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Informist, Tuesday, Jul. 8, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended lower tracking a rise in US Treasury yields. Trade volumes were low for the second straight day due to a lack of firm domestic cues, dealers said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.17, or 6.31% yield, against INR 100.26, or 6.29%, Monday. The benchmark's yield ended at its highest since Jun. 30. The most-traded 6.79%, 2034 bond closed at INR 102.91, or 6.37%, against INR 103.03, or 6.35%, Monday.

The 10-year US Treasury yield rose to 4.42% by the close of Indian market hours, from 4.36% at 1700 IST Monday, after the US notified fresh tariff rates to 14 trading partners, but extended the deadline for their implementation to Aug. 1. With the uncertainty on tariffs likely to continue for the next few weeks, traders shifted focus to concerns of expanded US fiscal deficits and a lack of rate cuts by the US Federal Open Market Committee until at least September. US yields also rose ahead of debt supply this week.

A rise in US Treasury yields widens the interest rate differential between the safe haven asset and emerging market debt, making the latter less appealing to foreign investors. While traders from banks and primary dealerships likely sold gilts, state-owned banks picked up the 10-year benchmark gilt as its yield rose above the psychologically crucial 6.30%, limiting losses, dealers said.

"All sides of the market are playing (trading) ranges," a dealer at a state-owned bank said. "These are good levels to buy when nobody else seems interested in buying. We have sold a bit and now have space to add, but these are daily trading calls, nothing in size." State-owned banks have been net sellers in the secondary market since Jun. 27, and have sold nearly INR 200 billion between then and Monday, according to data from the Clearing Corp. of India Ltd. 

The higher-than-expected cut-off yield on Bihar's 10-year bond at Tuesday's auction also weighed on gilt prices. The Reserve Bank of India set a cut-off yield of 6.88% on Bihar's 10-year bond, sharply higher than the 6.79% estimated in an Informist poll. Some dealers said investors did not favour the bond and demanded higher returns to pick up the paper. The bond got bids worth only INR 21.20 billion, against the notified INR 20 billion. 

Others said it was a conscious decision by bidders to drive up spreads on the 10-year state bonds over the 10-year benchmark gilt. Demand for other bonds at the auction was firm and cut-offs were in line with estimates, with bonds maturing up to 20 years likely being picked up by pension and provident funds, dealers said.

However, traders sold long-term gilts as supply of the 40-year benchmark 6.90%, 2065 bond from Friday's auction was still being sold to end-investors, dealers said. Traders preferred to hold onto bonds maturing in less than 10 years, with no firm demand seen from life insurers for bonds maturing in 30-50 years until September. With no hopes of a rate cut in August and consistent supply, dealers said there was a lack of enthusiasm to pick up gilts unless macroeconomic data suggested a sharper-than-expected slowdown in growth, which could rekindle hopes of a rate cut in October or December. The inflation outlook remained benign, dealers said.

Bonds maturing in seven years or less ended slightly lower as traders feared the possibility of the RBI sucking out more liquidity through variable rate reverse repo auctions, in addition to its seven-day, INR-1.00-trillion operation that matures on Friday. Traders said their primary concern was whether the central bank would introduce an overnight VRRR window, which would effectively be a rate hike for the market, dealers said. The weighted average call rate has trended near the Standing Deposit Facility rate of 5.25% for the past few days and may trend to the repo rate should the RBI allow banks to park money with it at a rate as high as 5.49%.

However, most traders did not see merit in the RBI surprising the market with such a move. This would send bond yields sharply higher and would be counterproductive to the central bank's aim of enhancing transmission of the Monetary Policy Committee's 100-bps of rate cuts since February, dealers said. State-owned banks said they had picked up short-term bonds over the past few days as the RBI's current VRRR auctions had not pushed up money market rates, helping the yield on the five-year benchmark 6.75%, 2029 bond stay well below 6.00% it had hit in June-end.

"I think traders will wait for another week, basically, till the end of this week," a dealer at a foreign bank said. "If the RBI doesn't increase the size of the VRRR auction and doesn't bring in a short-term one, short-term bonds are looking good and could be bought into."

Turnover in the government bond market Tuesday was INR 338.00 billion, similar to INR 351.95 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades through the wholesale e-rupee pilot.

OUTLOOK
On Wednesday, bond prices may open steady amid a lack of significant domestic cues. Updates on a preliminary US-India trade deal, reportedly to be announced within a few hours, 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 soon. 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. 

The RBI's actions on liquidity are being keenly watched by traders after the central bank auctioned a lower-than-expected VRRR of INR 1.00 trillion on Friday. Any short-term liquidity absorptions through VRRRs could be announced for Wednesday or later when the central bank assesses banking system liquidity after scheduled outflows for excise duty, dealers said.

Traders also await the development of a collateralised money market benchmark with interest. Financial Benchmarks India Ltd. published the new benchmark Secured Overnight Rupee Rate for the first time on Monday, and it was set at 5.16%, below the Standing Deposit Facility rate. A lack of RBI liquidity absorption measures may keep short-term bonds in favour due to the significant liquidity surplus.

Any 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% Wednesday and that on the most-traded 6.79%, 2034 bond is seen at 6.32-6.38%.

India Gilts: Down as US yields rise, Bihar 10-yr yield cut-off higher-than-view

MUMBAI--1531 IST--Prices of government bonds were down tracking a rise in US Treasury yields, dealers said. The 10-year 6.33%, 2035 and 6.79%, 2034 gilts fell more after the cut-off yield on Bihar's 10-year bond was sharply higher than expectations at the auction, dealers said.

The yield on the benchmark 10-year US Treasury note was 4.42%, up from 4.39% at 0900 IST and 4.36% at 1700 IST Monday. US yields rose as investors mulled over the likely impact of US President Donald Trump's threat of steep tariffs on imports from 14 countries starting Aug. 1. US yields also rose as traders sold Treasuries to make room for fresh supply of bonds this week, media reports said. Domestic traders fear that the 10-year US yield could touch the key 4.50% level, after rising above the technical level of 4.37%, dealers said.

"There are a lot of factors, one is UST (US Treasury yields), second is state bond cut-offs but there's also this fear that a VRRR announcement may come today (post market hours)," a dealer at a private sector bank said. "Last time (on Jun. 24) the announcement had come on a Tuesday, so some sections are expecting one today, and then there was the rollover (which came on a Thursday). I think if they announce an additional VRRR they may announce it (post-market hours) tomorrow because they would not want T-bill (Treasury bill) yields to spike."

The five-year 6.75%, 2029 gilt was last traded at INR 103.07, down 4 paise from Monday's close. Traders have been expecting a variable rate reverse repo auction this week, in addition to last week's INR 1-trillion rollover, since surplus liquidity in the banking system has been above INR 3 trillion. The RBI Monday net absorbed from the banking system INR 3.44 trillion, down from INR 4.09 trillion on Sunday.

As for the state bond auction, the Reserve Bank of India set a cut-off yield of 6.88% on Bihar's 10-year bond, sharply higher than 6.79% estimated in an Informist poll. While traders said this was not a big surprise, the fall in prices of the 10-year benchmark 6.33%, 2035 bond and the 6.79%, 2034 bond was aggravated by the higher cut-off, dealers said.

"Bihar had lot of auctions earlier...and some people have (internal) limits for investments in each state, which have probably gotten filled," a dealer at a state-owned bank said. However, cut-off yields on the state bonds maturing in more than 10 years were along expected lines, due to demand from insurers, pension funds, and some banks for their asset and liability management, dealers said.

"It's a good carry if with an operating rate of 5.15%, you're getting a return of 7%+ on a 25-year state bond," the dealer said. The cut-off yield on Telangana's 30-year bond was 7.13%, lower than an Informist poll estimate of 7.15%. Traders sold long-term gilts to pick up the state bonds of comparable maturity due to the lucrative levels, dealers said.

In the rest of the session, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.26-6.35% and that on the 6.79%, 2034 gilt at 6.33-6.40%. Some traders expect bond prices to recover as the 6.33%, 2035 gilt hit the key level of 6.30%, which is seen lucrative to buy gilts, while others expect prices to fall further as traders are likely to trim risk near the end of session, they said. (Cassandra Carvalho)

India Gilts: Stay in thin band, volumes muted as mkt fears more VRRR auctions

MUMBAI--1240 IST--Most government bonds continued to trade in a thin band with muted volumes due to lack of fresh domestic triggers, dealers said. Some traders feared that the Reserve Bank of India could announce a variable rate reverse repo auction Tuesday and refrained from placing aggressive bets in the market, dealers said.  

The turnover in the gilts market was INR 85.45 billion at 1230 IST, significantly lower than INR 166.60 billion at the same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. 

Most long-term bonds were slightly lower, while some traders switched towards shorter-tenure gilts on expectations that the yield curve would eventually steepen, dealers said. Insurers' demand was also weak in the secondary market as investors looked to pick up longer-tenure state bonds at the auction Tuesday at attractive yield spreads, dealers said. However, some insurers likely bought gilts maturing in 30-40 years in light volumes due to lower-than-indicated supply of state bonds Tuesday, they said. Traders expect the yield spread on state bonds maturing in over 10 years and less than 20 years to widen over gilts of similar tenures due to poor demand from banks in these papers, dealers said. 

While some traders sold bonds at a profit and as US Treasury yields rose, others found current yield levels attractive to buy, which led bonds to trade in a narrow range. Some foreign portfolio investors likely sold gilts in light volumes due to a rise in US yields. However most FPIs remained on the sidelines as they awaited fresh interest rate triggers to take positions on Indian gilts, dealers said.

"People are not really paying much attention to US yields right now, and unless it breaches technical levels or there is a significant rate trigger, I don't see yields going anywhere," a dealer at a private sector bank said. 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: In thin band; caution as market fears more VRRR auctions

MUMBAI--0952 IST--Government bonds traded in a thin band Tuesday as traders watch out for domestic triggers, including any further action on liquidity by the Reserve Bank of India, with some fearing daily variable rate reverse repo auctions as liquidity surplus rose to more than INR 3 trillion, dealers said. 

"There are no cues right now. US yield is up but that is mostly priced in, so we are not taking much cues from that," a dealer at a state-owned bank said. "There is caution around VRRR and how RBI handles this will show whether they are open to rate cuts at this point."

Traders feared any short-term liquidity absorptions through VRRR auction could be announced Tuesday or later, when the central bank assesses banking system liquidity after scheduled outflows for excise duty, dealers said. On Monday, the RBI net absorbed INR 3.44 trillion, significantly higher than 1% of net demand and time liabilities of banks which is at INR 2.31 trillion as of Jun. 13. Some traders feared that the central bank could announce daily VRRR auctions, which will be seen as a sign that the RBI is not comfortable with overnight rates falling below the Standing Deposit Facility rate of 5.25%, which in turn could also signal that the terminal repo rate will remain at 5.50% in December, dealers said. 

Meanwhile, some insurers likely bought the 15-year 6.68%, 2040 gilt, and this gilt was the third most traded paper in the secondary market. Results of INR 133 billion state bond auction are also awaited. Some traders expect yield spreads on state bonds over gilts to widen at the auction. Some traders expect a steepening in the yield curve over the next few months, while others said that long-term investors such as insurers may pick up longer tenure state bonds due to lower-than-indicated auction size. 

The yield on the 10-year benchmark US Treasury note rose to 4.39% from 4.36% at 1700 IST Monday. This led prices to open marginally lower Tuesday, dealers said. However, with most factors such as rise in inflation in the US due to President Donald Trump's tariffs and tax and spending bill already priced in, traders watched out for technical levels for cues, dealers said. The next level for the US 10-year yield is 4.50%, which if breached may lead to a sell-off in Indian gilts as well, they said. Traders await updates on a preliminary US-India trade deal after Trump said that he was "close to making a deal with India". 

The turnover in the gilts market was INR 31.70 billion at 0930 IST, higher than INR 14.30 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 6.26-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.32-6.38%. (Srijita Bose)

India Gilts: Seen down on rise in US yields; caution on more VRRR auctions

MUMBAI – Government bond prices are seen opening lower due to an overnight rise in US Treasury yields, dealers said. However, losses in gilts may be limited as traders will keenly watch out for attractive levels to buy liquid bonds, they said. Traders will also watch out for any further actions on liquidity by the Reserve Bank of India. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.26-6.35% during the day. On Monday, the bond ended at INR 100.26 or 6.29% yield. For the erstwhile 10-year benchmark 6.79%, 2034 gilt, traders expect a yield range of 6.32-6.38%. The 2034 gilt closed at INR 103.03, or 6.35% yield Monday. During the day, trade volumes on the 2035 bond could overtake the 2034 bond as the outstanding of the bond has risen to INR 900 billion, dealers said.

With no domestic rate cues, traders will track the movement in US Treasury yields, dealers said. The yield on the 10-year benchmark US Treasury note rose to 4.39% at 0815 IST from 4.36% at 1700 IST Monday. Traders will also closely watch out for 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 Wednesday, dealers said. Most traders expect the US and India to strike a preliminary trade deal within the week. This is likely to help the rupee appreciate and also lead to some inflows by foreign portfolio investors into both equities and fixed income instruments, dealers said. Early Tuesday, US President Donald Trump said that he was "close to making a deal with India". 

Any short-term liquidity absorptions through variable rate reverse repo auction could be announced for Tuesday or later, when the central bank assesses banking system liquidity after scheduled outflows for excise duty, dealers said. The central bank had conducted a seven-day, INR 1.00-trillion variable rate reverse repo 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. 

If another VRRR is announced, it would be seen as a sign that the central bank is not comfortable with the current level of the liquidity surplus, which could lead traders to refrain from buying short-term gilts aggressively, dealers said. However, as 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%, the negatives for short-term bonds are seen to be limited, they said. The RBI did not announce any VRRR auctions for Tuesday, and this may keep short-term bonds in favour due to the significant liquidity surplus, dealers said. 

Meanwhile, long tenure bonds may continue to underperform in the secondary market despite a lower-than-indicated state bond auction Tuesday. At the auction, seven states will aim to raise INR 133 billion. While demand at the state bond auction for longer tenure bonds is expected to be firm by insurers, yield spreads with gilts may increase. Moreover, with the 50-year bond scheduled for auction Friday, traders are of the view that supply pressures would keep long-term gilts cheap due to the lack of incremental demand from insurers, which could lead to a fall in prices in long-term bonds, dealers said.  (Srijita Bose)

End

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

Edited by Saji George Titus

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