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Informist, Friday, Jul. 18, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended on a mixed note. The two most-traded gilts – 6.79%, 2034 bond and 6.33%, 2035 bond – gave up all gains and ended slightly lower due to profit booking, likely from state-owned banks, dealers said. Long-term bonds ended sharply higher after firm investor demand for the 7.09%, 2054 bond at auction Friday.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.16, or 6.31% yield, against INR 100.20, or 6.30% yield, Thursday. The most traded 6.79%, 2034 bond closed at INR 102.96, or 6.36%, against INR 102.98, or 6.36%, the previous day.

Bond prices rose after the result of the INR 270 billion weekly gilt auction, which saw supply absorbed by end-investors. State-owned banks were likely the most aggressive bidders for the new five-year 2030 bond for their asset-liability management portfolios, dealers said. The Reserve Bank of India set the bond's coupon at 6.01%, in line with estimates in an Informist poll. On the other hand, the cut-off price on the 2054 bond was INR 101.34, 11 paise higher than the median estimate in an Informist poll.

However, the buying momentum in the 10-year bonds after the auction, which was likely led by foreign banks and private-sector banks, was offset by profit booking in significant size from state-owned lenders, dealers said. These sales came as the 10-year gilt yield fell below the psychologically crucial 6.30% mark, and intraday hit its lowest level since Jul. 8. The yield on the 6.79%, 2034 bond also fell below 6.35% for the first time in 10 days.

"We will need an external trigger, such as from macro data or the RBI, for yields to break the technical levels," a dealer at a primary dealership said. "PSU (state-owned) banks were selling slightly longer-term bonds to reduce their overall risk, though the market remains bullish."  More

Bonds maturing in 30-50 years surged after the auction results. The RBI accepted only eight bids out of 357 received for the 7.09%, 2054 bond, with only a handful of private and state-owned life insurers, as well as pension funds, mopping up the entire INR 120 billion supply of the bond, dealers said. Long-term investors and traders alike who missed out on the bond at auction picked up gilts in the secondary market, including the 40- and 50-year benchmark gilts. Bond forwards and forward-rate agreements continued to offer returns considered lucrative by life insurers, and some of the demand for the bond was due to those contracts, dealers said.

Meanwhile, foreign banks are also likely to have picked up the stock of the 2030 bond at auction, likely for their offshore clients. However, one large foreign portfolio investor was likely persistently selling short-term bonds. A trader speculated that the FPI had held bonds as collateral for its investments in India's equity markets and was trimming the fixed-income holdings, dealers said. According to Clearing Corp. of India data at 1830 IST, FPIs had net sold INR 14.64 billion worth of fully accessible route gilts and another INR 1.5 billion in the general segment for central government bonds.

"One single FPI is getting rid of margined securities for equities," a dealer at a private sector bank said. "The data may show he sold INR 40 billion just today (Friday)."

The 'Reported Deals' segment of the Negotiated Dealing System – Order Matching platform, which FPIs often use, showed increased activity in bonds maturing up to 2031. Mutual funds were likely buying the short-term gilts from the foreign investors, dealers said.

Some traders began building 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 have increased slightly after the lower-than-expected CPI inflation print for June pushed average headline inflation for the June quarter 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. The 2032 bond offered over 23 bps higher yield than the new five-year bond issued Friday.

The turnover in the government bond market Friday was INR 556.45 billion, up from INR 476.15 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades worth INR 100.00 million using the wholesale digital rupee pilot, against no trades Thursday.

OUTLOOK

Gilts are not traded on Saturdays. On Monday, gilts may take cues at open from the movement in US Treasury yields over the weekend. Traders may build up portfolios betting on a rate cut or softer commentary from the RBI at the monetary policy review in early August, dealers said.

Short-term bonds may remain well bid after RBI Governor Sanjay Malhotra provided 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. The 10-year benchmark 6.33%, 2035 gilt may underperform other gilts during the week ahead of its scheduled auction on Jul. 25.

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 largely traded below 86 a dollar again Friday.

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%.

India Gilts: Wipe gains; up earlier on lower than view 2054 bond cut-off yld

MUMBAI--1426 IST--Most government bonds erased gains as some state-owned banks booked profits, dealers said. Prices were up after the cut-off yield on the 7.09%, 2054 bond was 6.98%, lower than expectation. Long-term bond prices remained higher. An Informist poll median of 13 estimates saw the cut-off yield at 6.99%. Bond prices traded in a thin band earlier due to caution before the auction result.  

The 7.09%, 2054 bond cut-off yield was lower than expectations, likely due to firm bids from state-owned and private sector insurance companies and pension funds, though traders speculated that foreign banks and state-owned banks also bid for the bond. Foreign portfolio investors likely picked up the bond through foreign banks for forward rate agreements, dealers said. A large state-owned insurance company likely picked up around INR 30 billion-INR 35 billion of the gilt for forward rate agreements, dealers said. The Reserve Bank of India accepted only 8 bids for the bond, out of 357 received. The bond last traded at INR 101.63, about 41 paise up from Thursday's close. 

"Cut-off on the short-term bond was in line with expectations but the long-term one was better," a trader at a private sector bank. "It looks like there was aggressive bidding from insurance, PFs along with some PSU (state-owned) banks. PSU banks might be building their books with higher-yielding bonds because of rate cut expectations this year."

Banks, especially state-owned banks, bid for the new 5-year, 2030 bond for both, their trading and investment books, dealers said. There was replacement demand for the 2030 gilt after banks sold gilts maturing in 2026-27 (Apr-Mar) worth INR 199.25 billion to the government at the buyback auction Thursday. However, some dealers were expecting a coupon of 5.99% or 6.00% on the bond, whereas the coupon was set at 6.01%, in line with the median of an Informist poll estimate. The bond's first trade in the secondary market was at INR 100.05, or 5.9983%. 

State-owned banks were booking profit in the secondary market, though some purchased short-term bonds maturing in up to seven years, dealers said. Traders also prefered higher-yielding state bonds of short-term maturity for their investment books to replace the gilts sold at the buyback auction. Prices are seen moving in a thin band for rest of the day, though some traders are building portfolios in hope of a rate cut at the RBI's Monetary Policy Committee meeting in August. Speculation that the meeting could have a softer tone on easing policy is gaining traction among traders, and some expect the 10-year 6.33%, 2035 gilt to hit 6.20% yield closer to the policy outcome. Most traders, however, expect the next rate cut after June to be only in December. 

As of 1430 IST, turnover in the gilts market was INR 400.95 billion, higher than INR 275.25 billion at the same time Thursday, 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 6.26-6.34% and that on the 6.79%, 2034 gilt at 6.33-6.39%.(Cassandra Carvalho)

India Gilts: Tad up on slight fall in US yields, auction result awaited 

India Gilts: Tad up on slight fall in US yields, auction result awaited 

MUMBAI--0931 IST--Prices of government bonds were marginally up Friday tracking a slight fall in US Treasury yields, dealers said. Traders expect cut-off yields on the two bonds at the weekly gilt auction to be low, which also kept market sentiment positive, dealers said. Caution before the auction kept volumes low and price action muted.

At 0930 IST, the yield on the benchmark 10-year US Treasury note was 4.44%, slightly down from 4.47% at 1700 IST Thursday, as fears of US Federal Reserve Chair Jerome Powell being fired by US President Donald Trump eased.

"Last time (last week) the 2074 auction went off beautifully, so all that hue and cry about no demand for long-term has died down for now," a trader at a primary dealership said. "I think the cut-off on the 5-year (new 2030 bond) could also be 6.00%, people want it because it'll be the five-year benchmark."

At the weekly gilt auction, the government will sell INR 150 billion of a new 2030 bond and INR 120 billion of the 7.09%, 2054 gilt. Even as other gilts maturing in 2030 were traded at around 6.08% Thursday, traders expect the new 2030 bond to be priced closer to the current five-year benchmark 6.75%, 2029 bond, which closed at a yield of 5.97% Thursday. On Wednesday, the new 2030 bond was traded in the 'when-issued' segment of the Reserve Bank of India's Negotiated Dealing System-Order Matching platform at 6.01%. However, some traders see the coupon on the gilt at 6.03-6.05%, which will correct the steepness in the yield curve of those tenures, dealers said.

Moreover, some traders said the five-year 2029 paper has still not priced in a higher overnight money market rate of 5.40-5.50%, even after RBI Governor Sanjay Malhotra said earlier this week that the central bank prefers the overnight call money rate closer to repo.

As of 0930 IST, turnover in the gilts market was INR 49.55 billion, higher than INR 6.40 billion at the same time Thursday, 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 6.26-6.34% and that on the 6.79%, 2034 gilt at 6.33-6.39%.  (Cassandra Carvalho)

India Gilts: Seen slightly up on fall in US ylds; auction demand seen firm

MUMBAI – Prices of government bonds are seen opening marginally higher Friday, continuing the positive momentum of Thursday, dealers said. A slight ease in US Treasury yields overnight may provide comfort to bonds. Later in the day, bond prices may take cues from the result of the INR 270-billion gilt auction, at which, demand is seen firm.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.26-6.34% during the day. On Thursday, the bond ended at INR 100.20, or 6.30% yield. For the erstwhile 10-year benchmark 6.79%, 2034 gilt, traders expect a range of 6.33-6.39%. The 2034 gilt closed at INR 102.98, or 6.36% yield Thursday. At 0800 IST, the yield on the benchmark 10-year US Treasury note was 4.45%, slightly down from 4.47% at 1700 IST Thursday.

At the weekly gilt auction, the government will sell INR 150 billion of a new 2030 bond and INR 120 billion of the 7.09%, 2054 gilt at 1030-1130 IST. Demand for both bonds is seen firm, as banks are seeing bidding aggressively for the 2030 bond since it will replace the 6.75%, 2029 gilt as the five-year benchmark. Long-term investors are also expected to bid aggressively for the 2054 paper, and the cut-off yield is seen at par with secondary market valuations, dealers said. 

On the liquidity front, the Reserve Bank of India post market hours Thursday announced a seven-day variable rate reverse repo auction of INR 2 trillion for Friday. Traders had expected an auction for Friday, to rollover the quantum at previous auctions which are due for reversal Friday. However, traders had expected a size of INR 1.00 trillion to INR 1.50 trillion, due to outflows for goods and service tax starting Monday. Nonetheless, bonds are unlikely to be significantly impacted by the large size since the auction is unlikely to be fully subscribed, and traders have priced in weekly VRRRs as the RBI aims to keep overnight borrowing rates closer to the repo, dealers said.

On the global front, weekly jobless claims in the US fell to 221,000 in the week ended Saturday, lower than a Wall Street Journal consensus estimate of 234,000. Concerns remain over the independence of the US Federal Reserve from politics due to repeated backlash from US President Donald Trump for not cutting rates sooner. Bonds may also track the movement of the rupee against the dollar during the day, 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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