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Informist, Monday, Jun. 16, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply higher Monday with traders covering short bets placed on Friday as geopolitical tensions between Israel and Iran and rise in crude oil prices were somewhat priced in, dealers said. Bond prices also rose on likely purchases by foreign portfolio investors, dealers said. The rise in gilts was led by the 15-year benchmark 6.92%, 2039 gilt, the yield on which fell more than 5 basis points, the most in the day.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.41, or 6.27% yield, compared with INR 100.21, or 6.30% yield at Friday's close. The most-traded 6.79%, 2034 bond closed at INR 103.21, or 6.33% yield, compared with INR 102.99, or 6.36% yield, Friday. 

"Crude oil has fallen a bit. Nevertheless, a rise till $80 (per barrel) has been somewhat priced in," a dealer at a private sector bank said. "But still the most surge today (Monday) was in the 15-year paper partly because it is a liquid paper and also because of good yields."

Gilts maturing in 10 to 15 years saw a surge in demand due to attractive spreads, dealers said. Banks as well as FPIs likely picked up the 15-year gilt, they said.

The yield spread of the 6.92%, 2039 gilt over the 6.33%, 2035 gilt was 35 bps in early trade and narrowed slightly to 32 bps at close, but up from 26 bps at close of market hours on Jun. 6. The yield on the 6.92%, 2039 gilt has risen nearly 10 bps since the outcome of the Reserve Bank of India's Monetary Policy Committee meeting on Jun. 6. A lower-than-indicated quantum of state bond supply at Tuesday's auction also drew in traders to buy the 15-year gilt.

Long-term investors such as insurers and pension funds also looked to pick up bonds maturing in 30-50 years due to the lower quantum of state bond supply at auction Tuesday, dealers said. On Tuesday, four states will aim to raise INR 85 billion through the auction, lower than INR 242 billion indicated to be raised by 15 states in the Apr-Jun calendar. Insurers and pension funds, who missed out at the auction Friday or sold gilts due in the earlier session due to a jump in crude oil prices, also picked up bonds in the secondary market, dealers said. The government issued INR 140 billion of 7.09%, 2074 bond and cancelled the INR 50 billion auction of 6.98%, 2054 bond on Friday. 

Some traders also picked up longer-tenure gilts as they found yield spreads attractive, dealers said. The spread on the 40-year benchmark 6.90%, 2065 bond over the 10-year benchmark 6.33%, 2035 bond has widened to 77 bps from nearly 58 bps a month ago. Traders have largely shied away from long-term bonds due to persisting geopolitical tensions, uncertainty in the global economic outlook, and pressure in supply of longer tenure bonds. However, with some renewed interest in longer-tenure bonds in US, investors found comfort in buying longer-tenure gilts as well, dealers said.

"Internationally the 30-year bond was not performing well for some time. But recently it has started to pick interest. So we are seeing (interest) for them here as well," a dealer at a state-owned bank said. "Insurance (companies) also are interested because the spread is at the highest right now."

Meanwhile, FPIs churned portfolios while limiting their risk exposure to Indian gilts due to persisting geopolitical uncertainties, dealers said. FPIs sold gilts maturing in less than five years, along with longer tenure bonds, while picking up liquid papers such as the 10- and 15-year gilts, they said. However, dealers said some FPIs sold gilts as the 10-year benchmark US Treasury note rose 10 bps to 4.44% at 1700 IST from the close of Indian market on Friday. This lowered the interest rate differential between the safe haven asset and Indian gilt, making it less attractive for them to buy the latter. Data from the Clearing Corp. of India at 1830 IST showed FPIs Monday sold INR 18.27 billion of gilts through the fully accessible route.

"Even though overall FAR (fully accessible route) number shows FPI sales, there were good amount of flows...I think they were churning portfolios," a dealer at another private sector bank said. "They want to balance their funds before quarter-end, so we are seeing flows because of that."

Shorter-tenure gilts maturing within five to seven years also rose in the latter half of the session, reversing losses, likely on FPI buys, dealers said. Reports that the central bank has invited feedback on aligning the repo rate with overnight rates was also considered a positive cue by the market, which led to some rise in shorter-tenure bonds, they said.

At the INR 250-billion gilt switch auction held Monday, the government did not switch the 8.24%, 2027 gilt but demand for others was modest. Cut-off at the auction was slightly higher than estimated by an Informist poll. Most of the notified destination securities were papers bought by the RBI at its open market operation auctions since January, which led to a slightly better-than-expected demand at the auction, dealers said. State-owned banks, holding a major chunk of the bonds offered at the auction, likely bid the most at the auction, they said.

Turnover in the gilts market was INR 588.15 billion, lower than INR 573.35 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two traders in the 7.10%, 2034 bond worth INR 100 million through the wholesale digital rupee pilot, compared to none on Friday.

OUTLOOK

On Tuesday, bond prices are likely to take cues from geopolitical developments. While bond traders remain wary of any escalation in the Israel-Iran conflict, a surge in crude oil prices has somewhat been priced in, dealers said. However, if rupee falls sharply against the dollar due to crude oil prices, it may indirectly hit bond prices, they said. 

When the market opens, gilts may also take cues from the overnight movement of US yields, dealers said. Traders now look forward to the outcome of the US Federal Open Market Committee meeting late Wednesday. They expect a status quo on rates, but will focus on comments by Fed officials.

Longer tenure bonds may be preferred Tuesday on account of the lower-than-indicated state bond auction. Market sentiment continues to be subdued due to geopolitical tensions as well as uncertainty around domestic rates, and bond prices are likely to be volatile for the next few trading sessions, dealers said. Traders may continue to prefer liquid bonds such as the 10-year and 15-year gilts, they said.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.25-6.32%. The yield on the most-traded 6.79%, 2034 bond is seen at 6.30-6.40% Tuesday.

India Gilts: Most maturing in 10 yrs or more up; shorter-tenure bonds down

MUMBAI--1507 IST--Government bond prices remained in a mixed zone. Most gilts maturing in 10 years and above remained up while those in shorter tenures were down. Long-term investors such as insurers and pension funds looked to pick up bonds maturing in 30-50 years as they found yields attractive, dealers said. 

Insurers and pension funds, who missed out at the auction Friday or sold gilts due in the earlier session due to a jump in crude oil prices, picked up bonds in the secondary market. "If you see, insurers have also supported long-term today (Monday)," a dealer at a private sector bank said. "Because I think one person has swept off the auction stock and lot of people missed out so they've entered secondary (market)." The government issued INR 140 billion of 7.09%, 2074 bond and cancelled the INR 50 billion auction of 6.98%, 2054 bond on Friday. 

Some traders also picked up longer-tenure gilts as they found yield spreads attractive, dealers said. The spread on the 40-year benchmark 6.90%, 2065 bond over the 10-year benchmark 6.33%, 2035 bond has widened to 77 basis points from nearly 58 bps a month ago. Traders have largely shied away from long-term bonds due to persisting geopolitical tensions, uncertainty in the global economic outlook, and higher supply of longer tenure bonds in coming months. However, a lower-than-indicated quantum of state bond supply at Tuesday's auction drew in some traders along with long-term investors to pick up longer-tenure gilts, dealers said. On Tuesday, four states will aim to raise INR 85 billion through the auction, lower than INR 242 billion indicated to be raised by 15 states in the Apr-Jun calendar. 

Traders likely covered short bets placed on the erstwhile 10-year 6.79%, 2034 gilt on Friday due to caution on geopolitical tensions between Israel and Iran, dealers said. Gilts have mostly priced in chances of a higher crude oil price and US yields and did not react significantly to the movement in the two over the weekend, they 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 1500 IST showed trades worth INR 121.38 billion in the most-traded 6.79%, 2034 gilt.

Foreign portfolio investors churned portfolios while limiting their risk exposure in Indian gilts due to persisting geopolitical uncertainties, dealers said. FPIs sold gilts maturing in five years or less, along with longer tenure bonds, while picking up liquid papers such as the 10- and 15-year gilts, they said. Traders also picked up the 15-year gilt due to attractive yield spreads over the 10-year benchmark gilt, dealers said. However, dealers said some FPIs sold gilts as the 10-year benchmark US Treasury note was up 10 bps from Indian market close on Friday to 4.44% at 1500 IST, which lowered the interest rate differential between the safe haven asset and Indian gilt, thereby making it less attractive for them to buy the latter. Data from the Clearing Corp. of India at 1500 IST showed FPIs have sold INR 12.39 billion worth of gilts through the fully accessible route. 

Meanwhile, shorter tenure bonds continued to underperform. Though speculation around the Reserve Bank of India bringing in a variable reverse rate repo auction has died down as of now, some traders still found shorter tenure bonds expensive as expectations of any further rate cut has nearly erased after the Monetary Policy Committee changed its stance to 'neutral' at the June policy review meet, dealers said. 

The turnover in the gilts market was INR 413.80 billion at 1530 IST, lower than INR 464.95 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.40%.  (Srijita Bose)

India Gilts: Mixed; 10-15 yr papers up on buys due to lucrative spreads

MUMBAI--1234 IST--Prices of government bonds across most tenures were up in thin trade Monday. Gains in short-term bonds were relatively less, as traders favoured gilts maturing in 10-15 years due to lucrative spreads, dealers said. 

The yield spread of the 6.92%, 2039 gilt over the 6.33%, 2035 gilt widened to 35 basis points from 26 bps at the close of market hours on Jun. 6. The yield on the 6.92%, 2039 gilt has risen 13 bps since the outcome of the Reserve Bank of India's Monetary Policy Committee meeting on Jun. 6. 

Mid-duration papers outperformed other tenures Monday due to the widened spreads, dealers said. Traders said not much steepening of the yield curve is expected for the next two to three months, which put pressure on short-term bonds on a day when longer-tenures looked more appealing. The 6.75%, 2025 gilt last traded at INR 102.97, down 2 paise from Friday's close. The 6.92%, 2039 gilt last traded at INR 102.65, up 22 paise from Friday's close.  

"We are buying only duration (gilts maturing within 10-15 years) right now because the spreads have improved (widened), there is a shift in the yield curve to preference  for these papers," a dealer at a private sector bank said. "Earlier everyone preferred short-term because of a rate cut cycle but for the moment there's nothing to look forward to on rates."

However, despite lucrative spreads, appeal for the mid-duration and long-term destination securities is seen muted at the INR-250-billion switch auction. Banks would not want to swap short-term gilts, which had outperformed other tenures in the past two months, with the central government for long-term papers, dealers said. However, a few dealers said that while cut-off prices may be sharply lower than those indicated, demand could be robust since most of the notified destination securities were papers bought by the Reserve Bank of India at its open market operation auctions since January. An Informist poll estimated cut-off prices on the destination securities slightly lower than those indicated by Financial Benchmarks India Pvt. Ltd. Friday.

Volumes were low due to a lack of major cues, dealers said. The turnover in the gilts market was INR 157.55 billion at 1230 IST, lower than INR 200.25 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.40%. (Cassandra Carvalho)

India Gilts: Tad up amid thin volumes; rise in crude, US yields priced in

MUMBAI--0944 IST--Prices of government bonds were a tad higher in thin trade as traders picked up gilts at levels seen lucrative, with the yield on the benchmark 6.33%, 2035 gilt nearing the key 6.30% gilt, and the 6.79%, 2034 gilt yield near the key 6.35% level. Some traders favoured papers maturing in 10-15 years due to lucrative spreads, they said. 

"Spreads are very good to buy right now, and people are buying across the curve," a trader at a primary dealership said. "Nothing is bizarre because US yields are in check, and crude also hasn't risen much since Friday."

The yield on the benchmark 10-year US Treasury note was 4.43% at 0944 IST, higher than 4.34% at 1700 IST Friday. Brent crude for August delivery eased slightly to $74.93 a barrel as of 0944 IST, against $75.00 at 0800 IST. Traders have priced in the global factors for now, they said. Crude prices are likely to impact gilt prices only if they rise above the key $80-per-barrel mark, they said.

Traders await the result of the INR-250-billion switch auction. The government will switch six gilts with eight other bonds. Most of the destination securities are those bought by the Reserve Bank of India at its open market operation auctions since January. Dealers said subscription at the auction is expected to be moderate, and demand for longer-term papers is seen weak; traders prefer short-term and mid-duration papers. 

Volumes were low and traders expect prices to move in a thin band for the rest of the day. The turnover in the gilts market was INR 30.65 billion at 0930 IST, lower than INR 52.95 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.40%. (Cassandra Carvalho) 

India Gilts: Seen opening lower on escalation in Iran-Israel conflict

MUMBAI – Prices of government bonds are seen opening lower due to escalation in the conflict between Iran and Israel over the weekend, dealers said. Crude oil prices and US Treasury yields rose over the weekend, which would weigh on bond prices, dealers said. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.25-6.32% during the day. The gilt ended at INR 100.21 or 6.30% yield on Friday. For the most-traded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.32-6.40%. The 2034 gilt closed at INR 102.99 or 6.36% yield on Friday.

Brent crude for August delivery was up at $75.00 a barrel at 0800 IST, against $74.63 a barrel at the end of Indian market hours on Friday. Early on Monday, Iran and Israel launched fresh attacks on each other, injuring and killing civilians. 

The yield on the benchmark 10-year US Treasury note rose to 4.43% at 0800 IST from 4.34% at 1700 IST Friday. US yields rose tracking the rise in crude oil prices, amid fears of a surge in inflation. Investors await commentary from US Federal Reserve officials at the outcome of the US Federal Open Market Committee's meeting later in the week. The FOMC is expected to hold interest rates steady at the meeting, but traders will closely track its economic projections for the rest of 2025. The FOMC is largely expected to cut rates twice by the end of December.

Gilt traders may also take cues from the result of the switch auction of INR 250 billion. The government will switch six gilts with eight other bonds. Demand at the auction is seen moderate, dealers said. Demand for state bonds is likely to increase after the Reserve Bank of India Friday said four states would raise INR 85.00 billion at the state bond auction Tuesday, sharply lower than the indicated amount of INR 242.00 billion. (Cassandra Carvalho)

End

US$1 = INR 86.07

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

Edited by Ashish Shirke

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