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Informist, Thursday, Jun. 26, 2025

By Srijita Bose

MUMBAI – Government bond prices ended mixed Thursday. Most were steady due to lack of fresh cues, but the 10-year benchmark 6.33%, 2035 gilt rose as traders covered some short bets ahead of the INR 360-billion auction Friday, dealers said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.38, or 6.28% yield, against INR 100.30, or 6.29%, on Wednesday. The most-traded 6.79%, 2034 bond closed at INR 102.94 or 6.36%, against INR 102.93, or 6.37% on Wednesday.

The 6.33%, 2035 was the most appealing bond ahead of the auction and also on expectations that it will be the most traded starting next week, dealers said. Moreover, the spread between the 6.33%, 2035 gilt and the 6.79%, 2034 gilt is expected to narrow to 3-4 basis points after the auction, from 9 bps at present. The traded volume of the 2035 bond was 84% of the volume of the 2034 bond, compared to just 30% Wednesday, according to the Reserve Bank of India's Negotiated Dealing System-Order Matching platform.

"People are mostly entering into spread trades due to lack of any fundamental view on rates now," a dealer at a private sector bank said. "The rise in 10-year (benchmark gilt) was because of the short-squeeze. I think some foreign banks and FPI (foreign portfolio investors') buying is also there."

Traders have increased their short bets on the 10-year benchmark 6.33%, 2035 bond over the past one week, looking to pick up the bond at a cheaper price at the auction Friday, dealers said. The government will sell INR 300.00 billion of the 2035 bond at the auction Friday. A proxy for tracking short sales in a particular bond is the number of trades in the special repo segment of the Clearcorp Repo Order Matching System. Data as of 1740 IST showed trades worth INR 105.15 billion in the 6.33%, 2035 gilt and INR 140.84 billion in the 6.79%, 2034 bond. Data released on Wednesday showed trades worth INR 111.35 billion in the 2035 gilt and INR 130.03 billion in the 2034 bond.

However, the 2035 gilt's low outstanding of INR 600.00 billion led the short-sellers to lend funds at a weighted average rate of 0.6% in the special repo segment of the Clearcorp Repo Order Matching System. This forced traders to cover short bets at a higher price in the secondary market, dealers said. A major state-owned bank likely bought the 2035 gilt, taking its price to the day's high of INR 100.52, dealers said. However, caution before Friday's auction led traders to place short bets on the bond towards the end of the session, and the 10-year gilt ended off its high. Demand for the 2035 gilt at the auction is expected to be aggressive but the cut-off may be lower than current market valuation, dealers said. The when-issued section of RBI's NDS-OM platform showed 55 trades worth INR 21.15 billion in the 2035 bond, an unusually large size, in the range of INR 100.19-INR 100.38, lower than INR 100.28-INR 100.52 in the regular market.

Traders also reshuffled portfolios before Friday's gilt and variable rate reverse repo auctions, dealers said. Though the VRRR auction is only expected to drain liquidity from the banking system marginally as inflows from the government's month-end spending begin, some traders fear that the auction could be a step towards raising overnight rates closer to the repo rate, dealers said.

Short-term bonds are also out of favour due to short bets ahead of the auction of the new 2028 bond Friday. The short-term bond's auction is not expected to be well-received, though some traders may still bid on hopes of the yield curve steepening, dealers said. Most traders expect the yield curve to flatten in the near term, due to preference for liquid medium-duration securities and diminished hopes of further rate cuts.

However, interest for the 7.38%, 2027 gilt was strong, especially in the reported deals segment, likely due to purchases by foreign portfolio investors, dealers said. Foreign portfolio investors Wednesday bought gilts worth INR 4.85 billion through the fully accessible route, data from Clearing Corp. of India showed. FPIs likely bought gilts in light volumes Thursday, as the interest rate differential between US Treasury yields and Indian government bonds widened from earlier in the month. The spread between the benchmark 10-year US Treasury note and the 10-year benchmark 6.33%, 2035 gilt rose to 202 bps from 182 bps at the end of May. A widening interest rate differential between safe-haven assets and emerging market debt makes the latter more appealing to foreign investors.

"People are sitting out of the money on many papers and are trying to make up with spread trades," a dealer at a state-owned bank said. "Still, I think, the five- to seven-year papers look good and will eventually pick up."

Meanwhile, mutual funds and private sector banks likely sold longer tenure bonds as market sentiment dampened due to the VRRR auction, dealers said. These traders had last week picked up bonds maturing in 30-40 years due to attractive yields spreads, they said.

Turnover in the gilts market Thursday was INR 524.45 billion, higher than INR 483.20 billion Wednesday, 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 Thursday, the same as Wednesday and Tuesday.

OUTLOOK

On Friday, bond prices may open steady before the weekly gilt auction of INR 360 billion at 1030-1130 IST, dealers said. The result of the VRRR auction will also be closely tracked.

Though demand at the gilt auction is expected to be firm, with the 2035 gilt expected to surpass trade volumes from next week, traders may bid at prices lower than current levels, dealers said. Some traders expect almost full subscription at the VRRR auction, while others said that Thursday's liquidity data would provide a better picture of the cut-off and subscription since banks may not want to park funds for seven days with the RBI at the end of the June quarter.

Gilts may also take cues from US yields after the release of economic data and comments by Federal Reserve officials. On Thursday, US President Donald Trump said he may replace US Federal Reserve Chair Jerome Powell, calling him "terrible", and saying he has several potential successors in mind. While Trump has publicly urged the Fed chief to cut the benchmark lending rates, Powell has been firm on "cautiously" easing the monetary policy amid inflationary risks due to uncertainties arising from Trump's disruptive trade and tariff policies. Traders are still anticipating two rate cuts by the Federal Open Market Committee this year. According to the CME FedWatch tool, traders see a 75.2% probability of the Fed holding rates at the July meeting of the US FOMC.

Meanwhile, data released Thursday after market hours showed US GDP declined 0.5% in the Apr-Jun quarter, against expectations of a contraction of 0.2%. US weekly jobless claims for the week ended Saturday fell to 236,000, lower than 245,000 estimated.

Gilts will also take cues from any developments in West Asia, dealers said. Brent crude futures for August delivery are expected to stay below $70 a barrel with the ceasefire between Israel and Iran holding so far. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.25-6.35% Friday and that on the most-traded 6.79%, 2034 bond is seen at 6.33-6.40%.

India Gilts: Most in thin band; 10-year benchmark up as traders cover short bets

MUMBAI--1515 IST--Most government bond prices continued to move in a thin band on lack of incremental cues. However, the 10-year benchmark 6.33%, 2035 gilt rose sharply as traders covered some short bets ahead of the INR 360-billion auction Friday, dealers said.

"There's a short-squeeze in the market," said a dealer at a primary dealership. "If you combine the when-issued segment and CROMS (Clearcorp Repo Order Matching System), there are a good number of shorts. PSUs (state-owned banks) had placed shorts in the 10-year (benchmark) because they are out-of-the-money in longer tenure papers... some covering could be there from SBI and other big market players."

A low outstanding of the 2035 gilt of INR 600.00 billion led the short-sellers to lend funds at a weighted average rate of 0.6% in the special repo segment of the Clearcorp Repo Order Matching System. This forced traders to cover short bets at a higher price in the secondary market, dealers said. The spread between the 6.33%, 2035 gilt and the 6.79%, 2034 gilt widened to 9 basis points Thursday from 8 bps a day ago as traders covered short bets. The volume in the 2035 bond also rose Thursday and was nearly 90% of the volume of the 2034 bond, compared to just 30% of the volume of the former benchmark Wednesday.

Short bets in the 10-year benchmark 6.33%, 2035 bond have remained up as traders looked to pick up the bond cheaper at auction Friday, dealers said. The government will sell INR 300.00 billion of the 2035 bond at the auction. 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 showed trades worth INR 105.15 billion in the 6.33%, 2035 gilt at 1431 IST, and INR 140.84 billion worth of trades in the 6.79%, 2034 bond. The data Wednesday showed trades worth INR 111.35 billion in the 2035 gilt, and INR 130.03 billion worth of trades in the 2034 bond.

Traders also reshuffled portfolios before Friday's gilt and variable rate reverse repo auctions, dealers said. Though the VRRR auction is only expected to marginally drain the liquidity in the banking system as inflows from the government's month-end spending begin, some traders fear that the auction could be a step towards raising overnight rates closer to the repo rate, dealers said. Some traders short-sold gilts maturing in 2-3 years due to the VRRR auction notice and to make room for INR 60.00 billion of the new 2028 bond to be auctioned Friday. Though demand from banks and mutual funds is expected to help the auction sail through, some said cut-off prices could be lower at the auction than current market prices.

The turnover in the gilts market was INR 386.20 billion at 1515 IST, slightly higher than INR 365.50 billion around the same time Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the remainder of 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 6.35-6.40%.  (Srijita Bose)

India Gilts: Mixed in thin trade; auction awaited due to lack of other cues

MUMBAI--1126 IST--Prices of government bonds were mixed across tenures, while trade was thin due to a lack of triggers, dealers said. Traders awaited the INR-360-billion gilt auction, and placed short bets to make room for auction stock, they said. 

The 6.33%, 2035 gilt was currently the most appealing, ahead of the auction and also on expectations that it will be the most traded gilt starting next week, dealers said. Moreover, the spread between the 6.33%, 2035 gilt and the 6.79%, 2034 gilt is expected to compress to 3-4 basis points after the auction, from 8 bps currently. The cut-off price for the 2035 gilt at the auction is expected to be aggressive, but lower than current market valuations, dealers said. The gilt was traded in a range of 6.29-6.31% in the When Issued (ReIssues) segment of the Reserve Bank of India's Negotiated Dealing System-Order Matching platform.

"Most people who have the 6.33%, 2035 gilt bought it at 6.25% so they wouldn't want to sell it at a loss right now, which is limiting the movement (transfer of ownership) of the bond," a dealer at a state-owned bank said.

"I think benchmarks (the 6.79%, 2034 and 6.33%, 2035 gilts) are safer to trade in right now, short-term will see some pressure because of VRRR and long-time saw a sell-off yesterday (Wednesday)," a dealer at another state-owned bank said. "The 6.33%, 2035 gilt looks good to buy because we can keep it in AFS (available-for-sale) books also."

Bond prices fell sharply Wednesday, especially those of short-term gilts after the Reserve Bank of India, post market hours Tuesday, announced a seven-day variable rate reverse repo auction for INR 1.00 trillion on Friday. While the auction is unlikely to hamper the durable systemic liquidity surplus, traders fear that more such auctions could be held, which would lift overnight money market rates and consequently, gilt yields as well.

Short-term bonds were also out of favour due to short bets ahead of the auction of the new 2028 bond Friday. The short-term bond's auction is not expected to be well-received, though some traders will still bid on hopes of the yield curve steepening, dealers said. Most traders expect the yield curve to flatten in the near term, due to preference for liquid mid-duration securities and diminished hopes of further rate cuts.

However, interest in the 7.38%, 2027 gilt was robust, especially in the reported deals segment, likely due to trade by foreign portfolio investors, dealers said. Foreign portfolio investors purchased gilts worth INR 4.85 billion Wednesday through the fully accessible route, data from Clearing Corp. of India showed. FPIs were likely purchasing gilts in light volumes Thursday, as the interest rate differential between US Treasury yields and Indian government bonds widened from earlier in the month. The spread between the benchmark 10-year US Treasury note and the 10-year benchmark 6.33%, 2035 gilt rose to 202 bps from 182 bps at the end of May. A widening interest rate differential between safe-haven assets and emerging market debt makes the latter more appealing to foreign investors.

The turnover in the gilts market was INR 96.50 billion at 1130 IST, lower than INR 239.10 billion at the same time 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 6.25-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.33-6.40%.  (Cassandra Carvalho)

India Gilts: Steady; 6.33%, 2035 gilt up, most traded ahead of auction

MUMBAI--0921 IST--Prices of government bonds were largely steady in thin trade, with some upward bias as traders covered short bets, dealers said. The 10-year benchmark 6.33%, 2035 gilt was the most traded on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, a novelty since the bond's issuance. The turnover in the gilt was INR 14.30 billion, almost double that of the 6.79%, 2034 gilt, which was INR 7.75 billion.  

Trade was concentrated in the 6.79%, 2034 and 6.33%, 2035 gilts, ahead of the latter's auction Friday. The government will sell INR 300 billion of the 2035 gilt and INR 60 billion of a new 2028 bond. 

Traders placed short bets on the 6.79%, 2034 gilt to buy the 6.33%, 2035 gilt, as the latter's outstanding will increase to INR 900 billion after Friday's auction, making it liquid enough to trade as the benchmark 10-year gilt, dealers said. Till Thursday, the 6.79%, 2034 gilt was the most traded paper as its high outstanding of INR 1.84 trillion made it easy to trade in the recent times of uncertainty and frequent volatile sessions, dealers said. 

"Traders have shorted this gilt (the 6.33%, 2035 gilt) so there will be aggressive bidding at the auction," a trader at a primary dealership said. "Those who had sold or shorted the gilt without having it, now have to buy the gilt because of the T+0 basis settlement so there is high demand for this gilt right now, which is why the rates are so low on this gilt in CROMS (Clearcorp Repo Order Matching System)."

Additionally, traders who got 'short-squeezed'--those had placed short bets on the 2035 gilt earlier and couldn't cover those bets--rushed to cover short bets in the special repo segment of the Clearcorp Repo Order Matching System by offering funds at rates as low as 0.01%. This occurred for the third consecutive day this week, as primary dealerships and some foreign and private sector banks placed short bets to make room for auction stock, dealers said. 

The turnover in the gilts market was INR 23.60 billion at 0930 IST, lower than INR 108.85 billion at the same time 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 6.25-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.33-6.40%.  (Cassandra Carvalho)

India Gilts: Seen largely steady on lack of triggers; focus on gilt auction

MUMBAI – Prices of government bonds are seen opening largely steady Thursday, with scope for movememt later in the day, dealers said. Global triggers such as US Treasury yields and crude oil prices were little changed from Wednesday. Traders will realign portfolios ahead of the weekly gilt auction, seen crucial as it will be the third issuance of the benchmark 6.33%, 2035 gilt and will also mark the debut of the new 3-year 2028 bond, dealers 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 100.30 or 6.29% yield on Wednesday. For the most-traded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.33-6.40%. The 2034 gilt closed at INR 102.93 or 6.37% yield the previous session. The yield on the 10-year benchmark US Treasury note was 4.28% at 0800 IST, little changed from 4.29% at the close of Indian market hours Wednesday. Brent crude for August delivery was at $67.91 a barrel at 0800 IST, largely steady from $67.56 a barrel at 1700 IST Wednesday.

Bond prices fell sharply Wednesday after the Reserve Bank of India announced a variable rate reverse repo auction of INR 1.00 trillion, the first such auction since November. Short-term bonds maturing in up to five years may remain down due to fear that more VRRR auctions could be on the way, dealers said.

Traders, especially from primary dealerships and private sector banks, may continue to place short bets on the 6.33%, 2035 and 6.79%, 2034 gilts ahead of the INR 300 billion of supply of the benchmark bond at Friday's auction. The government will also sell INR 60 billion of a new 2028 bond, which may add to the pressure on short-term gilts in the secondary market, dealers said. However, traders getting 'short-squeezed' in the 6.33%, 2035 gilt in the special repo segment of the Clearcorp Repo Order Matching System may have to cover these bets, dealers said. While primary dealerships have largely been on the selling side ahead of the gilt auction, their INR-4.77-billion buys Wednesday were likely due to short-covering, dealers said. However, primary dealerships will continue to sell gilts Thursday.

Traders will also track the movement of the rupee against the dollar, which is expected to open higher after the dollar slumped as the The Wall Street Journal reported US President Donald Trump was considering a new US Federal Reserve chair even though incumbent Jerome Powell's term will end only next year.  (Cassandra Carvalho)

End

US$1 = INR 85.70

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

Edited by Ashish Shirke

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