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Informist, Monday, Aug. 4, 2025

 

By Cassandra Carvalho

 

MUMBAI – Prices of government bonds surged Monday as traders placed bets on a softer policy outcome by the Reserve Bank of India's Monetary Policy Committee Wednesday, dealers said. Traders expect the central bank to lower its GDP growth forecast of 6.5% for 2025-26 (Apr-Mar) by 15-20 basis points at the MPC outcome, while some also expect the rate-setting panel to cut the repo rate by 25 bps Wednesday. The rise in bond prices was triggered by a sharp fall in US Treasury yields over the weekend after lower-than-expected non-farm payrolls for July. 

 

The 10-year benchmark gilt closed at INR 100.08, or a yield of 6.3179%, against INR 99.72, or 6.3680% yield, Friday. The gilt yield fell 5 bps Monday, the largest fall since Jun. 24. The erstwhile 10-year benchmark 6.79%, 2034 bond closed at INR 102.82, or 6.3774%, against INR 102.53, or 6.4191%, Friday. 

 

"People will wait for MPC now," a dealer at a state-owned bank said. "I don't think there will be a cut (on Wednesday) but lower revision of GDP might happen... maybe revised to 6.3% or 6.2%; 6.3% (for FY26) seems likely." 

 

Traders also expect the RBI to lower its inflation forecast for FY26 by 10-20 bps. At the June policy outcome, the central bank cut its CPI inflation forecast for FY26 to 3.7% from 4.0% earlier. India's Apr-Jun average CPI inflation was 2.7%, lower than 2.9% forecast by the central bank. 

 

Foreign banks and private sector banks likely bought gilts during the day, but gains were capped due to sales from state-owned banks, dealers said.

 

However, as prices rose further, sales were also not as aggressive as state-owned banks were also betting on a rate cut by the MPC at least by Oct-Dec, if not in the August policy. Traders expect the gilt yield curve to continue steepening as the space for one more rate cut in India was evident, especially after chances of the US Federal Open Market Committee cutting rates in September zoomed post the weak jobs data. 

 

The US employment report for July, released after market hours Friday showed non-farm payrolls in the US were 73,000 in July, and followed the revised figure of 14,000 for June. Consensus estimates from The Wall Street Journal expected non-farm payrolls at 100,000, up from an initial print of 147,000 in June. Unemployment rose to 4.2% in July from 4.1% the previous month, in line with expectations. Subsequently, US yields plunged. The yield on the benchmark 10-year US Treasury note was 4.23% at 1700 IST, lower than 4.38% the same time Friday. At 1800 IST, the CME FedWatch tool showed that Fed fund futures reflected a 85% probability of a 25-bps rate cut, at the FOMC's September meeting, from 63% a week ago. 

 

However, uncertainty on when the next rate cut would take place made traders prefer building portfolios by buying liquid gilts such as the 6.33%, 2035 gilt. Traders did not want to aggressively price in a rate cut Wednesday after the MPC had changed its stance to neutral in June, they said. 

 

"There's so much flip-flopping that's happening in policy that's why market is not offering that premium also which we saw earlier," a dealer at a private-sector bank said. "If the rate cut cycle is going so fast that means the rate hike cycle will also be at this pace."  

 

Some traders also picked up longer-tenure gilts, such as the higher-yielding eight-year 7.18%, 2033 gilt, to capture a higher return due to per-basis fall in yields on rate cut bets, they said. The 2033 gilt ended at INR 104.88, 25 paise up from Friday's close. However, traders said that the 15-year 6.68%, 2040 gilt 'underperformed' even though its yield spread over the 10-year benchmark gilt was lucrative, due to preference for short-term gilts. The five-year benchmark 6.01%, 2030 gilt ended at INR 99.99, up 10 paise from its previous close. Gilts of similar maturity also ended sharply higher.  

 

During the day, the fall in crude prices and overnight indexed swap rates also aided the rise in bond prices, dealers said. Brent crude for October delivery fell to $68.46 per barrel in Asian trade at 1700 IST from $71.06 a barrel at the end of Indian market hours on Friday. The one-year OIS rate fell over 6 bps Monday to 5.45%, the most in a day since Apr. 4. Earlier in the day, the rise in the rupee against the dollar also supported gilt prices.  

 

The turnover in the government bond market Monday was INR 715.70 billion, more than double from INR 354.90 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Monday, while two trades worth INR 100 million were settled through this method Friday. 

 

OUTLOOK

On Tuesday, bond prices are likely to take cues from the overnight movement in US yields, dealers said. Dealers expect bond prices to rise further nearing the MPC outcome, and the yield on the 10-year benchmark could fall to 6.30%. If the MPC cuts the repo rate by 25 bps Wednesday, the gilt yield could fall to 6.20-6.25%, but traders do not see the yield falling below that.  

 

Traders will also look out for any further announcements on US tariffs on India. Most traders expect the current 25% tariff imposed by the US on India to lead to a slowdown in domestic growth, which could prompt the RBI to cut rates later in the year, dealers said. 

 

Traders will also look out for any announcement on liquidity management, including the new draft liquidity management framework. A few traders said that if the RBI does not announce a variable rate reverse repo auction for Tuesday, bond prices could rise by 10-15 paise since traders may interpret it as the central bank paving the way for a softer monetary policy. However, other traders said that VRRR auctions were priced in and that the central bank would keep the effective liquidity surplus at around INR 2.3 trillion to INR 2.5 trillion. 

 

Traders may also track the result of the INR-271-billion state bond auction Tuesday. Gains in gilts maturing in above 10 years were limited Monday compared to other tenures due to the heavier-than-indicated supply of state bonds Tuesday. The indicative calendar for state borrowing for Jul-Sept showed 17 states would borrow INR 267.17 billion on Tuesday.

 

Any movement in the rupee against the dollar and crude oil prices may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.28-6.35% and that on the 6.79%, 2034 bond is seen at 6.35-6.39%.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	100.0750	6.3179%	99.7150	6.3680%
6.79%, 2034	102.8200	6.3774%	102.5300	6.4191%
6.75%, 2029	102.9800	5.9650%	102.8000	6.0120%
6.68%, 2040	100.1700	6.6611%	99.8900	6.6910%
6.90%, 2065	98.0300	7.0472%	97.7200	7.0710%

 

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India Gilts: Up more on bets of softer policy Wed, technical levels broken

 

	1533 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	100.04	100.04	99.87	99.90	99.72
YTM (%)	6.3231	6.3464	6.3227	6.3425	6.3680

 

 

	1533 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	102.81	102.81	102.67	102.70	102.53
YTM (%)	6.3788	6.3989	6.3788	6.3946	6.4191

 

India Gilts: Up more on bets of softer policy Wed, technical levels broken

 

MUMBAI--1533 IST--Prices of government bonds rose to the day's high as traders bet on the Reserve Bank of India's Monetary Policy Committee adopting a softer approach to policy easing at the outcome of its meeting on Wednesday, dealers said. Additionally, the yield on the 10-year benchmark 6.33%, 2035 gilt fell below the key technical level of 6.33%, which triggered further rise in prices, dealers said. 

 

"Public sector banks were selling, but now above the 92 paisa (99.92 on the 6.33%, 2035 gilt) level, the selling has reduced," a trader at a primary dealership said. "So, anything above INR 100, traders can rig the prices further (due to lack of aggressive sales)."

 

Traders expect the commentary of the rate-setting panel on Wednesday to be more accommodative to further rate cuts this calendar year. Most traders expect the MPC to cut rates in October or December, with some also re-aligning portfolios in expectations of a cut on Wednesday, dealers said. Traders also expect the CPI inflation estimate for FY26 to be lowered by 5-20 basis points, an some also expect the RBI to lower its GDP growth forecast for FY26 Wednesday. Bond prices are expected to rise more by Wednesday, and the 10-year benchmark yield is seen hitting 6.30%, while the yield on the 6.79%, 2034 gilt is seen at 6.35%. Profit-booking by state-owned banks capped the gains Monday, traders said. 

 

Foreign banks reversed their sales last week and covered short bets Monday, dealers said. Primary dealerships and private sector banks were also buying gilts, while state-owned banks were less aggressive in sales as they also expect a rate cut in the rest of the calendar year.     

 

Traders favoured higher-yielding papers such as the eight-year 7.18%, 2033 gilt on expectations that yields would fall more. Dealers expect the yield curve to steepen further, but due to uncertainty on the timing of the next rate cut, preferred positioning in the liquid 10-year benchmark 6.33%, 2035 gilt and the 6.79%, 2034 gilt. A fall in crude oil prices also aided the rise in gilt prices, dealers said. Brent crude for October delivery fell to $68.82 a barrel in Asian trade at 1530 IST from $71.06 a barrel at the end of Indian market hours on Friday.    

 

As at 1530 IST, the turnover in the gilts market was INR 513.30 billion, sharply higher than INR 248.40 billion at 1530 IST Friday, 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 6.30-6.35% and that on the 6.79%, 2034 gilt is seen at 6.35-6.38%.  (Cassandra Carvalho)

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India Gilts: Remain sharply up; traders raise MPC rate cut bets post US data

 

	1325 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	99.95	99.98	99.87	99.90	99.72
YTM (%)	6.3352	6.3464	6.3311	6.3425	6.3680

 

	1325 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	102.76	102.76	102.67	102.70	102.53
YTM (%)	6.3867	6.3989	6.3864	6.3946	6.4191

 

India Gilts: Remain sharply up; traders raise MPC rate cut bets post US data

 

MUMBAI--1325 IST--Government bond prices remained sharply up as traders ramped up bets on a rate cut by the Reserve Bank of India's Monetary Policy Committee later in the year, dealers said. However, the rise in prices was capped as traders did not want to aggressively price in a rate cut Wednesday after the panel had changed its stance to neutral in June, they said. 

 

"OIS (overnight indexed swap rates) are pricing rate cuts more than gilts, but here (in gilts), too, some people are pricing in a rate cut on Wednesday as well," a dealer at a private sector bank said. "The yield differential between US and India will widen because of rate cut there (in US), so that, along with a likely slowdown in growth in India will open up more space for rate cuts for the MPC." The one-year OIS fell to 5.46% Monday, the lowest intraday level since Jun. 6. 

 

Some traders are also partly pricing in chances of a rate by the RBI's rate-setting panel on Wednesday, though most are now betting for a rate cut in October, with some betting on another cut in December, dealers said. Traders have raised their bets on a rate by the MPC after weak US jobs data increased chances of rate cuts by the Federal Open Market Committee in September, dealers said. However, traders waited for the panel's comments on future rates on Wednesday for more cues to trade, they said.

 

Traders also expect the RBI to lower its CPI forecast for the financial year ending March, from 3.7% currently, on Wednesday, they said. Traders also expect the RBI to lower its GDP forecast, from 6.5% for FY26 currently, in its October policy review as they see fog around US tariffs to clear up by then. 

 

Most traders continued to prefer gilts maturing within five to 10 years as they expect a further steepening in the yield curve due to rate cuts, dealers said. Some traders also picked up longer-tenure gilts to capture a higher return due to per-basis fall in yields on rate cut bets, they said. 

 

As at 1324 IST, turnover in the gilts market was INR 298.90 billion, more than double the INR 136.70 billion at 1330 IST Friday, 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 6.32-6.38% and that on the 6.79%, 2034 gilt is seen at 6.38-6.42%.  (Srijita Bose)

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India Gilts: Sharply up on fall in US yields, rise in rupee

 

	0923 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	99.91	99.93	99.87	99.90	99.72
YTM (%)	6.3415	6.3464	6.3380	6.3425	6.3680

 

	0923 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	102.70	102.72	102.67	102.70	102.53
YTM (%)	6.3946	6.3989	6.3917	6.3946	6.4191

 

India Gilts: Sharply up on fall in US yields, rise in rupee 

 

MUMBAI--0923 IST--Government bond prices were sharply up Monday tracking a fall in US Treasury yields, dealers said. Rupee's rise against the dollar also lifted bond prices, they said.

 

The yield on the benchmark 10-year US Treasury note was 4.25%, sharply down from 4.38% at 1700 IST Friday. Yields fell after US jobs data showed labour market was worse off than earlier thought which raised investors' expectations of a rate cut by the US Federal Open Market Committee. The CME's FedWatch tool now shows nearly 83% chances of a rate cut by the FOMC in September, against 62% a week earlier. US non-farm payrolls rose by 73,000 in July. This reading was worse than the market expectation of 110,000, and followed the revised figure of 14,000 for June. The rupee was at 87.31 against the dollar at 0923 IST, against 87.54 Friday. 

 

"There were short bets before weekend so people are covering that," a dealer at a private sector bank said. "US yields and rupee are also providing comfort, but the main focus now will be on Wednesday's decision (of Reserve Bank of India's Monetary Policy Committee)."

 

Traders also covered short bets placed ahead of the weekly gilt auction Friday and on caution in view of the weekend, dealers said. Foreign banks and mutual funds likely picked up gilts on fall in US yields, they said. The soft US jobs data for July and downward revision in the June figure also resulted in expectations of a slowdown in domestic growth and rate cut by the RBI's Monetary Policy Committee later in the year. However, traders refrained from placing aggressive and large bets on their rate cut views. Traders are now waiting for the outcome of RBI's rate-setting panel for cues on future rate trajectory, as they expect it to hold rates at Wednesday's outcome, dealers said.

 

As at 0923 IST, turnover in the gilts market was INR 52.00 billion, higher than INR 6.10 billion at 0930 IST Friday, 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 6.32-6.38% and that on the 6.79%, 2034 gilt is seen at 6.38-6.45%.  (Srijita Bose)

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India Gilts: Seen up on fall in US yields; MPC outcome in focus

 

MUMBAI – Government bond prices are seen opening higher Monday tracking a fall in US Treasury yields, dealers said. However, the rise could be capped as traders are waiting for the outcome of the Reserve Bank of India's policy Wednesday, they said. 

 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.33-6.40% during the day. On Friday, the bond ended at INR 99.72, 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 102.53, or 6.42% yield on Friday. 

 

The yield on the benchmark 10-year US Treasury note was 4.25% at 0800 IST, sharply down from 4.38% at 1700 IST Friday. Yields fell after US non-farm payrolls rose by 73,000 in July. This reading was worse than the market expectation of 110,000, and followed the revised figure of 14,000 for June. This pointed to a worse off labour market than earlier thought and raised investors' expectations of a rate cut by the US Federal Open Market Committee. The CME's FedWatch tool now shows nearly 83% chances of a cut by the FOMC in September, against 62% a week earlier. 

 

Easing of crude oil prices may provide some comfort to bond traders. Brent crude oil futures for October delivery fell to $69.46 per barrel at 0800 IST from $71.06 a barrel at 1700 IST Friday. Traders may also take cues from the movement of rupee against the dollar on Monday.

 

However, most traders said they will wait for the RBI's Monetary Policy Committee to provide further clarity on rates. The rate-setting panel's three-day policy review meeting begins Monday and ends Wednesday. Most traders have pared bets of a rate cut but will look out for any cues on future rate cuts, dealers said. Traders will also look out for any announcement on liquidity management, including a new framework.

 

Traders are also waiting for clarity on the RBI's dollar/rupee buy-sell swaps, which are set to mature Monday. The RBI giving delivery of the forward dollars it sold as part of the swap would entail the central bank infusing $5 billion into the financial system while simultaneously taking out around INR 438 billion of rupee liquidity at the current exchange rate. As per the latest RBI data, the central bank net absorbed INR 2.86 trillion from the banking system Thursday.  (Srijita Bose)

 

End

 

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

 

Edited by Tanima Banerjee

 

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