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Informist, Thursday, Jun. 19, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply lower Thursday as traders trimmed portfolios after the outcome of the US Federal Open Market Committee meeting and rise in crude oil prices, dealers said. Traders also placed short bets on gilts ahead of the INR 270-billion bond auction Friday.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.14, or 6.31% yield, against INR 100.49, or 6.26%, on Wednesday. The most-traded 6.79%, 2034 bond closed at INR 102.83, or 6.38% yield, compared with INR 103.25, or 6.32% yield, Wednesday. The yield on the five-year benchmark 6.75%, 2029 gilt was up 8 basis points, rising the most since May 8, as traders placed short bets ahead of the bond's INR 150-billion auction Friday.

Traders largely viewed the US FOMC meeting as a non-event, but some traders had bought gilts ahead of its outcome on expectations of a softer policy outlook, dealers said. The median of forecasts by US Fed officials continued to show two more rate cuts by the end of 2025. However, US Federal Reserve Chair Jerome Powell said, "No one holds these rate paths with a lot of conviction." Powell flagged the risk of higher inflation as a result of US President Donald Trump's tariff policies. He said "ultimately, the cost of the tariff has to be paid, and some of it will fall on the end consumer. Foreign banks who had bought gilts Wednesday exited their positions as they were left disappointed by the Fed's commentary, dealers said.

The ongoing conflict between Iran and Israel could result in fewer rate cuts, dealers said. Traders fear involvement of the US in the Israel-Iran conflict would have far-reaching repercussions on the global economy. Rise in crude oil prices also triggered fears of rising imported inflation. Traders fear Brent crude futures could rise to $90-$100 a barrel if Iran blocks the Strait of Hormuz, affecting supply of crude oil.

The scope of a rate cut by the Reserve Bank of India had already faded after the Monetary Policy Committee reversed its stance to 'neutral' from 'accommodative', and further rise in crude oil prices could dash any such possibility, dealers said. The price of India's crude oil basket rose $1.43 to $75.91 per barrel on Wednesday.

"There were sales across (bond) segments today and the whole yield curve moved up in tandem," a dealer at a private sector bank said. "There are so many negatives in the market and there's an auction tomorrow as well so shorts were also placed...but I think there will be buying coming in at 6.40% (yield on the 10-year 6.79%, 2034 bond)."

A big state-owned bank likely sold gilts early in the trade, dealers said. However, through most of the day, state-owned banks were likely on the buying side after selling INR 118.81 billion worth of bonds during the week as the yields moved up towards the top of their current trading range and they found yields attractive to buy, dealers said. Some traders also bought gilts on hopes that Israel and Iran will reach an understanding and the conflict may die down over the weekend, they said.

Traders continued to move toward liquid gilts over other papers to reduce their risk, dealers said. They continued to prefer the most-traded 10-year erstwhile benchmark 6.79%, 2035 bond over the newer 6.33%, 2035 gilt due to the higher-than-usual yield differential between the two papers. The 2034 bond's spread over the 2035 bond rose to 7 bps, highest since May 29. Despite the 2035 bond's outstanding at INR 600 billion, the paper continues to lag significantly behind the erstwhile 10-year benchmark in traded volumes. Traders expect the yield spreads to narrow to 3-4 bps after INR 300-billion more supply of the 2035 bond at auction next week.

Long-term gilts fell sharply for the third straight day, continuing to be out of favour, especially ahead of the weekly gilt auction. While INR 150 billion of the 6.75%, 2029 bond will be lapped up by banks for their asset-liability management, traders had mixed views about investor demand for supply of INR 120 billion of the 7.09%, 2054 bond. With uncertainty persisting on the global front, primary dealers are expected to charge higher underwriting fees for the bonds, though most said chances of devolvement or cancellation at the auction were expected to be limited, dealers said. Traders are likely to demand higher yields to pick up the 30-year bond at the auction, with higher supply of 30-50 year gilts until September than demand from life insurers and pension funds, dealers said. Traders placed short bets to make room for the auction stock, dealers said.

"Long-term bonds will remain under pressure because of geopolitical uncertainty and supply-pressure," a dealer at a primary dealership said. "Tomorrow PD fees will also be higher than last auction and there may be tail on both the bonds...but the spreads have widened so much and I think investor demand will also be there."

Though demand for the five-year gilt at the auction is expected to be firm, caution over the evolving geopolitical situation and hopes of picking the bond at cheaper prices at auction led traders to place short bets on the gilt, dealers said. Mutual funds likely sold the five-year benchmark 6.75%, 2029 gilt to make space for Friday's auction, they said. Stop-losses on the five-year gilt were also likely triggered near end of trade as the yield on the bond breached the technical level of 6.00%, they said. This will likely be the last auction of the 6.75%, 2029 bond, dealers said, and the outstanding of the bond will rise to INR 870 billion after the auction Friday.

Turnover in the gilts market was INR 611.70 billion, higher than INR 515.35 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were four trades in the 7.10%, 2034 bond worth INR 200 million using the wholesale digital rupee pilot on Thursday. There were no trades using the same method on Wednesday.

OUTLOOK

On Friday, bond prices are likely to open lower before the INR 270-billion weekly gilt auction, dealers said. Some traders may place short bets before the auction to make room for the auction stock, they said.

Gilts will keenly track geopolitical developments. Bond traders remain wary of any escalation in the Israel-Iran conflict, with fears that crude oil prices could rise to $90-100 per barrel if the situation worsens or the conflict widens, dealers said. Moreover, if the rupee falls sharply against the dollar due to 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 6.28-6.35%. The yield on the most-traded 6.79%, 2034 bond is seen at 6.30-6.42% Friday.

India Gilts: Fall more as rupee slumps; short bets before INR-270-bln auction

MUMBAI--1535 IST--Government bond prices fell further as the rupee slumped against the dollar Thursday. Foreign banks who bought gilts Wednesday exited their positions after the US Federal Reserve's commentary and views on rate cuts left traders disappointed, dealers said. Primary dealers and some private sector banks were also likely on the selling side due to dampened market sentiment amid a rise in crude oil prices, and as they made room to pick up gilts at the weekly auction on Friday, they said.

"Foreign banks who bought yesterday (Wednesday) were secretly expecting a cut by the FOMC (US Federal Open Market Committee), so now they are obviously selling... some profit-booking is also there and the recent fall is a reaction to rupee," a dealer at a primary dealership said. "Some are also placing shorts before tomorrow's (Friday') auction but PSU banks are value buying at these levels." The rupee fell to a day's low of 86.8925 against the dollar, ending at 86.72 a dollar, which is the lowest closing level since Mar. 17.

At the gilt auction Friday, the government is offering to sell INR 150 billion of the 6.75%, 2029 gilt and INR 120 billion of the 7.09%, 2054 gilt. The 7.09%, 2054 bond was the third-most traded paper at 1500 IST. Traders placed some short bets to stock up on the bond at the auction, dealers said. With persistent uncertainty on the geopolitical front, primary dealers are expected to charge higher underwriting fees for the bonds, though most said chances of devolvement or cancellation at the auction were expected to be limited, dealers said. Meanwhile, mutual funds likely sold the five-year benchmark 6.75%, 2029 gilt to make space for Friday's auction, they said. Demand from mutual funds and banks is expected to be firm for the five-year gilt at the auction, while insurers and pension funds are expected to demand a higher yield premium on the 30-year gilt than current levels at the auction, dealers said.

Foreign portfolio investors also sold the 10-year 6.79%, 2034 gilt on Thursday due to a further escalation in the Israel-Iran conflict and the disappointment after the US FOMC's outcome late Wednesday, dealers said. Traders remain concerned of a wider conflict in West Asia, fearing that Brent crude futures could subsequently rise to $90-$100 a barrel, they said. Traders also entered into bond-swap agreements to hedge their gilt exposures due to uncertainty on rates and persisting geopolitical tensions, dealers said.  

The turnover in the gilts market was INR 438.75 billion, higher than INR 357.40 billion 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 6.28-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.40%.  (Srijita Bose)

India Gilts: Down more on US Fed rate commentary, fear of oil price rise

NEW DELHI--1310 IST--Government bond prices fell more, with foreign banks likely large sellers after the US Federal Reserve's commentary and views on rate cuts disappointed domestic traders. State-owned banks likely turned to the buying side at the day's low, which prevented further fall in prices, dealers said.

US Fed officials' median forecast continued to show two more rate cuts by the end of 2025, though the number of Fed officials expecting no rate cuts in 2025 rose to seven from four. US Fed Chair Jerome Powell said, "No one holds these rate paths with a lot of conviction." Additionally, Powell flagged the risk of higher inflation in the US as a result of US President Donald Trump's tariff policies. He said that "ultimately, the cost of the tariff has to be paid, and some of it will fall on the end consumer". No rate cuts in the US will also reduce the space for Reserve Bank of India's Monetary Policy Committee to cut rates later in the year, dealers said.

Meanwhile, the armed conflict between Israel and Iran continued to ramp up and some traders feared a rise in Brent crude futures to $90-$100 a barrel. This would drive up domestic inflation over time, though there was little risk of an immediate hit to domestic CPI inflation as pump prices were likely to remain unchanged, dealers said.

State-owned banks picked up the most-traded 6.79%, 2034 bond as its yield touched 6.35%, which was seen near the top of the current trading range. Traders expect benchmark gilts to trade in a narrow range as there is little expectation of domestic monetary policy changing course for the next two months, dealers said.

Long-term gilts fell sharply for the third straight day, continuing to be out of favour, especially ahead of the weekly gilt auction. While the INR 150 billion of the 6.75%, 2029 bond will be lapped up by banks for their asset-liability management, traders had mixed views about investor demand for supply of INR 120 billion of the 7.09%, 2054 bond. Supply of 30-50 year gilts until September is higher than demand from life insurers and pension funds, and traders are likely to demand higher yields to pick up the bond at auction, dealers said.

"Life Insurance Corp. of India missed out on the 50-year bond last week, so it will be there in the 30-year this time," a dealer at a primary dealership said.

Meanwhile, traders continued to avoid the newer 6.33%, 2035 paper in favour of the most-traded 6.79%, 2035 bond due to the higher-than-usual yield differential between the two papers. The 2034 bond's spread over the 2035 bond has sustained at around 6 basis points. Despite the 2035 bond's outstanding at INR 600 billion, the paper continues to lag significantly behind the erstwhile 10-year benchmark in traded volumes.

"The 10-year bond is actually very distorted right now. It is overvalued and due for a correction," a dealer at a foreign bank said. "There is a massive kink in a steep yield curve that is unsustainable. The (7.18%) 2033 and (7.10%) 2034 bonds are trading around 6.38%, while the new 10-year (6.33%, 2035) bond is at 6.28-6.29%."

The turnover in the gilts market was INR 266.30 billion, similar to INR 259.70 billion 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.28-6.36%. (Aaryan Khanna)

India Gilts: Down post FOMC; Israel-Iran conflict, auction short bets weigh

MUMBAI--0937 IST--Prices of government bonds were down Thursday as traders trimmed portfolios after the outcome of the US Federal Open Market Committee's latest meeting, dealers said. Traders also placed short bets on gilts ahead of the weekly bond auction. Traders largely viewed the FOMC meeting as a "non-event". However, some traders had bought gilts ahead of the outcome on expectations of a softer policy outlook, dealers said. Geopolitical tensions between Iran and Israel also weighed on gilts, and traders were concerned over the involvement of the US in the conflict after comments from US President Donald Trump, they said. 

The US Federal Open Market Committee unanimously voted to hold rates steady for the fourth consecutive meeting, which was in line with expectations. The yield on the benchmark 10-year US Treasury note was 4.37%, unchanged from 1700 IST Wednesday. US Fed officials' median forecast continued to show two more rate cuts by the end of 2025. However, US Federal Reserve Chair Jerome Powell flagged the risk of higher inflation as a result of President Trump's tariff policies, which was slightly negative for bond traders. Dealers said the FOMC's rate cut cycle could be "shallow" going forward.

"This is just a blast-off because of the positions built before FOMC," a dealer at a private sector bank said.  

At the gilt auction Friday, the government will sell INR 150 billion of the 6.75%, 2029 bond and INR 120 billion of the 7.09%, 2054 bond. Traders placed short bets on gilts to make room for the fresh stock, they said. Moreover, escalation in geopolitical tensions between Iran and Israel also weighed on bond prices. Iran and Israel traded fresh air attacks Thursday. Brent crude for August delivery remained above the $76-per-barrel mark.

"There are reports crude could go to $100, $110 a barrel," a trader at a primary dealership said. "Then there is no scope for rate cut at all. Now Trump has said US might get involved, and I was so surprised that we (bond prices) held up yesterday (Wednesday) inspite of that." The Wall Street Journal citing sources said that Trump had privately approved of attack plans on Iran but withheld the final order.

The turnover in the gilts market was INR 28.10 billion at 0930 IST, lower than INR 35.00 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.28-6.36%. (Cassandra Carvalho) 

India Gilts: Seen steady as US yields unch post FOMC, crude oil prices flat

MUMBAI – Prices of government bonds are seen opening steady Thursday as traders have largely dismissed the outcome of the US Federal Open Market Committee's meeting as a "non-event", dealers said. US Treasury yields and crude oil prices were steady, and there were no domestic cues to trade on during the day, they 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 100.49 or 6.26% yield on Wednesday. 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 103.25 or 6.32% yield the previous session.

The US Federal Open Market Committee unanimously voted to hold rates steady for the fourth consecutive meeting, which was in line with expectations. The yield on the benchmark 10-year US Treasury note was 4.37%, unchanged from 1700 IST Wednesday. US markets are shut on Thursday. US Treasury yield futures were also steady, dealers said. 

Traders were awaiting the Fed's economic and rate projections, but no significant takeaways were reflected in the movement of US yields yet, they said. US Fed officials' median forecast continued to show two more rate cuts by the end of 2025. Ten of the officials expected two or more cuts in the rest of 2025, while seven did not expect any reduction. US Federal Reserve Chair Jerome Powell said, "No one holds these rate paths with a lot of conviction."

Powell flagged the risk of higher inflation as a result of US President Donald Trump's tariff policies. He said that "ultimately, the cost of the tariff has to be paid, and some of it will fall on the end consumer", flagging the risk of rising inflation in the world's largest economy. 

Brent crude for August delivery hovered around the $76-per-barrel mark, as was the case on Wednesday. Crude is unlikely to impact bond prices during the day unless there is signficant movement due to developments in the Iran-Israel conflict, dealers said. Bond prices may track the movement of the rupee against the dollar during the day. Traders may also start realigning portfolios ahead of the weekly gilt auction. The government will sell INR 150 billion of the 6.75%, 2029 bond and INR 120 billion of the 7.09%, 2054 bond on Friday. (Cassandra Carvalho)

End

US$1 = INR 86.72

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

Edited by Ashish Shirke

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