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Informist, Wednesday, Aug. 6, 2025

By Cassandra Carvalho

MUMBAI – Government bond yields surged Wednesday after Reserve Bank of India Governor Sanjay Malhotra gave no indication of scope for a quicker rate-cut cycle following the decision of the Monetary Policy Committee to keep rates steady post a three-day meeting. The central bank retained its GDP growth forecasts, which was a disappointment to several traders who were hoping for a weaker outlook on growth. Later in the day, stop-losses were triggered when the yield on the 10-year benchmark gilt rose above the key technical 6.40% level, which led to a further rise in yields across the curve, dealers said. 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 99.37, or a yield of 6.4162%, which is the highest closing yield for a 10-year benchmark gilt since Apr. 11, against INR 99.97, or 6.3321% yield, Tuesday. The benchmark gilt yield rose 8 basis points Wednesday, the most since Jun. 4, 2024. The erstwhile 10-year benchmark 6.79%, 2034 bond closed at INR 102.11, or 6.4797%, against INR 102.71, or 6.3935%, Tuesday. The five-year benchmark 6.01%, 2030 gilt yield ended 7 bps higher from Tuesday, while the 15-year benchmark 6.68%, 2040 gilt yield closed 9 bps higher.  

"The governor kept saying inflation will go up but growth is not reducing," a dealer at a state-owned bank said. "Ten-year (6.33%, 2035 gilt yield) can easily go to 6.45% by the end of this week, because we have the auction also which I don't think anybody will be interested in."

Most traders were hoping for the rate-setting panel to keep the door open for further rate cuts, especially for a 25 bps cut in October, while keeping the repo unchanged Wednesday. A few traders were hoping the MPC would cut the repo rate by 25 bps Wednesday. Bond yields rose sharply after the MPC kept rates steady and commentary indicated that there was no urgency to cut rates sooner. Traders pared their bets for an October rate cut, and now expect a cut only in December or after. The central bank's forecasts on GDP growth and inflation also disappointed traders.

Traders were expecting the central bank to cut its forecasts for GDP growth and CPI inflation for 2025-26 (Apr-Mar) by 10-20 basis points Wednesday. The central bank retained its FY26 GDP growth forecast of 6.5%, while revising downwards its CPI inflation forecast for FY26 to 3.1% from 3.7% earlier. However, Malhotra said core CPI inflation is expected to remain moderately above 4% in FY26.

"The growth impact (lower growth) is not acknowledged and CPI for next FY has been kept high," a dealer at another state-owned bank said. "For now he (governor) is not in a mood to cut." The central bank forecasts Apr-Jun FY27 CPI inflation at 4.9%. Other dealers said that the re-balancing of weights in the CPI basket would see the figure being revised downwards.   

The next cue to give the market direction on rates is the GDP growth data for Apr-Jun. The data is due on Aug. 29, and some traders expect a print of around 6% or below, which is lower than the RBI's forecast of 6.5% for the quarter. On the contrary, some traders expect the data to be higher than estimated because of a strong monsoon season and a weak print in the year-ago period.  

The liquidity management framework, which was released during market hours, also pushed up gilt yields nearing the end of trade, dealers said. Most of the report's recommendations were already expected and priced in, and traders were expecting new measures for managing liquidity, such as a fixed-rate repo/reverse repo window. Some had also speculated that the Liquidity Adjustment Facility corridor could be expanded. The report also did not define the optimum liquidity in the system, which is what traders were awaiting.

"The last 2-3 bps rise we saw at end of day was because of the liquidity framework," a dealer at a private sector bank said. "RBI has already stopped the 14-day operations and the report said whatever it (the RBI) is already doing. Traders were expecting something new like widening SDF, etc."

Foreign banks were likely the major sellers during the day, dealers said. The results of the INR-210-billion Treasury bill auction also pushed up gilt yields. Demand was firm due to preference for short-term securities, especially from mutual funds and some state-owned banks. Expectations that the RBI preferred an overnight borrowing rate closer to repo after the policy outcome reflected in the 91-day T-bill cut-off yield of 5.46%, which was higher than expectations of 5.42%, dealers said. 

The turnover in the government bond market Wednesday was INR 691.85 billion, higher than INR 277.82 billion Tuesday, but lower than the INR 1.30 trillion turnover at the MPC's June policy outcome on Jun. 6, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Wednesday, while there were 12 trades under this method worth INR 600 million the previous session.

OUTLOOK

On Thursday, bond yields are likely to open higher as traders are likely to trim portfolios due to a lack of firm views on the rate cuts in the near term. Traders see the yield on the benchmark 10-year 6.33%, 2035 bond hitting 6.45% in the next few trading sessions, after which it could further rise to 6.48%.

Traders will also trim portfolios to make room for fresh stock at the weekly gilt auction Friday. The government will sell INR 110 billion of the 6.28%, 2032 bond and INR 140 billion of the 7.09%, 2074 bond. Due to the sharp rise in yields in the secondary market, demand from insurance companies is seen firm for the 2074 bond as levels are seen lucrative to lock in. However, traders will prefer short-term papers maturing in upto 10 years due to the risk of long-term papers. 

Bonds may also track the movement of US Treasury yields, crude oil prices and the movement of the rupee against the dollar. Post market hours Wednesday, the White House said it would impose an extra 25% tariff on Indian exports to the US starting Aug. 27. Previously, the US had imposed 25% tariffs on Indian goods along with an additional penalty for importing oil from Russia.

Some traders expect the yield curve to steepen due to aversion to long-term papers, while others expect yields across tenures to move in tandem with each other.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.38-6.45% and that on the 6.79%, 2034 bond is seen at 6.42-6.50%.

India Gilts: Down more as technical levels broken on 10-yr benchmark

India Gilts: Down more as technical levels broken on 10-yr benchmark

MUMBAI--1541 IST--Prices of government bonds fell further as the 10-year benchmark 6.33%, 2035 gilt price broke the technical level of INR 99.55. Prices were sharply down as market sentiment soured after the Reserve Bank of India Governor Sanjay Malhotra did not indicate scope for more rate cuts. Traders pared bets of rate cuts in the Oct-Dec quarter after the central bank did not lower its GDP growth estimate for 2025-26 (Apr-Mar). Traders were betting on a rate cut in Oct-Dec after the chances of monetary easing by the US Federal Open Market Committee in September jumped due to weak jobs data in the US.

"6.40% (yield) is still holding (on the 6.33%, 2035 benchmark gilt)," a dealer at a state-owned bank said. "But from here, where (will rates go) we don't know, and there's a fresh supply coming, so the market will be down (in price terms)."

Traders said that the committee's voting pattern dampened rate cut expectations, as the unanimous decision to maintain the rate and stance sent a strong message about the panel's economic outlook. Traders have largely priced in low CPI inflation prints for the rest of FY26 and dismissed the downward revisions the RBI made in its forecast for FY26, they said. Some traders felt that the CPI inflation estimate of 4.9% for Apr-Jun 2027 was a cause for concern, while others said that the re-balancing of weights in the CPI basket would see the figure being revised downwards. 

The next cue to give the market direction on rates is the GDP growth data for Apr-Jun. The data is due on Aug. 29, and traders expect a print of around 6% or below, which is lower than the RBI's forecast of 6.5% for the quarter. While traders were disappointed that the RBI did not cut its growth forecast for FY26 by 10-20 basis points Wednesday, they said it is likely that the data would undershoot the central bank's estimate.           

The results of the INR-210-billion Treasury bill auction were largely along expected lines. Demand was firm due to preference for short-term securities, especially from state-owned banks. The knee-jerk reaction to the policy outcome reflected in the 91-day T-bill cut-off yield of 5.46%, which was higher than expectations of 5.42%, dealers said. 

At 1530 IST, turnover in the gilts market was INR 456.60 billion, higher than INR 305.80 billion at the same time Tuesday but on the lower side compared to previous policy announcement days, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Traders were hesitant in significantly re-aligning portfolios due to a lack of a firm view on rates. For the rest of the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.36-6.45% and the yield on the 6.79%, 2034 gilt is seen at 6.42-6.49%. Some traders expect bond prices to recover slightly, near the end of trade. (Cassandra Carvalho)

India Gilts: Down more, traders unwind Oct rate cut bets post MPC outcome

India Gilts: Down more, traders unwind Oct rate cut bets post MPC outcome

MUMBAI--1344 IST--Government bond prices fell further as traders pared back their expectation of a rate cut in October after the Reserve Bank of India Governor Sanjay Malhotra's comments, dealers said. Prices had fallen after the RBI's Monetary Policy Committee unanimously voted to keep the stance and the repo rate unchanged.

"The RBI is taking a very cautious stance and they have already changed the inflation number so now the bar for a rate cut will be very high," a dealer at a primary dealership said. "Pressure will remain on long (term) bonds but overall I don't see a major sell-off right now...it could come at auction (Friday)."

Traders had expected the RBI could lower both its CPI and GDP forecast. While the RBI lowered the quarterly CPI estimates of Jul-Sept and Oct-Dec down to 2.1% and 3.1%, respectively, it retained its growth estimates. Traders who had partly priced in for a rate cut by the panel in October unwound their bets as they felt that the monetary policy easing cycle is near its end, dealers said. 

Some traders also felt that impact of US tariffs on India is yet to play out and some held out for growth slowing down in the upcoming quarters to promt the rate-setting panel to cut rates later in the year. However, others felt that with expectation the CPI inflation may rise above 4% in the Jan-Mar quarter, the space to cut rates as a reaction to slowing growth due to US tariffs could be limited, dealers said. 

Fall in longer tenure bonds was more pronounced than in other segments. Traders sold their longer tenure bond holdings to reduce their duration risks, dealers said. Traders also expect a steepening in the yield curve and chose gilts maturing within 10 years instead, they said. 

Trade volumes in shorter tenure bonds was limited as investors who had stock of these bonds refrained from selling them on expectations that the yield curve could steepen, dealers said. At 1330 IST, turnover in the gilts market was INR 395.55 billion, higher than INR 243.90 billion at the same time Tuesday, 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 6.33-6.40% and that on the 6.79%, 2034 gilt is seen at 6.40-6.45%.  (Srijita Bose)

India Gilts: Slump as MPC leaves repo unchanged, RBI doesn't cut FY26 GDP view

India Gilts: Slump as MPC leaves repo unchanged, RBI doesn't cut FY26 GDP view

MUMBAI--1028 IST--Prices of government bonds slumped after the Reserve Bank of India's Monetary Policy Committee left the repo rate unchanged at 5.50% and the central bank retained its GDP growth forecast for 2025-26 (Apr-Mar) at 6.5%. Several traders had expected a rate cut of 25 bps and a 10-20 bps cut in the GDP growth forecast for FY26, they said. The yield on the 6.79%, 2034 gilt hit its highest level in nearly four months.

Traders had also expected the RBI to cut its CPI inflation forecast for FY26, which it did. The central bank cut its FY26 CPI forecast to 3.1% from 3.7% earlier. However, RBI Governor Sanjay Malhotra said core CPI inflation is expected to remain moderately above 4% in FY26.

"Malhotra said to look out for data prints and there was no clear signal on whether there will be more rate cuts in the year because GDP was also unchanged," a dealer at a private sector bank said. "Since market had somewhat priced in a rate cut, we are seeing the fall, but I don't see a further fall from these levels."

Traders expect the yield curve to steepen further as bonds maturing in 10 years and more were down the most. Traders had built positions largely in the 10-year benchmark 6.33%, 2035 gilt and the 6.79%, 2034 gilt, and unwound these bets. The view on further rate cuts is also uncertain, dealers said.

At 1030 IST, turnover in the gilts market was INR 204.70 billion, higher than INR 153.80 billion at the same time Tuesday, 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 6.33-6.40% and that on the 6.79%, 2034 gilt is seen at 6.40-6.45%.  (Cassandra Carvalho)

India Gilts: Steady before MPC meet outcome

India Gilts: Steady before MPC meet outcome

MUMBAI--0925 IST--Government bond prices were steady and volume thin ahead of the outcome of the Monetary Policy Committee's meeting that will be announced by Reserve Bank of India Governor Sanjay Malhotra at 1000 IST. Traders expect a softer policy due to concerns about growth slowing because of likely imposition of US tariffs on India, dealers said.

"There are differing opinions on what will happen in the policy but certainly people are waiting for how the commentary and voting pattern will turn out," a dealer at a state-owned bank said.

Traders have priced in the possibility of the rate-setting panel keeping the door open for more rate cuts. However, some traders said US President Donald Trump's tariff threats to 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. Traders also expect a revision in RBI's GDP and CPI forecasts for the financial year ending March, dealers said.

At 0923 IST, turnover in the gilts market was INR 14.10 billion, lower than INR 62.05 billion at 0930 IST Tuesday, 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 6.15-6.40% and that on the 6.79%, 2034 gilt is seen at 6.30-6.45%.  (Srijita Bose)

India Gilts: Seen steady before MPC meet outcome, rupee to lend cues at open

MUMBAI – Prices of government bonds are seen opening steady ahead of Reserve Bank of India Governor Sanjay Malhotra's address at 1000 IST to detail the outcome of the Montary Policy Committee meeting. Bonds may also track movement of the rupee against the dollar at open, dealers said.

US President Donald Trump, in an interview with news channel CNBC Tuesday, said 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 view and several other factors.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.15-6.40% during the day. On Tuesday, the bond ended at INR 99.97, or 6.33% yield. Traders expect the erstwhile 10-year benchmark 6.79%, 2034 gilt to trade in a range of 6.30-6.45%. The 2034 gilt closed at INR 102.71, or 6.39% yield on Tuesday. 

Bond traders have priced in the possibility that the rate-setting panel's commentary could keep the door open for more rate cuts. Increased chances of a rate cut by the US Federal Open Market Commitee in September and low inflation in India re-ignited hopes of another interest rate cuts in India, dealers said. However, some traders said global 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. Traders also expect a revision in RBI's GDP and CPI forecasts for the financial year ending March, dealers said. 

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.  (Srijita Bose)

End

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

Edited by Deepshikha Bhardwaj

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