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Informist, Tuesday, Jul. 22, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended on a mixed note. The 10-year benchmark 6.33%, 2035 gilt ended lower ahead of its auction on Friday. Bonds maturing in shorter and longer tenures ended higher, as demand from both traders and investors building up their portfolios increased on hopes of another rate cut in 2025, dealers said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.16, or a yield of 6.31%, against INR 100.21, or 6.30% yield, Monday. The most traded 6.79%, 2034 bond closed at INR 102.94, or 6.36%, against INR 103.00, or 6.35%, the previous day. Volumes remained dull for the second straight day due to a lack of significant domestic cues.

"With no direction in the market, every trader is just playing the spreads," a dealer at a primary dealership said. "The monthly reset for the 10-year bond is coming, there is so much supply, so people are going short on the benchmark and picking up long (term) bonds where the spreads are looking very attractive." The government will sell INR 60 billion of the 5.91%, 2028 gilt and INR 300 billion of the 6.33%, 2035 bond Friday.

Expectations of another rate cut by the Reserve Bank of India's Monetary Policy Committee have built up after India's CPI inflation fell to 2.10% in June, a 77-month low and near the lower end of the central bank's 2-6% medium-term target band. Moreover, CPI inflation in Apr-Jun averaged 2.7%, 20 basis points lower than the RBI's forecast of 2.9% and economists expect the headline number in July to be below 2% on a high base. Some traders expect a cut as early as the policy review in August, while others said the MPC may hold off on the next rate cut until October. 

Foreign portfolio investors preferred bonds maturing in five to seven years Tuesday, as these would be more sensitive to the rate cut while offering some capital gains, dealers said. Bonds maturing in less than five years are out of favour as the central bank is seen draining liquidity through more variable rate reverse repo auctions. While some illiquid securities in the five- to seven-year segment ended the day with gains, the five-year benchmark ended lower due to profit booking by domestic banks, dealers said.  FPIs bought fully accessible route gilts worth INR 14 billion, according to data from the Clearing Corp. of India at 1830 IST.

Meanwhile, pension and provident funds have been deploying inflows into their corpus into bonds over the past two weeks, particularly in gilts maturing between 15 and 40 years. They considered the spreads on these bonds over the 10-year benchmark lucrative, dealers said. While the 30- and 40-year benchmark gilts had risen on Monday as well, the 50-year benchmark 7.09%, 2074 gilt, which was not traded Monday, was the biggest gainer on Tuesday, likely due to demand from insurance companies. Traders also sold the 40-year benchmark 6.90%, 2065 gilt at the 6.98% yield, a psychologically crucial level, dealers said.

Investors also participated in the INR 107.50 billion state bond auction, which featured only bonds with maturities of 12 years or more. The RBI set a cut-off yield of 7.01% on Bihar's 12-year bond, lower than the median estimate of 7.04% in an Informist poll. The cut-off yield on Tamil Nadu's 30-year bond cut-off yield was set at 7.07%, slightly lower than a poll estimate of 7.08%. Provident funds and insurers purchased state bonds at the auction, with some demand from traders, as they found the yield spreads attractive, dealers said. Some dealers said there was likely demand for forward rate agreements on Maharashtra's bonds at auction. 

At the same time, some traders were sceptical that a rate cut would result in significant gains in gilts if RBI commentary after the policy remained subdued on further policy easing, as was the case in the June policy. Gilt yields had slumped after the MPC's decision to deliver a front-loaded 50-basis-point repo rate cut, but the change in stance to 'neutral' from 'accommodative' and RBI Governor Sanjay Malhotra's comments on limited space for further policy easing led to yields trending higher since the June policy. Going ahead, traders expect the 10-year yield to fall to the 6.20-6.24% band before the policy announcement. Aggressive demand for state-owned banks for the 7.62%, 2039 bond at the gilt switch on Monday suggested some banks were betting big on a rate cut, dealers said.

"The market is positioning for a rate cut already, the pricing shows a 50-50 chance of it," a dealer at a state-owned bank said. "But what will change for the market if the commentary is the same? Everything will depend on how the market will take that. Otherwise, the yields will bounce again."

The turnover in the government bond market Tuesday was INR 316.85 billion, similar to INR 337.60 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot, like Monday.

OUTLOOK

On Wednesday, 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 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.

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 ended at a near one-month low of 86.37 a dollar Tuesday.

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: Mixed; provident funds buy long-term, FPIs 5-7-year gilts

MUMBAI--1552 IST--Prices of government bonds were little changed and were mixed after the result of the state bond auction of INR 107.50 billion was largely along expected lines, dealers said. All the bonds offered for sale at the auction matured in twelve years or more, and demand for these securities from long-term investors was robust, dealers said. Longer tenure bonds in the secondary market were up on demand from provident funds and some foreign portfolio investors, they said. 

The Reserve Bank of India set a cut-off yield of 7.01% on Bihar's 12-year bond, lower than the median estimate of 7.04% in an Informist poll. The cut-off yield on Tamil Nadu's 30-year bond cut-off yield was set at 7.07%, slightly lower than a poll estimate of 7.08%. Provident funds and insurers purchased state bonds at the auction, with some demand from traders as they found the yield spreads attractive, dealers said. Some dealers said there was likely demand for forward rate agreements on Maharashtra's bonds at auction. 

Provident funds also bought gilts in the secondary market and this led to a rise in longer tenure bonds, dealers said. Some FPIs also purchased longer-term gilts, they said. Some traders are hoping for a rate cut by the Reserve Bank of India's monetary Policy Committee at its upcoming policy review in August, dealers said. While most traders still refrained from buying longer tenure gilts, some picked these bonds due to attractive yield spreads, dealers said. 

"10-year is not moving no matter what," a dealer at a private sector bank said. "So a few traders are going for long term (gilts). In the 40-50 year segment, yields could still fall by 5-10 bps more in short (near) term."

FPIs also picked up gilts maturing in five to seven years, and some banks also bought gilts maturing in these segments on expectations that the yield spread between these bonds and the 10-year benchmark bond will compress by 4-5 bps in the near term, dealers said. 

Some traders also placed short bets on the 10-year benchmark 6.33%, 2035 bond to make room for INR 300 billion fresh supply of the bond at auction Friday, dealers said. The 2035 was traded in when-issued (re-issued) trade on RBI's Negotiated Dealing System-Order Matching platform at INR 100.13-100.15 on Tuesday. 

The turnover in the gilts market was INR 214.30 billion as of 1530 IST, lower than INR 247.55 billion at the same time Monday, according to data on the RBI's NDS-OM 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 and Srijita Bose)

India Gilts: Most in thin band; long term up on small state bond auction size 

India Gilts: Most in thin band; long term up on small state bond auction size 

MUMBAI--1232 IST--Prices of most government bonds continued to move in a thin band due to lack of fresh domestic cues. However, some longer-tenure bonds were up on account of a lower-than-indicated size of state bond auction Tuesday, dealers said. 

With no other fresh supply of long-term bonds during the week, long-term investors such as insurers and pension funds picked up gilts in the secondary market, dealers said. Pension funds were also likely the biggest bidders at state bond auction due to strong inflows. Traders too picked up longer tenure gilts on hope of a further demand for longer-tenure bonds from pension funds. The 30-year 7.09%, 2054 bond rose 18 paise to INR 101.92 or 6.94% yield during the day on firm demand from pension funds, dealers said. 

"There is good EPFO (Employees' Provident Fund Organisation) demand and some traders and FPIs (foreign portfolio investors) are also buying long bonds," a dealer at a private sector bank said. "At auction too, there should be good demand from long-term investors but I will not go aggressively for the 12-year (state-bond) paper right now because quantum is also high and it's a Bihar paper."

FPIs likely churned their portfolios with some selling the 10-year 6.79%, 2034 bond to buy gilts maturing in seven-eight years or 30 years, dealers said. The 10-year US Treasury yield was 4.39%, 2 basis points higher than Monday's levels at 1700 IST.

At the state bond auction Tuesday, demand from banks was likely subdued, with only a handful preferring Bihar's 12-year paper due to lack of other shorter-tenure bonds and due to an attractive yield spread over gilts, dealers said. At last week's state bond auction, the cut-off yields on states' 12-year bonds were 6.98-7.07%, a spread of 37-46 basis points over the gilt of comparable maturity. 

As of 1230 IST, turnover in the gilts market was INR 148.15 billion, lower than INR 176.70 billion same time Monday, 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 6.26-6.34% and that on the 6.79%, 2034 gilt is seen at 6.33-6.39%.  (Srijita Bose)

India Gilts: Steady; volumes muted due to lack of fresh triggers

MUMBAI--0940 IST--Government bond prices were steady and trade volume muted Tuesday due to lack of domestic cues. Traders may take cues from the result of the INR 107.50-billion state bond auction at 1030-1130 IST, dealers said.

"Market should mostly be range-bound, 10-year (yield on 6.33%, 2035 bond) is at crucial level so market is waiting for further cues," a dealer at a state-owned bank said. "Some move in long-term (bond) could be there but that too should not be much."

Long-term bonds may rise during the day due to lower-than-indicated supply of state bonds, dealers said. The indicative calendar for state borrowing for Jul-Sept showed 12 states would borrow INR 185 billion on Tuesday. Long-term investors such as insurers and pension funds may pick up gilts due to small quantum of state bond borrowing.

As of 0930 IST, turnover in the gilts market was INR 17.35 billion, up from INR 10.70 billion same time Monday, 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 6.26-6.34% and that on the 6.79%, 2034 gilt is seen at 6.33-6.39%.  (Srijita Bose)

India Gilts: Most seen steady; long-term up on small state bond auction size

MUMBAI – Government bond prices are seen opening steady Tuesday due to lack of domestic cues. Long-term bonds may rise due to lower-than-indicated supply of state bonds, dealers said.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.26-6.34% during the day. On Monday, the bond ended at INR 100.21, 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 103.00, or 6.35% yield Monday. The 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.

Traders may take cues from the results of the INR 107.50-billion state bond auction. The indicative calendar for state borrowing for Jul-Sept showed 12 states would borrow INR 185 billion on Tuesday. Long-term investors such as insurers and pension funds may pick up gilts due to small quantum of state bond borrowing. However, with longer-tenure bonds already rising Monday due to insurers' demand, the rise in prices on Tuesday may be limited, 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.

On the global front, US Treasury yields were largely steady, with the 10-year US yield at 4.38% at 0836 IST, 1 basis point higher than Monday's levels at 1700 IST. US Treasury Secretary Scott Bessent, attacking the Federal Reserve, said the institution's independence on monetary policy was in threat by its "mandate creep" into non-policy areas. He called on the Federal Reserve to undertake a review of such operations. Fed fund futures now expect only a 4% possibility of a rate cut by the Federal Open Market Committee next week, while the rest expect a status quo, data from CME's FedWatch tool showed. (Srijita Bose)

End

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

Edited by Saji George Titus

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