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Informist, Friday, Jun. 27, 2025

By Srijita Bose

MUMBAI – Prices of most government bonds ended sharply lower after the cut-off price for the 10-year benchmark 6.33%, 2035 bond was lower than expected, with traders also trimming positions ahead of key US and India data after market hours, dealers said. Short-term bonds were largely steady as the coupon on the new three-year, 2028 bond was set at 5.91%, as expected.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.11, or 6.31% yield, against INR 100.38, or 6.28%, on Thursday. The most-traded 6.79%, 2034 bond closed at INR 102.71 or 6.40%, against INR 102.94 or 6.36% on Thursday.

The cut-off price on the 6.33%, 2035 gilt was set at INR 100.19, lower than an Informist poll estimate of INR 100.24. This is the third time the 6.33%, 2035 bond has been auctioned, taking the total outstanding to INR 900 billion. What disappointed traders the most was that the yield spread between the 6.79%, 2034 gilt and the 6.33%, 2035 gilt compressed only slightly to 7-8 bps from 8-9 bps earlier in the day, they said. Traders had expected the spread between the two gilts to compress to 5-6 bps after the auction and 3-4 bps in the near term. Short sellers, who had covered their positions at the auction, took fresh short bets in 10-15 year gilts after the auction results, dealers said.

Private sector banks and foreign banks were wary of holding gilts heading into the weekend before the release of US Personal Consumption Expenditures inflation data for May, scheduled after market hours. While Federal Reserve officials have been warning of inflationary risks due to uncertainties arising from the US administration's disruptive trade and tariff policies, US President Donald Trump has been urging the central bank to cut policy rates. Comments from US Fed officials have increased bets on a rate cut by the US Federal Open Market Committee in July, as have reports that Trump is looking to name a successor to US Fed Chair Jerome Powell well before his term ends next year.

"People are waiting for PCE now because domestic rate cuts will also depend on how US data comes," a dealer at a private sector bank said. "Even with lower cut-offs (on the 6.33%, 2035 bond), the spread (with 6.79%, 2034 bond) did not come down as expected, so some fall in secondary market was also because of traders readjusting positions."

Short bets on the 2035 bond had risen during the week as traders looked to pick up the bond at a cheaper price at auction, dealers said. Traders also placed short bets on the 2035 bond as the yield spread on the erstwhile 10-year benchmark, 6.79%, 2034 over the 2035 bond had widened, which they found expensive to pick up for their trading portfolios, they 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. At 1745 IST, data showed trades worth INR 160.26 billion in the 6.33%, 2035 gilt, up from INR 159.72 billion earlier, and INR 136.74 billion in the 6.79%, 2034 gilt, down from INR 140.84 billion before the market opened. After the auction results, traders continued to place short bets on the 2035 bond, while picking up the 2034 bond instead due to attractive yields, dealers said.

Most short-term bonds remained steady despite the INR 1 trillion variable rate reverse repo auction Friday, as the auction is not expected to significantly impact liquidity surplus and thereby overnight rates, dealers said. However, some dealers said that there was a possibility that the RBI could announce more VRRR auctions in the coming week to offset inflows from the government's month-end flows. The call money market rate jumped above the RBI's repo rate to 5.60% ahead of the VRRR auction Friday. Purchases by foreign portfolio investors were also likely in shorter tenure bonds, dealers said. As per the latest data from the RBI, the net liquidity absorbed by the central bank--a proxy for systemic liquidity surplus--stood at INR 2.71 trillion on Thursday, up from INR 2.48 trillion Wednesday. Meanwhile, gilts maturing in seven years or more were down on likely sales from mutual funds, dealers said. 

"There are no fresh domestic cues now, so most are just going for spread trades," a dealer at a primary dealership said. "There is some fear that there could be more VRRR also, but mostly the yield curve is adjusting after the auction."

Traders also awaited the release of the states' borrowing calendar for Jul-Sept, expected post-market hours. Traders expect the total quantum of state bond borrowing for the quarter to come around INR 2.60 trillion to INR 3 trillion, against INR 2.73 trillion indicated in the Apr-Jun quarter, with a higher concentration of the borrowing in bonds maturing in 10-20 years, dealers said. This also led to a fall in gilts maturing in 10-15 years, dealers said. Longer tenure bonds rose earlier due to demand from insurers, dealers said. Long-term investors found yields of gilts maturing in 30-40 years attractive after the yields on these rose in the past two sessions due to sales from traders, dealers said. Demand for forward rate agreements in longer tenure bonds also likely led to a rise in their prices, dealers said. However, the disappointment at auction and caution before US data and state bond calendar led to a fall in prices of long-term bonds, they said.

Turnover in the gilts market Friday was INR 511.60 billion, lower than INR 518.65 billion Thursday, 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 using the wholesale digital rupee pilot on Friday for the fourth consecutive day.

OUTLOOK

Gilts are not traded on Saturdays. On Monday, bond prices may take cues from the movement in US Treasury yields after the release of US data, dealers said. Data released after market hours showed the core PCE price index, the Federal Reserve's preferred gauge of inflation, rose 0.2% in May from the previous month, rising 2.7% on year, slightly higher than expectations. 

On the domestic front, the RBI, post-market hours, said states will borrow a total of INR 2.87 trillion in Jul-Sept, which is largely within the market's expectations. Traders will now watch for any further announcement of variable rate reverse repo auctions by the Reserve Bank of India.

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 6.28-6.35% Monday and that on the most-traded 6.79%, 2034 bond is seen at 6.33-6.42%.

India Gilts: 10-15 yr bonds dn as 6.33%, 2035 gilt cut-off price below view

MUMBAI--1530 IST--Prices of government bonds maturing in 10-15 years were sharply down after the cut-off price on the 6.33%, 2035 gilt was lower than expectations. However, most traders covered their short bets placed on the gilt by buying auction stock, dealers said. Short-term gilts were little changed after the coupon on the new 2028 paper was set at 5.91%, which was along expected lines. 

The cut-off price on the 6.33%, 2035 gilt was INR 100.19, lower than an Informist poll estimate of INR 100.24. However, the weighted average price of the gilt was INR 100.24. What disappointed traders the most was that the yield spread between the 6.79%, 2034 gilt and the 6.33%, 2035 gilt compressed only slightly to 7-8 bps from 8-9 bps earlier in the day, they said. Traders had expected the spread between the two gilts to compress to 5-6 bps after the auction and 3-4 bps in the near term.

"I think the cut-off (on 6.33%, 2035 gilt) disappointed the market but people have covered their positions at the auction," a dealer at a private sector bank said. "The game now is still on the spreads compressing...people will go long on the old 10-year (6.79%, 2034 gilt) and short the new one."

Bond prices may continue to fall in the day as traders may trim portfolios ahead of the release of US Personal Consumption Expenditures inflation data for May, the US Federal Reserve's preferred inflation gauge. Traders also await the release of states' borrowing calendar for Jul-Sept, expected post market hours. Long-term bonds remained up not only because of demand from insurance companies at levels seen lucrative, but also because some expected a lower state borrowing amount than the year-ago figure, dealers said. Traders estimate the borrowing to be INR 2.6 trillion to INR 3 trillion, against INR 2.73 trillion indicated in the Apr-Jun quarter.

The gilt auction was the last major domestic cue for traders until GDP growth data, due in August, dealers said. Traders will now closely track the movement of global triggers such as US Treasury yields. On the domestic front, traders will also watch for any further announcement of variable rate reverse repo auctions by the Reserve Bank of India. The call money market rate jumped above the RBI's repo rate to 5.60% ahead of the VRRR auction Friday. Prices of bonds maturing up to 5 years remained in a thin band, but could fall by end of trade, or by next week, dealers said. Traders, especially from state-owned banks, preferred the erstwhile 10-year benchmarks such as the 6.79%, 2034 gilt for their held-to-maturity books, dealers said. 

The turnover in the gilts market was INR 309.60 billion, slightly lower than INR 397.10 billion at 1530 IST 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.33-6.40%.  (Cassandra Carvalho)

India Gilts: Mixed; 10-yr benchmark down on short bets before auction result

India Gilts: Mixed; 10-yr benchmark down on short bets before auction result

MUMBAI--1202 IST--Government bond prices were mixed. Most bonds were steady before the results of the INR 360-billion gilt auction, with thin volumes in the secondary market. However, the 10-year benchmark 6.33%, 2035 gilt was down as traders looked to pick up the bond at cheaper prices at the auction, where INR 300 billion of the bond was offered, dealers said. 

Demand for the 2035 bond was firm as traders looked to cover short bets, 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. At 1202 IST, data showed trades worth INR 159.72 billion in the 6.33%, 2035 gilt, up from INR 105.15 billion earlier, and INR 136.74 billion in the 6.79%, 2034 gilt, down from INR 140.84 billion before market opened. The weighted average rate for lending funds in the 6.33%, 2035 gilt was 0.01%. 

Short bets on the 2035 bond have remained up during the week as traders looked to pick up the bond at a cheaper price at auction, dealers said. Traders also placed short bets on the 2035 bond as the yield spread on the erstwhile 10-year benchmark 6.79%, 2034 over the 2035 bond was nearly 8 basis points, which they deemed expensive to pick up for their trading portfolios, they said. The spread between the two bonds is expected to compress to 4-5 bps after the auction, dealers said. Due to a low outstanding of INR 600 billion of the 2035 bond, traders also used the when-issued section of the Reserve Bank of India's Negotiated Dealing System-Order Matching, to sell the bond. The when-issued section of RBI's NDS-OM platform showed 46 trades worth INR 6.45 billion in the 2035 bond, in the range of INR 100.27-INR 100.33, lower than INR 100.29-INR 100.45 in the regular market.

"There is no point in picking up the 6.33% (2035) paper at such high prices. I would rather go for the other papers in similar tenures, like the 6.79% (2034 gilt) and 7.10% (2034 gilt), which I'm getting 10-13 bps cheaper," a dealer at a state-owned bank said. "So, though demand should be good everyone will want to bid at lower prices."

Though demand for the bond at auction was firm, traders likely bid for the 2035 bond at a discount to current market prices, they said. An Informist poll estimated the cut-off on the 2035 bond to be at INR 100.24. Some, however, said that there was a possibility that a large state-owned bank bid aggressively at auction, which could push up the cut-off price on the 2035 bond. 

Meanwhile, for the new 2028 bond, demand could be mixed, dealers said. Banks likely bid for the bond to stock up their held-to-maturity books for the June quarter-end, they said. However, demand from mutual funds could be muted at auction due to redemption pressures near the end of quarter, dealers said. An Informist poll had estimated the coupon to be fixed at 5.91% for the new three-year paper. 

In the secondary market, traders continued to reshuffle portfolios due to the lack of any fresh fundamental cues, dealers said. Prices of gilts maturing in 30-40 years rose due to demand from insurers, who likely picked up these gilts as they found yields attractive after these rose in the past two sessions due to sales from traders, they said.

The turnover in the gilts market was INR 141.80 billion, slightly lower than INR 177.50 billion at 1230 IST 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.33-6.40%.  (Srijita Bose)

India Gilts: Steady before weekly gilt auction; short bets on 6.33%, 2035 gilt jump

MUMBAI--0940 IST--Prices of government bonds were steady in thin trade ahead of the weekly gilt auction of INR 360 billion. At the auction, the government will sell INR 300 billion of the benchmark 10-year 6.33%, 2035 gilt and INR 60 billion of a new 2028 bond. Most traders expect a cut-off price on the 6.33%, 2035 gilt at par with or closer to the gilt's secondary market valuation.

"People are short-squeezed again today (Friday), the CROMS rate is 0%," a dealer at a private sector bank said. "But I think today everyone will cover at auction."

"There are so many shorts on both the 10-years, it's highly possible that cut-off (price) will be high," a dealer at another private sector bank 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 0940 IST showed trades worth INR 140.17 billion in the 6.33%, 2035 gilt, up from INR 105.15 billion earlier, and INR 136.74 billion in the 6.79%, 2034 gilt, down from INR 140.84 billion before market opened. The weighted average rate for lending funds in the 6.33%, 2035 gilt was 0.01%.

Traders covered short bets in the 6.79%, 2034 gilt at market open, but most gains were erased due to profit-booking, dealers said. Volumes were low and are likely to pick up only after the auction, and traders are expected to aggressively cover their short bets built up over the week, dealers said. 

Traders had mixed views on demand for the new 2028 bond. Some dealers still expect the yield curve to steepen, and said would prefer to carry short-term gilts instead of papers maturing in 10-year and above in times of geopolitical uncertainty. However, others said the yield curve could flatten if the Reserve Bank of India continues with variable rate reverse repo operations to drain liquidity, dealers said.

The turnover in the gilts market was INR 20.95 billion at 0930 IST, lower than INR 23.60 billion at the same time 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.33-6.40%. (Cassandra Carvalho)

India Gilts:Seen steady before much-awaited sale of 10-yr gilt, new 3-yr bond

MUMBAI – Prices of government bonds are seen opening largely steady Friday ahead of the weekly gilt auction of INR 360 billion, dealers said. At the auction, the government will sell INR 300 billion of the benchmark 10-year 6.33%, 2035 gilt and INR 60 billion of a new 2028 bond. The 10-year 6.33%, 2035 and 6.79%, 2034 gilts may open slightly lower as traders will sell the gilt to make room for the auction stock. Traders will also track the result of the seven-day variable rate reverse repo auction of INR 1 trillion. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.25-6.32% during the day. The gilt ended at INR 100.38 or 6.28% yield on Thursday. 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 102.94 or 6.36% yield the previous session. The yield on the 10-year benchmark US Treasury note was 4.26% at 0800 IST, slightly lower than 4.27% at the close of Indian market hours Thursday. Brent crude for August delivery was at $68.12 a barrel at 0800 IST, largely steady from $68.00 a barrel at 1700 IST Thursday.

The auction on Friday will be the 2035 gilt's third sale, which will take its outstanding amount to INR 900 billion. Demand for this gilt is seen firm across market participants, as primary dealerships, foreign banks and even state-owned banks placed short bets on the gilt to free up their portfolios for fresh stock. 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 0800 IST showed trades worth INR 105.15 billion in the 6.33%, 2035 gilt, and INR 140.84 billion in the 6.79%, 2034 gilt. Post the auction, the yield spread between both gilts is seen narrowing to 3-4 basis points from 9 bps Thursday.

Demand for the 2028 bond is seen lukewarm, as traders expect the yield curve to flatten if the Reserve Bank of India continues with VRRR operations to drain liquidity, dealers said. Some traders expect almost full subscription at the VRRR auction, while others said 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.

On the global front, the easing of US yields and bets of a quicker rate cut in the US have soothed market sentiment, dealers said. Data released Thursday showed US GDP contracted 0.5% on year in Jan-Mar, as per the third estimate of the Commerce Department's Bureau of Econmic Analysis. Earlier, GDP was reported to have contracted 0.2%. US weekly jobless claims for the week ended Saturday fell to 236,000, lower than the estimated 244,000.

Post market hours, traders expect the RBI to release the state borrowing calendar for the Jul-Sept quarter. Traders estimate the borrowing to be INR 2.6 trillion to INR 3 trillion, against INR 2.73 trillion indicated in the Apr-Jun quarter. (Cassandra Carvalho) 

End

US$1 = INR 85.48

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

Edited by Saji George Titus

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