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Informist, Thursday, Jul. 24, 2025

By Srijita Bose 

MUMBAI – Government bond prices ended lower Thursday as traders made room for the fresh supply of the 10-year benchmark 6.33%, 2035 gilt at the weekly auction Friday. A rise in US Treasury yield also weighed on gilts, dealers said. Long-term bonds fell sharply as traders booked profit on the gilts, which have risen sharply over the last 10 days, dealers said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.01, or a yield of 6.33%, against INR 100.12, or 6.31%, Wednesday. The most traded 6.79%, 2034 bond closed at INR 102.81, or 6.38%, against INR 102.96, or 6.36%, the previous day.

Primary dealers increased their short positions in liquid securities before the auction, where the government will sell INR 60 billion of the 5.91%, 2028 bond and INR 300 billion of the 2035 gilt. Trade volumes were lacklustre, and this led short selling to have a pronounced effect on prices, dealers said. The price of the erstwhile 10-year benchmark and most-traded 6.79%, 2034 bond fell more than the newer gilt.

The trades in a bond in the special repo segment of the Clearcorp Repo Order Matching System are a proxy for tracking overnight short sales in that bond. Data at 1700 IST showed that trades for the 6.79%, 2034 bond rose to around INR 115 billion, while those for the 6.33%, 2035 bond were around INR 111 billion, from around INR 100 billion each on Wednesday. There was only one trade in the 2035 bond in the when-issued (reissues) segment of the Negotiated Dealing System Order Matching platform at INR 100.00. This had prompted further selling in the secondary market as traders feared bidding would not be robust, dealers said. 

"There is short-selling before the auction and the US yield (10-year benchmark) has also risen above 4.40% so that is also leading to foreign banks selling," a dealer at a private sector bank said. "Since the 10-year was underperforming, that also affected gilts across the curve." The yield on the 10-year US Treasury note rose to 4.41% from 4.36% at 1700 IST Wednesday.

The lack of institutional investor appetite for long-term bonds since Wednesday has also been weighing on gilts of other tenures, dealers said. Bonds maturing in 30-50 years had outperformed other gilts after firm demand from long-term investors at the last two gilt auctions, as well as the lack of supply in the segment this week. Even with tighter liquidity – the proxy for the banking system's surplus declined to its lowest since May 30 – state-owned banks preferred holding onto short-term gilts as they considered current returns lucrative amid an uncertain outlook on further rate cuts, dealers said. However, the lack of liquidity weighed on trading volumes. On Wednesday, the net liquidity absorbed by the RBI – a proxy for the systemic liquidity surplus – was INR 2.17 trillion.

"Long-term investors are buying one auction to the other and since this week despite no supply in the long term, investor demand was not there, partly because yield spreads had also fallen," a dealer at a state-owned bank said. "Now that spreads have increased again a bit, some demand could come tomorrow or next week, but whether demand from banks will be there or not will depend on liquidity as well." The yield spread on the 40-year benchmark 6.90%, 2065 bond over the 10-year benchmark is currently at 69 basis points, which is seen as attractive for traders, dealers said. 

Meanwhile, some traders found yield spreads on gilts maturing in up to 15 years, limiting losses in these gilts, dealers said. Some traders, especially those from foreign banks, view a rate cut by the Reserve Bank of India's Monetary Policy Committee as early as August, and see the yield curve steepening further by another 4-5 bps in the near term, dealers said. 

The RBI conducted an overnight variable-rate repo auction of INR 500 billion earlier Thursday, which some traders had expected. However, the auction was poorly subscribed and the RBI took bids worth only INR 14.21 billion. Traders said some preferred borrowing at lower rates in the tri-party repo market, while others cited a shortage of securities for collateral. Some traders expect the RBI to announce a seven-day variable rate reverse repo auction for Friday, for a quantum of INR 1.00 trillion to INR 1.75 trillion, to roll over some amount of the INR 2.00 trillion reversal of last week's VRRR auction, which is due Friday. Traders do not expect the full amount to be rolled over as liquidity conditions remain tight due to outflows for goods and services tax this week, they said. 

The turnover in the government bond market Thursday was INR 285.25 billion, similar to INR 263.30 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 for the fourth consecutive day.

OUTLOOK

On Friday, bond prices are seen opening lower as traders may place short bets ahead of the INR-360-billion auction, dealers said. Traders will also await any comments from the RBI Governor Sanjay Malhotra, who is scheduled to speak at the Modern BFSI Summit hosted by Financial Express at 1025 IST Friday. 

The 6.33%, 2035 gilt may underperform other gilts ahead of the fresh supply of the 10-year benchmark at Friday's auction. Traders may take cues from the result of the gilt auction, dealers said. Gilts are also 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.

Traders will also watch out for any further liquidity management operations by the RBI. Malhotra had 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 reverse repo auction either after market hours Thursday or Friday and will closely watch liquidity in the banking system and movement in money market rates, they 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 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 6.26-6.35% and that on the most traded 6.79%, 2034 bond is seen at 6.32-6.40%.

India Gilts: Down more before auction Fri; profit booking in long-term bonds

NEW DELHI--1555 IST--Government bond prices fell further as traders made room for the fresh supply of the 10-year benchmark 6.33%, 2035 gilt at the weekly auction Friday. Long-term bonds fell sharply as traders booked profit on the gilts, which have risen sharply over the last 10 days, dealers said.

Primary dealers increased their short positions in liquid securities before the auction, where the government will sell INR 60 billion of the 5.91%, 2028 bond and INR 300 billion of the 2035 gilt. Trade volumes were lacklustre, which is why the short selling was having a pronounced effect on prices, dealers said. The price of the erstwhile 10-year benchmark and most-traded 6.79%, 2034 bond fell more than the newer gilt.

"The spread trade in the two bonds (2034 and 2035) is flattening out now as the auction is upon us," a dealer at a primary dealership said. "A primary dealer will always go towards the liquid bond to minimise the risk of exit, even if the other bond is at auction." The spread of the 2034 bond over the 6.33%, 2035 gilt had narrowed to below five basis points after several weeks on Wednesday.

The trades in a bond in the special repo segment of the Clearcorp Repo Order Matching System are a proxy for tracking overnight short sales in that bond. Data at 1545 IST showed that trades for the 6.79%, 2034 bond rose to around INR 115 billion, while those for the 6.33%, 2035 bond were over INR 112 billion, from around INR 100 billion each on Wednesday.

There was only one trade in the 2035 bond in the when-issued (reissues) segment of the Negotiated Dealing System Order Matching platform at INR 100.00. This had prompted further selling in the secondary market as traders feared bidding would not be robust, dealers said. Meanwhile, the lack of institutional investor appetite for long-term bonds since Wednesday was weighing on gilts of other tenures, they said.

"Investor (demand) in the long-term bonds has slackened since yesterday (Wednesday), and supply is coming up for the next three weeks," a dealer at a private sector bank said. "So traders are exiting with the money they have made over the last week or 10 days."

Bonds maturing in 30-50 years had outperformed other gilts after firm demand from long-term investors at the last two gilt auctions, as well as the lack of supply in the segment this week. Even with tighter liquidity – the proxy for the banking system's surplus declined to its lowest since May 30 – state-owned banks preferred holding onto short-term gilts as they considered current returns lucrative amid an uncertain outlook on further rate cuts, dealers said. However, the lack of liquidity did weigh on trading volumes. 

The turnover in the bond market was INR 202.90 billion at 1530 IST, slightly higher than INR 190.40 billion at the same time Wednesday, according to data on the Reserve Bank of India'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 6.28-6.34% and that on the 6.79%, 2034 gilt is seen at 6.35-6.39%. (Aaryan Khanna)

India Gilts: Down in thin trade on short bets before auction

MUMBAI--1330 IST--Prices of government bonds were down in thin trade as traders placed short bets before the gilt auction Friday. Losses were limited as current levels were lucrative to buy gilts for some traders who expect a rate cut next month. Low surplus liquidity in the banking system also contributed to the fall in prices, dealers said. 

In the secondary market, given the low liquidity, traders expect prices to fall more, but purchases by some traders at levels seen lucrative on expectations of a rate cut next month limited losses. On Wednesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.17 trillion, lower than INR 2.42 trillion on Tuesday.

The RBI conducted an overnight variable-rate repo auction of INR 500 billion earlier Thursday, which some traders had expected. However, the auction was poorly subscribed and the RBI took bids worth only INR 14.21 billion.

Traders said some preferred borrowing at lower rates in the tri-party repo market, while others cited shortage of securities for collateral. Traders expect the RBI to announce a seven-day variable rate reverse repo auction for Friday, for a quantum of INR 1.00 trillion to INR 1.75 trillion, to roll over some amount of the INR-2.00-trillion reversal of last week's VRRR auction, which is due Friday. Traders do not expect the full amount to be rolled over as liquidity conditions remain tight due to outflows for goods and services tax this week, they said. 

At the auction Friday, traders expect the cut-off price on the 10-year benchmark 6.33%, 2035 gilt at INR 100.00 or INR 100.01 if secondary market prices remain at current levels. Demand is expected from investors such as mutual funds and banks' asset and liability managers for the 5.91%, 2028 bond.

Volumes were muted to lack of significant cues. Traders await the gilt auction Friday, along with RBI Governor Sanjay Malhotra's comments at 1025 IST Friday. The governor will speak in a fireside chat at the Modern BFSI Summit hosted by Financial Express. 

"If people weren't shorting and PSUs (state-owned banks) weren't selling, we'd be at 6.32% (yield) on the old 10-year (6.79%, 2034) gilt right now (because of rate cut bets)," a dealer at primary dealership said. "But there's no direction, no consensus on rate cuts, everyone is so divided. Tomorrow (Friday) is the main and only cue for us, the auction and governor."   

As of 1330 IST, the turnover in the gilts market was INR 115.55 billion, lower than INR 146.40 billion at the same time Wednesday, according to data on the Reserve Bank of India'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: Tad down as traders trim portfolios before heavy supply Fri

India Gilts: Tad down as traders trim portfolios before heavy supply Fri

MUMBAI--0935 IST--Prices of government bonds were a tad down as traders trimmed portfolios to make room for fresh stock at the weekly gilt auction, dealers said. A low liquidity surplus in the banking system limited volumes. Trade was centred in the benchmark 10-year 6.33%, 2035 gilt and the erstwhile benchmark 10-year 6.79%, 2034 bond. 

"Apart from tomorrow's auction, there's no such trigger," a dealer at a private sector bank said. "Traders are waiting to see how much demand will be at auction...Already this bond has been underperforming." 

On Friday, the government will sell INR 60 billion of 5.91%, 2028 gilt and INR 300 billion of the 6.33%, 2035 gilt. Demand for both gilts is seen firm, though due to the large quantum of the 2035 gilt, the cut-off price may be lower than valuation of the bond in the secondary market. Some traders said the 2035 gilt is too expensive at current levels and prefer the 6.79%, 2034 bond. 

Low liquidity surplus also limited trade activity. On Wednesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.17 trillion, lower than INR 2.42 trillion on Tuesday.

A slight rise in US Treasury yields also weighed on gilts, dealers said. The yield on the benchmark 10-year US Treasury note was 4.40% at 0935 IST, a tad up from 4.36% at 1700 IST Wednesday. 

As of 0930 IST, the turnover in the gilts market was INR 15.90 billion, a tad higher than INR 13.25 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 6.26-6.34% and that on the 6.79%, 2034 gilt is seen at 6.33-6.39%. (Cassandra Carvalho)

India Gilts: Seen steady; short bets ahead of weekly auction Fri may weigh

MUMBAI – Prices of government bonds are seen opening steady Thursday due to lack of significant cues, dealers said. Traders may trim portfolios ahead of the INR 360-billion gilt auction Friday, especially due to the heavy INR-300-billion supply of the 10-year benchmark 6.33%, 2035 gilt. Traders will closely track the liquidity surplus in the banking system, after overnight borrowing rates rose above the Reserve Bank of India's Marginal Standing Facility rate Wednesday.     

The yield on the 6.33%, 2035 gilt is seen at 6.26-6.34% during the day. On Wednesday, the bond ended at INR 100.12, 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 102.96, or 6.36% yield Wednesday. The 2035 gilt may continue to underperform other gilts ahead of its auction Friday.

Tight liquidity had limited trade activity on Wednesday. Overnight borrowing rates rose sharply due to outflows for goods and services tax but eased later in the day after the RBI conducted a variable rate repo auction of INR 500 billion. Traders expect another VRR auction of the same quantum to be conducted Thursday. On Tuesday, the net liquidity absorbed by the RBI--a proxy for the systemic liquidity surplus--was INR 2.42 trillion, little changed from INR 2.40 trillion on Monday.

Some private sector and foreign banks may continue to build portfolios nearing the RBI's Monetary Policy Committee meeting early next month, on bets of a rate cut. Private sector banks have bought gilts worth INR 36.06 billion totally in the past three trading sessions. Some traders estimate that the yield on the 6.33%, 2035 gilt could hit 6.20% nearing the policy outcome. However, most traders do not expect a rate cut by the MPC until October or December.

The yield on the benchmark 10-year US Treasury note was 4.39% at 0800 IST, a tad up from 4.36% at 1700 IST Wednesday. US yields rose as investors' risk appetite improved on hope of more trade deals between the US and its trade partners, and after US Treasury Secretary Scott Bessent said there is no need for US Federal Reserve Chair Powell to immediately step down. 

Jobless claims in the US for the week ended Saturday are expected to rise to 227,000 from 221,0000 the previous week, as per consensus estimates from the Wall Street Journal. The data will be released post market hours.  (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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