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Informist, Thursday, Jul. 31, 2025

By Aaryan Khanna and Srijita Bose

MUMBAI/NEW DELHI – Government bond prices ended on a mixed note. Most bonds reversed losses and ended higher as investors bought gilts at yields they considered lucrative, with demand at the weekly gilt auction Friday seen robust, dealers said. The most-traded 6.33%, 2035 and 6.79%, 2034 bonds erased most losses despite a fall in the rupee and traders placing short bets ahead of the auction.

The 10-year benchmark gilt closed at INR 99.68, or a yield of 6.37%, against INR 99.70, or 6.37%, Wednesday. The erstwhile 10-year benchmark 6.79%, 2034 bond closed at INR 102.55, or 6.42%, against INR 102.57, or 6.41%, Wednesday.

After falling sharply during the day, the 40-year benchmark 6.90%, 2065 bond ended sharply higher. This is despite the INR-320-billion weekly auction supply Friday being split between the 40-year bond and the 6.68%, 2040 gilt. While traders have stayed away from long-term bonds this week due to the upcoming supply, demand from insurers with yields above 7.00% limited losses through the week, dealers said.

"Price action in the last three days has been very strong in the long-term bonds towards the end. The same thing happened today (Thursday)," a dealer at a state-owned bank said. "We are not quite sure who is the consistent buyer, because PDs (primary dealers) were shorting before the auction."

Some dealers said that the rise in long-term bonds near the end of trade was due to buys from foreign banks, on anticipation of strong demand for forward rate agreements by insurers at auction Friday. Traders also bought long-term bonds towards the end of trade after selling during the week, as they found yields attractive. The yield on the 40-year benchmark 6.90%, 2065 bond, which is up for auction Friday, had risen over five basis points from last week during the day, and over three bps higher than last week as demand came in near the end of trade. Traders sold long-term bonds earlier on anticipation of further heavy supply in longer-tenure bonds, as well as uncertainty around domestic rate cuts, dealers said.

Meanwhile, the volume in the 10-year benchmark 6.33%, 2035 gilt has overtaken that of the erstwhile benchmark 6.79%, 2034 bond this week, with the yield spread between the two seen comfortable at over four bps, dealers said. Losses in both gilts were limited as yields on both were near the higher end of the trading range and traders found them attractive to buy, they said. Apart from liquid gilts, traders also preferred shorter tenure bonds, with some expecting the yield curve to steepen eventually as both CPI and growth prints are expected to be lower till December, which they say could prompt rate cut bets later in the year, dealers said.

"The upside on yields now seems limited and I think the rupee should also be supported," a dealer at a primary dealership said. "Plus, overall, now with (US President Donald) Trump's tariffs, exports will be affected and growth is also expected to be lower."

Traders priced in the outcome of the US Federal Open Market Committee meeting, and shifted focus to the outcome of the MPC meeting, due Wednesday, they said. While traders do not expect a rate cut next week, they will track any indications of further rate cuts. Some dealers expect the RBI to cut its CPI inflation forecasts by 5-10 basis points. Traders also await the revised liquidity management framework, expected at the MPC meeting outcome. Meanwhile, US Treasury yields were little changed even as Federal Reserve Chair Jerome Powell's comments lowered expectations of a rate cut by the Federal Open Market Committee at its next meeting in September, dealers said.

Some state-owned banks also picked up state bonds as they found yields attractive, dealers said. Trade volumes of state bonds in the secondary market have picked up in the past two days, with INR 6.4 billion worth of state bonds traded Thursday on the RBI's Negotiated Dealing System-Order Matching platform.

At the INR 300-billion buyback auction Thursday, several banks did not participate because the bonds on offer were the same as those at the previous buyback auction, and they did not have stock of these bonds. Cut-off prices were expected to be slightly higher than those indicated by Financial Benchmarks India Pvt. Ltd. as traders looked to book profit from selling these papers, dealers said. The cut-off price on the 7.27%, 2026 gilt was INR 101.15, higher than the valuation of INR 101.07 set by Financial Benchmarks India Ltd. on the previous day, and also higher than INR 101.09 in an Informist poll. The cut-off prices on the 5.63%, 2026 bond and the 6.99%, 2026 bond were slightly higher than indicative prices and largely in line with expectations.

The turnover in the government bond market Thursday was INR 405.40 billion, similar to INR 417.55 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades worth INR 100 million using the wholesale digital rupee pilot Thursday, against four trades worth INR 200 million Wednesday. 

OUTLOOK

On Friday, bond prices are likely to open lower ahead of the INR-320-billion gilt auction, dealers said. Traders will await the auction results, and some expect prices to rise afterwards, driven by strong demand from long-term investors, they said. 

Traders will also look out for any further announcements on US tariffs on India. The lack of a deal before the Aug. 1 deadline is likely to keep the rupee under pressure. However, some demand could come as traders now expect US tariffs to lead to a slowdown in domestic growth, which could prompt the RBI to cut rates later in the year, dealers said. On the global front, traders await non-farm payrolls data on Friday, along with further clarity on US President Donald Trump's tariff policy.

Traders will also 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 Sanjay Malhotra had said he would like the call money rates to adhere to the policy repo rate of 5.50%.

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: Mixed; fall in 10-yr gilts limited, long-term down more

MUMBAI--1518 IST--Government bonds were mixed – while gilts maturing in more than 10 years were down due to their heavy supply at the auction on Friday, losses in the 10-year gilts were limited, dealers said. Meanwhile, some gilts maturing in up to five years were slightly up. 

Traders continued to shed duration risks. The yield on the 40-year benchmark 6.90%, 2065 bond, which is up for auction Friday, has risen over 5 basis points this week. While demand from long-term investors at Friday's auction is expected to be firm, anticipation of further heavy supply in longer-tenure bonds as well as unertainty around domestic rate cuts led traders to sell these gilts in the secondary market, dealers said. Some traders also expect the yield spread on long-term bonds over the 10-year benchmark to widen in the near term, and wait for cues at the outcome of the Reseve Bank of India's Monetary Policy Committee meeting next week, they said. 

The volume in the 10-year benchmark 6.33%, 2035 gilt has overtaken that in the erstwhile benchmark 6.79%, 2034 bond this week, with the yield spread between the two seen comfortable at over 4 bps, dealers said. Losses in both gilts were limited as yields on both were near the higher end of the trading range and traders found yields attractive to buy, they said. However, near the end of trade, some dealers expect prices to fall as traders may place short bets ahead of Friday's INR 320-billion auction. 

"OIS (overnight indexed swap) rates are down. So actually, gilts is underperforming because of auction tomorrow," a dealer at a primary dealership said. "But the buys are also for either short-term to liquid gilts or some in state bonds."

Apart from liquid gilts, traders also preferred shorter tenure bonds, with some expecting the yield curve to steepen eventually as both CPI and growth prints are expected to be lower till December, which they say could prompt rate cut bets later in the year, dealers said. Traders also looked out for a liquidity management framework by the RBI, which some expect to be announced this week, they said.  

Some state-owned banks also picked up state bonds as they found yields attractive, dealers said. Trade volumes of state bonds in the secondary market have picked up in the past two days, with INR 4 billion worth of state bonds traded so far Thursday on the RBI's Negotiated Dealing System-Order Matching platform.

As of 1518 IST, the turnover in the gilts market was INR 286.30 billion, similar to INR 287.45 billion at 1530 IST Wednesday, according to data on the RBI's NDS-OM platform.

For the rest of the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.35-6.39% and that on the 6.79%, 2034 gilt is seen at 6.40-6.45%.  (Srijita Bose)

India Gilts: Tad down ahead of weekly gilt auction; MPC meet outcome awaited

MUMBAI--1301 IST--Prices of government bonds were a tad down as traders trimmed portfolios ahead of the weekly gilt auction, dealers said. However, purchases by banks at levels seen lucrative limited the losses, they said. A slight recovery in the rupee against the dollar also limited losses, dealers said. 

Traders have priced in the outcome of US Federal Open Market Committee meeting, and have now shifted focus to the outcome of the Reserve Bank of India's Monetary Policy Committee meeting, due Wednesday, they said. While US Federal Reserve Chair Jerome Powell's comments lowered expectations of a rate cut by the FOMC at its September meeting, US Treasury yields were little changed, dealers said. On the global front, traders await non-farm payrolls data on Friday, along with further clarity on US President Donald Trump's tariff policy.

Traders are now mainly focussed on the MPC meeting outcome, dealers said. While traders do not expect a rate cut next week, they will track any indications of further rate cuts. A few dealers expect that the RBI's CPI inflation forecasts could be lowered by 5-10 basis points. Traders also await the revised liquidity management framework, expected at the MPC meeting outcome. 

Volumes in the 6.79%, 2034 gilt dropped this week and price action was muted, as traders favoured the benchmark 10-year 6.33%, 2035 gilt, dealers said. Most traders placed intraday bets, and would reverse them later in the day, dealers said. Some expect a fall in prices later in the day ahead of the weekly auction Friday. At the auction, the government will sell INR 160 billion of the 6.68%, 2040 bond and INR 160 billion of the 6.90%, 2065 bond. Short-term bond prices were up on purchases by banks' asset and liability managers, dealers said.

"There's no particular segment that you can attribute the buys and sales to, because volumes are low and everything is intraday," a trader at a primary dealership said. "I don't see a movement later in the day, it'll just be around 4-5 paisa here and there because of auction." 

During the day, traders await the result of the INR-300-billion government bond buyback auction. Several banks did not participate since the bonds on offer were the same as at the previous buyback auction, and banks did not have stock of these bonds. Others said the papers were no longer 'in-the-money' or profitable due to the fall in secondary market prices. Cut-off prices are expected to be slightly higher than those indicated by Financial Benchmarks India Pvt. Ltd.

As of 1230 IST, the turnover in the gilts market was INR 222.90 billion, higher than INR 128.55 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 6.35-6.39% and that on the 6.79%, 2034 gilt is seen at 6.40-6.45%. (Cassandra Carvalho)

India Gilts: Off lows as rupee sheds some losses; levels seen lucrative to buy

MUMBAI--0930 IST--Prices of government bonds were off lows as the rupee shed some losses from early trade. Current price levels were lucrative to buy gilts, dealers said. Traders have largely shrugged off US President Donald Trump's comments saying the US would impose 25% tariffs on Indian goods being shipped to the country, along with an additional penalty. Most traders believe a US-India trade pact is likely, especially since shortly after the tariff announcement, Trump said New Delhi and Washington were negotiating a trade deal.

"6.38% (yield on the 6.33%, 2035 gilt) and 6.40% are downside levels, they're support levels," a dealer at a state-owned bank said. "There's always good buying when yield goes above 6.37%, and now most of the events are covered this week. FOMC was similar to last time. Now, the focus will be on MPC (Reserve Bank of India's Monetary Policy Committee meeting next week)." 

The rupee was at 87.63 per dollar, against a low of 87.74 a dollar in early trade, likely due to dollar sales by some banks for the RBI. Tracking this, gilts recovered most losses to trade steady. Some traders said the US tariff would hit growth more than inflation in India, which could strengthen the case for rate cuts in India. Traders will now focus on the MPC meeting outcome next week. The outcome of the US Federal Open Market Committee's meeting was largely along expected lines, dealers said. 

"Playing the rupee is not the way to play this market. This hit is going to be based on growth slowdown, not an EM risk-off or inflation bias," a dealer at a primary dealership said. "So, that is a natural positive for rates, and the next action is still likely to be a cut not a hike."

Some traders expect selling pressure later in the day as traders trim portfolios to make space for fresh stock at the weekly gilt auction Friday. The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 160 billion of the 6.90%, 2065 bond.

Traders will track the result of the INR-300-billion buyback auction. Cut-off prices are seen higher than secondary market valuations, as traders look to book profit from selling in-the-money papers, dealers said. 

As of 0930 IST, the turnover in the gilts market was INR 58.70 billion, higher than INR 47.35 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 6.33-6.40% and that on the 6.79%, 2034 gilt is seen at 6.37-6.45%. (Cassandra Carvalho)

India Gilts: Seen dn tracking rupee; US FOMC meet outcome on expected lines

MUMBAI – Prices of government bonds are seen opening lower Thursday, tracking a likely fall in the rupee against the dollar after US President Donald Trump Wednesday announced that the US would impose 25% tariffs on Indian goods being shipped to the country, along with an additional penalty, from Friday. Some of the initial panic after Trump's comments may ebb since several traders still believe that a US-India trade deal is in the works and that the announcement was tactic to seal a deal quicker. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.33-6.40% during the day. The 2035 gilt is seen opening 5-10 paise lower. On Wednesday, the bond ended at INR 99.70, or 6.37% yield. Traders expect erstwhile 10-year benchmark 6.79%, 2034 gilt to trade in a range of 6.37-6.45%. The 2034 gilt closed at INR 102.57, or 6.41% yield on Wednesday. The yield on the benchmark 10-year US Treasury note was 4.36% at 0815 IST, a tad higher from 4.34% at 1700 IST Wednesday. 

The movement in the rupee against the dollar may lend cues to gilts during the day, dealers said. The rupee is seen opening around 87.64 per dollar from 87.42 per dollar at 1530 Wednesday. Crude prices also inched up, which may weigh on gilts. Brent crude for September delivery was up at $73.10 a barrel in Asian trade at 0815 IST from $72.00 a barrel at the end of Indian market hours on Wednesday. 

Hours after the tariff announcement, Trump Wednesday said New Delhi and Washington were negotiating a trade deal. As part of the trade deal, India was willing to cut tariffs "very substantially", he said.

The US Federal Open Market Committee Wednesday left the federal funds target rate range unchanged at 4.25-4.50% for the fifth consecutive meeting. However, two officials--Michelle W. Bowman and Christopher J. Waller--voted in favour of a 25-basis-points rate cut. US yields rose after US Federal Reserve Chair Jerome Powell held the suspense on a rate cut in September. At 0815 IST, the CME FedWatch tool showed that Fed fund futures reflected a 42% probability of a 25 bps rate cut in the FOMC's September meeting, down from 63% a day ago. Economic data in the US also indicated strength in the US economy. 

Traders will also take cues from the result of the buyback auction. The government will buy back three gilts worth INR 300 billion, which are all maturing in 2026-27 (Apr-Mar) at 1030-1130 IST. This will be the fourth buyback auction in the current financial year. Cut-off prices are seen much higher than prices indicated by Financial Benchmarks India Pvt. Ltd. Wednesday. 

On the liquidity front, the BRI will hold an overnight variable rate reverse repo auction of INR 500 billion Thursday. 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 next week. Dealers expect the RBI to define the optimal level of liquidity in the banking system in the draft guidelines.(Cassandra Carvalho)

End

US$1 = INR 87.60

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

Edited by Saji George Titus

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