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Informist, Wednesday, Jul. 23, 2025

By Srijita Bose

MUMBAI – Government bond prices were mostly steady Wednesday. Though some bonds were up on purchases at yield spreads that were seen to be lucrative, traders awaited fresh domestic interest rate triggers and cues on liquidity to make aggressive bets, dealers said. Prices changed little after the Reserve Bank of India held a variable rate repo auction for INR 500.00 billion.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.12, or a yield of 6.31%, against INR 100.16, or 6.31% yield, Tuesday. The most traded 6.79%, 2034 bond closed at INR 102.96, or 6.36%, against INR 102.94, or 6.36%, the previous day. The spread between the 6.79%, 2034 gilt and the 6.33%, 2035 gilt was compressed to less than 5 basis points from 6 bps a week ago.

With INR 300.00-billion supply of the 2035 bond at auction Friday, traders placed short bets on the bond, dealers said. Data at 1805 IST Wednesday from the special repo segment of the Clearcorp Repo Order Matching System showed trades of INR 99.58 billion in the 6.33%, 2035 gilt. The number of trades in a bond in the special repo segment of the Clearcorp Repo Order Matching System is a proxy for tracking short sales in that bond. However, traders do not expect the figure to go as high as INR 160.26 billion, which was seen before the gilt's previous auction in June, due to the larger outstanding of the bond. Additionally, traders said they would not want to excessively lighten their portfolios closer to the RBI's Monetary Policy Committee meeting in early August. Some expectations are building around a rate cut by the panel. However, gilts are not currently pricing in such expectations, dealers said.

Meanwhile, cut-offs at the Treasury bills auction were better than expected. Though money market rates have risen on account of outflows for goods and services tax payments and a squeeze in the liquidity surplus, demand from mutual funds was strong for T-bills at the auction, dealers said. Some state-owned banks and primary dealerships also picked up T-bills at the auction. Cut-offs for all the T-bills at the auction were lower than estimates from an Informist poll.

"The rate-cut expectations are reflected in the T-bill cut-offs," a dealer at a private-sector bank said. "Mutual funds were not the only bidders there, and why would someone want to bid at 5.40% for a T-bill when your call rate is 5.75%, unless you expect a cut?"

Tuesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.42 trillion, up from INR 2.40 trillion Monday. Few traders foresaw the two-day variable rate repo auction held by the RBI Wednesday due to increased overnight money market rates this week. However, most gilts did not react to the announcement of the variable rate repo auction as traders are primarily looking for some indication on further rate cuts for cues. Prices of some short-term gilts rose briefly after the variable rate repo announcement, but quickly erased gains on profit taking.

Though some traders expect a rate cut in August, most do not see gilts moving significantly even in that case because it would take the repo rate to 5.25%, which is seen by the market as the likely terminal repo rate, dealers said. Scope for a cut beyond the one expected is what could result in bond prices rising sharply, they said. Traders also expect the central bank to hold another variable rate repo auction for the same quantum Thursday, but expect it to also continue with its weekly variable rate reverse repo auction Friday.

"There could be VRR (variable rate repo) announced tomorrow as well and this just shows that RBI doesn't want (money market) rates to either fall or rise sharply from repo and that's a good indication," a dealer at a state-owned bank said. "If there are rate cuts and liquidity is also supported by RBI, then the 10-year (benchmark yield) could go as low as 6.10-6.15%, but that would take time, so people are playing on other tenures right now."

Banks' asset and liability managers picked up illiquid gilts, such as the 7.18%, 2033 bond, maturing in 6-9 years owing to lucrative yield spreads. That segment of the yield curve was steep and due for correction, dealers said. The newly-issued 6.28%, 2032 bond was last traded at 6.21% yield, down from the bond's coupon set on Jul. 11. Some traders entered into spread trades, picking up gilts maturing within 10 years, and some asset-liability managers bought mid-segment bonds such as the 15-year bonds as they found yields on these to be lucrative, they added. Traders expect the yield spread between the five-year benchmark gilt and 10-year gilt to steepen by another 10 bps, dealers said.

The turnover in the government bond market Wednesday was INR 265.20 billion, similar to INR 315.40 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot for the third consecutive day.

OUTLOOK

At Thursday's opening, gilts are likely to take cues from overnight movement in US Treasury yields. Traders may build up portfolios betting on a rate cut or softer commentary from the RBI at its monetary policy review meeting early next month, dealers said.

Short-term bonds may remain well bid after the clarity provided by RBI Governor Sanjay Malhotra on the central bank's liquidity management aims, dealers said. The governor has said he would like the call money rates to adhere to the policy repo rate of 5.50%. Some traders expect the RBI to announce another variable rate repo auction either after market Wednesday or Thursday and will closely watch liquidity in the banking system and movement in money market rates, they said. The 6.33%, 2035 gilt may underperform other gilts ahead of the fresh supply of the 10-year benchmark at Friday's auction.

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 equities as well as fixed income, dealers said.

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: Remain in thin band; 6.33%, 2035, 6.79%, 2034 yld spread falls

MUMBAI--1528 IST--Prices of government bonds remained in a thin band, though some bonds were up due to purchases at yield spreads seen lucrative, dealers said. The spread between the 6.79%, 2034 gilt and the 6.33%, 2035 gilt compressed to 5 basis points, from 6 bps a week ago. 

"Now the difference between the two (6.79%, 2034 and 6.33%, 2035 gilt) is around 17 paise right," a dealer at a state-owned bank said. "So I expect this to expand to 30 to 32 paise. If it doesn't manage to go to that, it will at least I say, go to 25 to 27 paise...but I think this will happen post auction."

On Friday, the government will sell INR 300 billion of the 6.33%, 2035 gilt, along with INR 60 billion of the 5.91%, 2028 bond. At the 2035 bond's previous auctions, traders were hoping for the spread between the benchmark and the most-traded gilt to compress to 4 bps to fully transition to the 2035 bond as the benchmark. However, traders placed short bets on the 2035 gilt Wednesday to make room for the fresh auction stock, and will likely only take advantage of the spread after the auction result, dealers said.

As for short bets on the 2035 gilt, traders do not expect the figure to rise as high as INR 160.26 billion, which was seen before the gilt's previous auction in June, due to a larger outstanding of the bond. Additionally, traders said they would not want to excessively lighten their portfolios closer to the Reserve Bank of India's Monetary Policy Committee meeting in early August. The RBI held a two-day variable-rate repo auction Wednesday for INR 500 billion, which a few traders had expected, due to elevated overnight money market rates this week. Traders expect the central bank to hold another auction of the same quantum Thursday, but expect it to continue with its weekly VRRR auction Friday. Prices of some short-term gilts rose briefly after the VRR announcement, but quickly erased gains due to profit booking.

Gilts did not react to the VRR announcement as the main direction required for traders was some indication of rate cuts. Some traders expect a rate cut in August itself, especially those from foreign banks, but most traders do not see gilts moving significantly even if a rate cut is announced next month, since it will most likely be the terminal repo rate, dealers said. Scope of one more additional cut other than the one expected could lead to bond prices rising sharply. 

Banks' asset and liability managers picked up illiquid gilts, such as the 7.18%, 2033 gilt, maturing in six to nine years due to lucrative yield spreads. That segment of the yield curve was steep, and due for correction, dealers said. The yield on the newly-issued 6.28%, 2032 bond was last traded at 6.21%, down from the bond's coupon set on Jul. 11. 

As of 1530 IST, turnover in the gilts market was INR 190.40 billion, down from INR 214.30 billion the same time Tuesday, 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 in thin band; 7-15-yr bonds up on lucrative yld spreads

India Gilts: Remain in thin band; 7-15-yr bonds up on lucrative yld spreads

MUMBAI--1331 IST--Prices of most government bonds remained in a thin band as traders awaited cues on liquidity in the banking system to trade, dealers said. Prices of some bonds maturing in seven to 10 years and 15 years were up as traders found yields attractive, they said. 

Traders placed short bets on the 10-year benchmark 6.33%, 2035 bond, which is up for auction Friday, and picked up other bonds of similar tenures, dealers said. Some traders entered into spread trades, picking up gilts maturing within 10 years, and some asset-liability managers bought mid-segment bonds such as the 15-year bonds as they found yield on these bonds lucrative, they added. Some expectations are building around a rate cut by the Reserve Bank of India's Monetary Policy Committee at its upcoming policy review meet in August, and traders expect the yield spread between the five-year benchmark gilt and the 10-year gilt to steepen by another 10 basis points, dealers said. 

Meanwhile, cut-offs at the Treasury bills auction were better than expected. Though money market rates have risen due to outflows owing to goods and services tax payments and a squeeze in liquidity surplus, demand from mutual funds was strong for T-bills at the auction, dealers said. Some state-owned banks and primary dealerships also picked up T-bills at the auction. Cut-offs for all the T-bills at the auction were lower than estimates from an Informist poll. Some traders had also expected the Reserve Bank of India to announce a short-term variable rate repo auction to offset the drain in liquidity, dealers said. On Tuesday, the net liquidity absorbed by the RBI--a proxy for systemic liquidity surplus--was INR 2.42 trillion, up from INR 2.40 trillion on Monday. The central bank on Wednesday announced a INR-500-billion two-day VRR auction. 

"I'm surprised our market has not moved, ideally short-term (gilt yields) should fall, but maybe the timing (of the VRR) could've been earlier, before the T-bill auction," a dealer at a private sector bank said. "I think later in the day there will be an upside (in prices). The RBI could come up with one more VRR tomorrow (Thursday)."

As of 1330 IST, turnover in the gilts market was INR 146.40 billion, down from INR 171.50 billion the same time Tuesday, 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%.  (Srijita Bose)

India Gilts: Steady on lack of cues; low liquidity surplus limits activity

MUMBAI--0933 IST--Prices of government bonds were steady in thin trade due to lack of significant cues, dealers said. Lower liquidity surplus in the banking system limited trading activity. Traders may take cues from the Treasury bill auction of INR 200 billion, especially since overnight money market rates have shot up above the repo rate this week.

"Market is cue less, maybe a one basis point rally is possible in our view because we were down yesterday (Tuesday) or because of T-bill result and then reverse again because liquidity is slightly tight," a dealer at a state-owned bank said. The RBI Tuesday net absorbed INR 2.42 trillion of liquidity, compared to INR 2.40 trillion Monday.

Mutual funds, which usually bid aggressively for Treasury bills even if yields have risen in secondary markets, have been net selling gilts since Jul. 15, but demand from them is seen robust at the auction to match their liabilities. The weighted average call money rate rose further to 5.82% at 0930 IST from 5.62% Tuesday. The weighted average triparty repo rate also rose to 5.73% from 5.69% Monday. Outflows of INR 1.75 trillion to INR 2.00 trillion for goods and services tax are likely to keep overnight borrowing rates elevated this week.

As of 0930 IST, turnover in the gilts market was INR 13.25 billion, down from INR 17.35 billion same time Tuesday, 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%.  (Cassandra Carvalho)

India Gilts: Seen tad up as US ylds fall; short bets likely before Fri auction

MUMBAI – Prices of government bonds are seen opening largely steady with an upward bias Wednesday due to a fall in US Treasury yields overnight, dealers said. The yield on the benchmark 10-year US Treasury note was 4.37% at 0800 IST, down from 4.40% at 1700 IST Tuesday. Other than the weekly gilt auction, lack of significant cues is seen keeping bond prices in a narrow range.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.26-6.34% during the day. On Tuesday, the bond ended at INR 100.16, or 6.31% yield. Traders expect the erstwhile 10-year benchmark 6.79%, 2034 gilt to trade in a range of 6.33-6.39%. The 2034 gilt closed at INR 102.94, or 6.36% yield Tuesday. The 2035 gilt may underperform other gilts this week ahead of its auction on Friday.

Primary dealerships have been the largest net sellers of gilts so far this week. They may continue to sell gilts, especially the 6.33%, 2035 gilt to make room for fresh stock at the weekly gilt auction. On Friday, the government will sell INR 60 billion of 5.91%, 2028 gilt and INR 300 billion of 6.33%, 2035 gilt. Short bets on the 10-year gilt are set to increase. 

The number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System is a proxy for tracking short sales in a particular bond. Data as at 0800 IST showed trades for Tuesday at INR 90.64 billion in the 6.33%, 2035 gilt, up from INR 79.84 billion Monday. However, due to a larger outstanding of the bond, traders do not expect short bets on the gilt to rise as high as INR 160.26 billion, which was seen before the gilt's previous auction in June. State-owned banks are seen purchasing gilts if the yield on the 6.79%, 2034 gilt rises above 6.37%, dealers said. Some foreign and private sector banks are likely to buy gilts on the view that the Reserve Bank of India's Monetary Policy Committee will cut the repo rate at its meeting next month.   

On the global front, US yields fell as US President Donald Trump announced trade deals with two trade partners before the Aug. 1 deadline for tariffs. Trump announced a pact with Japan and with the Philippines. US Treasury Secretary Scott Bessent said more such deals were coming.

The debate around the independence of the US Federal Reserve continued, as Trump called the Fed Chair Jerome Powell a "numbskull" and that Powell would be out of his position in eight months. Bessent said there is no need for Powell to immediately step down.

Bonds may also take cues from the movement of the rupee against the dollar during the day, which is seen opening slightly higher.  (Cassandra Carvalho)

End

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

Edited by Rajeev Pai

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