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Informist, Thursday, Jun. 12, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended higher Thursday as state-owned banks likely bought after India's CPI inflation for May was lower than or in line with estimates of most traders, dealers said. But a few traders said the headline inflation was higher than their estimates of 2.5-2.7%. In the last hour of trade, bonds had given up some gains as core CPI inflation for May was higher than expectations, dealers said.

India's CPI inflation for May was 2.82%, lower than an Informist poll estimate of 3.00% and the lowest since February 2019. The core CPI, which excludes food and fuel items, rose to 4.2%, its highest since October 2023.

Most bonds that fell in the last hour of trade because of the high core CPI recovered by the end of trade on purchases by state-owned banks, dealers said. Moreover, some traders attributed the higher core CPI print to a low base effect and rise in gold prices.

"We were expecting a 3.0% CPI print so this data is good only," a dealer at a private sector bank said. "The core CPI was on the higher side so that's why maybe market is falling, but the core was higher because of low base effect."

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.36, or 6.28% yield, compared with INR 100.16, or 6.31% yield at close Wednesday. The most-traded 6.79%, 2034 bond closed at INR 103.09, or 6.34% yield, compared with INR 102.90, or 6.37%, Wednesday.

Traders also speculated that foreign banks purchased gilts close to the end of trade on expectations of a clarification from the Reserve Bank of India post-market hours on holding variable rate reverse repo auctions.

"We were expecting that post-market the RBI will announce something," a dealer at a state-owned bank said. "We are not even thinking of a VRRR. There was news in the morning that the RBI was misinterpreted in the Reuters story, so we were expecting some clarification of that."

Reuters on Wednesday reported that a source aware of the central bank's thinking said that "the RBI could start conducting variable rate reverse repo auctions to suck out surplus liquidity as and when required." This spooked the bond market Wednesday and bond prices fell sharply. On Thursday, traders said news was circulating that Wednesday's report was not genuine, and bond prices rose. Most traders do not expect a VRRR auction within the next six months as it seems contradictory to the RBI's policy of providing liquidity to banks for the transmission of monetary policy, they said. However, bond traders want clarity on the matter and were hoping for some indication of the same from the central bank. While bond prices were up during the day, market sentiment was still negative, dealers said.

Bond prices opened higher tracking an overnight fall in US Treasury yields, dealers said. The yield on the 10-year benchmark US Treasury note fell to 4.41% at 1700 IST, from 4.50% at the same time Wednesday. US yields fell after US CPI inflation for May was in line with estimates. Tracking the fall in US yields, foreign portfolio investors were likely purchasing gilts, dealers said. As of 1800 IST, Clearing Corp. of India data showed FPIs net bought gilts worth INR 3.18 billion Thursday through the fully accessible route. FPIs net bought gilts for the first time since Jun. 6, when they net bought gilts worth INR 1.39 billion.

During the day, foreign and private sector banks were likely covering short bets placed Wednesday, dealers said. 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 1800 IST showed trades worth INR 132.28 billion in the most-traded 6.79%, 2034 gilt. This volume will likely be revised downwards by the end of day, dealers said.

Prices of papers which were sharply down in the days after the Monetary Policy Committee decision on Jun. 6, such as the erstwhile 10-year benchmark 7.10%, 2034 gilt and the 15-year 6.92%, 2039 gilt rose more than most tenures. Gains in short-term gilts were comparatively lower due to uncertainty regarding the VRRR auctions, dealers said.

Primary dealerships were likely selling gilts ahead of the weekly bond auction. The government will sell INR 110 billion of the 6.79%, 2031 bond, INR 50 billion of the 6.98%, 2054 green bond and INR 140 billion of the 7.09%, 2074 bond. Traders fear that the long-term bonds could be partially devolved due to negative market sentiment. Long-term bond prices ended lower ahead of the auction. The 2054 gilt ended 15 paise lower at INR 100.15. Its yield ended at 7.0786%, the highest since Mar. 10. The gilt yield curve is expected to steepen further, but could flatten slightly in the near-term as fears of a VRRR limited gains in short-term gilts limited.

At the buyback auction Thursday, the RBI accepted bids worth INR 257.44 billion, almost the entire notified amount of INR 260 billion. Traders had expected near-full subscription. Bond prices were little changed after the result, but short-term bond prices rose slightly. The cut-off prices on four of the five gilts offered were slightly lower than expected. However, the cut-off on the 5.63%, 2026 gilt was INR 100.07, higher than the indicated price of INR 99.99. This was expected since traders anticipated this gilt to be tendered the most. The government bought back INR 174.02 billion of the gilt, far higher than any of the other gilts offered to be bought back. Dealers said that foreign banks held this gilt and would've sold them at higher prices. 

The turnover in the gilt market was INR 693.30 billion, higher than INR 597.85 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. No trades were conducted using the wholesale digital rupee pilot Thursday. On Wednesday, two trades worth INR 100 million were conducted in the 7.10%, 2034 gilt using the wholesale digital rupee pilot.

OUTLOOK

On Friday, bond prices are likely to open lower after the RBI said post-market hours it would skip its 14-day main liquidity operation on review of liquidity conditions. The announcement is likely to heighten traders' fears of a VRRR auction, dealers said, especially when advance tax outflows are expected to begin Friday.

Gilts may also take cues when the market opens from the movement of US yields after data on weekly jobless claims in the US is released, dealers said. Traders now await the outcome of US Federal Open Market Committee meeting next week. Traders expect status quo on rates but will keenly track the commentary from Fed officials.

Traders may also trade on India's CPI inflation print since the data was released only one hour before end of trade. However, market sentiment continues to be 'sour' and bond prices are likely to be volatile for the next few trading sessions, dealers said. Traders are yet to find a trading range. Bond prices will take cues from the result of the INR 300-billion gilt auction. Underwriting commissions at the auction are expected be lower than last week, but remain at the higher end, especially on the green bond, dealers said.

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 6.30-6.42% Friday.

India Gilts: Off highs as May core CPI inflation rises to 19-month high

MUMBAI--1616 IST--Government bond prices gave up some gains after the release of India's CPI inflation for May as core inflation rose to a 19-month high of 4.2%. "The higher core inflation is what is dragging down prices, plus vegetable prices are also up," a dealer at a state-owned bank said. "Any way expectations of rate cuts were gone, so market sentiments were not really positive on that. We have to see now how the GDP growth prints come."

Though the CPI inflation for May fell to an over six-year low of 2.82%, prices gave up some gains on the higher core inflation print, dealers said. An Informist poll of 12 economists had estimated the CPI inflation to come at 3.0%. The Reserve Bank of India on Friday cut the policy repo rate by 50 basis points to 5.50%, but changed in monetary policy stance to 'neutral' from 'accommodative'. The RBI had also slashed its headline inflation forecast for the first quarter ending June by 70 basis points to 2.9% and the full year by 30 bps to 3.7%. 

The turnover in the gilts market was INR 555.85 billion at 1630 IST, higher than INR 456.70 billion at the same time on Wednesday, 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 6.27-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.33-6.38%.  (Srijita Bose)

India Gilts: Remain sharply up; gains in short-term gilts lower than most

MUMBAI--1508 IST--Prices of government bonds remained sharply higher as some fears of the Reserve Bank of India conducting a variable rate reverse repo auction abated. However, some traders awaited clarity from the central bank on this matter, which limited the rise in bond prices, especially of short-term gilts, dealers said. Bond traders anticipate a CPI inflation print of 2.9% or less for May, after a print of 3.2% in April. The data will be released at 1600 IST.

After the sharp fall in bond prices Wednesday, prices recovered slightly Thursday as traders had 'oversold' gilts the previous session, dealers said. Most traders do not expect a VRRR announcement, at least in the next six months, as it seemed contradictory to the RBI's policy of providing liquidity to banks for the transmission of monetary policy, dealers said. Traders said the source-based report by Reuters on the re-introduction of VRRR auctions published Wednesday was unlikely to come true in the near term.

Traders still await clarity from the central bank on this matter, which limited the rise in bond prices, they said. The rise in short-term bond prices was not as much as for most other tenures, and papers maturing in more than 10 years were the best performers. The 7.10%, 2034 gilt was the third-most traded paper on the RBI's Negotiated Dealing System-Order Matching platform, at a total traded amount of INR 21.35 billion. The gilt was 20 paise higher at INR 104.80, while the 5-year 6.75%, 2029 gilt was 5 paise higher at INR 103.00. Most gilts maturing in 2027-2031 were either down or steady from Wednesday's close.

Traders now await CPI inflation data for May. An Informist poll estimated inflation for May at 3.0%. The RBI forecast inflation for Apr-Jun at 2.9%. Traders expect bond prices to rise if the print for May is below 2.7%. However, a print of more than 2.9% could see bond prices fall by 20-30 paise, dealers said. Traders will also pay close attention to core CPI inflation. In his statement on Jun. 6, RBI Governor Sanjay Malhotra said core CPI is seen moderate due to benign commodity prices. An Informist poll projected core inflation--which excludes food and fuel items--to have inched up slightly last month to 4.2% from 4.1% in April.

"Bonds can move 10-20 basis points either way after CPI (for May)," a dealer at a private sector bank said. "It's hard to quantify, but anything below 2.5% or above 3.2% will see a big movement. We also have to look at core CPI since it's been on the higher side."

Bond prices were little changed after the result of the INR-260-billion buyback auction. Cut-off prices on most bonds were a tad below expectations, but were sharply higher on the 5.63%, 2026 gilt at INR 100.07, against an Informist poll estimate of INR 99.99.

The turnover in the gilts market was INR 488.30 billion at 1430 IST, higher than INR 347.80 billion at the same time on Wednesday, 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 6.27-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.33-6.38%.  (Cassandra Carvalho)

India Gilts: Sharply up as VRRR fears ebb, fall in US yields supports prices

MUMBAI--1307 IST--Government bond prices were sharply up as traders' fears that the Reserve Bank of India may conduct variable rate reverse repo auctions ebbed, dealers said. An overnight fall in US Treasury yields also helped pull up gilt prices, they said. 

"Most people I have spoken to don't believe that a VRRR auction will come at this point because all that RBI has done for rate transmission will be undone. But we were provisioning in case it happens," a dealer at a primary dealership said. "There are some rumours going around in the market that RBI is denying the VRRR thing so the rise (in prices) we are seeing is because of that. But I think some of the shorts were also overdone."

Speculation around a VRRR announcement had led to a sharp fall in gilt prices on Wednesday near market close. While fears still persist, some of the panic has settled down as traders feel a VRRR currently could reverse the liquidity boosting measures that the central bank has undertaken to ensure rate cut transmission, dealers said. Shorter-tenure bonds, which will be affected the most in case RBI comes up with VRRR auctions, rose as fears subsided. The five-year benchmark 6.75%, 2029 gilt, which had its worst three-day stretch in over two years till Wednesday, recovered initial lossess and the yield fell 3 basis points from previous close at its intraday low. 

Foreign banks and some private sector banks covered their short bets placed on Wednesday, which led to the rise in prices, dealers said. In the special repo segment of the Clearcorp Repo Order Matching System, the volume of the 2034 gilt was INR 132.28 billion as at 1300 IST, sharply up from INR 111.62 billion Wednesday. The number of trades in a paper in the special repo segment of the Clearcorp Repo Order Matching System is a proxy of the short sales in that bond. 

At the INR 260 billion buyback auction, dealers expect the bonds maturing in 2026-27 (Apr-Mar) offered to be bought back by the government to see a near-full subscription around prevailing market levels. Some expect lower tendering of the bonds as traders prefer holding on to shorter-tenure bonds as they are expected to be preferred over longer tenure bonds after the RBI Monetary Policy Committee's policy stance change to 'neutral' has faded hopes of further rate cuts in 2025, dealers said. The 5.63%, 2026 bond with the highest outstanding among the five bonds offered by the government is expected to be tendered the most at the buyback auction, they said.

Traders also picked up gilts as the yield on the US 10-year benchmark Treasury note fell to 4.41% at 1300 IST from 4.50% at 1700 IST Wednesday after the release of US CPI data. Reports showed US CPI for May was below market forecasts, raising expectations of a rate cut by the Federal Reserve in September. US consumer prices increased slightly by 0.1% in May, against expectations of 0.2% increase as per a Dow Jones survey. Core CPI increased 0.1% compared to the previous month and  2.8% compared to the same month last year. 

The turnover in the gilts market was INR 321.55 billion at 1230 IST, higher than INR 160.75 billion at the same time on Wednesday, 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 6.27-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.33-6.38%.  (Srijita Bose)

India Gilts: Mixed; VRRR fears keep short-term gilts down

MUMBAI--0930 IST--Prices of government bonds were mixed, with short-tenure gilt prices down due to fear that the Reserve Bank of India may conduct variable rate reverse repo auctions to anchor money market rates at the repo rate, dealers said. Gilt prices were up at open on account of an overnight slump in US Treasury yields, they said. 

"There are two things in the market now – yesterday's (Wednesday) news on VRRR which is still keeping the market in caution, and then there is fall in US yeilds, which is a positive," a dealer at a private sector bank said. "PSUs (public sector banks) are trying to buy gilts at these levels, but selling bias is still there due to uncertatinty." 

According to a news report on Wednesday, the RBI could consider holding variable rate reverse repo auctions to anchor money market rates near the repo rate of 5.50%. This heightened traders' fears as the market was already rife with speculation of VRRR auctions after the central bank Monday announced it would discontinue daily variable rate repo auctions from Wednesday, dealers said. The impact of the news is seen negatively impacting short-tenure gilts the most, they said. 

As of 0930 IST, the yield on the 10-year benchmark US Treasury note was at 4.41%, down from 4.50% at the Indian market close Wednesday. The fall in US Treasury yields led to gilt prices opening sharply higher, but most gains were erased due to persisting caution regarding VRRR auction and also ahead of India's CPI inflation print for May, which is due at 1600 IST.

"There is a positive bias, but with slight caution right now in the market," a dealer at another private sector bank said.

The turnover in the gilts market was INR 57.05 billion at 0930 IST, slightly higher than INR 54.95 billion at the same time on Wednesday, 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 6.28-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.33-6.38%. (Vidhushi RajPurohit)

India Gilts: Seen up on fall in US ylds; India May CPI, buyback auction eyed

MUMBAI - Prices of government bonds will likely open higher Thursday tracking an overnight fall in US Treasury yields, dealers said. During the day, the result of the INR 260-billion gilt buyback auction will also lend cues to traders, they said. Some caution will likely persist on whether the Reserve Bank of India intends to conduct variable rate reverse repo auctions after days of speculation. Caution is also expected ahead of India CPI inflation print for May, due 1600 IST.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.26-6.33%. The gilt ended at INR 100.16 or 6.31% yield on Wednesday. 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 102.90 or 6.37% yield on Wednesday.

As of 0740 IST, the yield on the 10-year benchmark US Treasury note was down by 10 basis points at 4.40%, from 4.50% at Indian market close Wednesday. The US consumer prices for May rose marginally by 0.1%, lower than a 0.2% rise estimated by analysts in a Dow Jones poll. Moreover, the $39-billion bond sale of 10-year US Treasury notes Wednesday saw strong demand from investors, which further boosted traders' confidence in the US debt.

Traders now await the US Federal Open Market Committee meeting outcome next week. The US Fed is widely expected to keep the policy rates unchanged at the FOMC meeting on Jun. 18, with the CME FedWatch tool showing the odds of no rate cut were 99.8% as of Wednesday. Traders will await the commentary of Fed officials to gauge the future trajectory of policy rates. As of Wednesday, the CME Group's FedWatch tool showed a 61.6% chance the US FOMC will cut interest rates by 25 bps by its September policy meeting.

At 1030-1130 IST, the government will buy back five gilts, all maturing in 2026-27 (Apr-Mar), through an auction. The gilts up for buyback are the 5.63%, 2026 bond; the 8.33%, 2026 bond; the 6.97%, 2026 bond; the 5.74%, 2026 bond; and the 8.15%, 2026 bond. Some traders expect the auction to be fully subscribed. Traders will also await May CPI inflation which is expected at a six-year low of 3.0%, as per 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. 

Meanwhile, shorter tenure gilts maturing in seven years are expected to remain in thin band on fear of a VRRR auction announcement, dealers said. A news report Wednesday said the RBI could consider holding variable rate reverse repo auctions to anchor the money market rates near the repo rate of 5.50%, which led traders to sell gilts in secondary market near close of trade. 

"Until RBI says there will be no VRRR (variable rate reverse repo) auction, panic will likely be there in the market and short-term gilts will be the most impacted," a dealer at a state-owned bank 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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