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Informist, Friday, Jun. 20, 2025

By Srijita Bose

MUMBAI – Most government bond prices ended steady Friday on caution ahead of the weekend and fears of any escalation in the Israel-Iran conflict, dealers said. However, longer tenure bonds were up due to firm demand from insurers and pension funds, they said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.15, or 6.31% yield, against INR 100.14, or 6.31%, on Thursday. The most-traded 6.79%, 2034 bond closed at INR 102.83, or 6.38%, flat from Thursday.

Gilts opened the day higher as traders covered short bets after a slump in prices Thursday, dealers said. Traders felt the selling in gilts on Thursday was exaggerated and Friday bought gilts at levels seen attractive, they said. However, with the Israel-Iran conflict now in its second week, and fears that the conflict could widen if US gets involved, traders did not want to carry the risk over the weekend and trimmed their portfolios towards the end of the session, dealers said. Meanwhile, likely small purchases by state-owned banks and some foreign portfolio investors kept prices from falling, they said.

"These levels are good to buy, we are already at 6.38% (yield on the 2034 bond) which was the level during Indo-Pak war and if the Israel-Iran conflict does not worsen from here, there should be some reversal," a dealer at a state-owned bank said. "But if the condition worsens, we could even break 6.45% (yield) and move towards 6.50%. So there's obviously some caution because of that."

Demand for longer tenure bonds maturing in 30-50 years was firm, with the 30-year benchmark 7.09%, 2054 bond being the second most traded paper at INR 59 billion on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. Insurers sold the 10-year 6.79%, 2034 bond to buy longer-tenure bonds maturing in 30-40 years as they found the yield spreads attractive, dealers said. The yield spread on the 30-year benchmark gilt over the 10-year benchmark 6.33%, 2035 bond has widened to over 72 bps from nearly 57 bps a month ago. Expecting a lower-than-indicated supply of state bonds next week, as seen in the past two auctions, long-term investors front-loaded some of their requirements at attractive yields. Insurers also demanded forward rate agreements to the tune of nearly INR 20 billion for longer tenure bonds, dealers said.

"There was good demand from insurers today. The big guys such as LIC (Life Insurance Corp. of India) were there and entered into cross-trades with the 10-year (6.79%, 2034 gilt)," a dealer at a primary dealership said. "But it could just be a blip because of low supply (at auction) over the next week."

At the weekly gilt auction Friday, cut-off price on the 6.75%, 2029 was broadly in line with expectations, dealers said. Traders were expecting firm demand for the five-year gilt, with both mutual funds and state-owned banks bidding aggressively, they said. Both traders and asset-liability managers of banks picked up the five-year gilt as they found yields attractive, they said. The yield on the five-year benchmark 6.75%, 2029 gilt was up 8 bps on Thursday, with the gilt breaching the technical level of 6.00%.

On the other hand, cut-off price on the 7.09%, 2054 bond was higher than estimates. Dealers were expecting lower demand for the 30-year bond at the auction due to the geopolitical uncertainties. However, firm demand from insurers and pension funds due to attractive yield on the 30-year bond led to a higher cut-off price at the auction, dealers said. Demand for forward rate agreements was also seen for the 30-year gilt, dealers said. Moreover, Friday's auction was the last in the Apr-Jun quarter to offer long-term bonds, demand from investors was firm, they said. The next auction for longer tenure bonds is on Jul. 4, where a 40-year gilt will be offered by the government, according to the Apr-Sept gilts auction calendar. 

Meanwhile, traders continued to prefer the erstwhile 10-year benchmark 6.79%, 2035 bond over the newer 6.33%, 2035 gilt due to the higher-than-usual yield differential between the two papers, dealers said. The 2034 bond's spread over the 2035 bond remained at 7 bps, similar to Thursday. 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. The yield on the 2034 bond neared the technical 6.40% level towards the end of the session due to traders placing short bets as they did not want to carry risk over the weekend. However, demand from state-owned banks at yields seen attractive helped recover the losses, 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 1840 IST showed trades worth INR 129.39 billion in the 6.79%, 2034 gilt, higher than INR 118.17 billion at 2100 IST Thursday.

Turnover in the gilts market was INR 563.10 billion, lower than INR 611.70 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot on Friday, against four trades in the 7.10%, 2034 bond worth INR 200 million using the same method on Thursday.

OUTLOOK

Gilts are not traded on Saturday. On Monday, bond prices are likely to take cues from any developments in the Israel-Iran conflict over the weekend, dealers said. 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.

Traders will also take cues from US Treasury yields. US markets were closed on Thursday. Traders will take cues from the movement of US yields Friday after the Federal Open Market Committee's policy decision Wednesday, dealers said.

The RBI on Friday said nine states will aim to raise INR 272 billion through auction Tuesday, lower than indicated amount of INR 301 billion stated in the Apr-Jun state bond auction calendar. Longer tenure bonds may fall Monday as some market participants had expected an even lesser size of state bond auction on Tuesday, dealers 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% Monday.

India Gilts: Mixed; cut-off price on 30-year gilt at auction better than view

MUMBAI--1521 IST--Government bond prices remained mixed after the result of INR 270-billion gilt auction. Most bonds were up, with longer tenure bonds leading. The 10-year gilts traded in a thin band on caution ahead of the weekend and fears of the Israel-Iran conflict spreading, dealers said.

At the weekly gilt auction, cut-off prices on the 6.75%, 2029 and the 7.09%, 2054 bonds were slightly higher than estimates, dealers said. Demand for the 6.75%, 2029 gilt was firm and that for the 7.09%, 2054 better than expected, they said. Insurers and pension funds picked up the 7.09%, 2054 bond due to attractive yields, dealers said. As the auction held Friday was the last in the Apr-Jun quarter to offer long-term bonds, demand from insurers was firm. Demand for forward rate agreements was also seen for the 30-year gilt, dealers said. On the other hand, the five-year bond was picked up by traders, asset-liability managers of banks, and mutual funds, dealers said.

"Long-bonds have a good spread. So even though traders may be exiting because of geopolitical tensions, investors find these good levels to buy," a dealer at a private sector bank said. "Moreover, next week, supply will also be limited so some front-loading also could be happening."

In the secondary market, too, demand for longer tenure bonds maturing in 30-50 years was firm. Dealers said the selling in long-term bonds on Thursday was likely exaggerated and investors picked up these longer-tenure bonds Friday at attractive yields. The yield spread on the 30-year benchmark gilt over the 10-year benchmark 6.33%, 2035 bond has widened to nearly 73 basis points from nearly 57 bps a month ago. Traders also expect a lower supply of state bonds next week and with no supply of longer tenure gilts scheduled till end of June, there was demand from insurers, dealers said.

Meanwhile, traders continued to prefer the 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, dealers said. The 2034 bond's spread over the 2035 bond remained at 7 bps, similar to Thursday. 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, with the 2035 paper having only a little over one-tenth of the 2034 bond 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. However, the two 10-year gilts traded in a thin band as traders who had placed short bets before the auction did not want to carry risk over the weekend, dealers said. 

Turnover in the gilts market was INR 397.65 billion at 1520 IST, lower than INR 438.75 billion around the same time Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For rest of the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.25-6.35% and that on the 6.79%, 2034 gilt at 6.32-6.42%.  (Srijita Bose)

India Gilts: Up across most tenures; 10-yr gilts give up some gains

MUMBAI--1150 IST--Prices of government bonds remained higher across most tenures as traders bought gilts at levels seen as lucrative, dealers said. The benchmark 6.33%, 2035 gilt and the most traded 6.79%, 2034 gilt gave up most gains as traders preferred other segments of the gilt yield curve, dealers said. The direction of bond prices later in the day hinged on the cut-off price set on the 2054 gilt at the gilt auction, dealers said. 

At the gilt auction, robust demand is likely to see the cut-off on the 6.75%, 2029 gilt on a par with its secondary market price, dealers said. An Informist poll estimated the cut-off price on the gilt at INR 102.87, slightly lower than the bond's last traded price of INR 102.91.

"People are still buying the bond right now in secondary (during the time of auction) instead of the usual shorting (short bets), so its possible the cut-off will come at market," a dealer at a state-owned bank said. "Long-term is what we have to look at, since because of the geopolitical uncertainty no trader would want to buy that paper."

The cut-off price on the 7.09%, 2054 gilt is estimated at INR 100.35, but traders were divided on the result. Demand from insurance companies and pension funds is seen better than initially expected, dealers said, since the supply of long-term gilts was minimal in the rest of Apr-Jun. However, other traders said that unless a large insurance company such as the state-owned LIC picked up stock at the auction, the cut-off price would be weak. 

In the secondary market, traders picked up gilts across tenures for higher returns. "The four-and-a-half-year 6.75%, 2029 gilt is actually a good buy for arbitrage," a dealer at another state-owned bank said. "The cost of funds of most banks is 5%, and you're getting 6% (yield) with this gilt."

The turnover in the gilts market was INR 169.90 billion at 1130 IST, lower than INR 214.75 billion at the same time on Thursday, 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 6.25-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.30-6.42%. (Cassandra Carvalho)  

India Gilts: Up; traders cover short bets post slump Thu; auction awaited 

MUMBAI--0918 IST--Prices of government bonds opened higher Friday as traders covered short bets after a slump in prices Thursday, dealers said. A slight fall in crude oil prices and a rise in the rupee against the dollar aided the upward movement, they said. Traders now await the result of the INR-270-billion gilt auction.  

"We were oversold yesterday (Thurday), so there's some recovery because of that," a dealer at a private sector bank said. "Traders are covering short bets...crude had also touched $79 and has come back down, so there's some buying because of that." Brent crude for August delivery was at $76.94 a barrel, lower than $77.56 a barrel at 1700 IST Thursday.

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 0918 IST showed trades worth INR 129.39 billion in the 6.79%, 2034 gilt. This number likely reflected Thursday's short sales and would be revised down later in the day, dealers said.

Traders will track the result of the gilt auction, at which the government will sell INR 150 billion of the 6.75%, 2029 bond and INR 120 billion of the 7.09%, 2054 bond. There was a large divergence in underwriting estimates for the weekly gilt auction, as per an Informist poll. A median of 11 bank and standalone primary dealerships estimated the fee for the 2029 gilt at 0.50 paisa and 2.00 paise for the 7.09%, 2054 gilt. However, the range of estimates were 0.15 to 4.00 paise for the 2029 gilt and 0.20 to 8.00 paise for the 2054 gilt.

Dealers scaled down their estimates closer to the underwriting auction due to expectations of a slight recovery in prices in the secondary market, dealers said. Demand is seen firm for the 2029 paper, but demand for the long-term gilt is expected to be moderate. Insurance companies and pension funds are likely to pick up the long-term gilt but at higher yields, dealers said. Banks would refrain from bidding for the paper as geopolitical uncertainty weighed on preference for this maturity, they said. 

In the secondary market, traders preferred gilts maturing in six to eight years for their higher yields, and the liquid 6.79%, 2034 gilt, they said. The turnover in the gilts market was INR 23.95 billion at 0930 IST, lower than INR 28.10 billion at the same time on Thursday, 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 6.25-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.30-6.42%. (Cassandra Carvalho)  

India Gilts: Seen steady ahead of INR 270-bln bond sale, upward bias likely

MUMBAI – Prices of government bonds are seen opening largely steady Friday after falling sharply Thursday. Bond traders are hoping for a recovery in prices later in the day, but that would depend on the result of the gilt auction of INR 270 billion, they said. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.25-6.35% during the day. The gilt ended at INR 100.14 or 6.31% yield on Thursday. For the most-traded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.30-6.42%. The 2034 gilt closed at INR 102.83 or 6.38% yield the previous session.

Bonds prices slumped Thursday after the outcome of the US Federal Open Market Committee meeting indicated that the scope for further rate cuts in the US was bleak. Market sentiment was worsened by an intraday rise in crude oil prices and concerns of US involvement in the ongoing Iran-Israel conflict. Traders also sold gilts to make room for fresh stock at the weekly gilt auction of INR 270 billion. While INR 150 billion of the 6.75%, 2029 bond will be lapped up by banks for their asset-liability management at the auction, traders had mixed views about investor demand for supply of INR 120 billion of the 7.09%, 2054 bond. The yield on the five-year benchmark 6.75%, 2029 gilt was up 8 basis points Thursday, rising the most since May 8.

On the global front, the yield on the benchmark 10-year US Treasury note was 4.40% at 0800 IST, slightly higher from 4.37% at 1700 IST Wednesday. US markets were shut Thursday for Juneteenth day. Brent crude for August delivery was at $76.97 a barrel, against $77.56 a barrel at 1700 IST Thursday. The White House said US President Donald Trump would take a decision on whether to join Israeli strikes on Iran in two weeks. An Iran-backed militia group threatened to attack American bases in the region if the US joined the Iran-Israel conflict. The two West Asian countries continued to attack each other, eight days into the crisis. Bond prices may take cues from any developments in the crisis during the day, dealers said. Bond prices may also track the movement of the rupee against the dollar.

Bond prices may fall towards the end of market hours as traders may trim exposure to risks ahead of the weekend, on fear of further escalation in the geopolitical conflict, they said. However, some traders expect a ceasefire agreement or deal to be reached between Iran and Israel soon. Additionally, some traders expect that the Organization of the Petroleum Exporting Countries and its allies could announce an increase in oil production, which could compensate for the lack of supply from Iran due to the conflict. (Cassandra Carvalho)

End

US$1 = INR 86.58

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

Edited by Ashish Shirke

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