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Informist, Friday, Jul. 25, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply lower Friday after the Reserve Bank of India Governor Sanjay Malhotra indicated earlier in the day that the Monetary Policy Committee is unlikely to cut repo rate in the near term. Prices fell further as traders, who were betting on a rate cut in August, unwound their positions, dealers said. However, some recovery was seen towards the end of the trade as a few saw the lower levels as attractive to buy, dealers added. 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 99.84, or a yield of 6.35%, against INR 100.01, or 6.33%, Thursday. The most traded 6.79%, 2034 bond closed at INR 102.66, or 6.40%, against INR 102.81, or 6.38%, the previous day. The yield on the 10-year benchmark 6.33%, 2035 gilt hit 6.3644%, the highest level since May 9, when tensions between India and Pakistan had pulled gilt prices down. 

Earlier in the day, Malhotra said in an interview that the RBI's rate-setting panel would look more to the outlook for the next six to 12 months than at current inflation and growth data to base its policy rate decisions. Some traders were expecting a rate cut in August with inflation data for the June quarter, and likely for July as well, printing below the RBI's forecasts.

Prices held some ground till the INR 360-billion auction results were announced, after which traders from foreign banks and private-sector banks were selling gilts as they had built portfolios on expectations of a rate cut in August. Primary dealers also sold after auction to limit their losses, dealers said. A rise in overnight indexed swap rates also weighed down on gilts, they said. Some traders also likely placed short bets before the gilt auction and paid fixed rates in overnight indexed swaps once the auction cut-offs were announced to manipulate gilt prices. Subsequently, when gilts fell sharply, these traders then likely bought gilts to cover their short bets, dealers said. 

"The (RBI) Governor's comments was negative so that was a trigger for gilts, especially from foreign banks who had overpositioned for rate cuts in August," a dealer at a state-owned bank said. "Some of it was also manipulation because people had shorted before while some had taken a trading call thinking prices will rise post auction." 

Fall in the rupee also weighed on gilts, dealers said. The rupee touched a low of 86.63 against the dollar during the day and ended at 86.51 against the dollar, down from 86.41 a dollar on Thursday. 

The result of the INR-360.00-billion gilt auction was along the expected lines, dealers said. Demand was robust for both the gilts at the auction, they said. The RBI set a cut-off price of INR 100.27 on the 5.91%, 2028 bond, higher than an Informist poll estimate of INR 100.25. It set a cut-off price of INR 99.95 on the 10-year benchmark 6.33%, 2035 gilt, in line with median estimates. State-owned banks were aggressive bidders for both gilts while private-sector banks bid aggressively for the short-term paper, dealer said. State-owned banks also likely bought gilts in the secondary market after auction, dealers said. Some insurance companies and pension funds also picked up small quantities of the 10-year benchmark at the auction.

Foreign banks also bid aggressively on the 6.33%, 2035 gilt, after net selling gilts Wednesday and Thursday to make room for fresh stock. Foreign banks have been aggressively buying gilts in recent days on bets of a rate cut or softer commentary from the RBI's rate-setting panel within the next few months, dealers said. At the auction, foreign banks bid at prices on the higher end, closer to the weighted average price of INR 99.97 for the 10-year gilt, dealers said.

"Auction was good and that did not lead to a sour market," a dealer at a private sector bank said. "The main sell-off was in the 10-year gilts and because of that we saw a panic sell-off in other segments too...but I think Monday prices should be better than today." 

Prices of longer-tenure bonds fell triggered by a sell-off in the 10-year gilts, dealers said. The yield on the 30-year benchmark 7.09%, 2054 bond has risen 4 basis points since Wednesday's close on sales by traders as investor demand in longer tenure bonds weakened during the week despite no supply of these bonds in the week, dealers said. However, as the yield on the 30-year bond touched a high of 7.00% yield Friday, demand came in as the yield spread on the bond over the 10-year benchmark was found attractive, they said. Meanwhile, fall in extreme shorter-tenure bonds was limited. Demand from mutual funds for the 7.02%, 2027 bond limited losses, they said. However, traders likely sold the bonds at a profit, dealers said.

The turnover in the government bond market Friday was INR 511.25 billion, similar to INR 283.50 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There have been no trades using the wholesale digital rupee pilot in the entire week.

OUTLOOK

Gilts are not traded Saturday. On Monday, bond prices are seen opening lower after comments from the RBI Governor Sanjay Malhotra on Friday. Gilts are also likely to take cues from movement in US Treasury yields. 

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%. Prices of extreme shorter-tenure bonds may be supported after the RBI announced INR-300-billion buyback auction Thursday, dealers 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 6.28-6.37% and that on the most traded 6.79%, 2034 bond is seen at 6.33-6.42%.

India Gilts: Down as RBI Malhotra offers no rate-cut cue, rise in OIS rates weighs

MUMBAI--1445 IST--Prices of government bonds were down after the gilts auction result as Reserve Bank of India Governor Sanjay Malhotra's comments earlier in the day indicated that the RBI's Monetary Policy Committee was unlikely to cut the repo rate in the near term. This led traders who were betting on a rate cut in August to shed their positions, dealers said. A rise in overnight indexed swap rates also aided the fall in gilts, they said.

The yield on the 10-year benchmark 6.33%, 2035 gilt hit 6.3460%, the highest since May 9, when tensions between India and Pakistan had pulled gilt prices down. Traders from private-sector banks and primary dealerships were selling gilts as they had built portfolios on expectations of a rate cut in August and were just waiting for the auction results to trim their stocks, dealers said. Only a few large entities and banks were selling, some dealers said.

Earlier in the day, Malhotra said in an interview that the Monetary Policy Committee would look more to the outlook for the next 6-12 months than at current inflation and growth data to base its policy rate decisions. Some traders were expecting a rate cut in August with inflation data for the June quarter, and likely for July as well, printing below the RBI's forecasts.

"We all know that the July inflation will be 1.98%, so people were expecting a cut (in August)," a trader at a primary dealership said. "Traders will be closely tracking the closing levels now. If (gilt prices) close below what this is right now, then that will trigger a further (upward) pressure on yields." The yield level of 6.39-6.40% on the 6.79%, 2034 gilt was being closely watched from a technical perspective, dealers said. It is seen lucrative to buy gilts and is expected to limit losses in bond prices, dealers said.

The result of the INR 360.00-billion gilt auction was along expected lines, dealers said. Demand was robust for both gilts at the auction, they said. The Reserve Bank of India set a cut-off price of INR 100.27 on the 5.91%, 2028 bond, higher than an Informist poll estimate of INR 100.25. It set a cut-off price of INR 99.95 on the 10-year benchmark 6.33%, 2035 gilt, in line with median estimates. State-owned banks were aggressive bidders for both gilts while private-sector banks bid aggressively for the short-term paper, dealer said. Some insurance companies and pension funds also picked up small quantities of the 10-year benchmark.

"There is very good demand from banks, especially nationalised banks," a dealer at a state-owned bank said. "Normally people put bids for INR 300 crore to INR 500 crore. Today (Friday) everyone has put bids for INR 1,000 crore to INR 2,000 crore (INR 10.00 billion to INR 20.00 billion)." Traders also sold gilts in the secondary market due to the large supply they received at auction, dealers said. 

Foreign banks also bid aggresssively on the 6.33%, 2035 gilt, after net selling gilts Wednesday and Thursday to make room for fresh stock. Foreign banks have been aggressively buying gilts in recent days on bets of a rate cut or softer commentary from the RBI's rate-setting panel within the next few months, dealers said. At the auction, foreign banks bid at prices on the higher end, closer to the weighted average price of INR 99.97 for the 10-year gilt, dealers said.

As of 1430 IST, the turnover in the gilts market was INR 273.00 billion, higher than INR 170.55 billion at the same time Thursday, 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 6.30-6.36% and that on the 6.79%, 2034 gilt is seen at 6.36-6.42%.  (Cassandra Carvalho)

India Gilts: Steady on caution ahead of INR 360-billion gilt auction

MUMBAI--0931 IST--Prices of government bonds were largely steady Friday due to caution ahead of the weekly gilt auction of INR 360 billion. Traders may also monitor the comments of Reserve Bank of India Governor Sanjay Malhotra, who is scheduled to speak at the Modern BFSI Summit hosted by Financial Express at 1025 IST. However, some said the governor is unlikely to speak on market-related matters since the agenda of the conference is different.

Traders expect the cut-off price on the 2028 paper to be firm, due to its low notified size of INR 60 billion, and due to demand from mutual funds and private sector banks, dealers said. As for the 10-year benchmark 6.33%, 2035 gilt, demand is seen firm but traders may be less aggressive in bidding due to its large supply of INR 300 billion, dealers said. Dealers expect the cut-off on the gilt to either be at par at current market levels or 3-5 paise lower.

"I think the cut-off will still be around (INR) 100," a trader at a primary dealership said. "Because market has fallen yesterday (Thursday) so there shouldn't be much of a tail." Foreign banks are also seen bidding for the bond, dealers said.

In the secondary market, prices of bonds maturing in around 10 years, including illiquid gilts, were marginally up as traders placed short bets on the 2035 gilt ahead of the fresh supply and picked up papers of similar tenures at lucrative yields. The 7.54%, 2036 bond, which matures in May 2036, was last traded at INR 107.98 or 6.50% yield.

As of 0930 IST, the turnover in the gilts market was INR 16.95 billion, slightly higher than INR 13.65 billion at the same time Thursday, 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 6.26-6.36% and that on the 6.79%, 2034 gilt is seen at 6.33-6.40%.  (Cassandra Carvalho)

India Gilts: Seen tad down before fresh supply; comments by RBI Malhotra eyed

MUMBAI – Prices of government bonds are seen opening marginally down Friday as traders trim portfolios ahead of the weekly gilt auction of INR 360 billion, dealers said. Traders will also closely monitor comments by Reserve Bank of India Governor Sanjay Malhotra, who is scheduled to speak at the Modern BFSI Summit hosted by Financial Express at 1025 IST.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.26-6.36% during the day. On Thursday, the bond ended at INR 100.01, or 6.33% yield. Traders expect the erstwhile 10-year benchmark 6.79%, 2034 gilt to trade in a range of 6.33-6.40%. The 2034 gilt closed at INR 102.81, or 6.38% yield Thursday. The yield on the benchmark 10-year US Treasury note was 4.40% at 0830 IST, from 4.41% at 1700 IST Thursday.

The government will sell INR 300 billion of the 10-year benchmark gilt, and INR 60 billion of the 5.91%, 2028 bond. Demand for both the gilts is seen firm, but the cut-off prices may depend on the governor's comments, which is scheduled for around the same time as the auction. On Thursday, traders had expected the cut-off price on the 10-year benchmark 6.33%, 2035 gilt at INR 100.00 or INR 100.01. Demand for the 5.91%, 2028 bond is expected from investors such as mutual funds and banks' asset and liability managers.

Any sharp fall in bond prices is unlikely to sustain during the day as state-owned banks are likely to pick up bonds when the yield on the 6.79%, 2034 gilt rises above 6.37%, a level seen lucrative to buy gilts as it is the upper end of the recent trading range. Traders may build portfolios on bets of a rate cut or softer commentary from the RBI's monetary policy committee at its meeting early next month, dealers said.

Traders will also watch out for any cues on liquidity management from the RBI. Earlier this week, bond traders planned to ask the central bank for "greater clarity" on the level of surplus liquidity in the banking system it is comfortable with, Bloomberg had reported citing sources. Malhotra, in recent media interactions, has said he would like the call money rates to adhere to the policy repo rate of 5.50%.

The RBI will hold a seven-day variable rate reverse repo auction for INR 1.25 trillion at 1000-1030 IST, in line with traders' expectations. This is after holding two variable rate repo auctions this week. A low liquidity surplus limited activity in gilts this week. (Cassandra Carvalho)

End

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

Edited by Deepshikha Bhardwaj

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