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Informist, Wednesday, Jul. 2, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended slightly higher Wednesday as foreign portfolio investors bought gilts for the fourth straight day, amid lack of significant domestic cues, dealers said. Gains in liquid gilts maturing in 2033 to 2035 were limited as US Treasury yields rose overnight, and again near the close of Indian market hours.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.29, or 6.29% yield, against INR 100.26, or 6.29%, Tuesday. The most-traded 6.79%, 2034 bond closed at INR 103.07 or 6.34%, against INR 103.02 or 6.35% Tuesday.

Foreign portfolio investors net bought INR 6.51 billion of bonds through the fully accessible route, according to data by Clearing Corp. of India at 1730 IST. Data showed FPIs bought long-term bonds such as the 7.18%, 2037 gilt and the 6.67%, 2050 gilt, while selling the 7.26%, 2029 gilt and 6.10%, 2031 gilt. Dealers said FPI buying was being propelled by a yield differential between the US and India 10-year bonds, which was still considerably favourable at over 200 basis points. While foreign banks were likely buyers in the secondary market due to the FPI activity, domestic traders preferred to pick up heavily traded gilts in other tenures, including the five- and 15-year benchmark bonds, dealers said.

"The action has been focused on the 10-year segment since last week's auction," a dealer at a private sector bank said. "Now, people were building up some spread positions again across the curve, otherwise there wasn't much action today (Wednesday)."

Long-term bonds outperformed gilts of other tenures due to the FPI purchases. Some traders also said the spread of the 30-50 year bonds over the 10-year benchmark gilt, at 71-81 bps, was attractive and may shrink this week despite incoming supply, dealers said. The government will sell INR 160 billion-worth each of a new 15-year gilt and the 6.90%, 2065 gilt at auction Friday. As the 6.92%, 2039 bond would not see fresh supply, traders covered their short bets in the paper and it was the third most-traded bond in the secondary market Wednesday, dealers said.

"Longer-term gilts offer relative value right now, though it is a tactical move, and the curve should remain steep," a trading head at a foreign bank said.

Rise in the surplus liquidity in the banking system and fall in money market rates also prompted traders to buy Treasury bills and short-term gilts over the 10-year gilt. The cut-off rate for the 91-day T-bill at auction was set at 5.36%, marginally lower than the median estimate in an Informist poll. On Tuesday, RBI's net absorbed liquidity – a proxy for the banking liquidity surplus – was INR 3.32 trillion, the most since mid-June and higher than INR 2.62 trillion Monday. Call money traders estimated the surplus at around INR 3.8 trillion Wednesday.

The weighted average call rate – the operating target of monetary policy – settled near 5.30% for the second straight day, against the repo rate of 5.50%. Some traders had feared the RBI's seven-day variable rate reverse repo auction worth INR 1 trillion held last Friday was a signal, indicating that the central bank was looking to maintain overnight money market rates near the repo rate, and had sold rate-sensitive short-term bonds. However, those fears were slowly ebbing due to lack of further action by the RBI on liquidity this week, dealers said.

"You can see it in the money market rates that the fears of RBI wanting (money market) rates near the repo is simply not coming true even with the VRRR auction," a dealer at a primary dealership said. "If VRRRs are only going to mop-up excess liquidity and rates are going to be the same, then the risk premium in the short-end (of the yield curve) can be bought into."

Bond prices had opened lower due to an overnight rise in US Treasury yields after the US Senate passed President Donald Trump's signature tax-and-spending bill that is expected to drive up US federal deficits, even as hopes of further rate cuts by the Federal Open Market Committee limited the rise in US yields. The benchmark 10-year US Treasury yield rose to 4.25% at around 0900 IST, from 4.19% at 1700 IST Tuesday. Gilt prices had reversed early losses and rose on purchases by state-owned banks, but the 6.33%, 2035 bond gave up most gains by the end of the day as the 10-year US yield hit 4.28% by the end of Indian market hours Wednesday, dealers said.

Turnover in the government bond market Wednesday was INR 446.25 billion, lower than INR 580.35 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades worth INR 100 million through the wholesale e-rupee pilot, the same as Tuesday.

OUTLOOK
On Thursday, bond prices may take cues from the overnight movement of US Treasury yields. Lack of domestic triggers has led traders to track US data - including the key non-farm payrolls data for June due Thursday - to position for change in gilt prices as US rate cut expectations develop in accordance with the data, dealers said.

On the domestic front, traders will watch for any further announcement of variable rate reverse repo auctions by the RBI, with some sections of the market expecting that the central bank will roll over the auction maturing on Friday. Traders are closely tracking overnight money market rates, which settled close to the Standing Deposit Facility rate since Tuesday after hovering near the repo rate on Friday and Monday. State-owned banks may purchase gilts for their held-to-maturity books at the start of the Jul-Sept quarter, dealers said.

A sharp movement in crude oil prices may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.25-6.34% Thursday and that on the most-traded 6.79%, 2034 bond is seen at 6.31-6.39%.

India Gilts: Up as overnight rates cool, surplus liquidity aids short-term

MUMBAI--1533 IST--Prices of government bonds were up across tenures as overnight borrowing rates cooled due to surplus liquidity in the banking system, dealers said. The rise in short-term gilts was more pronounced, and traders said fears of a variable rate reverse repo auction eased as the next such auction is expected to be a roll-over of the previous one held on Jun. 27.

Mutual funds dominated bidding at the Treasury bill auction of INR 200 billion, due to inflows at the beginning of the month, dealers said. Banks also bid aggressively due to surplus liquidity in the system. On Tuesday, RBI's net absorbed liquidity was at INR 3.32 trillion, higher than INR 2.62 trillion Monday. The Reserve Bank of India set a cut-off yield of 5.3699% on the 91-day T-bill, lower than an Informist poll estimate of 5.38%.
 

Some traders said that since the RBI has not announced another VRRR auction on Monday or Tuesday, the next auction will only be announced for Friday, when last week's VRRR is due for reversal. Last week, the RBI accepted bids worth INR 849.75 billion at the INR-1-trillion VRRR auction. 

"The overnight rate is still below 5.20% today (Wednesday)," a dealer at a state-owned bank said. "The (weighted average) TREPS (triparty repo) rate is 5.14%... prior to the announcement of VRRR, this level was not there." The weighted average triparty repo rate was 5.14% Wednesday, lower than 5.19% on Tuesday. The call money market rate was last traded at 4.80%.  

The yield curve steepened slightly as short-term securities gained favour. Most domestic traders avoided gilts maturing above 10 years due to geopolitical risk and a lack of positive triggers on the rate cut front. Foreign portfolio investors were also largely purchasing gilts maturing in up to 10 years, dealers said. Data from Clearing Corp. of India at 1530 IST showed foreign portfolio investors purchased gilts worth INR 8.22 billion through the fully accessible route Wednesday.

Gains were capped as state-owned banks sold gilts from their available-for-sale books at a profit, dealers said. The turnover in the gilts market was INR 336.90 billion at 1530 IST, slightly lower than INR 403.40 billion at the same time Tuesday, 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 6.25-6.32%. For the 6.79%, 2034 gilt, dealers see the yield at 6.31-6.39%.  (Cassandra Carvalho)  

India Gilts: Most reverse early losses, rise as PSU banks likely buy

MUMBAI--1234 IST--Most government bond prices reversed early losses on likely buys from state-owned banks, dealers said. Prices were down earlier due to an overnight rise in US Treasury yields. However, the 10-year gilts 6.33%, 2035 bond and the 6.79%, 2034 bond continued to move in a narrow band. 

"Some buying should come at these levels because GDP is expected lower and GST collections are also lower," a dealer at a private sector bank said. "Some value buying is coming in, I think mutual funds are also buying." India's goods and services tax collections grew 6.2% on year to INR 1.85 trillion in June, data released by the government Tuesday showed.

State-owned banks likely bought gilts for their held-to-maturity books as the Jul-Sept quarter has begun, dealers said, after selling nearly INR 61 billion worth of gilts, data from Clearing Corp. of India showed. Meanwhile, some state-owned banks also likely sold bonds at a profit from their trading portfolios, they said. 

Traders bought the 7.10%, 2034 bond, which was the third-most traded bond in the secondary market, due to attractive yields, dealers said. Traders also bought the 15-year benchmark 6.92%, 2039 bond as they found its spread over the 10-year benchmark 6.33%, 2035 bond attractive, they said. However, some dealers said that traders would likely wait and place short bets on the 15-year bond to make room to pick up the new 15-year bond to be issued by the government at auction Friday. 

Meanwhile, at the Treasury-bills auction, demand for 91-day T-bill was seen firm from mutual funds and state-owned banks, dealers said. Both standalone and bank primary dealerships also likely bid for 91-day T-bills to achieve their half-yearly 40% success rate mandate for T-bills, they said. "I am looking to pick up the 91-day T-bill...though the requirement is only for the end of September, I don't want to wait because there's no clarity on where rate will be then," a dealer at a primary dealership said. An Informist poll expects the cut-off on the 91-day T-bill to be set at 5.38% Wednesday. 

Insurers also likely bought gilts maturing in 30-40 years, dealers said. Mutual funds also likely bought longer tenure gilts as they found the yield spread on these bonds over the 10-year benchmark attractive, they said. The spread on the 40-year 7.34%, 2064 over the 2035 gilt has widened to nearly 78 basis points from 65 bps a month ago. 

The benchmark 10-year US Treasury yield rose to 4.25% from 4.19% at 1700 IST Tuesday. While some dealers said this led to foreign banks selling, others said that foreign portfolio investors were likely buying in light volumes. FPIs have bought INR 75 billion worth of gilts this week so far through the fully accessible route, Clearing Corp. of India data at 1201 IST showed. 

The turnover in the gilts market was INR 144.55 billion at 1230 IST, slightly lower than INR 171.10 billion at the same time Tuesday, 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 6.28-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.31-6.39%.  (Srijita Bose)

India Gilts: Open lower as US ylds up; in thin band on lack of domestic cues

MUMBAI—0934 IST--Government bond prices moved in a thin band Wednesday due to lack of fresh domestic cues, dealers said. Gilts opened lower due to an overnight rise in US Treasury yields.

"There are no domestic cues now, so market is broadly range-bound," a dealer at a private sector bank said. "The only move is in US yields so we could see some fall during the day, but other than that most will just be spread trades if there are no other inflows."

Traders are tracking US Treasury yields due to lack of fresh cues on domestic interest rates, dealers said. The benchmark 10-year US Treasury yield rose to 4.25% from 4.19% at 1700 IST Tuesday. With the US Senate passing US President Donald Trump's tax-and-spending bill, which is expected to add $3 trillion to the federal deficit over the next decade, pressure on US yields is expected to remain, though traders are now partially pricing in three rate cuts by the Federal Open Market Committee for the remainder of 2025. This may lead foreign banks and foreign portfolio investors to sell gilts later in the day, dealers said. 

Traders are also watching out for any further announcement of variable rate reverse repo auctions by the Reserve Bank of India. If the RBI announces more VRRR auctions, traders will see it as a clear step towards aligning the overnight rates near the repo rate of 5.50%. At the INR 200-billion Treasury-bill auction, mutual funds and state-owned banks are expected to be major bidders, dealers said. 

The turnover in the gilts market was INR 24.55 billion at 0930 IST, slightly lower than INR 30.75 billion at the same time Tuesday, 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 6.28-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.31-6.39%.  (Srijita Bose)

India Gilts: Seen down as US yields rise; caution on more VRRR announcements

MUMBAI – Government bond prices may open lower Wednesday as US Treasury yields edged higher overnight, dealers said. The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.28-6.35% during the day. The gilt ended at INR 100.26 or 6.29% yield on Tuesday. For the most-traded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.31-6.39%. The 2034 gilt closed at INR 103.02 or 6.35% yield Tuesday.

The benchmark 10-year US Treasury yield rose to 4.25% at 0830 IST from 4.19% at 1700 IST Tuesday after the Republican-controlled US Senate passed US President Donald Trump's contentious tax-and-spending bill, which is expected to add $3 trillion to the federal deficit over the next decade. Investors also assessed US economic data and comments from US Fed Chair Jerome Powell to gauge the timing of any interest rate cuts. Powell reiterated that the central bank plans to wait for more data before starting monetary policy easing but didn't rule out a July cut. Speaking at a central banking conference in Sintra, Portugal, Powell said it's too early to determine if July is the right time for a rate cut, emphasising that decisions will be made on a meeting-by-meeting basis based on incoming data.

Traders await Thursday's key government payrolls report, which will be released a day early due to the Independence Day holiday on Friday. This report may influence expectations for potential rate cuts from the US Federal Open Market Committee. Traders still expect a quicker pace of rate cuts by the US Fed due to softening economic data, with expectations of at least three rate cuts in the remainder of 2025.

On the domestic front, traders will now watch for any further announcement of variable rate reverse repo auctions by the Reserve Bank of India. Traders are closely tracking overnight money market rates, which settled close to the Standing Deposit Facility rate Tuesday after two days of ending near the repo rate on Friday and Monday. Results of the Treasury-bill auction may also lend cues, dealers said. 

State-owned banks may purchase gilts for their held-to-maturity books at the start of the Jul-Sept quarter, dealers said. This week so far, state-owned banks have sold nearly INR 61 billion worth of gilts, data from Clearing Corp. of India showed. Meanwhile, the yield spread on the 6.79%, 2034 gilt over 6.33%, 2035 bond inched lower than 6 basis points on Tuesday, from 8-9 bps last week. Traders expect the yield spread to further compress to nearly 3-4 bps by the end of this week, dealers said.  (Srijita Bose)

End

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

Edited by Nishant Maher

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