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Informist, Monday, Jul. 7, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended off highs Monday on an intraday rise in US Treasury yields. The impact was limited and trade volumes were muted as there was a lack of triggers to lend direction to gilt prices, dealers said. Price action across tenures was mixed--bonds maturing in up to 15 years were well-bid, while bonds maturing in 30-50 years ended slightly lower.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.26, or 6.29% yield, against INR 100.25, or 6.29%, Friday. The most-traded 6.79%, 2034 bond closed at INR 103.03, or 6.35%, against INR 103.01, or 6.35%, Friday. The newer gilt's volume exceeded that of the erstwhile 10-year benchmark for much of the day, but the 2034 bond eventually emerged the most-traded, over two months after the release of the new 10-year paper.

The yield on the 10-year US Treasury note rose to 4.36% from a low of 4.33% earlier in the day, which led some traders to trim their holdings of on-the-run paper maturing in 10-15 years, dealers said. The rise did not have an impact on prices of short- and long-term government bonds, they said. Others said the small rise in US yields was not material and looked forward to the announcement of a trade deal between India and the US this week. President Donald Trump said he would announce tariff rates and deals with trade partners at a time after Indian market hours.

"People are not really paying much attention to US yields right now, and there is no FPI (foreign portfolio investor) activity on either side today," a dealer at a foreign bank said. "The market is waiting for just a hint of an interest rate cut (in India), and until that we should be stuck in a range-bound market."

Traders' rate-cut expectations have almost disappeared after the Reserve Bank of India's June policy review, when the Monetary Policy Committee changed its stance to "neutral" from "accommodative". Despite lower-than-expected inflation numbers and leading indicators for economic activity--goods and services tax collections, vehicle sales, and the index of industrial production--all showing sluggish growth in Apr-Jun, dealers said it was too early to build up bets of rate cuts. Members of the rate-setting panel had said they had frontloaded rate cuts for better transmission on monetary policy easing to the economy. Following the minutes of the June meeting, most traders expect that the panel will stand pat on rates at its next meeting in August.

Bonds maturing up to 2028 were picked up by asset-liability managers at banks and also by mutual funds owing to the prevailing liquidity surplus in the banking system, though trade volumes were low. Dealers said this was the deployment of the excess liquidity that traders had on hand after the central bank's liquidity infusion and the smaller-than-expected size of the variable rate reverse repo auction Friday. Latest RBI data showed the RBI net absorbed over INR 4.00 trillion from the banking system for the fourth straight day Sunday.

At the same time, some traders fear the RBI could conduct a fine-tuning liquidity operation and take out liquidity from the banking system this week. This would be seen as a sign that the central bank is not comfortable with the current level of the liquidity surplus, and held traders back from buying short-term gilts aggressively, dealers said. However, the negatives for short-term bonds are seen to be limited--the central bank's liquidity actions have so far not prevented overnight call money and tri-party repo rates from being near the standing deposit facility rate of 5.25%, 25 basis points below the policy repo rate.

"The RBI has been on the front foot in all its liquidity measures," a dealer at a private-sector bank said. "I think the RBI knows that these readings are temporary, and the surplus will go to 1.0-1.4% (of banks' net demand and time liabilities) after tax outflows and auction payment. Doesn't look like another VRRR is needed."

The central bank conducted a seven-day, INR 1.00-trillion VRRR auction Friday, the second in two weeks. The surplus is expected to fall by INR 1.00 trillion in Monday's data because of outflows for excise duty payments and the INR 320.00-billion weekly gilts auction. The private-sector bank dealer's estimate suggested the surplus liquidity would be INR 2.30 trillion to INR 3.20 trillion Monday.

At the auction, banks had bid aggressively for the new 15-year bond on offer, and the 6.68%, 2040 gilt had zoomed up by the end of the day. Traders who were unable to get their hands on the paper were buying it in the secondary market Monday, which led to it being the biggest gainer. Primary dealerships likely covered short bets in the erstwhile benchmark 6.92%, 2039 paper, dealers said. This had led to bonds maturing in 10-15 years rising intraday after a stagnant opening.

Meanwhile, long-term bonds were the underperformers through the day compared to other tenures, despite a majority of auction supply passing into investors' hands Friday, dealers said. Some traders trimmed their holdings as INR 160.00 billion of the 6.90%, 2065 gilt settled on their books. Moreover, with the 50-year bond scheduled for auction Friday, traders were of the view that supply pressures would keep long-term gilts cheap due to the lack of incremental demand from insurers, dealers said.

Turnover in the government bond market Monday fell to INR 351.95 billion, from INR 417.85 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. This is the lowest traded volume on the platform since Mar. 17.

OUTLOOK
Tuesday, bond prices may open steady amid a lack of significant domestic cues. Updates on a preliminary US-India trade deal ahead of the looming deadline for reciprocal tariffs and the minutes of the US Federal Open Market Committee meeting will be closely tracked, dealers said.

Traders expect the US and India to strike a preliminary trade deal within the week, before the world's largest economy levies reciprocal tariffs. This is likely to help the rupee appreciate and also lead to some FPI inflows into both equities and fixed income, dealers said. However, recent commentary from both sides has not been encouraging on a deal, they added. Trump has indicated he would announce tariffs and trade deals for some trade partners around 2130 IST Monday, and said these will be levied from Aug. 1.

The RBI's further actions on liquidity are being keenly watched by traders after the central bank announced a lower-than-expected VRRR auction Friday at INR 1.00 trillion. Any short-term liquidity absorptions through VRRRs could be announced for Tuesday or later, when the central bank assesses banking system liquidity after scheduled outflows for excise duty, dealers said. A lack of RBI liquidity absorption measures may keep short-term bonds in favour due to the significant liquidity surplus.

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 6.26-6.33% Tuesday and that on the most-traded 6.79%, 2034 bond is seen at 6.32-6.38%.

India Gilts: Remain mixed; longer tenure bonds down as insurers likely sell

MUMBAI--1601 IST--Government bond prices remained mixed. Most bonds maturing in up to 10 years moved in a thin band, while most longer tenure bonds were down on likely sales by insurers, dealers said.

"There is not much to play with right now, long bonds and short bonds are currently under pressure," a dealer at a primary dealership said. "There are no significant cues also in the near term, the only thing is the US trade deal and how that plays out, because rate expectations are already priced in."

Most bonds maturing in up to 10 years had risen slightly during the day on likely buys by foreign portfolio investors, dealers said. State-owned banks likely sold bonds at a profit, capping the gains, dealers said. FPIs likely bought gilts despite the 10-year benchmark US Treasury yield rising to 4.36% from 4.33% before Indian markets opened Friday, as rate cuts, as well as US tariffs, were largely priced in. US markets were closed on Friday due to Independence Day, dealers said. 

Meanwhile, FPIs likely sold longer tenure bonds, they said. Insurers also sold longer tenure bonds ahead of the supply of 50-year bonds worth INR 140 billion at auction Friday, dealers said. This was despite a lower-than-indicated supply of state bonds at auction Tuesday where seven states will raise IR 133 billion. Traders chose to pick up shorter tenure bonds on the view that the yield curve could steepen and the fall in longer tenure bond yield would be limited.

However, most shorter-tenure gilts traded in a thin band, and the rise in prices in these bonds was capped due to fears of more variable rate reverse repo auctions, they said. Some market participants feared that the RBI could introduce daily VRRR auctions, while others expected a VRRR auction to be announced post-market Monday, dealers said. Traders said that yields on bonds maturing in five to seven years seemed attractive. However, purchases in these bonds were limited due to fears of VRRR auctions and as some traders felt that the RBI could issue a new seven-year bond at the auction on Friday, where INR 110 billion of the bond is due to be offered. The announcement on bonds to be offered at the auction on Friday is expected after market hours Monday.  

Meanwhile, the new 15-year 6.68%, 2040 bond continued to outperform most other tenures as investors took delivery of the Separate Trading of Registered Interest and Principal of Securities from Friday's auction. Traders who missed out on the 2040 bond at the auction Friday picked up the bond in the secondary market Monday as they found the yield spread over the 10-year benchmark 6.33%, 2035 bond attractive, dealers said. Some pension funds also picked up the 2040 bond, dealers said. 

Trade volumes on the 10-year benchmark 6.33%, 2035 bond overtook the erstwhile 10-year benchmark 6.79%, 2034 gilt. The turnover in the gilts market was INR 242.60 billion at 1530 IST, slightly lower than INR 263.10 billion at the same time 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 6.26-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.38%.  (Srijita Bose)

India Gilts: Mixed; caution keeps volumes low as traders fear more VRRRs

MUMBAI--1300 IST--Prices of government bonds were mixed in thin trade due to lack of significant cues, dealers said. Most bonds were tad up as traders covered short bets. Traders preferred the liquid 10-year 6.79%, 2034 gilt, and the benchmark 6.33%, 2035 gilt over other tenures, dealers said. 

Gains in short-term gilt prices were limited in spite of a high surplus liquidity in the banking system, as traders feared that the Reserve Bank of India could announce another variable rate reverse repo auction to absorb the rising liquidity surplus. RBI Governor Sanjay Malhotra had in April said that the central bank aimed to keep the liquidity surplus at around 1% of banks' net demand and time liabilities, which is around INR 2.31 trillion as per latest data. 

On Friday, the RBI net absorbed INR 4.25 trillion from the banking system, higher than Thursday's figure of INR 4.04 trillion, central bank data showed. Some market participants fear that the RBI could introduce daily VRRR auctions, which would subsequently lead to a sell-off in short-term debt securities, they said. Traders were cautious until there was clarity on the RBI's measures on liquidity management, they said. 

Traders refrained from spread-trading, as the risk due to the uncertainty over RBI's liquidity measures diminished interest in tenures other than the 10-year papers, even though yields were lucrative to buy, dealers said. 

"Market is rangebound only," a dealer at a state-owned bank said. "If it (prices) rises by 7-8 paisa people will book profits. Similarly if it falls 7-8 paisa, people are buying so scope for further movement is limited."

State-owned banks had trimmed large stocks of their portfolios earlier and were picking up bonds in light volumes, dealers said. State-owned banks net sold gilts worth INR 177.97 billion in the past six trading sessions. Foreign portfolio investors were also likely purchasing gilts, they said. Preference for state bonds increased after the RBI Friday said seven states would raise INR 133 billion through bonds Tuesday. This was lower than the indicated amount of INR 224 billion. 

The turnover in the gilts market was INR 166.60 billion at 1230 IST, slightly higher than INR 125.75 billion at the same time 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 6.26-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.38%.  (Cassandra Carvalho)

India Gilts: Most steady on lack of cues; new 2040 bond up on short covering

India Gilts: Most steady on lack of cues; new 2040 bond up on short covering

MUMBAI--0934 IST--Most government bond prices were steady and trade volumes were muted due to lack of fresh interest rate triggers, dealers said. Prices were slightly up in early trade as traders covered some short bets placed Friday on account of auction, dealers said. The newly issued 15-year 6.68%, 2040 bond was up the most. 

"People who did not get the (2040) bond or missed out at auction are coming now," a dealer at a state-owned bank said. "There is also short covering, but other than that, I don't see much volatility since there are no fresh cues right now."

Traders who missed out on the new 2040 bond at the auction Friday picked up the bond in the secondary market Monday as they found the yield spread over the 10-year benchmark 6.33%, 2035 bond attractive, dealers said. Insurers also likely took delivery of their zero-coupon securities from Friday's auction, which led to a rise in prices of the 15-year bond, they said. 

The Reserve Bank of India's further actions on liquidity are being keenly watched. Traders expect any short-term liquidity absorption through variable rate reverse repo auctions could be announced for Tuesday or later, when the central bank assesses banking system liquidity after scheduled outflows for excise duty. However, most traders felt overnight rates may not be impacted significantly as a high liquidity surplus in the system will be able to offset the impact of a VRRR auction, dealers said.

The turnover in the gilts market was INR 14.30 billion at 0930 IST, lower than INR 34.20 billion at the same time 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 6.26-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.38%.  (Srijita Bose)

India Gilts: Seen steady on lack of cues; eye on more VRRR auctions

MUMBAI – Government bond prices are seen opening steady Monday due to lack of interest rate triggers, dealers said. Traders will keenly watch out for any more variable rate reverse repo auction announcement.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.26-6.35% during the day. On Friday, the bond ended at INR 100.25 or 6.29% yield. For the most-traded and erstwhile 10-year benchmark 6.79%, 2034 gilt, traders expect a yield range of 6.32-6.38%. The 2034 gilt closed at INR 103.01 or 6.35% yield Friday.

The Reserve Bank of India's further actions on liquidity are being keenly watched after the lower-than-expected VRRR auction of INR 1.00 trillion held Friday. Any short-term liquidity absorptions through VRRRs could be announced for Tuesday or later, when the central bank assesses banking system liquidity after scheduled outflows for excise duty. Some said caution on more VRRR auctions could keep shorter tenure bonds from rising sharply, though most traders felt a high liquidity surplus in the system will be able to offset the VRRR auction and overnight rates may not be impacted significantly, dealers said. 

In a data-light week for both the India and the US, most bonds are expected to remain in a steady range and the yield curve is unlikely to materially steepen or flatten from current levels, dealers said. However, some longer tenure bonds such as the newly issued 6.68%, 2040 bond and the 6.90%, 2065 bond may rise Monday as insurers take delivery of their zero-coupon securities from Friday's auction, dealers said.

Traders may look at the movement of US yields after an extended weekend, dealers said, ahead of the release of the US Federal Open Market Committee minutes for its June meeting Wednesday, dealers said. Meanwhile, US President Donald Trump extended the pause in tariffs announced in April till Aug. 1 for countries without a deal. Treasury Secretary Scott Bessent said Sunday these tariffs will indeed be enforced from Aug. 1 for countries that have not finalised an agreement with the Trump administration. Bessent clarified Aug. 1 is not a new deadline but rather an enforcement date, potentially giving trading partners more time to renegotiate tariff terms. Investors will closely assess the situation, weighing the implications of possible tariff changes in deadline.  (Srijita Bose)

End

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

Edited by Rajeev Pai

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