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Informist, Monday, Jul. 21, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended on a mixed note, with long-term gilt prices rising and those of bonds maturing under five years a tad lower. Most gilts ended off highs as traders sold their holdings of gilts at a profit, dealers said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.21, or 6.30% yield, against INR 100.16, or 6.31% yield Friday. The most traded 6.79%, 2034 bond closed at INR 103.00, or 6.35%, against INR 102.96, or 6.36%, the previous day. Volumes fell from the previous day due to lack of significant domestic cues. 

The profit booking was most prominent in gilts of 10 years or more. State-owned banks were likely selling the two most-traded gilts--the 2035 bond near 6.30% yield and the 2034 bond around 6.35% yield--at psychologically crucial levels, dealers said. Meanwhile, traders also pounced on the jump in prices in 30-50 year gilt since Friday after robust demand for the 7.09%, 2054 gilt at auction Friday, and took profits at the day's highs. The 30-year benchmark gilt was the most-traded among long-term bonds. At the day's high, its price rose to INR 102.00, around 78 paise higher than Thursday's close, before closing at INR 101.74.

"There is a scope to cut some positions and make money as we are at the lower end of the trading range (in yield terms)," a dealer at a state-owned bank said. "The volumes are quite thin, so banks are choosing just to take trades where they can – there is no bearishness right now on prices."

Traders have begun increasing their trading portfolios as the August policy review nears on the view the RBI's Monetary Policy Committee may cut the repo rate, two months after comments by RBI Governor Sanjay Malhotra had led the market to believe no further policy easing was likely, 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.

With this, preference for long-term bonds has bounced back among traders. The price sensitivity to a fall in yields in long-term bonds is much larger than short-term gilts, which leads to greater capital gains for traders as long-term yields fall. With unexpectedly firm demand from long-term investors at auction over the last few weeks taking care of supply pressures, traders have found spreads attractive and expect the outperforance to continue, both in price and yield terms, dealers said.

The 50-year benchmark 7.09%, 2074 gilt's yield has fallen nearly 15 basis points from the high of 7.17% hit earlier this month before its last auction. Consequently, the spread of the 50-year yield over the 10-year yield stood at 73 bps Friday, from 83 bps at the high. The 2074 bond was not traded Monday.

Banks also bid aggressively to sell short-term bonds to the RBI in exchange for long-term bonds at the gilt switch auction. The RBI only accepted offers worth INR 172.74 bln for five gilts at the switch auction, against the notified amount of nine gilts worth INR 320 billion. However, only 2-5 offers were accepted in the auction for the gilts which had been switched, a sign of interest from both state-owned and private banks to switch into long-term gilts, dealers said. The cut-off on the three destination securities was set 25-57 paise higher than the indicative price for the bonds on Friday by Financial Benchmarks India Ltd. Some traders said the demand for high-coupon bonds may have been more muted as gains in the papers were lost due to amortisation since their issuance.

"It's a bit of an odd auction, but it was completely swept by some large ALM (asset-liability management desk)," a dealer at a primary dealership said. "The government could have switched some more if it wanted, the bids were there across all bonds, especially (6.22%) 2035. In the buyback, they took a larger quantum of bids, so its a bit confusing."

In early trade, a fall in US Treasury yields over the weekend aided gilt prices, especially as the fall intensified during Indian market hours. The 10-year US yield was 4.38% at the end of Indian market hours, down from 4.42% at 0900 IST and 4.44% at 1700 IST Friday, after US Federal Reserve Governor Christopher Waller called for a rate cut in the US in July. Some private sector banks and foreign banks purchased gilts, covering short bets placed earlier, dealers said.

Short-term bonds, maturing below five years, were out of favour as overnight money market rates rose in the early part of the day amid liquidity outflows from the banking system on account of goods and services tax payments, dealers said. However, trade volumes were thin in short-term gilts, and the five-year benchmark 6.75%, 2029 bond ended little changed.

The turnover in the government bond market Monday was INR 337.60 billion, down from INR 556.45 billion Friday, 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 million Friday.

OUTLOOK

On Tuesday, gilts may take cues at open from the movement in US Treasury yields overnight. 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 6.33%, 2035 gilt may underperform other gilts this week ahead of its auction on Friday, with INR 300 billion of fresh supply of the 10-year benchmark gilt.

During the day, traders may take cues from the result of the state bond auction Tuesday, dealers said. Six states plan to raise INR 107.50 billion through bonds at auction at 1030-1130 IST. The indicative calendar for state borrowing for Jul-Sept showed 12 states would borrow INR 185 billion this week.

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 traded below 86 a dollar again Monday.

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 6.32-6.38%.

India Gilts: Off highs on profit-booking likely from state-owned banks

MUMBAI--1535 IST--Government bond prices were off highs on profit-booking, likely from state-owned banks, dealers said. Prices were up earlier on bond purchases by foreign banks, tracking a fall in US Treasury yields, dealers said. 

Traders awaited the result of the INR-320-billion switch auction. Banks' asset and liability managers, especially from private sector banks, are seen bidding for the destination securities at prices sharply higher than those indicated, but some state-owned banks, which hold large quantum of the source securities, said the cut-off prices were likely to be either below those indicated, or on par, to book profits for their quarterly earnings. 

Some banks were looking forward to the supply of gilts maturing between 2032 and 2039, especially after the yield spread of mid-duration and long-term papers compressed significantly over that of the benchmark 10-year 6.33%, 2035 gilt, dealers said.

The yield spread of the 7.09%, 2074 gilt over the 6.33%, 2035 gilt compressed to 74 basis points as of 1535 IST, from 75 bps on Jul. 14. The yield spread of the 15-year 6.68%, 2040 gilt over the 10-year benchmark also compressed to 31 bps as of 1535 IST from 32 bps on Jul. 14. Long-term bond prices have risen significantly since supply of these bonds in the past two weekly gilt auctions has been well received by long-term investors, dealers said. Some dealers said that bonds maturing in five years and below were too expensive to purchase at current prices.  

Banks which did not prefer carrying the risk of bonds maturing in around 10 years sold the source securities of which they had stock, and purchased higher-yielding state bonds of comparable maturity, dealers said. Traders looking for higher yields to lock in their investment books did similar trades at last week's buyback auction. Traders placed short bets on the 10-year benchmark gilt ahead of fresh supply at the weekly gilt auction Friday, dealers said. 

As of 1530 IST, turnover in the gilts market was INR 247.55 billion, lower than INR 448.90 billion at 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 6.26-6.34% and that on the 6.79%, 2034 gilt is seen at 6.33-6.39%.  (Cassandra Carvalho)

India Gilts: Remain up on foreign banks buys; switch demand seen firm

India Gilts: Remain up on foreign banks buys; switch demand seen firm 

MUMBAI--1305 IST--Prices of government bonds remained up, as US Treasury yields continued to fall during the day, dealers said. Foreign banks were likely purchasing gilts while state-owned banks were booking profits, dealers said. Demand at the switch auction of INR 320 billion is seen robust, with some banks bidding as high as 15 paise above indicated prices for destination papers maturing in 10 and 15 years, dealers said. 

"Some positivity is there because US yields are down, foreign banks were buying," a dealer at a state-owned bank said. "The conversion (switch auction) is also seen fine."

The yield on the benchmark 10-year US Treasury note was 4.39% at 1305 IST, down from 4.42% at 0900 IST and 4.44% at 1700 IST Friday, after US Federal Reserve Governor Christopher Waller called for a rate cut in the US in July. Some private sector banks and foreign banks purchased gilts, covering short bets placed earlier, dealers said. Some traders built portfolios on expectations that the Reserve Bank of India's Monetary Policy Committee would cut the repo rate at its meeting next month. However, most traders do not expect another cut in the repo rate until September. A fall in swap rates also aided the rise in gilt prices, dealers said. 

At the switch auction, the government aimed to switch nine short-term gilts with five longer-term papers. The five longer-term gilts are the 7.50%, 2034 gilt, the 8.24%, 2033 gilt, the 7.62%, 2039 gilt, the 6.22%, 2035 gilt and the 8.32%, 2032 bond. State-owned banks and some private sector banks were keen to book profits on the short-term securities from their held-to-maturity books, dealers said. Demand for destination securities with high coupons such as the 8.24%, 2033 bond was robust, and these bonds would likely have cut-off prices much higher that those indicated by Financial Benchmarks India Pvt. Ltd. Friday. Additionally, traders prefer the 2039 gilt and the 2035 gilt due to their tenures. An Informist poll estimated the cut-off price on the 7.62%, 2039 gilt at INR 108.56, but dealers said the cut-off could be around 8-10 paise higher. 

As of 1305 IST, turnover in the gilts market was INR 198.95 billion, slightly higher than INR 184.15 billion at 1230 IST 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 6.26-6.34% and that on the 6.79%, 2034 gilt is seen at 6.33-6.39%.  (Cassandra Carvalho)

India Gilts: Up on fall in US yields; switch auction result awaited

India Gilts: Up on fall in US yields; switch auction result awaited

MUMBAI--0928 IST--Prices of government bonds were higher Monday tracking a slight fall in US Treasury yields over the weekend, dealers said. Trade was concentrated in the 6.79%, 2034 gilt on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. 

The yield on the benchmark 10-year US Treasury note was 4.42% at 0928 IST, slightly down from 4.44% at 1700 IST Friday. US yields eased after US Federal Reserve Governor Christopher Waller, who is a top candidate for the position of US Federal Reserve chair, called for a rate cut at the US Federal Open Market Committee's meeting at the end of this month. The FOMC is expected to hold rates steady this month, but expectations of a rate cut in September increased after Waller's comments, according to the CME FedWatch tool.  

"Actually there are no domestic cues, only US yield is slightly down," a dealer at a state-owned bank said. "People who had taken positions Friday may be willing to release their positions now because there are no cues." Despite better-than-expected cut-off prices at the weekly gilt auction Friday, bond prices ended lower due to profit-booking. 

Traders await the result of the INR-320-billion switch auction, wherein the government will switch nine short-term gilts with five longer-term papers. The five longer-term gilts are the 7.50%, 2034 gilt, the 8.24%, 2033 gilt, the 7.62%, 2039 gilt, the 6.22%, 2035 gilt and the 8.32%, 2032 bond. Demand at the auction is seen firm, as banks will be eager to book profits by selling the short-term securities from their held-to-maturity books, dealers said. However, some dealers said they would not want to add the risk of longer-term papers--which are the destination securities--to their portfolio and would not be aggressive in tendering at the auction.

Demand for short-term gilts in the secondary market as replacement may keep prices of these tenure securities on the higher side during the day, especially after the government also conducted a buyback of gilts maturing in 2026-27 (Apr-Mar) on Thursday, at which cut-off prices were higher than indicated prices.  

As of 0930 IST, turnover in the gilts market was INR 23.65 billion, lower than INR 42.55 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 6.26-6.34% and that on the 6.79%, 2034 gilt is seen at 6.33-6.39%.  (Cassandra Carvalho)

India Gilts: Seen tad up on ease in US ylds; switch participation seen firm

MUMBAI – Prices of government bonds are seen opening largely steady with an upward bias Monday due to an ease in US Treasury yields over the weekend, dealers said. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.26-6.34% during the day. On Friday, the bond ended at INR 100.16, or 6.31% yield. Gilts are not traded Saturday. 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 102.96, or 6.36% yield Friday. At 0800 IST, the yield on the benchmark 10-year US Treasury note was 4.42%, slightly down from 4.44% at 1700 IST Friday.

Traders may take cues from the result of the INR-320-billion switch auction, wherein the government will switch nine short-term gilts with five longer-term papers. The five longer-term gilts are the 7.50%, 2034 gilt, the 8.24%, 2033 gilt, the 7.62%, 2039 gilt, the 6.22%, 2035 gilt and the 8.32%, 2032 bond. Demand at the auction is seen firm, since the destination securities largely mature in around 10 years, which is seen lucrative to hold and can be kept in trading books as well, dealers said. Banks will be eager to book profits by selling the short-term securities from their held-to-maturity books, dealers said. 

On the global front, US yields eased after US Federal Reserve Governor Christopher Waller called for a rate cut at the US Federal Open Market Committee's meeting at the end of this month. The official has also emerged as the leading internal candidate to take over the position of US Federal Reserve chair from current head Jerome Powell. Traders speculate that either US President Donald Trump could fire Powell for not cutting rates sooner, or that Powell could resign after the FOMC's July meeting. Bond prices 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 Akul Nishant Akhoury

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