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Informist, Tuesday, Aug. 12, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds slumped Tuesday and the 10-year benchmark 6.33%, 2035 gilt yield ended at an over-four-month high of 6.49%, on fears of an increase in central government borrowing for 2025-26 (Apr-Mar) after tax collection data for the Apr 1-Aug 11 period showed net direct tax collection was down 4% on year at INR 6.639 trillion. Prices fell further as stop-losses were triggered at the psychologically crucial 6.4450% yield level on the 10-year benchmark 6.33%, 2035 gilt earlier, and at 6.4750% yield nearing the end of trade. Investors such as mutual funds likely continued to sell bonds Tuesday, after net sales worth INR 40.17 billion were recorded Monday. 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.83, or a yield of 6.4920% against INR 99.20, or 6.4398% yield, Monday. The spread of the bond yield over the repo rate of 5.50% widened to 99 basis points. The yield has risen nearly 12 bps in August alone. Short-term bond yields rose the most Tuesday, with the five-year 6.01%, 2030 gilt yield rising 8 bps.

"Basically everyone is just panicking that supply might increase but actually everyone knows that so soon government is not going to increase borrowing," a dealer at a private sector bank said. "Any additional supply announcements only come in Jan-Feb... Traders are hitting stop-losses but at the same time levels look very appealing to buy at 6.48-6.50%."

The central government's gross borrowing for 2025-26 (Apr-Mar) is pegged at INR 14.82 trillion, according to the Union Budget. Traders speculated that this figure could increase due to a shortfall in revenue. The Apr 1-Aug 11 direct tax collection constituted 26.3% of the FY26 Budget aim, the government said Tuesday. Traders were already speculating that the supply of bonds could increase due to possible government support to exporters following the 50% tariff on Indian goods by the US. Bond prices fell more near the end of trade after India's CPI inflation for July was slightly higher than expectations, but traders were more focussed on the gross borrowing since a below-2%-inflation print was already priced in.

India's CPI inflation for July came in at 1.55%, slightly higher than an Informist poll estimate of 1.3%. Traders were expecting a reading below 1.5%, but were largely unaffected by the slightly higher reading since they had priced in a CPI reading below the Reserve Bank of India's 2-6% target band. Moreover, the print did not change any rate views since the RBI's Monetary Policy Committee in its August policy outcome did not indicate a need to cut rates in spite of Apr-Jun CPI inflation being below the RBI's forecast. Bond prices were up in early trade, though volumes were thin, as some traders bet on CPI printing below 1.5%.  

The rise in bond prices were reversed after the state bond auction cut-off yields were sharply higher than expected. Due to its smaller-than-indicated size, traders were not expecting the result of the auction to impact the secondary bond market. However, the cut-off yields on most bonds, including those of states which are generally considered liquid, were higher than view, triggering fears of weak demand from long-term investors. Six states raised INR 84.50 billion, compared with INR 147.00 billion in the indicative calendar for the week. The cut-off yield on Maharashtra's 7.16%, 2055 bond was set at 7.42%, sharply higher than 7.33% in an Informist poll. Traders were expecting a maximum cut-off of 7.36-7.37% for the bond. However, the cut-off yield on Goa's INR-1.00-billion 11-year bond was set at 7.12%, lower than the poll estimate of 7.18%. Traders said the cut-off was lower on Goa's bond due to its small size, and only one bidder got the entire stock of the bond.

Traders placed short bets on gilts after the auction result with the view that the sale of INR 130 billion of a new 30-year, 2055 bond and INR 150 billion of the 6.01%, 2030 bond at the weekly gilt auction Thursday would not be well-received. The 6.01%, 2030 gilt ended 31 paise down at INR 99.00, while the 7.09%, 2054 bond ended at INR 98.35, down 66 paise. Traders fear that long-term investors are not aggressively buying gilts, while mutual funds have been on the selling side due to redemption pressure.  

Earlier in the day, traders had covered some short bets on expectations of low CPI data. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. At 1800 IST, trades worth INR 157.59 billion were recorded in the most-traded 6.33%, 2035 gilt, down from INR 180.33 billion Monday. While stop-losses were triggered at several levels during the day, traders found current levels lucrative to buy gilts. Some preferred the erstwhile 10-year benchmark gilts such as the 7.10%, 2034 bond due to its yield spread of 113 bps over the repo rate, while others preferred the 15-year benchmark 6.68%, 2040 gilt. However, state-owned banks were not aggressively buying gilts since they did not want to fill up their investment books as the supply of bonds was constant, but demand was lukewarm, especially due to the lack of any open market gilt buys by the RBI. Banks' asset and liability managers were likely buying the erstwhile 10-year benchmark 6.79%, 2034 bond, dealers said. 

"There's no denying that levels are extremely good," a trader at a primary dealership said. "But the problem is everyday you get a better level, you would want to stay nimble, you wouldn't want to buy too much and that's why there's no firm demand coming from anywhere. Now I guess market is looking forward to the 6.52-6.53% level (yield on the 10-year benchmark gilt)."

The turnover in the government bond market Tuesday was INR 569.95 billion, higher than INR 434.35 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Tuesday. There were four trades in the 6.79%, 2034 gilt for a total of INR 200 million using this method Monday.

OUTLOOK

On Wednesday, bond prices may take cues from the overnight movement of US Treasury yields after the release of US CPI inflation data for July. Consumer prices in the US increased 2.7% on year in July, while core CPI rose 3.1% on year. Consensus estimates from the Wall Street Journal indicated inflation would rise 2.8% on year in July. Traders will closely track technical levels on gilts, after the yield on the 10-year benchmark ended at 6.49%, near the psychologically crucial 6.50% level. Some traders expect the fall in prices to have bottomed out, while others see yields rising to 6.53-6.56%. Traders will also position for the weekly gilt auction on Thursday. Traders are also looking forward to next week's auction. The government is scheduled to sell INR 300 billion of a 10-year gilt and INR 60 billion of a three-year gilt next week. 

Bonds may also track the movement of crude oil prices and the movement of the rupee against the dollar. Traders await developments on tariffs and India's response to the US levy, dealers said. Any increase in government expenditure to provide support to those impacted by tariffs may weigh on bond prices due to fears of an increase in government borrowing. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.45-6.55%.

India Gilts: Remain sharply down; muted reaction to higher-than-view Jul CPI

India Gilts: Remain sharply down; muted reaction to higher-than-view Jul CPI

NEW DELHI--1620 IST--Government bond prices had a muted reaction to the July CPI data and remained sharply down as the reading had no bearing on the market's views on rate cuts, dealers said. India's retail inflation in July was 1.55%, slightly higher than the median estimate of 1.3% in an Informist poll, which would have been a record low. Bond prices fell to the day's low before recovering to levels seen before the release of data at 1600 IST.

Traders said a slowdown in growth would be a more crucial factor to bet on further rate cuts and expected CPI inflation to evolve in line with the Reserve Bank of India's revised projections for the rest of 2025. The forecasts show headline retail inflation well below the central bank's 4% target. The RBI Wednesday pared its forecast for CPI inflation in the September quarter by 130 basis points to 2.1%. Bond prices remained sharply down due to fiscal concerns and sharply higher-than-expected cut-off yields at the state bond auction.

"Nobody is looking at the CPI print, it is inconsequential to the market," a dealer at a primary dealership said. "If you look at the tax collection data, its down on year and shows a definite slowdown in growth, which is raising concerns on the fiscal deficit."

Tax collection data for Apr. 1 to Aug. 11 showed the government's net direct tax collection was INR 6.64 trillion, down 4.0% on year. Traders were already speculating that the supply of bonds could increase due to possible government support to exporters following the 50% tariff on Indian goods by the US. Moreover, investors avoided buying gilts noting the sharp rise in the 10-year gilt yield – over 14 basis points in the past week – and uncertainty on further rate cuts, dealers said.

At 1620 IST, turnover in the gilts market was around INR 482.20 billion, higher than INR 371.80 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 6.44-6.50%.  (Aaryan Khanna)

India Gilts: Reverse gains after higher-than-view state bond cut-off ylds

MUMBAI--1432 IST--Prices of government bonds reversed gains and were sharply down after the cut-off yields at the state bond auction were higher than expected for most bonds, and investors likely sold gilts in the secondary market following the result, dealers said. Mutual funds had net sold gilts worth INR 40.17 billion Monday. Some traders hit stop-losses in the secondary market when the yield on the 10-year benchmark 6.33%, 2035 gilt rose above the psychologically crucial 6.45% level. A year-on-year contraction in the net direct tax collection also raised concerns of an increase in market borrowing by the government.

Traders had expected the state bond auction result to be a "non-event" due to its small size. Six states raised INR 84.50 billion, compared with INR 147.00 billion in the indicative calendar for the week. The cut-off yields on long-term papers were sharply higher than expected, triggering fears of weak demand from long-term investors. The cut-off yield on Maharashtra's 7.16%, 2055 bond was set at 7.42%, sharply higher than  7.33% in an Informist poll. Traders were expecting a maximum cut-off of 7.36-7.37% for the bond. However, the cut-off yield on Goa's INR-1.00-billion 11-year bond was set at 7.12%, lower than the poll estimate of 7.18%. Traders said the cut-off was lower on Goa's bond due to its small size.

"The auction showed that investor demand is weak and this is concerning because now our (gilt) auctions will have some bumps," a trader at a primary dealership said. "So far, auctions have been going smoothly, but now we have a long-term auction, and next week is a 10-year auction. The spread between new (6.33%, 2035 gilt) and old 10-year (6.79%, 2034 gilt) is already too much at 8-9 bps. The 2035 gilt is due for correction." On Thursday, the government will sell INR 130 billion of a new 30-year, 2055 bond and INR 150 billion of the 6.01%, 2030 bond. The next week, the government is scheduled to sell INR 300 billion of a 10-year gilt and INR 60 billion of a three-year gilt. 

The government's tax collection data for Apr. 1-Aug. 11 showed that its net direct tax collection was INR 6.64 trillion, down 4.0% on year. Traders were already speculating that the supply of bonds could increase due to possible government support to exporters following the 50% tariff on Indian goods by the US. The stop-losses triggered at the crucial 6.45% yield level on the 10-year benchmark furthered the fall in prices. However, losses were limited as the gilt neared the next crucial yield level of 6.47%. 

Traders now await CPI inflation data for July, due at 1600 IST. Bond prices were up earlier in thin trade, as some traders bet on inflation printing below 1.5%. However, most traders are unlikely to take cues from the CPI data if it is at par or below expectations, since the Reserve Bank of India's Monetary Policy Committee at its August policy outcome indicated no rush to cut rates despite the inflation being at the lower end of its target band.

At 1430 IST, turnover in the gilts market was around INR 303.65 billion, higher than INR 271.65 billion at the same time Monday, 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 6.40-6.50%.  (Cassandra Carvalho)

India Gilts: Most up on view of low India CPI; traders cover short bets

India Gilts: Most up on view of low India CPI; traders cover short bets

MUMBAI--1249 IST--Most government bond prices were up as some traders placed bets before the release of India's CPI inflation data for July at 1600 IST, dealers said. Traders expect the headline inflation for July to come in sharply lower than a month ago, and hope for prices to rise after the data to exit previously taken bets, they said. 

"If the data comes really low, then we should see prices rise slightly, but I still don't know if it will be enough for traders to exit their positions," a dealer at a private-sector bank said. "Overall, the sentiment is very poor and as long as that is there I don't see a rally, right now it's just some shorts being covered." Risk appetite of investors has reduced as future trajectory of domestic interest rates remains uncertain, dealers said. The yield on the 2035 bond has risen nearly 10 basis points since Aug.5, a day before the Reserve Bank of India's Monetary Policy Committee outcome of the latest policy meeting. The central bank maintained status quo on the repo rate on Wednesday.

Traders also entered into spread trades by placing short bets on the 10-year benchmark 6.33%, 2035 bond and buying gilts of other tenures to reduce risks, dealers said. However, with gilts triggering stop-losses on various bonds, traders were wary of the bonds breaching the next psychological level of 6.45% on the 2035 bond and refrained from placing aggressive bets on the gilt, they said. Some traders also bought gilts on expectations that the India CPI data for July could come below 1.5%, they said. 

Meanwhile, at the state bond auction, some said demand from insurers and provident funds was firm due to attractive yield spreads over gilts. However, others were of the opinion that yield spreads of state bonds over gilts may not narrow from current levels as interest rate uncertainty persists, and said demand from long-term investors was not aggressive. Fears of a higher supply of state bonds also likely deterred some investors from bidding aggressively at the auction Tuesday, dealers said. 

At 1230 IST, turnover in the gilts market was around INR 156.65 billion, lower than INR 212.70 billion at the same time Monday, 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 6.38-6.48%.  (Srijita Bose)

India Gilts: 10-year benchmark 2035 bond steady, most others up

MUMBAI--0945 IST--Government bond prices were mixed. The 10-year benchmark 6.33%, 2035 bond was broadly steady as traders are looking for fresh cues while most other bonds were up after stop-losses were hit on Monday. Traders are waiting for India's CPI inflation data for July at 1600 IST, which may lend cues on the future trajectory of interest rates, they said.

"There were stop-losses yesterday, so slight recovery is coming because of that. And, we already hit technical levels on the 10-year (2035 bond), so market is waiting for further cues," a dealer at a state-owned bank said. "I don't see much recovery right now because appetite is very poor and people are not getting exits also."

Gilts maturing within 15 years recovered some losses from Monday. Traders found yields on these bonds attractive and entered into spread trades by placing short bets on the 10-year 2035 gilt. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 0945 IST showed trades worth INR 157.59 billion in the most-traded 6.33%, 2035 gilt.

Meanwhile, traders sold longer-tenure bonds to trim their duration risks, dealers said. At the auction of state bonds Tuesday, fair demand is expected from long-term investors such as provident funds and insurers, they said. Six states are set to raise INR 84.50 billion through the sale of bonds. The indicative calendar for state borrowing for Jul-Sept showed eight states would borrow INR 147.00 billion on Tuesday.

India's retail inflation likely fell to a record low of 1.3% in July, mainly because of the statistical effect of a high base and lower food prices, according to an Informist poll. In June, CPI inflation was at 2.10%, the lowest since January 2019, and 3.60% a year ago. Traders have priced in a print lower than 1.5%, and bond prices may react if the number surprises on the upside. If the inflation number varies significantly from expectations, bond prices could turn volatile in the last hour of trade.

At 0930 IST, turnover in the gilts market was around INR 43.60 billion, higher than INR 24.40 billion at the same time Monday, 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 6.38-6.48%.  (Srijita Bose)

India Gilts: Seen steady before state bond auction; India CPI to lend cues

MUMBAI – Government bond prices are seen opening steady and take cues from the result of the state bond auction Tuesday, dealers said. Traders will also eye India's CPI inflation data due at 1600 IST. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.38-6.48% during the day. On Monday, the bond ended at INR 99.20, or 6.44% yield. Some dealers said prices may fall Tuesday as risk appetite of investors has reduced as future trajectory of domestic interest rates remains uncertain, dealers said. The yield on the 2035 bond has risen nearly 11 basis points from a day before the Reserve Bank of India's Monetary Policy Committee maintained status quo on repo rate Wednesday.

Long-term bonds may rise during the day on a smaller-than-indicated state bond auction, dealers said. Six states are set to raise INR 84.50 billion through the sale of bonds. The indicative calendar for state borrowing for Jul-Sept showed eight states would borrow INR 147.00 billion on Tuesday. However, the rise is seen limited as traders are expected to continue trimming their duration risks due to uncertainty on interest rates, dealers said. 

On the data front, India's retail inflation likely fell to a record low of 1.3% in July, mainly because of the statistical effect of a high base and lower food prices, according to an Informist poll. CPI inflation was at 2.10% in June, the lowest since January 2019, and 3.60% a year ago. Traders have priced in a print lower than 1.5%, and bond prices may react if the number surprises on the upside. If the inflation number varies significantly from expectations, bond prices could turn volatile in the last hour of trade.

Investors also await US inflation data to gauge the chances of a rate cut by the Federal Open Market Committee in September. Foreign banks and portfolio investors may remain on the sidelines before the US CPI data Tuesday due after market hours, dealers said. Inflation in the US is seen rising 2.8% on year in July, according to the Wall Street Journal.  (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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