India Gilts Review
Up as banks replace gilts sold at buyback auction
This story was originally published at 19:52 IST on 17 July 2025
Register to read our real-time news.Informist, Thursday, Jul. 17, 2025
By Aaryan Khanna
NEW DELHI – Government bond prices ended higher as banks moved to replace bonds bought back by the government at auction Thursday, leading to an increase in trade volume. Gains in some gilts were limited ahead of the INR-270-billion weekly gilt auction Friday and the fall in the rupee in the latter half of trade, dealers said.
The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.20, or 6.30% yield, against INR 100.12, or 6.31% yield, Wednesday. The most traded 6.79%, 2034 bond closed at INR 102.98, or 6.36%, against INR 102.85, or 6.38%, the previous day.
On Thursday, the Reserve Bank of India accepted offers worth INR 199.25 billion for three bonds maturing in 2026-27 (Apr-Mar) at the INR-250-billion buyback auction. The cut-off price on the 7.27%, 2026 gilt was higher than the market expected, and traders were enthused the government and RBI had ensured the buyback would be relatively large in spite of having to pay higher prices, dealers said. Banks had considered holding on to the bonds before the buyback auction due to a lack of significant capital gains on the bonds, which all mature by April, and were not aggressive in tendering them. This was reflected in all the cut-off prices being set at or above indicative levels published by Financial Benchmarks India Ltd. Wednesday.
State-owned banks and private-sector banks likely sold most of the bonds at the buyback auction, and consequently bought gilts in the secondary market, dealers said. Mutual funds and some foreign banks also likely participated at the auction, they said. Some traders expect the government to buy back more gilts in the coming weeks in order to ease the heavy redemptions – around INR 5.75 trillion even after Thursday's buyback is settled – in FY27.
Moreover, the details of the auction showed that offers accepted in the 5.63%, 2026 and 6.99%, 2026 gilts were nearly INR 4 billion on average, leading to "chunky" buys that moved secondary market prices higher, dealers said. With banks selling short-term bonds Thursday, some traders also expected robust demand for the new five-year, 2030 bond being tendered by the government at auction Friday.
"The market ran up because banks were replacing the stock that they sold, even before the result came," a dealer at private-sector bank said. "The price action was still very tentative; we'll only be able to tell whether this momentum will break the (trading) range by Monday, after the auction."
As prices rose, the spreads of the 6.79%, 2034 bond and the 6.68%, 2040 bond over the 10-year benchmark gilt narrowed as traders preferred their higher yields along with relative liquidity. Moreover, traders had an eye on the 6.33%, 2035 bond's scheduled supply next week, where they expect the 2034 bond's spread over the 2035 bond to shrink below 5 basis points, from around 5.5 bps Thursday, dealers said.
Primary dealers were likely sellers in the secondary market as they made room for fresh supply at the auction on Friday. The government will sell INR 150 billion of the new 2030 and INR 120 billion of the 7.09%, 2034 gilt at 1030-1130 IST. While banks' asset-liability management needs will mop up the five-year bond, traders and pension funds are likely to bid in large sizes of the 30-year benchmark bond, dealers said. The 2054 bond has underperformed against other long-term gilts through the week, and some traders may cover short sales in the gilt at auction. It ended little changed Thursday, even as it became the third-most traded gilt.
The debate over pricing the five-year bond at its maiden issuance continued to roil the market for the second straight day, even as there were no trades in the when-issued segment of the Negotiated Dealing System – Order Matching platform Thursday. The current five-year benchmark 6.75, 2029 gilt yield was 5.97% Thursday and the illiquid gilt closest in maturity to the incoming bond yielded 6.10%, according to indicative prices for Wednesday. While this suggests the new bond's coupon should be set around 6.03%, aggressive bids by some traders expecting an August rate cut could drive the cut-off price to near 6.01%, dealers said.
Some traders began building up their trading portfolios, which they had lightened over the past two weeks, as the August policy review neared, dealers said. They said the chances of rate cuts in India had increased slightly after the lower-than-expected CPI inflation print for June pushed average June-quarter headline inflation to 2.7%, from 2.9% projected by the RBI. Looking ahead, July CPI inflation is expected to fall below the lower bound of the RBI's 2-6% medium-term target band.
While an August rate cut was not the majority view, several dealers said there was a "chance" of a rate cut next month and a greater probability in October. Bonds maturing up to five years are expected to be in favour should rate cut expectations build up further, but traders also picked up the newly issued seven-year 6.28%, 2032 bond, leading to healthy trade in its first week of issuance. Traders favoured the bond's spread of over 25 bps over the five-year benchmark gilt, and over 20 bps expected even on the new 2030 gilt being sold at auction Friday.
"There are a lot of queries and a lot of trades in the 2030-2032 bonds from banks, probably for investment books," a dealer at a primary dealership said. "There has been some activity, and I expect some more, in the STRIPS (Separate Trading of Registered Interest and Principal of Securities) of 2032 bonds because the spread there is just undeniably good when you look at the 5x7 space." The "5x7" trade being referred to is short-selling the five-year bond and buying the seven-year gilt.
The turnover in the government bond market Thursday was INR 476.15 billion, nearly doubling from INR 240.20 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot, against two trades worth INR 100.00 million on Wednesday.
OUTLOOK
Bond prices Friday may open steady ahead of the INR-270-billion weekly gilt auction at 1030-1130 IST. The movement in US Treasury yields after the release of US weekly unemployment claims may lend cues at the open, dealers said.
The government will sell INR 150 billion of a new 2030 and INR 120 billion of the 7.09%, 2034 gilt at 1030-1130 IST. Short-term bonds may remain well-bid after RBI Governor Sanjay Malhotra gave clarity on the central bank's liquidity management aims and said he would ideally like call money rates to adhere to the policy repo rate of 5.50%, dealers said.
Traders and asset-liability managers are likely to bid aggressively for the five-year gilt, with hope building the RBI's Monetary Policy Committee could cut the repo rate in August. Some traders may cover short sales in the 30-year gilt at auction, and pension funds are likely to bid in large sizes for the 2054 bond with no supply of long-term gilts in the next auction, dealers said.
Traders also expect India and the US 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 fell below 86 a dollar again Thursday.
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% and that on the most traded 6.79%, 2034 bond is seen at 6.33-6.39%.
| THURSDAY | WEDNESDAY | |||
| PRICE | YIELD | PRICE | YIELD | |
| 6.33%, 2035 | 100.1975 | 6.3010% | 100.1200 | 6.3118% |
6.79%, 2034 | 102.9750 | 6.3567% | 102.8450 | 6.3753% |
| 6.75%, 2029 | 102.9900 | 5.9704% | 102.9575 | 5.9792% |
6.68%, 2040 | 100.4200 | 6.6350% | 100.2800 | 6.6499% |
| 7.34%, 2064 | 103.8500 | 7.0476% | 103.8000 | 7.0513% |
India Gilts: Up on replacement demand post buyback, cut-offs better than view
| 1536 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.33%, 2035 | |||||
| PRICE (INR) | 100.21 | 100.25 | 100.12 | 100.13 | 100.12 |
| YTM (%) | 6.3000 | 6.3118 | 6.2945 | 6.3111 | 6.3118 |
| 1536 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.79%, 2034 | |||||
| PRICE (INR) | 102.98 | 103.02 | 102.84 | 102.85 | 102.85 |
| YTM (%) | 6.3560 | 6.3759 | 6.3510 | 6.3745 | 6.3753 |
MUMBAI--1536 IST--Prices of government bonds were up on replacement demand after gilts were sold to the government at cut-off prices sharply higher than those indicated by Financial Benchmarks India Pvt. Ltd. Wednesday, dealers said.
The Reserve Bank of India set a cut-off of INR 101.19 on the 7.27%, 2026 gilt at the auction, sharply up from the indicated price of INR 101.10. The cut-off price on the 5.63%, 2026 gilt was 2 paise higher than indicated, at INR 100.04, while that on the 6.99%, 2026 gilt was the same as the indicated price of INR 101.02.
Due to the higher prices, the government accepted offers worth only INR 199.25 billion, lower than the notified amount of INR 250 billion. During the auction, an Informist poll estimated the cut-off prices on a par with those indicated, and traders expected the government to buy back the full notified amount. Prices in the secondary market rose later in the day, and the yield on the 6.33%, 2035 benchmark bond fell below the key technical level of 6.30%, on expectations that cut-off prices would be higher than initially estimated. Some banks had said they would tender gilts at Thursday's auction only at prices above those indicated by Financial Benchmarks India Ltd. Wednesday, since extreme short-term securities were lucrative and less risk to hold.
"The cut-off is (INR) 101.19, but the weighted average is (INR) 101.13 so they (the government) would've only accepted a small quantum at the cut-off (price on the 7.27%, 2026 gilt)," a dealer at a state-owned bank said. "There would've been some indication of this (higher cut-off prices), and at that time US yields also fell slightly so it was a combination of things that led to short-covering (in the secondary market)." The yield on the benchmark 10-year US Treasury note was 4.47% at 1530 IST, from 4.48% at 0900 IST, and 4.49% at 1700 IST Wednesday.
Traders could also sell the extreme short-term gilts at the auction and purchase state bonds of similar maturity for higher returns, dealers said. Gujarat's 7.60%, 2026 bond was last traded at a yield of 5.77%, higher than the estimated cut-off yields of 5.56-5.69% on the gilts being bought back at auction.
At the buyback auctions held in June, the RBI did not accept the entire notified amount, since banks were not aggressive in tendering as they had already booked enough profits for Apr-Jun through open market operation auctions, dealers said.
In the secondary market, some traders bet on a rate cut of 25 basis points by the RBI's Monetary Policy Committee in August, they said. A soft CPI inflation print for June has bolstered hopes of a quicker ease in monetary policy. India's CPI inflation for June, published Monday, was at its lowest level in six years at 2.1%. Gains were capped due to a fall in the rupee against the dollar during the day.
The yield spread between the benchmark 6.33%, 2035 bond and the 6.79%, 2034 gilt compressed slightly to around 5-6 basis points, from 6 bps earlier in the day. The yield spread between the 6.68%, 2040 bond and 10-year benchmark 6.33%, 2035 gilt was lucrative to purchase the former, dealers said, making it the third most traded paper on the RBI's Negotiated Dealing System-Order Matching platform. The spread was 34 bps earlier in the day, from around 33 bps a week ago, but contracted again to 33 bps. Traders also picked up the newly-issued 6.28%, 2032 gilt due to its higher coupon compared to liquid gilts of similar maturity.
As of 1530 IST, turnover in the gilts market was INR 383.30 billion, much higher than INR 160.50 billion at the same time Wednesday, 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% and that on the 6.79%, 2034 gilt at 6.30-6.38%. (Cassandra Carvalho)
India Gilts: Steady on lack of fresh triggers; buyback auction awaited
| 0939 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.33%, 2035 | |||||
| PRICE (INR) | 100.12 | 100.13 | 100.12 | 100.13 | 100.12 |
| YTM (%) | 6.3118 | 6.3118 | 6.3111 | 6.3111 | 6.3118 |
| 0939 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.79%, 2034 | |||||
| PRICE (INR) | 102.84 | 102.87 | 102.84 | 102.85 | 102.85 |
| YTM (%) | 6.3759 | 6.3759 | 6.3720 | 6.3745 | 6.3753 |
India Gilts: Steady on lack of fresh triggers; buyback auction awaited
MUMBAI--0939 IST--Prices of government bonds were in a thin band due to lack of fresh domestic triggers, dealers said. Trading was concentrated in the erstwhile 10-year benchmark 6.79%, 2034 gilt.
Price action was muted and volumes were low as traders waited for fresh triggers on interest rates, dealers said. As of 0930 IST, turnover in the gilts market was INR 6.40 billion, much lower than INR 49.22 billion at the same time Wednesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform.
Short bets on the 10-year benchmark 6.33% 2035 gilt increased as traders made room for fresh stock at the weekly gilt auction Friday. 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 0939 IST showed trades worth INR 101.91 billion in the 6.33%, 2035 gilt, up from INR 95.17 billion Wednesday. The government will sell INR 150.00 billion of a new 2030 bond and INR 120.00 billion of the 7.09%, 2054 gilt Friday.
Traders will track the result of the buyback auction of INR 250 billion later Thursday. The government will buy back the 7.27%, 2026 gilt, the 5.63%, 2026 bond, and the 6.99%, 2026 gilt through the auction. The quantum accepted and cut-off prices may lend cues to short-term bonds only if cut-off prices are significantly higher than those indicated by Financial Benchmarks India Ltd. Wednesday, dealers said.
"Market will not move after buyback result unless cut-offs are 5-10 paise higher (than FBIL levels)," a dealer at a state-owned bank said. "It'll (cut-off prices) be 2-3 paisa above market (secondary market valuations), and RBI will take full quantum. Last time, it (the quantum accepted) was slightly less, since banks had already booked profit for the quarter so they didn't participate aggressively."
During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.28-6.35% and that on the 6.79%, 2034 gilt at 6.35-6.40%. (Cassandra Carvalho)
India Gilts: May open steady on lack of cues; buyback participation seen firm
MUMBAI – Prices of government bonds are seen opening steady Thursday due to lack of fresh triggers, dealers said. Participation at Thursday's buyback auction of INR 250.00 billion of gilts maturing in 2026-27 (Apr-Mar) is seen firm, especially since demand for short-term gilts has been lukewarm because traders are now pricing in a higher overnight borrowing rate of 5.40-5.50%, from 5.20-5.30% earlier, they said. The government will buy back the 7.27%, 2026 gilt, the 5.63%, 2026 bond, and the 6.99%, 2026 gilt through auction. The quantum accepted and cut-off prices may lend cues to short-term bonds, dealers said.
The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.28-6.35% during the day. On Wednesday, the bond ended at INR 100.12, or 6.31% yield. For the erstwhile 10-year benchmark 6.79%, 2034 gilt, traders expect a range of 6.35-6.40%. The 2034 gilt closed at INR 102.85, or 6.38% yield Wednesday. At 0800 IST, the yield on the benchmark 10-year US Treasury note was 4.47%, slightly down from 4.49% at 1700 IST Wednesday. Volumes are expected to remain thin, and price action muted, until there's a significant trigger on rates, inflation or growth, dealers said.
Traders may place short bets on bonds Thursday to make room for fresh supply at the weekly gilts auction worth INR 270.00 billion Friday. The government will sell INR 150.00 billion of a new 2030 bond and INR 120.00 billion of the 7.09%, 2054 gilt. Primary dealerships and long-term investors have already begun placing short bets on gilts ahead of the auction. Primary dealerships net sold gilts worth INR 6.98 billion Wednesday, while the 'Others' segment of market participants--consisting of insurance companies, provident funds and the Reserve Bank of India--net sold gilts worth INR 1.88 billion, according to data from the Clearing Corp. of India.
At the auction, the government will also issue a new five-year, 2030 gilt for a notified amount of INR 150.00 billion. Dealers were confused how to price the bond considering the steepness of the yield curve in that segment. The current five-year benchmark 6.75, 2029 gilt yield was 5.98% Wednesday and the illiquid gilt closest in maturity to the new bond yielded 6.11%. There was one trade in the 2030 paper in the when-issued segment at 6.01% Wednesday, though dealers said this might correct Thursday, and the coupon may be a few basis points higher but below 6.05%, provided there were no fresh cues.
On the global front, traders are concerned about the independence of the US Federal Reserve, the central bank of the world's largest economy, after media reports indicated that US President Donald Trump could attempt to fire Fed Chair Jerome Powell for not cutting interest rates soon. Bonds may track the movement of the rupee against the dollar, dealers said. The rupee is seen opening lower on likely foreign outflows. (Cassandra Carvalho)
End
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Deepshikha Bhardwaj
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