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Informist, Thursday, Jul. 10, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended steady due to lack of fresh domestic cues. Bonds erased gains from a fall in US Treasury yields due to uncertainty on the domestic front on interest rate cuts, variable rate reverse repo auctions and a trade deal with the US, dealers said. 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.09, or 6.31% yield, against INR 100.11, or 6.31%, Wednesday. The most-traded 6.79%, 2034 bond closed at INR 102.81, or 6.38%, against INR 102.82, or 6.38%, Wednesday. Trade volumes fell for the fourth straight day to their lowest since mid-March.

Bond prices had risen in early trade after the minutes of the US Federal Open Market Committee suggested more members were in favour of cutting interest rates should inflation continue to remain modest after the impact of President Donald Trump's tariffs. The yield on the 10-year US Treasury note fell to 4.34% by the end of Indian market hours Thursday from around 4.40% the previous day. However, prices on the two most-traded bonds did not rise much from their opening levels as traders immediately booked profit, dealers said.

"The trade range is very narrow, so when the market opened gap-up everyone took the opportunity to sell," a dealer at a state-owned bank said. "There is no fundamental to play the market, there is no momentum on either side, so everyday the market is just becoming more dull."

Traders said the biggest uncertainty was on the Reserve Bank of India's liquidity management, with the central bank conducting VRRR auctions since the end of June. Dealers feared the RBI would announce an INR-2-trillion VRRR auction for Friday after market hours, rolling over both the seven-day and two-day operations held on Friday and Wednesday, respectively. However, bonds maturing in under 10 years are seen in favour as they offer relatively lucrative spreads over banks' cost of funding, which remains below the repo rate of 5.50%, dealers said. Moreover, banks are using these gilts to replenish their held-to-maturity books after running them down by selling bonds to the RBI when it conducted open market operations in Jan-May, they said.

The lack of consensus on whether the RBI's Monetary Policy Committee would cut rates further also prevented buying momentum from building up in the market, dealers said. The August policy is seen as a non-event, though some traders are optimistic the rate-setting panel may cut rates in Oct-Dec. Even with a potential rate cut, traders said that was not yet a trigger to pick up bonds hoping for a rate cut several months away, especially amid global uncertainty on interest rates and trade tariffs, dealers said.

"It is simply too early to trade on rate cuts, and then none of the other factors are helping," a dealer at a primary dealership said. "You have consistently heavy supply coming, the trade deal is just hanging over the head and there's no clarity. Meanwhile, people have lost money in the last few weeks, so trading appetite has obviously taken a hit."

The 10-year benchmark gilt yield has risen 20 basis points from its low hit on Jun. 6, when the MPC cut the policy repo rate by 50 bps. However, the market mood soured after the MPC changed its stance to 'neutral' from accommodative. While traders have taken a back seat, investor demand has also been lacklustre, led by poor demand for bonds from life insurers, dealers said. Data released by the Life Insurance Council Thursday showed life insurers' first-year premiums fell 3.1% on year in June, and were up only 4.3% on year in Apr-Jun.

Long-term bonds fell sharply ahead of the weekly gilt auction on Friday, where the government will sell INR 140 billion of the 7.09%, 2074 gilt. The 50-year bond, the longest-tenure paper on the yield curve, was not preferred by traders. Primary dealerships trimmed their portfolios of 30-50 year bonds, particularly the 6.90%, 2065 bond sold last week, on the fear some of the bond may accumulate on to their books after the auction due to poor demand from long-term investors, dealers said. However, some life insurers entered into bond forward-rate agreements Thursday for banks to pick up the long-term bond on their behalf on Friday, a dealer at a private bank said.

Turnover in the government bond market Thursday was INR 280.30 billion, down from INR 320.95 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. This was the lowest since Mar. 17. 

OUTLOOK
Bond prices may open lower Friday after the RBI announced, post-market hours, that it would conduct a seven-day VRRR auction of INR 2.50 trillion. This is higher than the INR-2.00-trillion that traders had anticipated and may drive up overnight money market rates further, dealers said.

Bonds may also fall ahead of the INR-250-billion weekly gilt auction at 1030-1130 IST, dealers said. The government will sell INR 110 billion of a new seven-year, 2032 gilt and INR 140 billion of the 7.09%, 2074 bond. Demand for the seven-year gilt is seen robust, particularly from state-owned banks for both their trading books and asset-liability management, dealers said. However, demand from long-term investors for the 50-year bond is not seen robust and investors may demand higher returns to pick up the bond at auction. The bond's closing yield on Thursday, at 7.15%, was cited as lucrative by some life insurers.

Traders expect the US and India to strike a preliminary trade deal soon. This is likely to help the rupee appreciate and also result in some foreign portfolio investment inflows into both equities and fixed-income, dealers said. However, some of the recent commentary from both sides has not been encouraging, they added. 

Traders also await with interest the development of a collateralised money market benchmark. Financial Benchmarks India Ltd. published the new benchmark Secured Overnight Rupee Rate for the first time Monday, and it was set at 5.16%, below the standing deposit facility rate.

On the global front, the movement in US Treasury yields and crude oil prices may lend cues, though the impact would be limited due to the two auctions, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.30-6.37% Friday and that on the most-traded 6.79%, 2034 bond is seen at 6.36-6.42%.

India Gilts: Remain in thin band on VRRR fears; spread trades gain favour

MUMBAI--1530 IST--Prices of government bonds remained in a thin band on caution due to expectations of the Reserve Bank of India announcing a variable rate reverse repo auction of INR 2 trillion for Friday, dealers said.  

"Market is poised for an announcement of a INR-2-trillion VRRR to come at 7 o'clock (1900 IST)," a trader at a primary dealership said. "It can be 2-3 lakh crore (INR 2 trillion-INR 3 trillion) but if it's above 2 (trillion) it will be negative for the bond market and if it's less than that we can see some positive opening tomorrow (Friday)."

Traders placed short bets on gilts on expectations of the VRRR auction announcement, and ahead of the weekly gilt auction of INR 250 billion. 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 1530 IST showed trades worth INR 114.46 billion in the 6.33%, 2035 gilt, up from INR 97.75 billion Wednesday. Traders preferred placing short bets in the 10-year papers to make room for supply of the new 2032 bond and the long-term bond at the auction.

In the secondary market, traders also placed short bets on the 10-year gilts to pick up bonds across the yield curve which were offering higher spreads over the 10-year benchmark, dealers said. State bonds were also appealing to hold at current yield levels, and a corporate entity was likely buying these securities, a dealer said. Tamil Nadu's 10-year 6.63%, 2035 bond was last traded at INR 99.20 or 6.7372% yield, a spread of 42 basis points over the yield of the 10-year benchmark gilt. 

"Supply of short-term state bonds is less so there should be good demand for seven-year (gilt) paper at the auction," a dealer at a state-owned bank said.  

Demand from long-term investors for the 7.09%, 2074 bond at the auction will likely depend on purchases for forward-rate agreements and Separate Trading of Registered Interest and Principal of Securities, or STRIPS, dealers said. The coupon on the short-term seven-year gilt is seen at 6.25-6.28%, and demand is likely from banks for their investment books, dealers said.

Foreign portfolio investors sold the 6.79%, 2034 gilt in the secondary market, dealers said. As of 1530 IST, data from Clearing Corp. of India showed sales from FPIs worth INR 8.26 billion in the gilt through the fully accessible route. 

The turnover in the gilts market was INR 217.20 billion at 1530 IST, lower than INR 243.30 billion at the same time Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of 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 6.34-6.40%.  (Cassandra Carvalho)

India Gilts: Erase gains on short bets before INR-250-bln auction, VRRR fear

MUMBAI--1252 IST--Government bond erased gains and traded in a thin band amid poor volumes due to caution that a variable rate reverse repo auction could be announced Thursday, dealers said. Traders also placed short bets ahead of INR-250-billion auction Friday where the government will issue INR 110 billion worth of a new seven-year, 2032 gilt, they said. 

"Buying interest is not there today because there is auction and possibly another VRRR tomorrow," a dealer at a state-owned bank said. "Some foreign banks were buying but volumes are really low...people are only going for liquid papers."

Traders expect the Reserve Bank of India to conduct another variable rate reverse repo auction on Friday for either seven or 14 days, as two such auctions worth INR 1.97 trillion are due for reversal. Dealers estimate the notified amount of the auction at INR 1.5 trillion to INR 2 trillion. Traders are also keeping an eye on overnight rates with the overnight Mumbai Offered Interbank Rate rising to 5.40% and the weighted average call rate at 5.38% on Thursday, despite a surplus liquidity above INR 3 trillion, dealers said. On Wednesday, the RBI net absorbed INR 3.27 trillion, slightly higher than the INR 3.07 trillion absorbed on Tuesday.

Meanwhile, the new 2032 bond was dealt in a when-issued trade at 6.24-6.25%. While some traders would look to bid for the bond at higher yields as further domestic rate cuts seem uncertain, most were of view that the yield curve would steepen due to expectations of a comfortable surplus liquidity in the coming months, dealers said. Banks are expected to pick up the new 2032 bond for their asset-liability management purposes, they said. Traders sold gilts to make room for the bonds at auction. Primary dealers also cleared stock of the 6.90%, 2065 bond to make space for INR 140 billion of the 7.09%, 2074 bond to be auctioned Friday, dealers said.

The turnover in the gilts market was INR 129.60 billion at 1230 IST, lower than INR 140.60 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 6.26-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.34-6.40%.  (Srijita Bose)

India Gilts: Up on fall in US yields; gains capped as traders book profits

MUMBAI--0934 IST--Government bond prices were up from the previous day, tracking an overnight fall in US Treasury yields, dealers said. However, the rise in prices was limited as traders sold bonds at a profit while lack of significant domestic cues kept trade volumes muted, they said. 

"US yields are down so that is leading to some buying," a dealer at a private sector bank said. "In general too, these are good levels to buy but there is still some caution on VRRR (variable rate reverse repo auctions), and some profit-booking is also there."

The 10-year benchmark US yield fell to 4.34% from 4.41% at 1700 IST Wednesday due to a shift in traders' sentiments after most US Federal Reserve officials hinted at potential rate cuts later in the year in the minutes of the Federal Open Market Committee's June meeting. Foreign banks likely bought gilts in light volumes, dealers said. 

Traders keenly watched out for any further actions by the Reserve Bank of India on liquidity, dealers said. The central bank held a two-day, INR 1.00-trillion variable rate reverse repo auction Wednesday, which drove up money market rates. The weighted average call rate was at 5.32% on Wednesday, after treading around or below the RBI's Standing Deposit Facility of 5.25% since the begining of the month. Traders will continue to track movement in overnight rates. Many traders now expect the central bank to roll over the maturity of around INR 2 trillion through a seven-day VRRR auction of around INR 1.50 trillion-INR 2.00 trillion Friday, dealers said. The announcement could come Thursday within or after market hours, they said. 

The turnover in the gilts market was INR 19.70 billion at 0930 IST, lower than INR 30.45 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 6.26-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.34-6.40%. (Srijita Bose)

India Gilts: Seen up on fall in US yields; short bets before auction Fri

MUMBAI - Government bonds are seen opening higher Thursday tracking an overnight fall in US Treasury yields, dealers said. Movement in prices could be limited due to lack of significant domestic cues as traders await updates on a preliminary US-India trade deal, they said. The rise in prices could also be limited due to traders placing short bets before the weekly gilt auction Friday, they said. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.27-6.35% during the day. On Wednesday, the bond ended at INR 100.11 or 6.31% yield. For the erstwhile 10-year benchmark 6.79%, 2034 gilt, traders expect a yield range of 6.35-6.42%. The 2034 gilt closed at INR 102.82, or 6.38% yield Wednesday.

The 10-year benchmark US yield fell to 4.34% at 0830 IST from 4.41% at 1700 IST Wednesday due to a shift in traders sentiments after most US Federal Reserve officials hinted at potential rate cuts later in the year in the minutes of the Federal Open Market Committee's June meeting. There was also a growing divide on future policy among Fed officials. "Most participants assessed that some reduction in the target range for the federal funds rate this year would likely be appropriate," the minutes stated, adding that economic growth and hiring could weaken from here. 

Meanwhile, traders expect the US and India to strike a preliminary trade deal soon. This is likely to help the rupee appreciate and also result in some foreign portfolio investment inflows into both equities and fixed-income, dealers said. 

Traders also keenly watched out for any further actions by the Reserve Bank of India on liquidity, dealers said. The central bank held a two-day, INR 1.00-trillion variable rate reverse repo auction Wednesday, which drove up money market rates. Most traders now expect the central bank to roll over the maturity of around INR 2 trillion through a seven-day VRRR auction of around INR 1.50 trillion-INR 2.00 trillion Friday, dealers said. They will also track movement in overnight rates, which could lend cues to shorter tenure bonds during the day, dealers said.

Longer tenure bonds may underperform during the day as investors will look to make room for INR 140 billion of 7.09%, 2074 bond at auction Friday, dealers said. Traders may also look to trim their risk portfolio by reducing long-bond holdings, due to undertainty on domestic rates, they said. Traders may also place short bets for the new seven-year gilts to be auctioned Friday, they said.  (Srijita Bose)

End

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

Edited by Akul Nishant Akhoury

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