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Informist, Tuesday, Jul. 29, 2025

By Aaryan Khanna

NEW DELHI – Prices of most government bonds ended higher Tuesday in choppy trade. Gains were most in bonds maturing in 2034 and 2035, led by traders covering intraday short sales and speculated buys from investors as yields were seen near the top of the trading range, dealers said. A slight easing in US Treasury yields also aided the rise. Long-term gilts underperformed other tenures, but recovered most losses before the close.  

The 10-year benchmark 6.33%, 2035 gilt closed at INR 99.78, or a yield of 6.36%, against INR 99.70, or 6.37%, Monday. The erstwhile 10-year benchmark 6.79%, 2034 bond closed at INR 102.64, or 6.40%, against INR 102.52, or 6.42%, Monday. On Monday, the 2034 bond's yield had ended at its highest since Apr. 11.

Traders covered short bets they had entered intraday ahead of key US data scheduled this week, including the Job Openings and Labor Turnover Survey, due to be released after Indian market hours. Domestic markets will take cues from the movement in US yields, especially ahead of the US Federal Open Market Committee's rate decision late Wednesday, dealers said. Some traders also picked up gilts as the 10-year US Treasury yield eased to 4.40% at 1700 IST from the high of 4.42% earlier in the day.

"The 10-year US yields came down 2.5-3.0 basis points from around 4.42% earlier, so there was some buying there in case the momentum sustains till tomorrow (Wednesday) before the FOMC outcome," a dealer at a state-owned bank said. "Some short covering was also there, as prices have recovered to the top of where the fall started in the morning."

The 6.79%, 2034 bond gained more than the 6.33%, 2035 gilt Tuesday, likely as it offered a higher yield, dealers said. Some traders also speculated that gilt purchases by state-owned banks may have been responsible for the recovery, as current yield levels on the two most-traded gilts were seen at the top of their current trading range. Moreover, there was no trigger for the next psychologically crucial level on the 6.33%, 2035 bond, which was 6.39% yield, to break, dealers said.

With the spread of the 2034 gilt over the new 10-year benchmark consistently contracting to below five bps, traders expect the 2035 gilt to be the most-traded gilt going ahead after its outstanding rose to INR 1.2 trillion this week, dealers said. The newer bond's trading volumes have overtaken the erstwhile 10-year benchmark's on both Monday and Tuesday.

Bond prices had opened little changed due to a lack of fresh domestic cues, but rose in early trade on demand from investors, dealers said. They then fell due to a mix of profit booking, short sales and disappointment over demand at the state bond auction. At Tuesday's auction, Madhya Pradesh did not accept any bids for the 23-year bond, with the states together raising only INR 277.19 billion against the target of INR 300 billion. The cut-off yield on the 10-year bonds of Rajasthan and Uttarakhand were at 6.94% and 6.97%, respectively, well above 6.85-6.90% seen in an Informist poll.

At the auction, demand from insurers for state bonds of longer tenure was strong, but long-term gilts underperformed in the secondary market. With the higher-than-indicated supply of state bonds this week and INR 320 billion worth of gilts scheduled for auction on Friday, supply is tilted towards longer tenure bonds.

Traders sold bonds maturing in 30-50 years to make room for the fresh supply and some traders may have hit stop-losses on the 7.09%, 2054 gilt as its yield rose above 7.03%, dealers said. After the 30-year benchmark yield hit 7.05%, its highest level since Jun. 30, the bond erased losses by the end of the day, likely on investor buys and some demand from traders, dealers said.

However, traders avoided picking up gilts in large quantities as hopes of a rate cut at next week's Monetary Policy Committee meeting remained minuscule, and they had just lightened their portfolios – several at a loss – since Friday, dealers said. Reserve Bank of India Governor Sanjay Malhotra said at an event on Friday 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 sections of the market had been expecting a rate cut in August with inflation data for the June quarter printing below the RBI's forecasts, and July's CPI inflation is likely to be below 2%, the lower end of the RBI's target band. While most traders had exited those positions, a handful still held on to the view of further loosening of monetary policy, dealers said.

"I think the market has overreacted to the governor's comments because it was too optimistic to expect him to change his tune 10 days before the next MPC (meeting)," a dealer at a private-sector bank said. "I am still hopeful the RBI could push for another rate cut, considering where inflation is, even without any signal before the policy."

The turnover in the government bond market Tuesday was INR 483.50 billion, up from INR 379.20 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were 20 trades worth INR 6.30 billion using the wholesale digital rupee pilot Tuesday, against four trades worth INR 200 million the previous day.

OUTLOOK

On Wednesday, bond prices are likely to take cues from movement in US Treasury yields ahead of the US Federal Open Market Committee meeting outcome late Wednesday, dealers said. Focus will be on offshore triggers this week, with no fresh triggers on domestic interest rates before the MPC meeting next week. Long-term gilts may remain under pressure ahead of the INR-320-billion auction Friday, with supply split between the 15- and 40-year benchmarks. 

Traders will also watch out for any announcement by the RBI on liquidity management operations. Governor Malhotra had said he would like the call money rates to adhere to the policy repo rate of 5.50%. Prices of bonds maturing within two years may be supported after the government said it would buy back three bonds maturing in 2026-27 (Apr-Mar) worth INR 300 billion 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. The domestic currency hit its lowest level in over four months during the day.

Movements in crude oil prices may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.33-6.39% and that on the 6.79%, 2034 bond is seen at 6.37-6.44%.

India Gilts: Fall on poor state bond auction cut-offs; long-term down more

MUMBAI--1531 IST--Government bond prices fell as results of the state bond auction showed demand was weaker than expected, dealers said. Prices started falling before the results as traders who picked up state bonds at the auction sold in the secondary market. Longer tenure bonds were down more than others as investors absorbed a heavy supply at the auction, dealers said. 

At the auction Tuesday, demand from insurers for state bonds of longer tenure was strong, dealers said. However, with the higher-than-indicated supply of state bonds this week and INR 320 billion worth of gilts scheduled for auction Friday, supply is tilted towards longer tenure bonds. Thus, traders sold longer tenure bonds to make room for the fresh supply, dealers said. Traders fear demand from long-term investors in the secondary market could be muted this week due to the heavy supply at auctions. At Tuesday's auction, Madhya Pradesh did not accept any bids for the 23-year bond, and in total, states only raised INR 277.19 billion against the target of INR 300 billion.

The fall in bonds of up to five-year maturity was limited as asset-liability managers of banks and some mutual funds held on to these bonds as some still expect rate cuts by the Reserve Bank of India's Monetary Policy Committee by end of December and the yield curve to steepen, dealers said. Moreover, with traders trimming long-term bonds and the yield spread on the five-year 6.75%, 2029 over the RBI's repo rate at 53 basis points, investors found the current yields of short-term bonds attractive to hold, dealers said.

As of 1530 IST, the turnover in the gilts market was INR 306.60 billion, higher than INR 263.10 billion at the same time Monday, 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 6.35-6.40% and that on the 6.79%, 2034 gilt is seen at 6.38-6.45%.  (Srijita Bose)

India Gilts: Off highs; up earlier as traders covered short bets

MUMBAI--1236 IST--Prices of government bonds were off highs as traders continued to unwind bets of a rate cut in August. Bond prices were up earlier as traders covered short bets, and since current levels were lucrative to buy gilts as yields neared the upper end of the trading range, dealers said. A fall in swap rates aided the rise in prices, dealers said.

"Last two days, we've seen selling from PDs (primary dealerships) only," a dealer at a private sector bank said. "They've been selling their allotment of INR 300 billion for three days, so some buying will come in. And above 40 (6.40%) on old 10-year and above 35 (6.35% yield) on new 1-year are good levels to buy. Some private banks will also buy now." 

Along with primary dealerships, traders said private sector and some state-owned banks were also purchasing gilts. Several traders said they were waiting for the state bond auction results, after which they would continue to sell gilts in the secondary market, as expectations of a rate cut in August have diminished.

Demand for the short and long end of the state bond yield curve is seen firm, but demand for gilts maturing in 10 to 15 years is seen mixed as some traders do not wish to hold the risk of longer-tenure papers. However, some state-owned banks are seen buying these tenure papers due to redemption of INR 141.25 billion of state bonds Tuesday. Demand for short-term state bonds is seen robust due to lack of supply in these tenures. Traders expect bids from long-term investors such as insurance companies to keep yields on long-term state bonds on the lower side.

Volumes picked up slightly. As of 1230 IST, the turnover in the gilts market was INR 151.15 billion, lower than INR 157.00 billion at the same time Monday, 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 6.35-6.40% and that on the 6.79%, 2034 gilt is seen at 6.38-6.45%. (Cassandra Carvalho)

India Gilts: In thin band, volumes low; state bond auction awaited

India Gilts: In thin band, volumes low; state bond auction awaited

MUMBAI--0934 IST--Prices of government bonds were steady in a thin trade due to a lack of fresh triggers on rates, dealers said. 

Total traded volumes in the benchmark 10-year 6.33%, 2035 gilt have outpaced that of the erstwhile benchmark 6.79%, 2034 gilt so far this week. Traders expect the yield spread between the two to continue compressing to 3-4 basis points, they said. The yield spread was slightly less than 5 bps Tuesday, from 5 bps Monday.

"Market (sentiment) is down only," a dealer at a state-owned bank said. "What is there now? No rate cut also expected, there's nothing else to watch for." 

Traders continued to unwind bets of a rate cut by the Reserve Bank of India's Monetary Policy Committee next week, they said. Some traders expect the yield on the 2035 gilt to hit 6.40% in the near term, though closer to the policy outcome the rise could be limited on hopes of a downgrade in growth and inflation estimates, they said. 

Traders await the result of the INR-300-billion state bond auction, dealers said. Some dealers said that yield spreads of these securities over central government bonds are likely to increase at the auction due to its higher than indicated size. However, others expect the excess supply to be easily absorbed without spreads changing.

Redemption of INR 141.25 billion of state bonds Tuesday is likely to aid demand at the auction, dealers said. The RBI said 12 states will raise INR 300 billion through sale of bonds, against INR 265 billion notified in the indicative calendar for state borrowing for Jul-Sept. 

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. Demand for short-term state bonds is seen robust due to lack of supply in these tenures. Switch and buyback auctions by the central government are also reducing supply of gilts of similar maturity.    

As of 0930 IST, the turnover in the gilts market was INR 6.90 billion, lower than INR 14.10 billion at the 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 6.35-6.40% and that on the 6.79%, 2034 gilt is seen at 6.38-6.45%. (Cassandra Carvalho)

India Gilts: Seen opening steady; state bond auction awaited

MUMBAI – Prices of government bonds are seen opening steady Tuesday due to lack of significant cues, dealers said. Traders may take cues from the result of the INR-300-billion state bond auction due to its large size, though dealers expect that the supply will be easily absorbed. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.35-6.40% during the day. On Monday, the bond ended at INR 99.70, or 6.37% yield. Traders expect the erstwhile 10-year benchmark 6.79%, 2034 gilt to trade in a range of 6.38-6.45%. The 2034 gilt closed at INR 102.52, or 6.42% yield, Monday. The yield on the benchmark 10-year US Treasury note was 4.41% at 0800 IST, unchanged from 1700 IST Monday. Traders may continue to unwind bets of a rate cut in August, they said.

Traders will track the result of the state bond auction. Yield spreads of these securities over central government bonds are seen increasing due to the higher than indicated size of the auction. 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. 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. Demand for short-term state bonds is seen robust due to lack of supply in these tenures. Switch and buyback auctions by the central government are also reducing supply of gilts of similar maturity.    

The Reserve Bank of India will conduct a three-day variable rate reverse repo auction of INR 500 billion Tuesday. The weighted average call money rate was 5.35% Monday, below the RBI's repo rate of 5.50%. Traders have priced in overnight borrowing rates close to the repo, not below or above, and await the central bank's draft guidelines on the liquidity management framework expected at the end of this month. Dealers expect the RBI to define the optimal level of liquidity in the banking system in the draft guidelines. Bond prices may also take cues from the movement of the rupee, which is seen opening lower against the dollar. (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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