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Informist, Wednesday, Jun. 18, 2025

By Srijita Bose

MUMBAI – Most government bond prices ended steady Wednesday after recovering from early losses on caution ahead of the US Federal Open Market Committee's policy decision late Wednesday. Longer-tenure bonds were down as traders trimmed risk due to persisting worries about escalation in the Israel-Iran conflict, dealers said.  

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.49, or 6.26% yield, compared with INR 100.47, or 6.26, Tuesday. The most-traded 6.79%, 2034 bond closed at INR 103.25, or 6.32% yield, compared with INR 103.27, or 6.32% yield, Tuesday. 

Gilts were down in early trade, tracking the fall in the rupee against the dollar and a rise in crude oil prices, dealers said. The rupee fell to a low of 86.55 against the dollar due to the escalation in the Israel-Iran conflict. Brent crude for August delivery rose above the crucial $75-a-barrel mark, higher than $74.93 a barrel at 1700 IST Tuesday. However, buys from state-owned and private sector banks at day's lows helped gilts recover early losses, dealers said. 

"There is a lot of risk around the Iran-Israel conflict, so naturally people will want to trim these positions," a dealer at a primary dealership said. "But we have seen some value buying also come in, so the market is not giving in much."

Gilts prices also recovered losses on most tenures as the outlook on India's CPI inflation remained benign despite an overnight rise in crude oil prices owing to the escalation in the Israel-Iran conflict. Gilt traders said imported inflation was not a major concern at current levels, and headline CPI inflation is likely to print below 3% in the coming months, in line with the Reserve Bank of India's latest projections. Some traders also expect the conflict to die down before a structural economic impact is felt through wholesale price inflation, which led traders to buy at day's lows, dealers said.

However, some traders were of the view that gilt prices were not adequately reflecting the risk premium of a potentially wider conflict in West Asia. "The risk premiums in gilts are not healthy," a dealer at a private sector bank said. "Yes, crude has been priced in till $80 (per barrel), but what if the US also steps in... and if Iran closes off the Strait of Hormuz, then crude can go up well above $90 (per barrel) also." US President Donald Trump has repeatedly threatened Iran and on Tuesday, told residents of the capital Tehran to evacuate.

Mutual funds and foreign banks sold gilts to trim risks, dealers said. Foreign portfolio investors also reduced their risk in Indian gilts and sold bonds maturing in 15 years or more, while they bought gilts maturing in seven to 10 years in light volumes, dealers said. Data from Clearing Corp. of India at 1815 IST showed net FPI sales worth INR 9.07 billion on Wednesday through the fully accessible route. The data is expected to be updated by the end of the day.

Most traders churned portfolios and moved to the most liquid 6.79%, 2034 bond while selling other tenures to reduce their risk, dealers said. Some traders also bought other liquid gilts maturing in five to 15 years, they said. Traders also awaited the outcome of the US FOMC's meeting, dealers said. While the FOMC is mostly expected to be a 'non-event', most traders said they would keenly track the commentary from US Federal Reserve officials. Traders also await its economic and rate cut projections for the rest of 2025. The FOMC is expected to cut rates twice by the end of December.

Meanwhile, longer tenure bonds remained down on risk-off appetite, dealers said. Persisting uncertainty on the geopolitical outlook, as well as the expectation of supply pressure in longer-tenure bonds, kept prices in these bonds sharply down, dealers said. Longer-tenure bonds underperformed other short-duration papers as the weekly gilt auction neared, where INR 120 billion of the 7.09%, 2054 paper will be up for sale, they said. However, some private banks likely continued to buy longer-tenure gilts for their trading portfolios as they found yield spreads attractive, which limited losses in these bonds, dealers said.

The yield spread on the 40-year 7.34%, 2064 gilt over the 10-year benchmark 6.33%, 2035 bond has widened to 82 basis points from 59 bps nearly a month ago. "Though we have consistently had good yield spreads in long-term and though some buying is coming, I don't see spreads narrowing naturally now... something needs to be done to relieve some pressure on the supply side," a dealer at another primary dealership said. "Also, there are chances that spreads in long bonds may widen more if the geopolitical situation worsens, and anyway, the (RBI) Governor (Sanjay Malhotra) has also said he is comfortable with current spreads." 

Trade volumes remained thin on caution before the US FOMC meeting outcome, dealers said. Turnover in the gilts market was INR 515.35 billion, lower than INR 662.35 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. No trades were made using the wholesale digital rupee pilot on Wednesday, against two trades in the 7.10%, 2034 bond worth INR 100 million on Tuesday.

OUTLOOK

On Thursday, bond prices are likely to take cues from the overnight movement of US yields after the outcome of the US Federal Open Market Committee meeting late Wednesday, dealers said. While the FOMC is widely expected to keep rates steady, most traders said they would keenly track the commentary from US Federal Reserve officials and the economic and rate cut projections for the rest of 2025, dealers said.

Gilts will keenly track geopolitical developments. Bond traders remain wary of any escalation in the Israel-Iran conflict, though a surge in crude oil prices has been priced in to an extent, dealers said. Additionally, if the rupee falls sharply against the dollar due to a rise in crude oil prices, it may also indirectly hit bond prices, they said. 

With uncertainty on the geopolitical front, 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 6.22-6.35%. The yield on the most-traded 6.79%, 2034 bond is seen at 6.28-6.40% Thursday.

India Gilts: Most in thin band; longer tenures dn on sales by FPIs, traders

MUMBAI--1505 IST--Most government bond prices traded in a narrow range amid light volumes. Longer-tenure bonds were down as traders trimmed their risk in gilts due to persisting worries over escalation in the Israel-Iran conflict, dealers said.  

"Market will mostly remain range-bound till there is more clarity on the geopolitical front," a dealer at a primary dealership said. "The premiums here are not healthy enough so we are seeing some foreign guys exiting, and mostly there is another 5-10 basis points more gain left in gilts, so until there is a clarity, prices will remain in this trading zone of 6.25-6.35% (yield on 10-year benchmark 6.33%, 2035 bond)."

Foreign portfolio investors trimmed their risk in Indian gilts and sold bonds maturing in 15 years or more, while they bought gilts maturing in seven to 10 years in light volumes, dealers said. Data from Clearing Corp. of India showed net FPI sales worth INR 80 million on Wednesday were recorded at 1500 IST. The data is expected to be updated by the end of day.

Though traders have priced in crude oil till almost $80 per barrel, a rise in the Brent crude oil contract for August delivery to $76 per barrel from around $74 per barrel on Tuesday led traders to trim their risk on longer tenures, dealers said. Some also said that the risk premium of a potentially wider conflict in West Asia was not reflected well enough in gilts. A fall in the rupee against the dollar also kept longer tenure gilts down, dealers said. Persisting uncertainty on the geopolitical outlook as well as expectation of supply pressure in longer-tenure bonds dragged down gilt prices, dealers said.

However, some private banks likely continued to buy longer-tenure gilts for their trading portfolios as they found yield spreads attractive, dealers said. The yield spread on the 40-year 7.34%, 2064 gilt over the 10-year benchmark 6.33%, 2035 bond has widened to 83 basis points from 59 bps nearly a month ago. "At this point, there is not much space left in shorter tenure, which I think is still a little expensive. But if I go for longer-end, I am getting good yields," a dealer at a private sector bank said. "Plus, if I see in the prespective of per basis point movement, both short term and long term is expected to move in a similar way, so I'll take some short-term positions in long bonds here." 

The turnover in the gilts market was INR 300.75 billion, lower than INR 458.95 billion at 1430 IST 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 6.24-6.29%. For the 6.79%, 2034 gilt, dealers see the yield at 6.28-6.35%.  (Srijita Bose)

India Gilts: Erase most losses as view on CPI benign despite oil price rise

NEW DELHI--1250 IST--Government bond prices recovered most losses as the outlook on CPI inflation remained benign despite an overnight rise in crude oil prices, dealers said. Gilts had fallen earlier due to a rise in oil prices amid persistent attacks by Israel and Iran on each other, as well as a fall in the rupee against the dollar. Bonds maturing in more than 10 years remained sharply down due to lack of trader and investor interest.

Brent crude for August delivery remained above the crucial $75-a-barrel mark, but gilt traders said imported inflation was not a major concern at current levels. The rise is unlikely to translate into pump prices in India, and headline CPI inflation is likely to print below 3% in the coming months, in line with the Reserve Bank of India's latest projections, dealers said. The conflict is likely to die down before a structural economic impact is felt through wholesale price inflation, they said.

On the other hand, some traders were of the view that gilts were not adequately reflecting the risk premium of a potentially wider conflict in West Asia. The price of the 10-year benchmark 6.33%, 2035 bond has risen for the last two days. US President Donald Trump has repeatedly threatened Iran and on Tuesday, told residents of the capital Tehran to evacuate. Some private sector banks were likely trimming positions after the segment was the top net buyer in the secondary market over the last three days, dealers said.

"The 6.25% level is drawing some selling pressure. Otherwise, the market is in a good position," a dealer at a state-owned bank said. "It is mostly a traders' market; larger banks are only taking profit at these levels."

State-owned banks, which have been the top net sellers over the last three days, were likely selling the 6.33%, 2035 gilt, while picking up the most traded 6.79%, 2034 gilt in light volumes, dealers said. The buying activity of these banks is likely to be modest as they had filled up both trading and available-for-sale books over the past two weeks at levels seen lucrative, and would only return should the 2034 gilt yield rise above 6.35%, they said.

Meanwhile, long-term bonds continued to underperform short-duration papers as the weekly gilt auction neared. The auction features INR 120 billion of the 7.09%, 2054 paper along with INR 150 billion of 6.75%, 2029 bond. Demand for the five-year benchmark paper would be robust, while the 30-year benchmark is expected to see poor demand despite yielding over 7.0%. Mutual funds are likely to avoid long-term bonds after a year of maximising on capital gains through buying such bonds, dealers said. RBI Governor Sanjay Malhotra's comments in an interview with Business Standard newspaper also calmed market expectations of an immediate reversal in policy accommodation, following the Monetary Policy Committee's stance change to 'neutral' from 'accommodative' earlier this month.

"The shortest end of the curve is steepening," a dealer at a private bank said, referring to recent yields on Treasury bills, which were auctioned earlier Wednesday. "The governor's comments have pushed back the fear of an immediate variable rate reverse repo (auction), but it is likely to come over the next few months."

Separately, traders trimmed their holdings of the 15-year benchmark 6.92%, 2039 gilt as its spread over the 10-year benchmark gilt had narrowed slightly over the past few days. The spread hit a low of 31 bps this week, against 35 bps Friday, dealers said.

The turnover in the gilts market was INR 229.20 billion, similar to INR 220.35 billion at 1230 IST 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 6.24-6.29%. For the 6.79%, 2034 gilt, dealers see the yield at 6.28-6.35%. (Aaryan Khanna) 

India Gilts: Down on fall in rupee against dollar, rise in crude oil prices

MUMBAI--0918 IST--Prices of government bonds were down Wednesday, tracking the depreciation of the rupee against the dollar and a rise in crude oil prices, dealers said. The rupee fell to a low of 86.37 against the dollar in early trade due to sharp escalation in the Israel-Iran conflict. Brent crude for August delivery was at $76.75 a barrel at 0918 IST, higher than $74.93 a barrel at 1700 IST Tuesday.

According to media reports, Iran's Supreme Leader Ayatollah Ali Khamenei has transferred significant authority to the Supreme Council of the Iranian military, including the Islamic Revolutionary Guard Corps. The development comes after US President Donald Trump issued threats to Iran's leadership through Truth Social, demanding an "unconditional surrender" from Iran's leader and warning of potential military action. Trump said that while the US was holding back for now, its patience was running out.

"Brent crude is up, OIS (overnight indexed swaps) is paying, USD/INR also rising (depreciating) and there's no other cue on the domestic side to keep our market up," a dealer at a state-owned bank said. "The only reason yesterday (Tuesday) we saw some positivity was because of the (RBI) governor's interview." The 5-year swap rate rose to the day's high of 5.73%, following the depreciation of the rupee. 

Bond prices were up Tuesday after RBI Governor Sanjay Malhotra said the space for policy easing would "open up" if the inflation outlook was below the central bank's projections.

Traders expect the most-traded 6.79%, 2034 gilt to trade in a range of 6.30% to 6.40% until the release of fresh data or some cues on rate cuts in India. Traders expect the RBI's Monetary Policy Committee to hold rates at its next meeting in August. On Friday, the RBI will publish minutes of the MPC's June meeting, which may provide some cues to traders on the rate cut trajectory. 

The turnover in the gilts market was INR 35.00 billion at 0930 IST, sharply lower than INR 136.50 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.28-6.36%. (Cassandra Carvalho) 

India Gilts: Seen steady ahead of FOMC outcome, rise in crude oil may weigh

MUMBAI – Prices of government bonds are seen opening largely steady Wednesday due to caution ahead of the outcome of the US Federal Open Market Committee's meeting at 2330 IST, dealers said. A rise in crude oil prices and escalation in the geopolitical conflict between Iran and Israel may weigh on prices. Volumes are expected to be low, though they may pick up as any fall in prices would be a good opportunity to purchase gilts, dealers said. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.20-6.32% during the day. The gilt ended at INR 100.47 or 6.26% yield on Tuesday. For the most-traded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.28-6.36%. The 2034 gilt closed at INR 103.27 or 6.32% yield the previous session.

While some expect the FOMC outcome to be a 'non-event', most traders said they would keenly track the commentary from US Federal Reserve officials. The FOMC is expected to hold interest rates steady at the meeting, but traders await its economic projections for the rest of 2025. The FOMC is largely expected to cut rates twice by the end of December. Ahead of the decision, the yield on the benchmark 10-year US Treasury note was 4.40% at 0800 IST, slightly lower than 4.42% at 1700 IST Tuesday. Data on weekly jobless claims for the week ended Saturday will also be released Wednesday, instead of the usual Thursday, as US markets will be shut on Thursday.

A rise in crude oil prices may weigh on bond prices, dealers said. Brent crude for August delivery was at $76.33 a barrel at 0800 IST, higher than $74.93 a barrel at 1700 IST Tuesday. US President Donald Trump issued threats to Iran's leadership through Truth Social, demanding an "unconditional surrender" from Iran's leader and warning of potential military action. Trump said that while the US was holding back for now, its patience was running out.

The Treasury bill auction of INR 190 billion is seen sailing through, as preference for short-term securities increased after Reserve Bank of India Governor Sanjay Malhotra's comments on liquidity management and rate cuts in an interview published in the Business Standard newspaper Tuesday. The 6.75%, 2029 gilt yield ended 2 basis points lower Tuesday, as the gilt yield curve is expected to steepen further. (Cassandra Carvalho)

End

US$1 = INR 86.48

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

Edited by Saji George Titus

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