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Informist, Tuesday, Aug. 5, 2025

 

By Cassandra Carvalho

 

MUMBAI – Prices of most government bonds ended lower Tuesday as traders trimmed exposure to risk, especially bonds maturing in 10 years and above, ahead of the outcome Wednesday of the Reserve Bank of India's Monetary Policy Committee meeting. State-owned banks took profits after a sharp rise in prices Monday while foreign banks were likely buyers during the day, dealers said. Bond prices had opened higher but a fall in the rupee against the dollar weighed in early trade.

 

The 10-year benchmark gilt closed at INR 99.97, or a yield of 6.3321%, against INR 100.08, or 6.3179% yield, Monday. The erstwhile 10-year benchmark 6.79%, 2034 bond closed at INR 102.71, or 6.3935%, against INR 102.82, or 6.3774%, Monday. Some short-term bond prices ended higher. The rupee closed at 87.80 per dollar at 1530 IST, from 87.66 per dollar at the same time Monday.

 

"Everyone is just sitting on the fence, no one has actual positions before the MPC," a dealer at a state-owned bank said. "We are hoping for a dovish statement, if they downgrade the CPI (revise the CPI forecast downwards) that symbolism will also show that further rate cut is possible."

 

Most traders do not expect the rate-setting panel to cut the repo rate Wednesday since it has already cut rates by 100 basis points so far in 2025, especially after the panel reversed its stance to "neutral" from "accomodative" at its June policy review. Most traders have positioned for a 10-30 bps cut in the central bank's CPI forecast for the financial year 2025-26 (Apr-Mar), with one dealer expecting a 40 bps cut. At the June policy outcome, the central bank had cut its CPI inflation forecast for FY26 to 3.7% from 4.0% earlier.

 

The threats by US President Donald Trump to impose a "penalty" over and above the 25% tariff due to kick in Thursday on Indian exports to the US have led traders to believe the central bank could also downgrade its GDP growth forecast for FY26 of 6.5% by 10-20 bps Wednesday. A small section of dealers has positioned itself for a rate cut Wednesday, they said, especially as a few economists have forecast a cut of 25 bps. Fourteen of the 17 economists polled by Informist said they expect the Monetary Policy Committee to leave the repo rate unchanged at 5.50% Wednesday. However, three poll participants said a rate cut remains a possibility after retail inflation fell to an over-six-year low of 2.10% in June and averaged 2.7% in Apr-Jun, 20 bps lower than the central bank's projection and well below its mandated target of 4.0%.

 

Most traders expect the panel to cut rates either at its October or December meeting. Traders said the panel was unlikely to cut rates until the US Federal Open Market Committee cuts its Fed funds rate, to protect the already-narrowing interest rate differential between the two countries. The yield on the 10-year benchmark US Treasury note was 4.21% at 1700 IST, marginally lower than 4.23% at the same time Monday.

 

Some dealers said the 10-year benchmark 6.33%, 2035 gilt yield could rise to 6.37-6.38% if the rate-setting panel leaves the policy rate unchanged Wednesday. If the panel does cut the repo rate, the 10-year benchmark gilt yield could fall to 6.15-6.18% and stabilise at 6.20%. If the panel does not cut the rate but opens up space for further easing and the central bank lowers both its GDP and CPI forecasts, dealers expect the 10-year yield to fall to 6.25-6.27%. Dealers said gains may be limited at these levels as traders would not want to purchase gilts aggressively at expensive prices if there were no cues on further rate cuts.

 

Bond traders have priced in the possibility that the panel's commentary could keep the door open for more rate cuts. After the panel front-loaded rate cuts to deliver a jumbo cut of 50 bps in June while changing its stance to "neutral", traders had erased all hopes of further rate cuts and assumed the current repo rate of 5.50% was the terminal repo rate. Increased chances of a rate cut by the FOMC in September after weak US jobs data and low inflation in India reignited hopes of another cut in India, dealers said. However, some traders said that international events, such as Trump's tariff threats on India, could result in the Monetary Policy Committee adopting a more cautious approach and refraining from major policy changes.

 

Traders will closely track the voting pattern of the six-member panel. Some expect the three external members to vote for a cut. Others said the panel would be unanimous in voting either for or against a cut.

 

Some traders said they preferred to position in the 10-year benchmark 6.33%, 2035 gilt since it was the most liquid paper. Others said they preferred gilts maturing in up to 10 years. Short-term bond prices ended higher compared to other tenures as traders bet on a steepening of the yield curve. While the yield spread of the 15-year 6.68%, 2040 bond over the 10-year benchmark was lucrative to buy, the risk of long-term paper coupled with heavy state bond supply Tuesday weighed on the bond's price.

 

"I think traders have already positioned, they have enough stock of short-term gilts, which is why short-term (price action and volume) is limited (compared to long-term gilts)," a dealer at another state-owned bank said. "The 6.01%, 2030 bond could fall to 5.80-5.82% (yield) if commentary is dovish. But long-term (gilts) not looking too favourable, there's too much risk there."

 

The turnover in the government bond market Tuesday was INR 277.82 billion, sharply down from INR 715.70 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were 12 trades using the wholesale digital rupee pilot Monday, 10 of which were in the 6.75%, 2029 gilt for a total of INR 500.00 million, and two were in the 7.10%, 2034 gilt for a total of INR 100.00 million. No trades were settled using this method Monday.

 

OUTLOOK

Wednesday, bond prices are likely to open steady on caution ahead of RBI Governor Sanjay Malhotra's address at 1000 IST. Bonds may also track the movement of the rupee against the dollar. Trump, after Indian market hours, said in an interview with news channel CNBC that the US may "substantially" raise tariffs on India in the next 24 hours. Most traders expect the current 25% tariff imposed by the US on India to result in a slowdown in domestic growth, which could prompt the RBI to cut rates later in the year, dealers said.  Traders expect heightened volatility in the gilts market during the day owing to a lack of consensus in views and several factors which will affect positioning.

 

Traders will also track any announcement on liquidity management, including the new draft liquidity management framework. Details on the Secured Overnight Rupee Rate benchmark, the definition of optimum liquidity in the system, and the central bank's ideal overnight borrowing rate are awaited. Traders speculate that the RBI could opt for daily variable rate repo and variable rate reverse repo auctions or a fixed-rate repo/reverse repo window. Some also speculated that the Liquidity Adjustment Facility corridor could be expanded.

 

The result of the INR 210.00-billion Treasury bill auction will depend upon the governor's address and the post-policy press conference. Any movement in crude oil prices may also lend cues. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.15-6.40% and that on the 6.79%, 2034 bond is seen at 6.30-6.45%.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	99.9725	6.3321%	100.0750	6.3179%
6.79%, 2034	102.7075	6.3935%	102.8200	6.3774%
6.75%, 2029	102.9500	5.9723%	102.9800	5.9650%
6.68%, 2040	99.9100	6.6888%	100.1700	6.6611%
6.90%, 2065	97.6500	7.0765%	98.0300	7.0472%

 

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India Gilts: Remain down; state bond auction cut-off ylds higher than view

 

	1430 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	100.00	100.14	99.96	100.05	100.08
YTM (%)	6.3290	6.3338	6.3092	6.3213	6.3179

 

	1430 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	102.74	102.88	102.73	102.84	102.82
YTM (%)	6.3895	6.3902	6.3695	6.3752	6.3774

 

India Gilts: Remain down; state bond auction cut-off ylds higher than view

 

MUMBAI--1430 IST--Prices of government bonds remained down as traders trimmed risks ahead of the Reserve Bank of India's Monetary Policy Committee meeting decision Wednesday. The cut-off yields of the INR-271-billion state bond auction were also higher than expected, which weighed on gilts, dealers said. 

 

"There was a tail at the (state bond) auction," a dealer at a state-owned bank said. "Before a policy no one will take, there's no rate cut (expected) but at least if there's dovish commentary tomorrow (Wednesday) demand will come. If they talk about growth (weakening) or leaving the door open for cuts then some buying will come, but until then some profit-booking is happening."

 

The RBI set cut-off yields on states' 10-year bonds in the range of 6.87-7.02%, higher than 6.87-6.92% estimated in an Informist poll. State-owned banks did not bid as aggressively at the state bond auction, dealers said. Some dealers were expecting firm demand for state bonds maturing in 10 years or below due to less supply in these tenures. However, the heavier-than-indicated state bond supply on the brink of a policy outcome reduced appetite for these securities, dealers said. The cut-off yields on the long-term state bonds maturing in more than 20 years were firm due to demand from insurance companies, dealers said. The cut-off yields on states' 30-year bonds were in the 7.15-7.16% range, a tad lower than an Informist poll estimate of 7.17%.   

 

In the secondary gilts market, most traders do not expect a rate cut Wednesday and trimmed any excess positions before the decision. However, traders expect RBI Governor Sanjay Malhotra's comments to indicate that the rate-setting panel would be open to further rate cuts. Traders also anticipate commentary on liquidity to be positive for the gilts market. They also await clarity on what the ideal overnight borrowing rate should be. Dealers are pricing in a downgrade of around 10-20 basis points in the central bank's GDP growth and CPI inflation forecasts for 2025-26 (Apr-Mar) Wednesday, with one dealer expecting a 40 bps cut in the FY26 CPI forecast. 

 

Traders expect a rate cut either in the Monetary Policy Committee's October or September meeting and preferred the 10-year benchmark 6.33%, 2035 gilt to position for such a scenario, they said. Some also said the yield spread of the 15-year 6.68%, 2040 bond was lucrative to buy but the heavy state bond supply weighed on the bond's price. 

 

As of 1430 IST, turnover in the gilts market was INR 273.00 billion, lower than INR 381.35 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 6.30-6.35% and that on the 6.79%, 2034 gilt is seen at 6.35-6.40%.  (Cassandra Carvalho)

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India Gilts: Reverse gains on short bets before MPC outcome, fall in rupee

 

	1134 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	100.00	100.14	99.96	100.05	100.08
YTM (%)	6.3290	6.3338	6.3092	6.3213	6.3179

 

	1134 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	102.75	102.88	102.75	102.84	102.82
YTM (%)	6.3870	6.3874	6.3695	6.3752	6.3774

 

India Gilts: Reverse gains on short bets before MPC outcome, fall in rupee

 

MUMBAI--1134 IST--Government bond prices reversed early gains and fell as traders placed short bets before the Reserve Bank of India's Monetary Policy Committee outcome Wednesday, dealers said. The sharp fall in rupee against the dollar also weighed down on gilt prices, they said.

 

"People have squared-off earlier positions and (are) now positioning for Wednesday. I don't think anyone is going for naked shorts because there is a 50% chance of (a) rate cut now," a dealer at a private sector bank said. "The rupee has also fallen, but because of RBI (intervention), the fall in limited. Plus, some might just be booking profits at these levels."

 

Traders who exited their old positions Monday placed fresh short bets before the rate-setting panel's decision Wednesday, dealers said. Traders are also likely selling bonds at a profit after Monday's rise. The yield on the 10-year benchmark 6.33%, 2035 bond fell 5 basis points Monday on expectation of a softer policy outcome Wednesday.

 

Some dealers also blamed the larger-than-indicated state bond auction size for the fall in gilts. Traders were likely selling gilts in the secondary market to make room for the auction amount, dealers said. At the auction Tuesday, demand from banks for bonds maturing within 10 years was firm. Traders preferred Tamil Nadu's 6.82%, 2035 bond due to attractive yields, dealers said. Demand from long-term investors such as insurers was also firm at the auction. However, state bonds maturing in 15-20 years saw muted demand from both traders and investors, dealers said.

 

As at 1130 IST, turnover in the gilts market was INR 176.80 billion, lower from INR 209.40 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 6.30-6.35% and that on the 6.79%, 2034 gilt is seen at 6.35-6.40%.  (Srijita Bose)

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India Gilts: Slightly up on softer policy view; fall in rupee limits rise

 

	0935 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	100.11	100.14	100.04	100.05	100.08
YTM (%)	6.3130	6.3227	6.3092	6.3213	6.3179

 

	0935 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	102.86	102.88	102.82	102.84	102.82
YTM (%)	6.3716	6.3773	6.3695	6.3752	6.3774

 

MUMBAI--0935 IST--Government bond prices were marginally higher Tuesday as traders expect a softer policy outcome by the Reserve Bank of India's Monetary Policy Committee Wednesday and placed bets on rate cuts by the panel later in the year, dealers said. However, a sharp fall in the rupee against the dollar the limited rise in gilts, dealers said. 

 

The rupee fell sharply after US President Donald Trump Monday threatened to raise tariffs on India over Russian oil purchases. Last week, Trump had announced 25% tariff on Indian goods. The rupee fell to a low of 87.89 per dollar Tuesday. 

 

"There is uncertainty around what Trump will do but overall there is a positive bias in the market due to rate cut expectations," a dealer at a state-owned bank said. "Even if there are higher tariff implications, the result will be a drag in growth which aligns with the rate cut view."

 

Traders are betting on a rate cut in October, while some expect another cut in December, dealers said. Some traders are also partly pricing on chances of a rate cut by the RBI's rate-setting panel on Wednesday. Traders expect the RBI to lower its CPI forecast for the financial year ending March, from 3.7% currently, on Wednesday, they said. They also expect the central bank to lower its GDP forecast from 6.5% for 2025-26 (Apr-Mar). Some traders see a revision on Wednesday while others expect it in the October policy review as they see fog around US tariffs to clear up by then.

 

Meanwhile, a higher-than-indicated state bond auction Tuesday also limited the rise in gilt prices, dealers said. States will aim to raise INR 271 billion on Tuesday. The indicative calendar for state borrowing for Jul-Sept showed 17 states would borrow INR 267.17 billion on Tuesday. This could lead to a fall in longer tenure gilts later the day, some dealers said. However, expectations of firm demand from insurers at auction and hope that the yield curve will steepen in the medium term could lead to a pick up in long-term bonds, others said. 

 

As at 0930 IST, turnover in the gilts market was INR 58.50 billion, slightly lower from INR 63.05 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 6.30-6.35% and that on the 6.79%, 2034 gilt is seen at 6.35-6.40%.  (Srijita Bose)

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India Gilts: Seen steady before state bond auction; to track rupee movement

 

MUMBAI – Government bond prices are likely to open steady Tuesday as traders will wait for the results of INR-271-billion state bond auction, dealers said. Prices may rise during the day as traders place bets on a softer policy outcome by the Reserve Bank of India's Monetary Policy Committee Wednesday, they said.

 

Meanwhile, US President Donald Trump Monday threatened to raise tariffs on India over Russian oil purchases. Last week, Trump had announced 25% tariff on Indian goods. Traders will closely watch the movement in the rupee against the dollar Tuesday. The rupee closed at 87.65 against the dollar Monday. 

 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.30-6.35% during the day. On Monday, the bond ended at INR 100.08, or 6.32% yield. Traders expect the erstwhile 10-year benchmark 6.79%, 2034 gilt to trade in a range of 6.35-6.40%. The 2034 gilt closed at INR 102.82, or 6.38% yield on Monday. 

 

The higher-than-indicated state auction Tuesday could lead to some selling in long-term bonds, dealers said. However, with 

expectations of rate cuts and a steepening in the yield curve, traders and some insurers may front-load their requirements, limiting the fall in gilts, they said. 

 

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

 

Traders expect the RBI to lower its CPI forecast for the financial year ending March, from 3.7% currently, on Wednesday, they said. They also expect the central bank to lower its GDP forecast, from 6.5% for FY26, with some projecting a revision on Wednesday while others expect it in the October policy review as they see fog around US tariffs to clear up by then.  (Srijita Bose)

 

End

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

 

Edited by Rajeev Pai

 

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