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Informist, Wednesday, Jul. 30, 2025

By Srijita Bose and Aaryan Khanna

MUMBAI/NEW DELHI – Government bonds ended lower on Wednesday, tracking a sharp fall in the rupee against the dollar as US President Donald Trump suggested he would impose a 20-25% on Indian goods if the two countries did not reach a trade deal soon. Some gilts ended off lows as traders covered short bets placed earlier in the day, dealers said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 99.70, or a yield of 6.37%, against INR 99.78, or 6.36%, Tuesday. The erstwhile 10-year benchmark 6.79%, 2034 bond closed at INR 102.57, or 6.41%, against INR 102.64, or 6.40%, Tuesday. The worst fears were confirmed after market hours, as Trump announced on social media that he would impose 25% tariffs plus a penalty on imports from India, starting Aug. 1.

The rupee logged its biggest single-day fall since May 8 and settled at a 5-month low on persistent dollar purchases by foreign portfolio investors, dealers said. The domestic unit ended at 87.4200 a dollar, down 0.7%. The fall in the rupee can lead to higher imported inflation in India, and traders shed gilts as crude oil prices also rose sharply. Brent crude for September delivery was nearly 6% higher this week at $72.60 a barrel.

Losses in gilts were limited ahead of the outcome of the US Federal Open Market Committee later Wednesday, as the panel is expected to maintain a status quo on rates. Bond prices had opened higher after US job openings data for June showed a cooling labour market and analysts expected a few members of the committee to vote for a rate cut at the upcoming decision.

The 10-year US Treasury yield fell to 4.34% at 1700 IST Wednesday from 4.40% at the same time Tuesday. Moreover, Clearing Corp. of India data at 1830 IST showed foreign portfolio investors net bought nearly INR 12 billion of fully accessible route bonds.

"There is a risk-on sentiment in the market after the US (job openings) data, so flows are coming to EMs (emerging markets) but not really to India," a dealer at a foreign bank said. "The overhang of the Trump tariffs really took the momentum straight out of the market today (Wednesday), and then there was also a technical resistance at 6.35% (yield on the 6.33%, 2035 bond)." The 10-year benchmark gilt hit a high of INR 99.85, or 6.3491% yield, at open.

While FPIs may have been net buyers, foreign banks likely sold gilts from their proprietary books while state-owned banks bought gilts at levels they considered lucrative. The 10-year benchmark 6.33%, 2035 gilt was attractive to hold with the yield spread over the Reserve Bank of India's repo rate at over 85 basis points, dealers said. Moreover, even if the central bank's Monetary Policy Committee does not cut rates, traders said it was unlikely to raise the repo rate in the next 12 months, with the outlook on domestic inflation benign.

Long-term bonds underperformed gilts of other tenures for the second straight day ahead of the weekly gilt auction on Friday. The government will sell INR 160 billion each of the 6.68%, 2040 bond and 6.90%, 2065 gilt this week. Both gilts were sharply down during the day as primary dealers made room for the auction stock. However, demand from insurers and some short covering helped most gilts maturing in 30-50 years recover most losses by the end of trade, dealers said.

"People are placing intraday shorts and covering them up by the end of the day. But today, there is some panic because of the US-India trade deal and also caution due to the FOMC, so the recovery is not much," a dealer at a primary dealership said. "Overall, though pressure still remains more on the long end because no one wants to take that risk now."

Losses were limited in bonds maturing up to seven years amid thin trade. Traders trimmed their duration risk and moved towards these bonds, dealers said. Some expected the yield curve to steepen and chose to hold bonds maturing in up to five years, they said. Moreover, asset liability managers at banks preferred these bonds as their spread over the funding cost was considered attractive, and best matched their liabilities.

Some traders sold bonds maturing up to 2028 on speculation that the RBI could introduce a fixed rate window to mop up excess liquidity next week. This would push up overnight money market rates closer to the policy repo rate of 5.50%, from the current 5.30-5.40% band, dealers said.

Traders also awaited the draft of the new liquidity management framework from the central bank, which is expected to be announced next week. RBI Governor Sanjay Malhotra had said earlier this month that the regulator was planning to release the draft by the end of July though traders now expect it at the monetary policy outcome on Aug. 6. Bets on rate cuts have cooled after Malhotra's comments last week were not seen indicating further monetary policy easing was imminent, despite CPI inflation seen falling below the RBI's 2-6% target band in July. 

Bets on rate cuts have cooled after Malhotra's comments last week indicated that further monetary policy easing was not imminent, even though CPI inflation is expected to fall below the lower end of the RBI's medium-term inflation target of 2-6%. 

The turnover in the government bond market Wednesday was INR 419.35 billion, down from INR 483.50 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were four trades worth INR 200 million using the wholesale digital rupee pilot Wednesday, down from 20 trades worth INR 6.30 billion the previous day.

OUTLOOK

On Thursday, bond prices are likely to fall after Trump announced a 25% tariff on Indian exports to the US, plus a penalty for its trade with Russia, dealers said. The movement in US Treasury yields after the US FOMC outcome at 2330 IST may also lend cues, though the panel is expected to stand pat on rates. 

The lack of an India-US trade deal before the Aug. 1 deadline is likely to lead to a sharp fall in the rupee against the dollar for the second straight day Thursday. The rupee logged its biggest single-day fall since May 8 and settled at a 5-month low of 87.4200 a dollar Wednesday. Foreign banks and portfolio investors may shed gilts after the announcement. 

Long-term gilts may remain under pressure ahead of the INR-320-billion auction Friday, with supply split between the 15- and 40-year benchmark bonds. Meanwhile, traders look out for any announcement on liquidity management – including a new framework – by the RBI for cues to trade gilts maturing up to seven years. Governor Malhotra had said he would like the call money rates to adhere to the policy repo rate of 5.50%.

Gilt prices may also take cues from the result of the buyback auction 1030-1130 IST Thursday, dealers said. The government said it would buy back three bonds maturing in 2026-27 (Apr-Mar) worth INR 300 billion.

Movements in crude oil prices may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.35-6.41% and that on the 6.79%, 2034 bond is seen at 6.38-6.47%.

India Gilts: Recover some losses; fall in short-term bonds limited 

MUMBAI--1541 IST--Government bond prices recovered some losses as traders found the yield levels on the 10-year benchmark 6.33%, 2035 gilt attractive to hold with the yield spread over the Reserve Bank of India's repo at around 87 basis points, dealers said. Prices of most bonds remained down, tracking a sharp fall in the rupee against the dollar as US President Donald Trump threatened to impose reciprocal tariffs of 20-25% on Indian goods if the two countries do not reach a trade deal soon. However, the fall in shorter tenure gilts was limited. 

"It's the rupee and panic around the US-India trade deal that's keeping the market down," a dealer at a state-owned bank said. "But some buying is also coming at these levels because we are still holding 6.38% (yield on the 10-year benchmark bond). The next level is 6.40% (yield on the 2035 bond)."

Some foreign bank traders also placed short bets before the US Federal Open Market Committee's decision due late Wednesday, with caution keeping trade volumes muted, dealers said. However, some traders covered short bets placed earlier in the day, they said. The fall in shorter tenure bonds was limited as traders trimmed their duration risks and moved towards these bonds, dealers said. Some expected the yield curve to steepen and chose to hold bonds maturing in up to five years, they said. 

Longer tenure bonds continued to be under pressure. Fall in gilts maturing in 30-40 years was more pronounced than other tenures as traders cut their risk exposure in these gilts as domestic rate cut expectations faded, dealers said. A heavy supply of long-term gilts at auction during the week also led to a muted demand for these bonds in the secondary market, they said. 

As of 1530 IST, the turnover in the gilts market was INR 287.45 billion, lower than INR 304.75 billion at the same time on Tuesday, 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 6.33-6.37% and that on the 6.79%, 2034 gilt is seen at 6.38-6.45%.  (Srijita Bose)

India Gilts: Sharply down on likely foreign banks' sales as rupee falls more

MUMBAI--1347 IST--Prices of government bonds were down tracking a sharp fall in the rupee during the day, dealers said. The result of the INR-210-billion Treasury bill auction was along expected lines, they said. Caution before the outcome of the US Federal Open Market Committee meeting due late Wednesday limited volumes.

"USDINR (rupee) broke 87, now its broken 87.30 also and regarding the Trump tariffs, that is also weighing on our market," a dealer at a state-owned bank said. "I think there will be some recovery, half basis point (fall in yields) or so because US yields are down and FOMC is also there."  

The rupee continued to fall against the dollar, hitting the day's low of 87.3900 against the dollar, from 86.8150 at 1530 IST Tuesday, as stop-losses were triggered, according to forex market participants. Foreign banks sold gilts in the secondary market, tracking the fall, dealers said. The rupee fell after Trump said the US could impose a 20-25% tariff on India.

The Reserve Bank of India set a cut-off yield of 5.40% on the 91-day T-bill, a tad higher than an Informist poll estimate of 5.39%. The cut-off for the 182-day bill was 5.52%, whereas that on the 364-day bill was 5.57%, both in line with poll estimates. Demand from mutual funds was lesser than expected at the auction due to month-end redemption pressure, dealers said. Some banks also refrained from aggressive bids due to the negative returns, since the T-bill yields were lower than the repo rate and on a par with Wednesday's weighted average call rate of 5.40%. However, others preferred ultra-short-term securities due to lack of cues on rate cuts.  

Traders also await the RBI's new liquidity management framework and had expected the draft by end of July. NDTV Profit earlier in the day reported that the RBI would likely announce the framework at the outcome of the Monetary Policy Committee meeting next week. Traders hope for clarity that the RBI is targetting the overnight weighted average call money rate for its liquidity management. A dealer speculated that the central bank could introduce a fixed rate repo window Monday.  

As of 1330 IST, the turnover in the gilts market was INR 183.80 billion, lower than INR 203.60 billion at the same time Tuesday, 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 6.33-6.37% and that on the 6.79%, 2034 gilt is seen at 6.38-6.45%. (Cassandra Carvalho)

India Gilts: Steady; erase early gains on fall in rupee, rise in oil prices

MUMBAI--0934 IST--Prices of government bonds were steady and gave up early gains due to a sharp fall in the rupee against the dollar and a rise in crude oil prices, dealers said. Traders continued to trim portfolios as expectations of a rate cut by the Reserve Bank of India's Monetary Policy Committee next week dwindled.

Bond prices opened higher, tracking an overnight fall in US Treasury yields ahead of the outcome of the US Federal Open Market Committee meeting, late Wednesday. However, most gains were erased after the rupee plunged to 87.1775 per dollar in early trade, from 86.8150 per dollar at 1530 IST Tuesday. The rupee fell sharply after US President Donald Trump said the US could impose a 20-25% tariff on India.

Crude oil prices rose after Trump once again threatened additional sanctions and tariffs on Russia unless it agreed to a ceasefire with Ukraine within 10 days. Brent crude for September delivery was up at $72.67 a barrel in Asian trade at 0800 IST from $70.00 a barrel at the end of Indian market hours on Tuesday.  

"The rupee is depreciating to 87.14, actually there should be some buying because US yields have fallen but there's no buying because of your crude and rupee," a dealer at a state-owned bank said. "The market is not convinced to buy. Market is not thinking that (MPC outcome) policy will give any fruit (any cues on rate cuts)."

Caution before the FOMC outcome may limit volatility in prices during the day, dealers said. While the FOMC is largely expected to hold rates steady, traders will closely track the voting pattern of the committee and comments from US Federal Reserve Chair Jerome Powell. As of 0930 IST, the turnover in the gilts market was INR 47.35 billion, much higher than INR 6.90 billion at the same time Tuesday, 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 6.33-6.37% and that on the 6.79%, 2034 gilt is seen at 6.38-6.45%. (Cassandra Carvalho)

India Gilts: Seen up as US ylds dn before FOMC outcome; oil prices may weigh

MUMBAI – Prices of government bonds are seen opening higher Wednesday, tracking an overnight fall in US Treasury yields, dealers said. The yield on the benchmark 10-year US Treasury note was 4.33% at 0800 IST, down from 4.40% at 1700 IST Tuesday. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.33-6.37% during the day. The 2035 gilt is seen opening 7-15 paise higher. On Tuesday, the bond ended at INR 99.78, or 6.36% 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 102.64, or 6.40% yield on Tuesday.

US Treasury yields fell ahead of the outcome of the US Federal Open Market Committee's meeting, due late Wednesday. Traders in the US expect "potential dissent" among the committee's members on the rate decision, though a status quo on rates is expected, as per media reports. Traders will also track a slew of US economic data during the week. Some domestic traders say the Reserve Bank of India's Monetary Policy Committee will not cut rates further until the FOMC does, to protect the interest rate differential between the two countries. 

However, a rise in crude oil prices may cap the gains. Crude oil prices inched up after US President Donald Trump once again threatened additional sanctions and tariffs on Russia unless it agreed to a ceasefire with Ukraine within 10 days. Brent crude for September delivery was up at $72.67 a barrel in Asian trade at 0800 IST from $70.00 a barrel at the end of Indian market hours on Tuesday. 

On the domestic front, The Economic Times reported, citing a senior official, that the central government is not looking to increase its gross borrowing target of INR 14.82 trillion for 2025-26 (Apr-Mar). The report may provide some comfort to traders after a sharp fall in prices the past week, though traders will continue to unwind bets of a rate cut by the MPC next week, dealers said.  

The movement of the rupee against the dollar may lend cues to gilts during the day, dealers said. The rupee is seen opening sharply lower after Trump said the US could impose a 20-25% tariff on India. (Cassandra Carvalho)

End

US$1 = INR 87.42

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

Edited by Saji George Titus

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