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Informist, Tuesday, Jun. 24, 2025

By Srijita Bose

MUMBAI – 

Government bond prices surged near the end of trade, closing sharply higher Tuesday after US President Donald Trump said Israel will not retaliate after reports said that Iran violated the ceasefire, dealers said. Prices were sharply up, tracking a fall in crude oil prices, after Trump announced earlier in the day that Iran and Israel had agreed to a ceasefire after their final military operations. A rise in the rupee against the dollar also aided the rise in prices, dealers said. 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.57, or 6.25% yield, the lowest closing yield since the Reserve Bank of India's Monetary Policy Committee announced its policy decision on Jun. 6, against INR 100.17, or 6.31%, on Monday. The most-traded 6.79%, 2034 bond closed at INR 103.12, or 6.34%, against INR 102.85, or 6.38% on Monday. 

"I think it was short covering after Trump asked to stop bombing," a dealer at a primary dealership said. "I think it (the conflict) is over now."

"Israel is not going to attack Iran...nobody will be hurt, the ceasefire is in effect!" Trump posted on Truth Social. Israel Defence Forces had earlier said in a social media post on X, formerly known as Twitter, that Iran violated the ceasefire agreement and that it would respond "with force". Foreign banks and private sector banks were likely on the buying side, dealers said.

Gilts opened sharply up on news of the ceasefire but had given up some gains following reports that Iran had violated the ceasefire, dealers said. Gains were also capped as traders sold bonds at a profit, they said. Traders said that even if hostilities between Iran and Israel continue, a rise in crude oil prices and thereby a fall in gilts will be limited if Iran refrains from closing its key trade route, the Strait of Hormuz, and if the US keeps out of the conflict. 

Traders preferred gilts maturing in 10-15 years, while some also picked up long-term gilts due to lucrative spreads, they said. The yield spread of the 7.34%, 2064 gilt over the benchmark 10-year 6.33%, 2035 gilt was 81 basis points, from 71 bps on Jun. 6, when the RBI's rate-setting panel changed its policy stance to 'neutral' from 'accommodative'. Gains were limited as traders, especially from state-owned banks, sold gilts at a profit, dealers said. Some traders expect the gilt yield curve to flatten after more than a month of steepening, since traders are well-stocked with short-term gilts and the yields on papers maturing in more than 10 years were lucrative to buy at current levels. 

The fall in crude prices also eased concerns about rising inflation, dealers said. The 10-year benchmark 6.33%, 2035 gilt yield hit 6.2490% on Tuesday, the lowest since Jun. 9, as fears of a rise in inflation ebbed. In an interview last week, RBI Governor Sanjay Malhotra had said that space for policy easing would "open up" if the inflation outlook turns out to be below the central bank's projections. 

A surge in the rupee to a day's high of 85.9125 against the dollar also supported the rise in bond prices, dealers said. US Treasury yields also fell overnight, helping the rise in gilt prices. The yield on the benchmark 10-year US Treasury note fell to 4.33% during the day, down from 4.40% at 1700 IST Monday. However, the rise in gilts was limited as traders awaited more clarity on rate cuts and geopolitical tensions, dealers said. 

"There was some relief in the market over Israel-Iran, and a good amount of short covering was also there," a dealer at a state-owned bank said. "But the domestic view of rate cuts is not there, so there is not much of a space I see for a big rally."

Traders covered the short bets they had placed earlier due to the escalation in the Iran-Israel conflict. 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 1830 IST showed trades worth INR 117.07 billion in the 6.33%, 2035 gilt, and INR 151.11 billion worth of trades on 6.79%, 2034 bond. The data on Monday showed trades worth INR 103.30 billion on the 10-year benchmark paper and INR 139.70 billion in the 6.79%, 2034 gilt.

Traders said that a part of the shorts placed was also to make room for the INR 300 billion auction of the 10-year 6.33%, 2035 bond on Friday. Price action in the secondary market suggested that cut-off prices at auction on the 10-year bond could be significantly lower than the current market prices. There were seven trades on the 10-year benchmark gilt in the when-issued (reissues) section of RBI's Negotiated Dealing System-Order Matching platform, traded within a range of 100.12-100.30, sharply lower 100.26-100.58 traded in the main platform. 

Meanwhile, demand from insurers was firm, with some seeking forward rate agreements for gilts maturing in 30-40 years, dealers said. Demand at the INR 272-billion state bond auction Tuesday was firm, with cut-offs mostly on the expected lines, dealers said. Demand for state bonds maturing in 11-14 years remained poor, as was the case last week, as banks chose to buy state bonds maturing up to 10 years. Some demand for 15-year state bonds was seen both from banks and insurers due to attractive yield spreads, dealers said. Demand for long-term state bonds was firm from insurers due to attractive yield spreads and limited supply of long-term bonds this week, dealers said. The yield spread on states' 10-year bonds over the 10-year benchmark 6.33%, 2035 bond was 46-47 basis points, sharply higher than 29 bps at last week's auction. 

Turnover in the gilts market was INR 605.35 billion, higher than INR 480.60 billion Monday, according to data on the RBI's NDS-OM platform. There were two trades in the 7.10%, 2034 bond worth INR 100 million using the wholesale digital rupee pilot on Tuesday. There were also 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 same method on Monday. 

OUTLOOK

On Wednesday, bonds are likely to open lower after the RBI, after the market on Tuesday said it would conduct a seven-day, INR 1.00-trillion variable rate reverse repo auction on Friday. This is the first time the operation to absorb short-term liquidity has been held since November. Though some traders had expected the RBI to come up with a VRRR auction, most said such an announcement could come only next month, with outflows scheduled near the end of the June quarter. 

"Short-term bonds will be hit the most as usual, but even in the 10-year we may see a 2 bps rise (in yield)," a trader at a mutual fund said.

Gilts will also take cues from developments in the Israel-Iran conflict, dealers said. Traders will also take cues from US Treasury yields at open. Atlanta Federal Reserve President Raphael Bostic on Tuesday said that the US Federal Open Market Committee does not need to cut the policy rate now, citing a stable job market and inflation risks due to tariff-driven price hikes.

Traders may continue to prefer liquid bonds such as the 10-year and 15-year gilts as uncertainty on the geopolitical front persists, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.22-6.32% Wednesday and that on the most-traded 6.79%, 2034 bond is seen at 6.30-6.40%.

India Gilts: Remain sharply up; foreign, private sector banks likely buyers

MUMBAI--1534 IST--Government bonds remained sharply higher as crude oil prices stayed below the key $70-per-barrel mark, dealers said. Foreign banks and private sector banks were likely on the buying side after US President Donald Trump said a ceasefire between Israel and Iran was now in effect, though Israel claimed Iran had violated the agreement, they said.

"We will watch how the geopolitical situation develops, but most of it has been priced in," a dealer at a private sector bank said. "Also, even if there are hostilities between the two countries (Israel and Iran), I don't suppose the Strait of Hormuz will be closed and looks like US could also be left out of this. So, the impact may not be as widespread." 

Gilts had given up some gains as traders sold bonds at a profit, dealers said. Some gains were also erased after reports that Iran had violated the ceasefire and Israel said it would respond "with force", dealers said. However, buying by foreign portfolio investors and mutual funds pulled up gilts to the day's high, they said.

Meanwhile, traders who had picked up longer-tenure bonds are also likely to have sold some of them to reduce risks, they said. However, demand from insurers was firm, with some seeking forward rate agreements for gilts maturing in 30-40 years, dealers said. Traders continued to prefer liquid gilts such as the 10- and 15-year bonds due to persisting geopolitical uncertainty, they said. 

Demand at the INR 272-billion state bond auction Tuesday was firm, with cut-offs mostly in line with expectations, dealers said. Demand for state bonds maturing in 11-14 years remained poor, as was the case last week, as banks chose to buy state bonds maturing in up to 10 years. Some demand for 15-year state bonds was seen both from banks and insurers due to attractive yield spreads, dealers said. Demand for long-term state bonds was firm from insurers due to attractive yield spreads and limited supply of long-term bonds this week, dealers said. The yield spread on states' 10-year bonds over the 10-year benchmark 6.33%, 2035 bond was 46-47 basis points, higher than 29 bps at last week's auction.  

The turnover in the gilts market was INR 405.50 billion at 1530 IST, slightly higher than INR 397.45 billion at the same time Monday, according to data on the Reaserve 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.40%.  (Srijita Bose)

India Gilts: Stay up as oil prices fall further; profit booking caps gains

MUMBAI--1324 IST--Prices of government bonds remained sharply up as crude prices fell further intraday, dealers said. Brent crude for August delivery was at $68.62 a barrel, down from $69.39 at 0900 IST, and from $77.82 a barrel at close of market hours Monday.

Crude prices fell further after US President Donald Trump on Truth Social said that the Iran-Israel ceasefire was in effect. Early Tuesday, Trump said that Iran and Israel had agreed to a ceasefire after their final military operations. Private sector banks were purchasing gilts, also tracking a fall in US Treasury yields, they said. The yield on the benchmark 10-year US Treasury note was 4.33%, down from 4.35% at 0900 IST and 4.40% at 1700 IST Monday. 

Traders preferred gilts maturing in 10-15 years, while some also picked up long-term gilts due to lucrative spreads, they said. The yield spread of the 7.09%, 2074 gilt over the benchmark 10-year 6.33%, 2035 gilt was 81 basis points, from 73 bps on Jun. 6, when the Reserve Bank of India's Monetary Policy Comittee changed its stance to 'neutral' from 'accomodative'. Gains were limited as traders, especially from state-owned banks, sold gilts at a profit after net purchasing gilts worth INR 133.68 billion since Jun. 17. Some traders expect the gilt yield curve to flatten after more than a month of steepening, since traders are well-stocked with short-term gilts and the yields of papers maturing in more than 10-year were lucrative to buy at current levels. 

"People are still heavy on short-term so I don't see the curve steepening right now," a dealer at a private sector bank said. "Yields are good in long-term bonds right now, but I don't see a major compression in yield spreads."

At the state bond auction, traders see good demand across the state bond curve due to lucrative spreads between gilts and these securities, dealers said. Foreign banks are likely to pick up bonds maturing in 10-15 years, while insurance companies and pension funds are likely to bid for long-term state bonds for forward rate agreements, dealers said. 

The turnover in the gilts market was INR 296.20 billion at 1230 IST, higher than INR 162.65 billion at the same time Monday, 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: Sharply up on fall in oil prices, surge in rupee against dollar

MUMBAI--0932 IST--Prices of government bonds rose sharply tracking a fall in crude oil prices, and aided by a rise in the rupee against the dollar, dealers said. Crude oil prices fell after US President Donald Trump said that Iran and Israel had agreed to a ceasefire after their final military operations.

"Trump has announced the ceasefire plan, but Iran has denied it. There are rumours that this whole war (between Iran and Israel) will end soon," a dealer at a state-owned bank said. "The sentiment has changed now and will improve further if Iran confirms the ceasefire."

Fears of a rise in inflation eased after the fall in crude oil prices, and tensions regarding geopolitical uncertainty in West Asia eased after Trump's announcement. Brent crude for August delivery was at $69 a barrel, the lowest since Jun. 12, against around $77 a barrel at close of market hours Monday.

A surge in the rupee against the dollar also supported the rise in bond prices, dealers said. The rupee opened at 86.11 against the dollar Tuesday, against 86.75 Monday. US Treasury yields also fell overnight, helping the rise in gilt prices. At 0911 IST, the yield on the benchmark 10-year US Treasury note was 4.35%, down from 4.40% at 1700 IST Monday. 

The 10-year benchmark 6.33%, 2035 gilt yield hit 6.2764% on Tuesday, the lowest in almost a week, as fears of higher inflation ebbed. On Jun. 17, Reserve Bank of India Governor Sanjay Malhotra had said that the space for policy easing would "open up" if "the inflation outlook turns out to be below our (the central bank's) projections".

Traders covered the short bets they had placed earlier due to escalation in the Iran-Israel conflict. 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 0911 IST showed trades worth INR 106.02 billion in the 6.33%, 2035 gilt, which would likely be revised downwards by the end of the day.

The turnover in the gilts market was INR 124.20 billion at 0930 IST, sharply higher than INR 50.00 billion at the same time Monday, 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 up as crude falls after Trump announces Iran-Israel truce

MUMBAI – Prices of government bonds are seen opening higher Tuesday as crude oil prices fell to over a week's low after US President Donald Trump said that Iran and Israel had agreed to a ceasefire after their final military operations, dealers said. Brent crude for August delivery was at $69.55 a barrel, the lowest since Jun. 12, against $77.82 a barrel at 1700 IST Monday.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.25-6.32% during the day. The gilt is seen opening around 10-15 paise higher Tuesday. The gilt ended at INR 100.17 or 6.31% yield on Monday. 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 102.85 or 6.38% yield the previous session. Prices may rise further during the day, since traders were not holding heavy portfolios earlier due to the geopolitical uncertainty, dealers said. 

In a post on Truth Social, Trump said, "It has been fully agreed by and between Israel and Iran that there will be a Complete and Total CEASEFIRE... for 12 hours, at which point the War will be considered, ENDED!" Following the announcement, Brent crude fell sharply. However, Iranian foreign minister Seyed Abbas Araghchi said on X, formerly Twitter, that there was "NO "agreement" on any ceasefire or cessation of military operations". The minister said that if Israel stopped its aggression against Iran after 0400 Tehran time, Iran would not retaliate. Overnight, Iran attacked a US military base in Qatar. However, media reports indicate that Iran had informed Qatar and the US about the attack and that the retaliation was largely symbolic. 

The fall in crude prices will ease concerns about rising inflation, dealers said. However, some traders are still uncertain as to whether the ceasefire will hold since Iran hasn't confirmed the agreement yet. Market sentiment had improved in the second half of trading Monday after crude inched lower intraday, and traders speculated that Iran was unlikely to close the Strait of Hormuz and even if that was the case, the block would only be temporary, they said. 

Traders are likely to cover short bets during the day, they said. Appreciation of the rupee against the dollar will also aid the rise in prices, dealers said. US yields eased slightly overnight after US Federal Reserve Governor Michelle Bowman said she could support a rate cut in July, if inflation pressures remained contained. The yield on the benchmark 10-year US Treasury note was 4.35% at 0800 IST, down from 4.40% at 1700 IST Monday. 

Traders will also track the result of the state bond auction. Nine states will raise INR 272.00 billion through bonds Tuesday. As per the indicative calendar for Apr-Jun, 19 states were scheduled to borrow INR 301.00 billion. (Cassandra Carvalho)

End

US$1 = INR 85.98

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

Edited by Saji George Titus

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