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Informist, Monday, Jul. 14, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended on a mixed note on Monday, with June's CPI data failing to change the market's rate cut expectations. Bonds maturing up to 10 years ended lower due to a rise in US Treasury yields and a fall in the rupee, dealers said. Long-term bonds ended higher after strong investor demand for the 50-year gilt at Friday's auction led to purchases in the secondary market for the second day, even as the bonds saw some profit booking near the end of trade.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.09, or 6.32% yield, against INR 100.21, or 6.30%, Friday. The most-traded 6.79%, 2034 bond closed at INR 102.82, or 6.38%, against INR 102.95, or 6.36%, Friday. Both gilts ended at their lowest price for the day.

Data released at 1600 IST showed that CPI inflation in June fell to 2.10%, from 2.82% in May, recording the lowest print since January 2019. Bond prices recovered losses briefly after the headline reading was below the market's view of CPI inflation being between 2.2% and 2.5%. However, dealers said the reading did not increase chances of a rate cut in August or increase hopes of rate cuts in Oct-Dec, which remained modest.

Some traders were hoping for a print below 2% for a rethink on rate cuts. Instead, core CPI inflation rose to a 21-month high of 4.4%, which led to some traders trimming their gilt holdings after the data, dealers said. Losses on account of the high core CPI were limited as traders had expected an impact of higher gold prices to translate to annualised core inflation, which has been rising since December.

"The lower print was already expected, it is irrelevant to the market right now," a dealer at a primary dealership. "The RBI is not looking at the inflation print for further rate cuts, it is only looking at growth. If growth starts to fall off, the market can think about pricing in another rate cut." Apr-Jun CPI inflation averaged 2.7%, against 2.9% projected by the Reserve Bank of India. GDP data for the June quarter will be released on Aug. 29.

Traders cited US yields and the domestic currency as factors in the fall in the most-liquid gilts. The yield on the 10-year US Treasury note rose to 4.43% at the end of Indian market hours Monday, up 8 basis points since 1700 IST Friday. US yields rose due to continued uncertainty on tariffs being announced by US President Donald Trump's administration over the weekend. With the tariff tensions in focus, the rupee ended at 85.9850 a dollar, its lowest close in nearly three weeks. The RBI likely sold dollars at around 86.03 a dollar early in the day to help the currency in check, according to foreign exchange dealers. 

Rate-sensitive short-term bonds fell after the inflation data, with the five-year benchmark 6.75%, 2029 gilt also ending at the day's low. Asset-liability managers still favoured the 5-year bond as its yield topped 6.00% for the first time since Jun. 30, but traders are likely to stay away from short-term gilts due to a lack of potential capital gains, dealers said.

Most traders were still of the view that it was too early to price in more rate cuts in India after the RBI's Monetary Policy Committee cut the repo rate by 100 basis points to 5.50%. On the other hand, economists at ICRA and Capital Economics both said the chances of an August rate cut had increased after the reading.

Traders also remained uncertain over the overnight rates that the central bank was targeting, with its continuous variable rate reverse repos since late June pushing up money market rates. Some traders speculate the RBI would move to introduce overnight reverse repo operations soon, which could push up call rates consistently above the repo rate, dealers said. With the cost of funding uncertain, state-owned banks were not buying gilts aggressively even for the "attractive" spread they offered over the repo rate. 

Foreign portfolio investors were buying liquid gilts maturing in 2029 and 2031, but in small quantities, and the purchases failed to move the market, dealers said. Moreover, FPI trades have been scattered in recent months and have not indicated a continued interest in particular bonds, limiting the momentum of price moves, they said. 

These bonds recovered some losses after wholesale price inflation for June was sharply lower than expected, and stoked hopes of a similar surprise in the CPI reading, dealers said. However, traders were not very aggressive in buying gilts before 1600 IST, even with the expectedly low stakes of the CPI inflation data, they said. Data released by the commerce ministry at 1200 IST showed WPI inflation fell to (-)0.13% in June from 0.39% in May, spurring hopes of a low CPI inflation print as well, dealers said. According to an Informist poll, WPI inflation was seen rising to 0.7% in June. 

The government's decision to buy back another INR 250 billion of gilts maturing in 2026-27 (Apr-Mar) did not aid short-term gilts, as market participants are unlikely to bid aggressively at the auction, dealers said. The liquidity injection is also seen at odds with the RBI's recent moves to mop up frictional liquidity surpluses. However, the announcement will help keep Treasury bill yields under downward pressure at the auction Wednesday, even as overnight rates have risen over the past week, they said.

Meanwhile, long-term bonds surged for the second straight day after pension funds and a state-owned life insurer took home most of the INR-140-billion supply of the 7.09%, 2074 gilt at auction Friday. The RBI had accepted only 33 bids out of 335 it received at the auction. Traders also preferred picking up some stock of bonds maturing above 15 years, with no supply of the 40- and 50-year gilts in the next two weeks, which could lead to opportunities for capital gains, dealers said.

"It looks like 7.15% was the hard cap for the long-end, as FRAs (forward-rate agreements) written there gave you a return of around 7.50%," a dealer at a private-sector bank said. "The auction stock all went to real-money investors, so no one got their hands on the bond, and we are seeing a rally that may continue in the next few days." Some mutual funds likely sold the paper near the end of trade to book profit after the sharp rise since Thursday's close, dealers said.

Turnover in the government bond market Monday fell to INR 357.90 billion, from INR 594.40 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades worth INR 100 million using the wholesale digital rupee pilot, against no trades on Friday.

OUTLOOK

Bond prices may open slightly lower on Tuesday after the RBI announced another variable rate reverse repo auction for Tuesday. Short-term bonds may fall more while gilts maturing in 10 years or more may not be influenced by the liquidity measure, and track the overnight movement in US Treasury yields, dealers said.

The RBI will conduct a three-day VRRR auction for a notified amount of INR 1 trillion at 1000-1030 IST Tuesday. This is after the central bank accepted all offers worth INR 1.52 trillion at the seven-day, INR 2.50 trillion VRRR auction Friday. Traders see this as a move where the RBI wants to keep overnight money market rates anchored to the policy repo rate of 5.50%, which may weigh on gilts maturing up to seven years, dealers said.

The government's decision to buy back INR 250 billion of gilts maturing in 2026-27 (Apr-Mar) may lend some support to Treasury bills and bonds maturing up to two years, dealers said. The RBI said the government would buy back the 7.27%, 2026, 5.63%, 2026, and 6.99%, 2026 gilts on Thursday.

Meanwhile, the state bond auction result may lend direction to gilt prices later in the day, dealers said. Twelve states will raise INR 269 billion through bonds on Tuesday, against INR 174 billion scheduled in the states' indicative borrowing calendar. However, prices of long-term bonds may continue to rise after firm demand for the 7.09%, 2074 bond at the weekly gilt auction Friday and renewed trader interest, dealers said.

Traders also 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. The rupee topped 86 a dollar Monday for the first time in a week due to continued uncertainty on the trade deal.

Crude oil price movements may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.26-6.34% Monday and that on the most-traded 6.79%, 2034 bond is seen at 6.32-6.40%.

India Gilts: Fall slightly as core inflation up; Jun CPI in line than view

NEW DELHI--1620 IST--Government bond prices fell slightly as core CPI inflation rose to a 21-month high of 4.4% in June, even as headline CPI inflation was broadly in line with the market view. Most traders were looking through the core CPI print as the rise in the metric was likely driven by an on-year surge in gold prices, and losses were limited, dealers said.

CPI inflation in June fell to 2.10%, from 2.82% in May, recording the lowest print since January 2019. Bond prices recovered all losses briefly after the headline reading was close to the market's view of CPI inflation being between 2.2% and 2.5%. However, dealers said the reading did not increase chances of a rate cut in August or inflate hopes of rate cuts in Oct-Dec, which remained modest. Some traders were hoping for a print below 2% for a rethink on rate cuts, and trimmed their gilt holdings, dealers said.

"Prices were artificially stretched before CPI so now they're at the levels where they should've been today," a dealer at a private-sector bank said. "(They are) down because of core."

Bond prices have remained down due to a rise in US Treasury yields and a fall in the rupee, before a sharp fall in wholesale price index inflation led to a small recovery. Data released by the commerce ministry Monday showed WPI inflation fell to (-)0.13% in June from 0.39% in May, spurring hopes of a low CPI inflation print as well, dealers said. According to an Informist poll, WPI inflation was seen rising to 0.7% in June. 

Turnover in the gilts market was INR 298.60 billion, sharply lower than INR 513.80 billion at 1630 IST Friday, 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 6.25-6.34% and that on the 6.79%, 2034 gilt at 6.32-6.40%.  (Aaryan Khanna andCassandra Carvalho)

India Gilts: Most reverse losses; focus on June CPI after sharply lower WPI

MUMBAI--1503 IST--Prices of most government bonds were up, especially those maturing in more than 10-years, reversing early losses as traders covered short bets, along with firm demand from long-term investors, dealers said. The 10-year 6.33%, 2035 and 6.79%, 2034 gilts remained down on sales from some large state-owned banks, dealers said.

Traders await India CPI inflation for June, due at 1600 IST, after WPI inflation for June was unexpectedly in the negative zone for the first time in 20 months. Data released by the commerce ministry Monday showed WPI inflation fell to (-)0.13% in June from 0.39% in May. According to an Informist poll, WPI inflation was seen rising to 0.7% in June. 

"If CPI surprises the way WPI did, then we can definitely see some upside (in price terms) in bonds, especially with the way the 7.09%, 2074 bond is performing today (Monday)," a trader at a primary dealership said. Traders expect CPI inflation for June to be 2.2-2.5%, but have not positioned heavily before the data. Bond prices have discounted a print within this range, and are likely to move only if CPI is unexpectedly lower or higher than estimates, dealers said. 

Bond prices were off lows after the WPI inflation data was released. Likely demand for forward-rate agreements from insurance companies and short-covering by traders also pushed up prices of bonds maturing in more than 10-years, dealers said. The 6.68%, 2040 bond last traded at INR 100.50, 6 paise up from Friday's close. The 7.09%, 2074 gilt, which was auctioned Friday, was at the day's high of INR 100.44, up 39 paise from the previous close. 

Levels were seen lucrative to buy gilts, and some state-owned banks purchased short-term gilts due to surplus liquidity in the banking system. Some foreign portfolio investors and primary dealerships were also buying gilts maturing in up to 5 years, dealers said. A rise in US Treasury yields and an uptick in crude oil prices capped gains, they said.  

Turnover in the gilts market was INR 233.20 billion as of 1515 IST, sharply lower than INR 441.55 billion at around the same time Friday, 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 6.25-6.34% and that on the 6.79%, 2034 gilt at 6.32-6.40%.  (Cassandra Carvalho)

India Gilts: Off lows on buys at lucrative levels; long-term demand seen firm

India Gilts: Off lows on buys at lucrative levels; long-term demand seen firm

MUMBAI--1231 IST--Prices of most government bonds were off lows in thin trade on purchases at levels seen lucrative, but remained down tracking a rise in US Treasury yields, dealers said. A large institution was trimming stock of 10-year gilts, dealers said. Volume was thin as traders await India's CPI inflation data for June, at 1600 IST. 

"I think (INR) 100.80 is a strong level on the old 10-year (6.79%, 2034 gilt)," a dealer at a private sector bank said. "The 6.38% yield is where there will be strong buying interest so we'll be supported there." A large institution was likely trimming stock of the 6.33%, 2035 gilt and 6.79%, 2034 gilt, which pulled down prices across the curve, dealers said. The yield on the benchmark 10-year US Treasury note was 4.43% at 1231 IST, up from 4.41% at 0900 IST and 4.37% at 1700 IST Friday.

Larger-than-indicated supply of state bonds this week also weighed on gilts. States will raise INR 269 billion through bonds Tuesday, the RBI said, which is higher than the INR-174-billion indicated in the state borrowing calendar for Jul-Sept. However, investors may prefer state bonds at the auction, over gilts, at higher yields due to the supply increase, dealers said. 

The fall in short-term gilts was limited after the RBI said the government will Thursday buy back INR 250 billion of three gilts maturing in 2026-27 (Apr-Mar). The 6.75%, 2029 gilt last traded at INR 102.96, down around 2 paise from Friday's close. However, some traders expect the RBI to announce an overnight or two-day variable rate reverse repo operation in the middle of this week, to keep overnight borrowing rates between the Standing Deposit Facility and the repo rate. The weighted average call rate was 5.36% Monday, down from 5.45% Friday, while the weighted average triparty repo rate was 5.20%, down from 5.30% Friday. On Sunday, the RBI net absorbed INR 2.94 trillion, slightly lower than the INR 3.32 trillion Friday. 

Traders sold long-term gilts at a profit after the sharp rise in prices Friday, dealers said. At the weekly gilt auction Friday, the Reserve Bank of India set a cut-off of INR 99.12 on the 7.09%, 2074 gilt, higher than INR 98.81 estimated in an Informist poll. The 2074 gilt ended 90 paise higher in the secondary market Friday. Demand for long-term gilts is still seen firm due to the lack of supply in ultra-long bonds for the next two weeks, dealers said. Long-term bond prices were up as some participants also missed out on the 2074 bond at the auction Friday, and covered short bets in the secondary market, dealers said.    

Turnover in the gilts market was INR 145.00 billion as of 1230 IST, sharply lower than INR 205.60 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 6.25-6.34% and that on the 6.79%, 2034 gilt at 6.32-6.40%.  (Cassandra Carvalho)

India Gilts: Tad down tracking fall in rupee; volumes low ahead of Jun CPI

India Gilts: Tad down tracking fall in rupee; volumes low ahead of Jun CPI

MUMBAI--0930 IST--Prices of government bonds were largely steady with a downward bias in thin trade Monday, tracking a fall in the rupee against the dollar, dealers said. Volumes were muted due to caution ahead of India's CPI inflation data for June due at 1600 IST Monday. Turnover in the gilts market was INR 10.90 billion as of 0930 IST, sharply lower than INR 58.40 billion at the same time Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Trade was concentrated in the 10-year benchmark 6.33%, 2035 gilt and the erstwhile 10-year benchmark 6.79%, 2034 gilt.

Bond prices were largely steady at open, but fell slightly tracking the movement of the rupee against the dollar, dealers said. The rupee hit 86.00 per dollar in early trade Monday, down from 85.80 Friday's close, on reduced risk appetite after US President Donald Trump announced fresh tariffs on the European Union and Mexico. Bond prices will also track the movement of US Treasury yields during the day, dealers said. The yield on the benchmark 10-year US Treasury note was 4.42% at 0930 IST, up from 4.37% at 1700 IST Friday, after the fresh wave of tariffs sparked fears of rise in inflation.

Caution before the release of India's CPI inflation for June limited trading activity, dealers said. India's CPI inflation likely fell to its lowest level in over six years in June because of statistical effect of a high base and relatively lower food prices. According to an Informist poll of 16 economists, headline inflation in June is seen falling to 2.30%, the lowest level since January 2019. Traders have priced in a print of 2.20-2.50%, and bond prices are unlikely to move unless the data is above or below these estimates, dealers said.

"We were expecting slightly upwards (prices) at open because of the buyback, but because of US yields and rupee, it's slightly lower," a dealer at a state-owned bank said. "Now there's CPI also today (Monday) so turnover also very less."  The government will Thursday buy back INR 250 billion of three gilts maturing in 2026-27 (Apr-Mar), but some traders said the move is unlikely to trigger a rise in short-term gilt prices as the RBI's variable rate reverse repo operations would keep short-term yields on the higher side of the recent trading range.

During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.25-6.34% and that on the 6.79%, 2034 gilt at 6.32-6.40%.  (Cassandra Carvalho)

India Gilts:Seen dn on rise in US ylds; Fri auction result may offset losses

MUMBAI – Prices of government bonds are seen opening lower Monday tracking a rise in US Treasury yields over the weekend, and after the Reserve Bank of India after market hours on Friday announced a larger-than-indicated state bond auction size for Tuesday, dealers said. However, positive momentum from Friday after the result of the weekly gilt auction may continue Monday as well, which could offset the negative cues, dealers said.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.25-6.34% during the day. On Friday, the bond ended at INR 100.21, or 6.30% yield. For the erstwhile 10-year benchmark 6.79%, 2034 gilt, traders expect a yield range of 6.32-6.40%. The 2034 gilt closed at INR 102.95, or 6.36% yield Friday.

The yield on the benchmark 10-year US Treasury note was 4.41% at 0800 IST, up from 4.37% at 1700 IST Friday. Traders sold Treasury notes after US President Donald Trump announced fresh tariffs on the Eurozone and Mexico. On Saturday, President Trump announced that starting Aug. 1, the US will implement a 30% tariff on products imported from the European Union and Mexico. On the domestic front, states will raise INR 269 billion through bonds Tuesday, the RBI said, which is higher than the INR 174 billion indicated in the state borrowing calendar for Jul-Sept.

However, some traders expect the positive momentum from Friday to continue Monday, after the weekly gilt auction result indicated strong demand from long-term investors, dealers said. Bond prices were sharply up Friday after the cut-offs at the auction were better than expected. The government sold INR 110 billion of a new seven-year, 2032 bond and INR 140 billion of the 7.09%, 2074 bond. Long-term bond prices rose sharply post the result, and the 2074 paper ended at INR 100.05, 90 paise higher from the previous close.

The government's decision to buy back INR 250 billion of gilts maturing in 2026-27 (Apr-Mar) may lend some support to Treasury bills and bonds maturing in up to two years, dealers said. The RBI said the government would buy back the 7.27%, 2026, the 5.63%, 2026, and the 6.99%, 2026 gilts on Thursday.

Later in the day, caution before the release of India's CPI inflation for June, scheduled at 1600 IST, may limit trading activity, dealers said. India's CPI inflation likely fell to its lowest level in over six years in June on the back of statistical effect of a high base and relatively low food prices. According to an Informist poll of 16 economists, headline inflation in June is seen falling to 2.3%, the lowest level since January 2019. Traders have discounted benign inflation prints until September, and bond prices are not likely to move up unless CPI inflation is below 2.2%, dealers said. (Cassandra Carvalho)

End

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

Edited by Saji George Titus

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