared with INR 102.95, or 6.36%, Tuesday. The closing yield of the 2034 gilt was its highest since May 9.

"The VRRR panic is what has led to a fall in the market," said a dealer at a state-owned bank. "I personally don't see any logic to this because the RBI will undo all the liquidity boosting measures they made so far. In case a VRRR actually comes, I don't think the 6.40% (yield on the erstwhile 10-year benchmark 6.79%, 2034 bond) will hold. It could go up to 6.45% also."

Traders placed short bets later in the trading session amid speculation of a VRRR announcement, dealers said. Shorter tenure gilts maturing in seven years were down more on fears of a VRRR announcement, dealers said. Traders said a VRRR auction would lead to a rise in overnight borrowing rates in the banking system and could indicate that the RBI's Monetary Policy Committee will not cut rates further in 2025.

Prices of most gilts maturing in 10 years or more were up earlier on likely demand from insurers but fell towards the end of the day's trade as the market was spooked by speculation around the VRRR auction, dealers said. Earlier in the trading session, state-owned banks and foreign banks are likely to have covered some short bets placed Tuesday on finding the yield on the 10-year 6.79%, 2034 bond attractive. In the special repo segment of the Clearcorp Repo Order Matching System, the volume of the 2034 gilt was INR 111.62 billion as at 1852 IST, sharply up from INR 83.16 billion Tuesday. The number of trades in a paper in the special repo segment of the Clearcorp Repo Order Matching System shows the short sales in that bond. Dealers said the update in the Clearcorp Repo Order Matching System data comes with a lag and the current volume was a reflection of the short bets placed Tuesday.

Even as traders assessed the rumours around the VRRR auction in the latter half of trade, a fall in the 2034 bond was likely limited as traders closely tracked the technical levels of its yields as the spread of the 2034 bond over the RBI's repo has widened to 87 basis points from 25 bps at Thursday's close before the RBI's Monetary Policy Committee slashed the repo rate by 50 bps.

Meanwhile, the 15-year benchmark 6.92%, 2039 bond continued to underperform as demand from banks remained muted, dealers said. The yield on the 15-year bond has risen over 16 basis points from Friday's close. "Yes, the yield spread looks good, but banks don't want to go for over 10-year paper and for long-term investors too this is not a great paper, so that (the bond) has been one of the worst hit," a dealer at a primary dealership said.

At the Treasury bills auction Wednesday, the cut-off for the 364-day T-bill was 7 basis points higher than the cut-off estimated in an Informist poll at 5.50%. Banks and primary dealers, the major participants at the auction, demanded higher yields on T-bills as they see the terminal repo rate at 5.50%, dealers said. Some said primary dealerships are likely to have picked up the 91-day and 182-day T-bills to achieve their half-yearly 40% success rate mandate for T-bills. "Borrowing rates are low and near the SDF (the RBI's Standing Deposit Facility of 5.25%), so it makes sense to go for T-bills at these levels," a dealer at a primary dealership said.

Bond prices also fell owing to a rise in the 10-year US Treasury yield, which was up nearly 5 bps since 1700 IST Tuesday at 4.50%. Traders waited for the US CPI inflation for May, released after market hours Wednesday, as the next cue for US Treasury yields. Foreign and private-sector banks are likely to have placed short bets near the end of trade on caution before the US CPI data. With domestic rate cuts seen to be 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, some said that if the US CPI print was widely off expectations, it could influence the panel's policy decision and outlook.

The turnover in the gilt market was INR 597.85 billion, higher than INR 504.15 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Two trades worth INR 100 million were conducted in the 7.10%, 2034 gilt using the wholesale digital rupee pilot, the same as Tuesday.

OUTLOOK

Thursday, bond prices are likely to take cues at the opening from the movement of US yields after the US CPI data, dealers said. US CPI inflation for May was 2.4%, in line with estimates in a Dow Jones poll. Traders will also await the results of the INR 260 billion buyback auction of bonds maturing in the financial year 2026-27 (Apr-Mar).

However, bonds are expected to trade in a thin band as hopes of further rate cuts have faded after the RBI rate-setting panel's decision Friday. Traders see no significant cues that could pull gilt yields lower, unless CPI and GDP growth are significantly lower, or US yields cool, they said. India's CPI inflation for May is due 1600 IST Thursday and is expected to be at a six-year low of 3.0%, according to an Informist poll of 12 economists. CPI inflation was at a 69-month low of 3.16% in April and 4.80% in May 2024.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.20-6.35%. The yield on the most-traded 6.79%, 2034 bond is seen at 6.32-6.40% Thursday.

India Gilts: Erase some gains on fears RBI may announce VRRR auction

MUMBAI--1549 IST--Government bonds gave up some gains on fears that the Reserve Bank of India may announce variable rate reverse repo auctions, dealers said. Prices remained up as traders found bond prices attractive and covered some short bets placed Tuesday, they said. 

"There was a news flash and some sections of the market is thinking a VRRR could come. I personally don't think that the RBI will do something like that. But still, better to be on the safe side, so we are seeing a similar reaction like yesterday (Tuesday)," a dealer at a private sector bank said. "So short end is down because of that, but these are also good levels to buy, so the price action is not much."

Shorter tenure gilts maturing in seven years were down more on fears of a VRRR announcement, dealers said. Prices of most gilts maturing in 10 years and above were up due to likely demand from insurers, dealers said. State-owned banks are also likely to have bought gilts as they found the yield on the 10-year 6.79%, 2034 bond attractive, given that its yield spread over the RBI's repo has widened to 85 basis points from 25 bps at Thursday's close before the RBI's Monetary Policy Committee slashed the rate by 50 bps. Traders also found the 6.35% yield on the 10-year bond attactive to buy, dealers said.

At the Treasury bills auction, the cut-off for the 364-day T-bill was 7 basis points higher than the cut-off estimated in an Informist poll at 5.50%. Banks and primary dealers, the major participants at the T-bill auction, demanded higher yields on the T-bill as they widely see the terminal repo rate at 5.50%, dealers said. 

The turnover in the gilts market was INR 455.95 billion at 1530 IST, higher than INR 396.80 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 6.25-6.30%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.38%.  (Srijita Bose)

India Gilts: Up as traders cover short bets; gains capped as US ylds rise

MUMBAI--1200 IST--Government bond prices rose as traders covered some short bets placed in the previous session as they thought the fall in prices Tuesday was over done, dealers said. State-owned and some private-sector banks likely bought gilts, they said. Gains in gilt prices was limited as the 10-year US yield was up by nearly 4 bps since 1700 IST Tuesday to 4.49% at 1200 IST. 

"The shorts yesterday (Tuesday) were overdone because I think some people who were deep in the money profit booked, but because the yield breached 6.35% yesterday, many others panicked and placed shorts. So some covering is happening today (Wednesday)," a dealer at a primary dealership said. "But the buying sentiment is not coming...although in the long-term, yields will fall and normalise with the (Reserve Bank of India's) repo." With the repo rate at 5.50%, the spread on the 10-year benchmark 6.33%, 2035 bond over the repo has widened to nearly 79 basis points Wednesday, from a spread of 20 bps when the repo was 6.00% at close of Indian market hours Thursday. 

In the special repo segment of the Clearcorp Repo Order Matching System, the volume of the erstwhile 10-year benchmark 6.79%, 2034 gilt, which has higher outstanding than the 10-year benchmark bond, was INR 111.62 billion as at 1200 IST, sharply up than INR 83.16 billion Tuesday. The number of trades in a paper in the special repo segment of the Clearcorp Repo Order Matching System shows the short sales in a particular bond. Dealers said that the update in CROMS data comes with a lag and the current volume was a reflection of the short bets placed Tuesday. 

Some inflows from insurers in the 6.79%, 2034 bond also led to a rise in prices on the bond, dealers said. Most traders were, however, waiting for further cues, refraining from placing large and aggressive bets, dealers said.

US CPI inflation for May, which is scheduled to be released after market hours Wednesday, which will be the next cue trigger for US Treasury yields. 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, some said that if the US CPI print is widely divergent from expectations, it could influence the panel's policy decision and outlook.

Trade volume in the secondary market remained dull due to caution ahead of US CPI data. The turnover in the gilts market was INR 119.00 billion at 1130 IST, lower than INR 153.25 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 6.25-6.30%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.38%.  (Srijita Bose)

India Gilts: Up as prices seen lucrative after slump on Tue, US CPI eyed

MUMBAI--0930 IST--Prices of government bonds were higher as traders found current levels attractive to pick up gilts in light volumes, dealers said. For further cues, traders now await inflation readings for both the US and India. 

"It (market) is somewhat postive now. Domestically, there is no direction as of now, so at some levels that seem good, traders are entering," a dealer at a state-owned bank said. "There is CPI data for both US and India, that is what everyone is waiting for right now."

The intraday movement of US yields is expected to lend cues to gilt prices as traders await US CPI data for May, due after market hours Wednesday. The yield on the 10-year benchmark US Treasury note was 4.47% as of 0910 IST. 

Some traders were also of the view that traders are picking up gilts before India's CPI print for May on Thursday. They expect the print to be at around a six-year low of 3.0%, dealers said.

"Market was oversold, and the levels have shot up in the last sessions. So, some buying is happening," a dealer at a private sector bank said. 

The turnover in the gilts market was INR 51.00 billion at 0930 IST, slightly higher than INR 45.30 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 6.25-6.30%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.38%.  (Vidhushi RajPurohit)

India Gilts: Seen steady on caution before US May CPI Wed, India CPI Thu

MUMBAI – Prices of government bonds are likely to open steady due to caution before US CPI data for May, due after market hours Wednesday, dealers said. Slight easing of US Treasury yields overnight is likely to lend some support to gilt prices, though traders will await results of the INR 190-billion Treasury bill auction on Wednesday for further cues, they said. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.26-6.32%. The gilt ended at INR 100.25 or 6.29% yield on Tuesday. For the most traded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.33-6.38%. The 2034 gilt closed at INR 102.95 or 6.36% yield on Tuesday.

The yield on the 10-year benchmark US Treasury note was 4.47% as of 0800 IST, slightly lower than 4.45% at the Indian market close on Tuesday. The movement of US yields is seen crucial ahead of data on US consumer inflation for May at 1800 IST Wednesday. The inflation print is expected to be an important data point before the US Federal Open Market Committee announces its decision on policy rates next week. The odds of a rate cut at the FOMC meeting on Jun. 18 were only 0.1% as of Tuesday, as per the CME FedWatch tool. 

Meanwhile, India's consumer inflation print for May, due on Thursday, is also keenly awaited by traders to gauge the market direction, dealers said. Acoording to an Informist poll, consumer inflation in May is expected to be at a six-year low of 3.0%.

During the day, traders will also take cues from the results of the T-bills auction. Traders expect the auction to sail through owing to comfortable liquidity in the banking system, though the cut-off yields on the securities are likely to remain around last week's levels with only some slight reduction, dealers said. At the auction on Jun. 4, RBI set the 91-day T-bill cut-off yield at 5.58% and for the 364-day T-bill at 5.60%. For the 182-day T-bills, RBI set the cut-off yield at 5.60%. Traders expect some widening in the spread between yields on six-month and one-year T-bills.  (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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