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Informist, Monday, Jun. 23, 2025

By Srijita Bose

MUMBAI – Government bonds ended mixed Monday. Shorter tenure bonds were down on fears that the Israel-Iran conflict could intensify after US bombed three nuclear facilities of Iran while longer-tenure bonds were up on demand from insurers and pension funds. Gilts recovered early losses as crude oil prices fell intraday and traders covered short bets placed earlier, dealers said. The 10-year gilts ended steady after recovering losses.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.17, or 6.31% yield, against INR 100.15, or 6.31%, on Friday. The most-traded 6.79%, 2034 bond closed at INR 102.85, or 6.38%, against INR 102.83, or 6.38% on Friday.

Shorter-tenure bonds were down as they are more sensitive to sudden developments, dealers said. Some expect the yield curve to flatten in the near term, as traders exit short-term gilts, they said. However, the fall was limited as others expect the yield curve to steepen ultimately, as cost of funds has come down after the 100 basis point cut in the repo rate by the Reserve Bank of India's Monetary Policy Committee so far in 2025. The weighted average one-day call rate Monday was at 5.27%, lower than the repo rate of 5.50%. Traders also found the yields on gilts maturing in five to seven years attractive, which limited the fall of these gilts, dealers said.

Gilts opened sharply lower after the US struck three key nuclear facilities in Iran over the weekend. As a result, crude oil prices rose to a high of $81.39 per barrel on fears of the conflict in West Asia widening. However, gilts recovered early losses as Brent crude for August delivery fell to the day's low of $76.35 per barrel. Some traders believe crude oil prices may not rise significantly from current levels if Iran opts for a more diplomatic and measured reaction to US strikes. The Iranian parliament on Sunday approved the closure of the Strait of Hormuz, the route through which around 40% of Indian crude oil imports pass. However, the final decision on closure of the major trade route will be taken by the Supreme National Security Council.

"Bonds were already in a negative zone and corrected over the past few weeks. So, today we did not see a sharp rise in yields," a dealer at a private sector bank said. "Also, though we are hedging in case crude prices rise sharply, Iran is taking a more balanced approach and even if they close the Strait of Hormuz, it could be temporary...anyway India will not be impacted significantly immediately because we have good enough inventories (of crude)."

Insurance companies bought bonds maturing in 30 to 40 years as they found their yields attractive, which led prices of these bonds to recover from an early fall and rise, dealers said. Insurers also bought longer-tenure bonds against their short sales in the 10-year gilts, they said. The yield spread on the 40-year 7.34%, 2064 gilt over the 10-year benchmark 6.33%, 2035 bond has widened to over 78 bps from 62 bps a month ago. Insurers also likely sought forward rate agreements for gilts maturing 30-40 years, dealers said.

"There is good amount of demand from insurers. Some traders are also going for these papers as the spreads look really good," a dealer at a primary dealership said. "There was some FRA (forward rate agreement) demand too...but the upward movement in long-term bond yields is seen limited from these levels."

A lower-than-indicated state bond auction amount Tuesday also led some insurers to buy, dealers said. Nine states Tuesday plan to raise INR 272 billion. This amount is lower than INR 301 billion as per the indicative calendar for Apr-Jun. While some traders had expected an even lower auction amount, the absence of long-term gilts in the auction led insurers to front-load their requirements as the Apr-Jun quarter draws to a close, dealers said. Spreads between state bonds and gilts were lucrative, some dealers said. However, the illiquid nature of the securities made them riskier to hold in a volatile market, dealers said. The yield spread of the average of 10-year state bonds over the 6.33%, 2035 gilt was 43 bps, up from 29 bps at the state bond auction Tuesday.

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. Traders expect the yield spread to narrow to 3-4 bps as INR 300-billion more of the 2035 bond will be auctioned this week. The yield on the 2034 bond crossed the technical level of 6.40% during the day. However, demand from state-owned banks at yields seen attractive helped recover the losses, dealers said.

While some traders covered short bets placed on Friday due to uncertainty over the weekend, others placed short bets on the 10-year gilts before the auction on Friday, 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 139.70 billion in the 6.79%, 2034 gilt, higher than INR 129.39 billion Friday. The data showed INR 103.30 billion worth trades on the 10-year benchmark paper, which is up for auction this week, against INR 81.56 billion on Friday.

Turnover in the gilts market was INR 482.65 billion, lower than INR 562.40 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades in the 7.10%, 2034 bond worth INR 100 million and two trades in the 6.79%, 2034 bond worth INR 100 million using the wholesale digital rupee pilot on Monday. The were no trades using the method on Friday.

OUTLOOK

On Tuesday, bonds are likely to take cues from any developments in the Israel-Iran conflict, dealers said. Bond traders remain wary of any escalation in the conflict, with fears that crude oil prices could rise to $90-$100 per barrel if the situation worsens, 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 at open. Traders may also watch out for the results of INR 272-billion state bond auction, 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% Tuesday and that on the most-traded 6.79%, 2034 bond is seen at 6.35-6.45%.

India Gilts: Recover earlier losses as crude falls; longer-tenure bonds up

MUMBAI--1520 IST--Government bond prices recovered losses from earlier in the day due to traders covering short bets as crude oil prices fell intraday, dealers said. Losses on the 10-year benchmark 6.33%, 2035 bond were reversed as traders chose to move to liquid funds amid persisting geopolitical uncertainties, they said. Meanwhile, longer-tenure bonds outperformed others on demand from insurers and pension funds. 

"Iran is choosing a more measured approach and has not retaliated against the US. So if the conflict is restricted to Iran and Israel and Iran does not close the strait of Hormuz, then crude should be somewhat supported," a dealer at a primary dealership said. "People who were waiting for 6.45% levels are seeing a buying level at 6.38-40% zone now because of the fall in crude...some short-covering is also there."

Brent crude for August delivery fell to $77.06 per barrel at 1454 IST from $78.22 per barrel at 0900 IST. This led to a recovery in gilt prices as traders felt that crude oil prices may not significantly worsen from current levels if Iran opts for a more diplomatic and measured reaction to US strikes. The Iranian parliament on Sunday approved the closure of the Strait of Hormuz, the route through which around 40% of Indian crude oil imports pass. However, the final decision on closure of the major trade route will be taken by the Supreme National Security Council. State-owned banks likely bought gilts, dealers said. Traders who had placed short bets on gilts on Friday also likely covered these bets Monday, they said. 

Meanwhile, insurers bought bonds maturing in 30-40 years as they found yields attractive, dealers said. Insurers also bought longer-tenure bonds against their short sales in the 10-year gilts, they said. The yield spread on the 40-year 7.34%, 2064 gilt over the 10-year benchmark 6.33%, 2035 bond has widened to over 78 bps from 62 bps a month ago. 

The turnover in the gilts market was INR 397.45 billion at 1530 IST, slightly lower than INR 400.05 billion at the same time Friday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.28-6.36%. For the 6.79%, 2034 gilt, dealers see the yield at 6.36-6.45%.  (Srijita Bose)

India Gilts: Sharply down; buys at 6.40% yld on 6.79%, 2034 gilt limit losses

MUMBAI--1227 IST--Prices of government bonds were sharply down, but recovered some losses on likely purchases from state-owned banks, dealers said. The yield on the most-traded 6.79%, 2034 gilt hovered around the key technical level of 6.40%, which is seen as a lucrative level to buy gilts. A further rise in crude prices could see the gilt's yield rise to 6.44-6.45%, dealers said. Traders await Iran's response to US' military strikes on three Iranian nuclear facilities over the weekend. 

"During (the) India-Pak (conflict), we touched a high of 6.44% (yield) on the 6.79%, 2034 bond, so that is a level we might touch if crude goes higher," a dealer at private sector bank said. "But right now crude is there only, so after the initial sell-off our market is steady." The yield on the 6.79%, 2034 gilt hit 6.4416% on May 9, after overnight shelling along the Line of Control between India and Pakistan triggered fears of a full-blown military conflict between the two countries. 

The fall in bond prices was limited as traders bought gilts at levels seen lucrative, they said. Moreover, Petroleum and Natural Gas Minister Hardeep Singh Puri assured markets that India's energy supplies are stable even if Iran closes the Strait of Hormuz, with oil imports coming through diversified routes. This allayed some fears of a rise in imported inflation, dealers said. Chief Economic Adviser V. Anantha Nageswaran told Bloomberg in an interview Friday that high oil prices would not cause a significant impact on inflation. Brent crude for August delivery was little changed from 0900 IST, at $78.14 per barrel.

Traders placed short bets on the 6.33%, 2035 and 6.79%, 2034 gilts ahead of the weekly gilt auction, they said. The government will sell INR 300.00 billion of a 10-year gilt and INR 60.00 billion of a 3-year gilt on Friday, the announcement of which is due later in the day. 

Some state-owned banks purchased gilts, dealers said. Others were looking to buy at the 6.45% yield level on the 6.79%, 2034 gilt, since most state-owned lenders' held-for-trading and available-for-sale portfolios were well-stocked, dealers said. Mutual funds continued to sell gilts Monday, after net selling gilts worth INR 60.06 billion last week.

Some dealers expect the yield curve to flatten, as traders exit short-term gilts--whose yields are more sensitive to sudden uncertainties--in case of a further escalation in geopolitical conflict. Others expect the yield curve to steepen, as papers maturing in 10 years and more were riskier to hold in times of uncertainty than their short-term counterparts. 

Spreads between state bonds and gilts were lucrative to buy, some dealers said. However, the illiquid nature of the securities made it riskier to hold in a volatile market, dealers said. The yield spread of the average of 10-year state bonds over the 6.33%, 2035 gilt was 43 basis points, up from 29 bps at the state bond auction Tuesday.

The turnover in the gilts market was INR 162.65 billion at 1230 IST, lower than INR 204.15 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 6.28-6.36%. For the 6.79%, 2034 gilt, dealers see the yield at 6.36-6.45%. (Cassandra Carvalho)

India Gilts: Down after US strikes Iran; crude oil prices closely watched

MUMBAI--0952 IST--Prices of government bonds were down after the US struck key nuclear facilities in Iran, dealers said. Traders closely tracked crude oil prices and the movement of the rupee against the dollar, they said. However, the fall in prices was limited as the yield on the most-traded 6.79%, 2034 bond neared the lucrative 6.40% level, dealers said. 

Over the weekend, the US targetted three key nuclear facilities in Iran, which took traders by surprise as earlier the White House had said that US President Donald Trump would take two weeks to decide on strikes in Iran. Subsequently, crude oil prices rose sharply. However, dealers said the yield on the 6.79%, 2034 bond was unlikely to sustain a rise above 6.40% unless Brent crude for August delivery rose above $80 per barrel. The 6.40% yield level was lucrative to buy gilts, as the 10-year 6.33%, 2035 gilt is expected to fall to 6.25% in the near term, they said. 

Traders also tracked the movement of the rupee against the dollar. The rupee was at 86.70 against the dollar at 0951 IST, against 86.59 per dollar Friday. A further fall in the rupee could see gilt prices falling more, they said. 

"If crude sustains a rise above $81 then we don't know where things could go," a trader at a primary dealership said. "Right now focus is on the Strait of Hormuz, if Iran blocks that, then crude could shoot up and our market could go topsy-turvy. Auctions could be bad and so on, but for now I think the 6.40% level is the key."

Petroleum and Natural Gas Minister Hardeep Singh Puri said India's energy supplies were stable even if Iran closes the Strait of Hormuz, with oil imports coming through diversified routes.

Most gilts were not traded, and trade was concentrated in the liquid 6.79%, 2034 gilt. The turnover in the gilts market was INR 50.00 billion at 0930 IST, higher than INR 23.95 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 6.28-6.36%. For the 6.79%, 2034 gilt, dealers see the yield at 6.36-6.45%. (Cassandra Carvalho)

India Gilts: Seen down as US strikes nuclear sites in Iran, oil prices rise

MUMBAI – Prices of government bonds are seen opening lower after the US struck nuclear facilities in Iran on Sunday, marking a sharp escalation in the conflict in West Asia. Subsequently, crude oil prices rose, and this will weigh on gilt prices, dealers said. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.28-6.36% during the day. The gilt ended at INR 100.15 or 6.31% yield on Friday. For the most-traded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.36-6.45%. The 2034 gilt closed at INR 102.83 or 6.38% yield the previous session.

In Operation Midnight Hammer, the US "obliterated" three key Iranian nuclear facilities, US President Donald Trump said. Last week, the White House had said that the US president would take a decision on whether to join Israeli strikes on Iran in two weeks, which had eased some tensions. After the strikes, Iran pledged to retaliate. Brent crude for August delivery was at $78.47 a barrel, after hitting $81.39 per barrel, against $77.03 a barrel at 1700 IST Friday. Along with crude, traders will closely track the movement of the rupee against the dollar, and will be on edge as they await Iran's retaliation to the US strikes, dealers said. Traders will also track the movement of the 10-year benchmark US Treasury note. The yield on the benchmark was 4.40% at 0800 IST, against 4.37% at 1700 IST Friday.

Preference for short-term gilts is likely to increase during the day, leading to further steepening of the gilt yield curve as traders are likely to sell papers maturing in more than 10 years due to the geopolitical uncertainty, dealers said. However, unless crude oil prices rise further or the rupee depreciates sharply, a rise in the yield of the most-traded 6.79%, 2034 gilt above the 6.40% level is unlikely to sustain, dealers said.  

Traders said the minutes of the Reserve Bank of India's Monetary Policy Committee meeting in June were along expected lines, and did not offer any significant takeaways. The minutes were released post market hours Friday. Traders had not built heavy positions for the release as RBI Governor Sanjay Malhotra had already said what was needed on the rate cut outlook, and traders were not expecting anything different, they said. (Cassandra Carvalho)

End

US$1 = INR 86.75

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

Edited by Ashish Shirke

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