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Informist, Monday, Jul. 28, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply lower Monday as traders trimmed their portfolios to accommodate a heavy supply at auctions this week, dealers said. Traders also continued to unwind bets of a rate cut at the Reserve Bank of India's Monetary Policy Committee meeting next week after Governor Sanjay Malhotra's remarks Friday.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 99.70, or a yield of 6.37%, against INR 99.84, or 6.35%, Friday. This was the highest closing yield level on the 2035 bond since its issuance. The erstwhile 10-year benchmark 6.79%, 2034 bond closed at INR 102.52, or 6.42%, against INR 102.66, or 6.40%, Friday. The yield on the 10-year benchmark 2034 gilt ended at the highest level since Apr. 11.

"There was a fresh bout of selling towards the end. It was mostly some single entity, either a private or a foreign bank, since trade volumes are also not much," a dealer at a state-owned bank said. "The problem is that buying is not coming, so the fall is not stopping really."

State-owned banks likely front-loaded their requirements in the June quarter and refrained from buying aggessively even as levels seemed attractive, dealers said. This resulted in a higher fall in gilts. Some dealers expect the yield on the 2035 benchmark gilt to hit 6.45% and that on the 2034 gilt to touch 6.50% in the near term, unless the RBI's rate-setting panel offers a softer tone next week, which would indicate a quicker or deeper rate-cut cycle, dealers said.

The fall in longer tenure bonds was more than in other segments. Strong demand for gilts from long-term investors such as insurance companies and pension funds had made these bonds appealing for traders earlier in the month, especially for those who expected a rate cut in August. However, RBI Governor Sanjay Malhotra's comments Friday led to selling in long-term gilts to trim risk, dealers said.

Traders said the August rate cut was partly priced in on bonds maturing in 10 years or more, which led to a higher fall in bonds in this segment. Moreover, this week, states will raise INR 300.00 billion through state bonds Tuesday, higher than INR 265.00 billion in the states' Jul-Sept indicative borrowing calendar. Friday, the government will sell INR 320.00 billion worth of gilts at auction. Both auctions will see the supply tilted towards longer tenure bonds, so traders also sold gilts in these segments to make room for the fresh supply, dealers said. Traders also feared demand from long-term investors could be muted this week due to the higher-than-expected supply.

"The rate cut expectations were mostly built in 10-year and long-term bonds," a dealer at a private-sector bank said. "So the fall is also more in these segements since traders who were holding these earlier are now exiting. In short-term (bonds), its mostly ALM (asset-liability management) guys who have these bonds, so the fall is limited." The government will also buy back INR 300.00 billion worth of gilts maturing in 2026 Thursday, which also limited losses in gilts of extremely short tenures, they said.

However, in the latter part of the day's trading session, shorter tenure bonds fell as US Treasury yields inched up, which led to paying in overnight indexed swap rates as well. The yield on the 10-year US Treasury note rose to 4.41% from 4.39% at 1700 IST Friday. Meanwhile, traders churned their portfolios. Some preferred the 7.10%, 2034 bond to the 7.18%, 2033 bond as they got nearly 2 basis-point higher yield on the former at 6.44%, dealers said. 

The turnover in the government bond market Monday was INR 379.20 billion, down from INR 510.60 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were four trades worth INR 200.00 million on the 6.79%, 2034 bond using the wholesale digital rupee pilot Monday. There were no trades using the method last week.

OUTLOOK

Tuesday, bond prices are likely to take cues from movement in US Treasury yields. Gilts may fall during the day as traders trim August rate-cut bets and make room to absorb a higher-than-expected supply of bonds this week, dealers said. Traders are likely to take cues from the results of the INR 300-billion state bond auction Tuesday, they 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%. Prices of extremely short tenure bonds may be supported after the RBI announced an 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.

Movements in crude oil prices may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.35-6.40% and that on the most traded 6.79%, 2034 bond is seen at 6.38-6.45%.

India Gilts: Remain down; fall in gilts maturing within 5 years limited

MUMBAI--1554 IST--Government bond prices remained down as traders continued to unwind bets of a rate cut at the Reserve Bank of India's Monetary Policy Committee next week after Governor Sanjay Malhotra's remarks Friday, dealers said. A larger-than-exected supply of longer tenure bonds also kept prices on gilts maturing in 10 years or more down. However, the fall in bonds maturing within five years was limited as traders found yield spreads attractive to buy, dealers said.

"Everyone frontloaded their buys in Q1 (Apr-Jun) so now there's no demand, government is also selling and traders are also selling," a dealer at a private-sector bank said. "This (the fall in prices) is just positions because auction supply is so much."

Traders said the August rate cut was partly priced in on bonds maturing in 10 years or more, which led to a higher fall in bonds in this segment. This week, states will raise INR 300.00 billion through state bonds Tuesday, higher than INR 265.00 billion in the states' Jul-Sept indicative borrowing calendar. Moreover, Friday, the government will sell INR 320.00 billion worth of gilts at auction. Both auctions will see the supply tilted towards longer tenure bonds. So traders sold gilts maturing in 10 years and more to make room for the higher supply of longer tenure bonds at the auctions, dealers said. They also feared demand from long-term investors could be muted this week due to the higher-than-expected supply.
 

However, the rise in shorter-tenure bonds when traders placed bets for a rate cut in August was muted, and so the fall in these gilts when traders unwound their bets was limited, dealers said. Government will also buy back INR 300.00 billion worth of gilts maturing in FY27 Thursday, which limited losses in gilts of extremely shorter tenures, they said. Meanwhile, traders churned portfolios and preferred the 7.10%, 2034 bond to the 7.18%, 2033 bond as they got nearly a 2 basis-point higher yield on the former at 6.44%, dealers said. 

As of 1530 IST, the turnover in the gilts market was INR 263.10 billion, lower than INR 370.25 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 6.34-6.40% and that on the 6.79%, 2034 gilt is seen at 6.38-6.45%.  (Srijita Bose)

India Gilts: Remain dn as traders trim Aug rate cut bets; long-term fall more

MUMBAI--1230 IST--Prices of government bonds were down as traders unwound bets of a rate cut at the Reserve Bank of India's Monetary Policy Committee next week, dealers said. Long-term bonds were the worst performers as traders who had positioned in these gilts earlier in the month unwound their bets. Traders are closely tracking technical levels on gilts after the yield on the 6.79%, 2034 gilt rose above the key 6.40% level earlier in the day. 

"Market was unable to hold the (auction) cut-off level (on the 6.33%, 2035 gilt) so since then sentiment has soured," a trader at a primary dealership said. "I think the 6.37-6.38% (yield) level should provide some support on the new 10-year (6.33%, 2035 gilt). Similarly, its 41-42 (6.41%-6.42% yield) on the old 10-year (6.79%, 2034 gilt). Now if the closing goes below this it will trigger another bout of selling."

Several dealers expect the yield on the 2035 benchmark gilt to hit 6.45% and that on the 2034 gilt to touch 6.50% in the near term, unless the MPC outcome offered a softer tone that would indicate a quicker or deeper rate-cut cycle, dealers said. 

Strong demand for gilts from long-term investors such as insurance companies and pension funds had made these papers appealing to traders earlier in the month, especially for traders who expected a rate cut in August. However, comments from RBI Governor Sanjay Malhotra Friday indicated that a rate cut next week was unlikely, dealers said, and sold long-term gilts to trim risk. The 7.09%, 2054 was the third-most traded paper on the RBI's Negotiated Dealing System-Order Matching platform, and was last traded at INR 100.90, down 30 paise from Friday's close.

A higher-than-indicated state bond auction size added to pressure on gilt prices, dealers said. Traders fear that spreads between state bonds and gilts could widen at the auction Tuesday, which could further the fall in bond prices. At last week's state bond auction, the spread between Bihar's 12-year bond and a gilt of similar maturity was 42 basis points.  

Some investors purchased gilts maturing in 6-9 years due to lucrative yields, dealers said. Concerns on the liquidity front eased, as borrowing rates cooled, dealers said. Traders expect that central government's month-end spending will boost the surplus liquidity in the banking system. They now await the RBI's liquidity management framework, expected at the end of the month, for further clarity. 

As of 1230 IST, the turnover in the gilts market was INR 157.00 billion, slightly higher than INR 109.35 billion at the same time Friday, 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 6.34-6.40% and that on the 6.79%, 2034 gilt is seen at 6.38-6.45%.  (Cassandra Carvalho)

India Gilts: Down as yield on 6.79%, 2034 gilt rises above key 6.40% level

MUMBAI--0953 IST--Prices of government bonds were down in a thin trade Monday, after opening slightly higher. Traders sold gilts as the yield on the 6.79%, 2034 gilt rose above the key technical level of 6.40%, dealers said. Traders also placed short bets on gilts to accomodate the heavy supply of the 6.33%, 2035 gilt at the auction Friday, they said. A higher-than-expected state bond auction size also weighed on gilts. 

"We've gotten so much supply at auction so people are clearing their books," a dealer at a state-owned bank said. Bonds recovered some losses as traders, especially from state-owned banks, picked up gilts at the yield of 6.40% on the 6.79%, 2034 bond, the upper end of the recent trading range which is seen lucrative to buy gilts. 

"All technicals are broken, the 6.40% (yield) on the 6.79% (2034) bond and (INR) 100 on the 6.33%, 2035 bond," a dealer at a private sector bank said. "Last time also (when gilt yields rose during India-Pakistan tensions) 6.42% (on the 2034 gilt) was the key resistance so we're looking at that level now." 

Most traders do not expect the benchmark 10-year gilt to recover above its cut-off price of INR 99.95 set at Friday's auction at least until the outcome of the Reserve Bank of India's Monetary Policy Committee in August first week. Some private sector and foreign banks had built portfolios on expectation of a rate cut in August on the back of soft inflation data. However, RBI Governor Sanjay Malhotra Friday said the rate-setting panel would look more at the outlook for the next 6-12 months than at current inflation and growth data to base its policy rate decisions, which led to traders unwinding their rate cut bets.   

A slightly larger-than-expected state bond auction size for Tuesday also weighed on gilts. The RBI said 12 states will raise INR 300 billion through the sale of bonds, against INR 265 billion notified in the indicative calendar for state borrowing for Jul-Sept. Nonetheless, traders expect the state bond supply to be easily absorbed.  

In early trade, traders favoured the erstwhile 10-year benchmark 7.18%, 2033 gilt as it offered a yield of 6.41% despite having a maturity of eight years, dealers said.  

Losses in short-term bond prices are seen limited during the day after the RBI announced a bond buyback by the government at INR 300 billion for Thursday. Traders expect at least one or two more auctions of similar size to be held in the rest of Jul-Sept as the government looks to reduce its heavy gilt redemptions for 2026-27 (Apr-Mar). Replacement demand for gilts sold at the buyback auction will likely keep the extreme shorter-end of the yield curve on the lower side, dealers said. 

As of 0930 IST, the turnover in the gilts market was INR 14.10 billion, lower than INR 16.95 billion at the same time Friday, 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 6.34-6.40% and that on the 6.79%, 2034 gilt is seen at 6.38-6.45%.  (Cassandra Carvalho)

India Gilts: Seen largely steady; upward bias likely after fall in prices Fri

MUMBAI - Prices of government bonds are seen opening largely steady Monday due to lack of significant cues and caution before key events lined up in the days ahead, dealers said. However, bond prices may recover slightly after a sharp fall on Friday. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.32-6.36% during the day. On Friday, the bond ended at INR 99.84, or 6.35% yield. Traders expect the erstwhile 10-year benchmark 6.79%, 2034 gilt to trade in a range of 6.36-6.42%. The 2034 gilt closed at INR 102.66, or 6.40% yield, Friday. The yield on the benchmark 10-year US Treasury note was 4.40% at 0800 IST from 4.39% at 1700 IST Friday.

Bond prices fell sharply Friday as traders unwound bets of a rate cut by the Reserve Bank of India's Monetary Policy Committee in August first week, dealers said. During the week, traders may re-align portfolios ahead of the MPC meeting. Most traders do not expect a rate cut after RBI Governor Sanjay Malhotra Friday said the rate-setting panel would look more at the outlook for the next 6-12 months than at current inflation and growth data to base its policy rate decisions. Prior to his comments, some private sector and foreign banks had built portfolios on expectations of a rate cut in August on the back of soft inflation data.

Monday, primary dealerships are seen selling stock of gilts from Friday's auction. Primary dealers sold bonds worth INR 67.94 billion Friday. However, losses are seen limited as traders, especially from state-owned banks, are seen purchasing gilts at the yield of 6.40% on the 6.79%, 2034 bond, the upper end of the recent trading range.  

Gilts and state bonds maturing in 10 to 30 years may trade lower during the day due to a slightly larger-than-expected state bond auction size for Tuesday. The RBI said 12 states will raise INR 300 billion through the sale of bonds, against INR 265 billion notified in the indicative calendar for state borrowing for Jul-Sept.  

On the global front, traders await the outcome of the US Federal Open Market Committee's meeting Wednesday. They expect the FOMC to hold rates steady, but will keenly track commentary from US Federal Reserve officials, especially due to recent backlash from US President Donald Trump for not cutting rates sooner. Caution may limit volatility in bond prices due to a data-heavy week in the US. The US personal income and outlays for June is due Thursday, and the US employment report--which includes the crucial non-farm payrolls data--for July is due Friday. Trump's pause on 'reciprocal' tariffs also ends Friday.  (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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