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Informist, Monday, Aug. 18, 2025

 

By Srijita Bose

 

MUMBAI – Government bond yields jumped up Monday on concerns over the central government's fiscal management after Prime Minister Narendra Modi Friday proposed GST reforms in the form of a reduction in tax rates. Traders also placed short bets ahead of the INR 300-billion auction of the 10-year benchmark gilt Friday.

 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.80, or a yield of 6.4968%, against INR 99.49, or 6.4003% yield, Thursday. The yield rose nearly 10 basis points, the most since Oct. 6, 2023. Gilts retraced most of the fall in yields Thursday after India's sovereign ratings was upgraded.

 

"The ratings upgrade anyway does not have any impact immediately," a dealer at a primary dealership said. "And we still don't know what the exact fiscal impact of the GST will be and whether there will be another (rate) cut or not."

 

Some traders said gilt yields rose more because stop losses were triggered as the yield on the 10-year 2035 bond topped 6.46%. Apart from corporates, mutual funds also likely trimmed their gilt positions, dealers said. Traders also sold bonds at a profit, exiting old positions, after the slight improvement in market sentiment since Thursday due to the upgrade in India's sovereign rating by S&P Global Ratings, they said.

 

Traders also unwound bets of a rate cut by the Reserve Bank of India's rate-setting panel anytime sooner. While the tax reforms are seen reducing inflation by 30-50 basis points in the financial year ending March, the Monetary Policy Committee is only likely to cut rates if growth takes a hit, dealers said. The GST reforms are expected to boost consumption and in turn improve GDP growth, dealers said.

 

The revenues foregone by rationalisation in tax slabs and a reduction in the tax rates may lead to the Centre borrowing more, or having less room to conduct gilt buybacks going ahead. Some traders expect up to INR 500 billion of additional borrowing, mostly in Treasury bills, to offset the impact of lower revenue due to the proposed rejig in tax rates. Demand for state bonds also deteriorated in the secondary market as states may have to bear the brunt of the tax reforms, and could increase their borrowing to compensate for the short-fall in revenue, they said. While some said that higher borrowing of T-bills should not have much impact on bond yields, others said that higher borrowing by the states could lead yields to rise, dealers said. 

 

"There is very little clarity on where the yields will be in the near term but the pressure will be more on long-term bonds," a dealer at a private sector bank said. "The kind of volatility we are seeing in the market is because no trader would want to enter if the market is moving so much. RBI may have to give some amount of certainty on whether they are okay with the yield (on the 10-year 2035 bond) rising beyond 6.53%." With the 2035 bond up for auction Friday, some traders expect the yield on the bond to cross 6.50%, which is seen by most as the current support level, dealers said. If the yield on the 2035 bond breaches 6.50%, traders expect it to rise to nearly 6.56%, they said.

 

Traders placed short bets on gilts, especially on the 10-year benchmark ahead of the gilt auction on Friday. The government is scheduled to sell INR 300 billion of a 10-year gilt and INR 60 billion of a three-year 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. Data at 1823 IST showed trades worth INR 177.11 billion in the 6.33%, 2035 gilt, up from INR 156.99 billion Thursday. Traders who had bought the newly issued 30-year 7.24%, 2055 gilt on Thursday preferred to place short bets on the 10-year benchmark gilt, a dealer said. However, some traders covered short bets they had placed last week, and the rate on the bond in the Clearcorp Repo Order Matching System fell to 4.01% from 5.15% Thursday. Traders also placed shot bets on the 2035 gilt against some buys in gilts maturing in up to 10 years, dealers said.

 

At the switch auction, the government switched five gilts worth INR 167.64 billion against INR 300 billion on offer. Some said that traders were eager to exit positions as market sentiment has soured since the RBI's policy outcome earlier this month. Traders, especially from state-owned banks, wanted to book profits by selling the short-term source securities and wanted stock of the longer-term securities due to better risk-rewards, dealers said. However, others said they were not interested in buying more of gilts maturing in 10-15 years as they will be difficult to pare back due to the uncertainty in the market. Traders looked to trim their positions in longer tenure gilts, dealers said.

 

Yields on domestic bond had opened higher as the yield on the 10-year US Treasury note rose to 4.31% from 4.23% at close of the Indian market on Thursday, after US data reduced hopes of rate cuts by the US Federal Open Market Committee in the rest of 2025. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors. However, at 1823 IST, data from Clearing Corp. of India showed FPIs had net bought INR 9.29 billion worth of gilts through the fully accessible route.

 

The turnover in the government bond market was INR 325.60 billion, much lower than INR 712.55 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades worth INR 100 million in the 7.10%, 2034 bond using the wholesale digital rupee pilot Monday. There were six trades in state bonds for a total of INR 2.97 billion using this method Thursday.

 

OUTLOOK

On Tuesday, bond yields may take cues from US yields. Traders will wait for the cut-offs at the state bond auction scheduled during the day to take cues later in the day, dealers said. States plan to raise INR 176 billion. The indicative calendar for state borrowing for Jul-Sept showed 17 states would borrow INR 261.50 billion on Tuesday.

 

Demand at the state bond auction will be crucial due to concerns over the government's fiscal management in view of the proposed GST reforms, dealers said. Traders will closely track technical levels on gilts. If sentiment worsens, the 6.52-6.53% level could be the next psychologically crucial level to watch out for on the 10-year benchmark yield.

 

On the policy front, while the tax reforms are seen reducing inflation, the Monetary Policy Committee is only likely to cut rates if growth takes a hit, dealers said. The GST reforms are seen improving GDP growth, dealers said. Traders now see CPI inflation falling below the RBI's forecast for 2025-26 (Apr-Mar) by 30-50 basis points. Traders are also preparing for auction Friday where the government is set to sell INR 300 billion of a 10-year gilt and INR 60 billion of a three-year gilt.

 

Traders will also track the minutes of the MPC's meeting held earlier in the month, as some traders had expected at least one of the external members of the panel to vote for a rate cut, as opposed to the unanimous vote for status quo. The minutes will be released Wednesday. Traders will watch out for US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Symposium later in the week for any indication of a rate cut by the US Federal Open Market Committee in September. On the geopolitical front, traders will also track the outcome of the meeting between US President Donald Trump and Ukraine President Volodymyr Zelenskyy, dealers said.

 

Bonds may also track the movement of crude oil prices, as well as the movement of the rupee against the dollar. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.40-6.55%.

 

	MONDAY		THURSDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	98.8000	6.4968%	99.4850	6.4003%
6.79%, 2034	101.4100	6.5806%	102.1300	6.4759%
6.75%, 2029	101.9000	6.2410%	102.2500	6.1494%
6.68%, 2040	98.1600	6.8784%	99.1000	6.7759%
6.90%, 2065	95.1000	7.2778%	96.1300	7.1954%

 

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India Gilts: Slump as MFs, large corporate likely sell; short sales on 10-yr

 

	1558 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.97	99.34	98.92	99.30	99.49
YTM (%)	6.4735	6.4799	6.4214	6.4263	6.4003

 

MUMBAI--1558 IST--Government bond prices slumped as a large corporate house trimmed gilt positions on concerns of potential fiscal slippage due to the proposed goods and services tax reforms of the central government, dealers said. Traders also placed short bets before the INR 300 billion worth of supply of the 10-year benchmark at auction Friday, they said. 

 

Some traders said gilt prices fell more because stop losses were triggered as the yield on the 10-year 2035 bond topped 6.46%. Apart from corporates, mutual funds also likely trimmed their gilt positions, dealers said. Traders also sold bonds at a profit, exiting old positions, after the slight improvement in market sentiment since Thursday due to the upgrade in India's sovereign rating by S&P Global Ratings, they said. 

 

Prime Minister Narendra Modi on Friday announced goods and services tax reforms by Diwali in the form of a reduction in tax rates. Three Groups of Ministers are scheduled to meet Wed-Thu to work on the proposals, Informist reported. 

 

"Yields could harden from here. They still haven't come with the blueprint on the rejig in GST rates yet...but the impact will be more in long-term bonds," a dealer at a state-owned bank said. "We will have to see now what are government's plans are for the fiscal deficit and revenue." 

 

Some traders expect up to INR 500 billion of additional borrowing, mostly in Treasury bills to offset the impact of lower revenue due to the proposed rejig in tax rates. While some said that higher borrowing of T-bills should not have much impact on bond yields, others said that higher state bond borrowing could in turn lead yields to rise, dealers said. With the reduction in tax rates, traders now expect up to 30-50 basis points reduction in inflation than current forecast for the financial year ending March, which is at 3.7?cording to the Reserve Bank of India's latest estimates. However, with expectations of growth to rise due to lower GST rates, traders pared back their expectations of rate cut by the RBI's Monetary Policy Committee. 

 

At the switch auction, the government switched five gilts worth INR 167.64 billion against INR 300 billion on offer. While some said that traders were eager to exit positions as market sentiment has soured since the RBI's MPC outcome earlier this month, others said they were not interested in buying more of gilts maturing in 10-15 years as they will be difficult to pare back due to the uncertainty in the market. 

 

At 1530 IST, the turnover in the gilts market was around INR 230.85 billion, much lower than INR 488.10 billion at the same time Thursday, 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 6.40-6.50%.  (Srijita Bose)

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India Gilts: Fall more on fiscal concerns; short bets on 6.33%, 2035 rise

 

	1232 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	99.05	99.34	99.03	99.30	99.49
YTM (%)	6.4615	6.4643	6.4214	6.4263	6.4003

 

MUMBAI--1232 IST--Prices of government bonds fell more on persisting concerns of the central government's fiscal management after Prime Minister Narendra Modi announced GST reforms in the form of a reduction in tax rates Friday, dealers said. Mutual funds were likely sellers, and traders placed short bets on the benchmark 10-year 6.33%, 2035 gilt ahead of the gilt auction later in the week. 

 

"There's no certainty because there's no number (on the revenue shortfall) provided, but market is nervous," a trader at a state-owned bank said. "The chances of (central government's) borrowing increasing are very less but still that fear is there, and we have 10-year auction also coming up. We have practically retraced the fall (in yields) after the rating upgrade." Analysts expect the annual fiscal impact of the move at around INR 1.2 trillion, with the impact in the fiscal year ending March estimated at less than INR 500 billion if the indirect tax cuts are implemented within the timeline. The government is seen reducing its expenditure, and reducing bond buybacks, to maintain its fiscal deficit target of 4.4% for FY26 with a revenue shortfall, dealers.  

 

Traders also unwound bets of a sooner rate cut cycle. While the tax reforms are seen reducing inflation, the Reserve Bank of India's Monetary Policy Committee is only likely to cut rates if growth takes a hit, and has dismissed inflation being below forecast, dealers said. The GST reforms are seen improving GDP growth, dealers said.  

 

Traders placed short bets on gilts, especially on the 10-year benchmark gilt ahead of the gilt auction on Friday. The government is scheduled to sell INR 300 billion of a 10-year gilt and INR 60 billion of a three-year 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 1230 IST showed trades worth INR 177.11 billion in the 6.33%, 2035 gilt, up from INR 156.99 billion Thursday. Traders who had bought the newly issued 30-year 7.24%, 2055 gilt on Thursday preferred to place short bets on the 10-year benchmark gilt, a dealer said. However, some traders also covered short bets which they had placed last week, and the rate on the bond in the Clearcorp Repo Order Matching System fell to 4.01% from 5.15% Thursday.

 

Demand for state bonds also deteriorated as states may have to bear the brunt of the tax reforms, and could increase borrowing to compensate for the short-fall in revenue. While the chances of the central government increasing its borrowing were less, state governments could increase their borrowing through state bonds to make up for the revenue short-fall, dealers said. 

 

Traders await the result of the INR-300-billion government switch auction. Some traders said that the additional supply of gilts maturing in 2033-2039--which are the tenures of the seven destination securities at the switch--was a burden to traders who did not want more exposure to long-term gilts. However, some dealers, especially those of state-owned banks, wanted to book profits by selling the short-term source securities and wanted stock of the longer-term securities due to better risk-rewards, they said. 

 

Traders expect bond prices to fall further in the day as sentiment turned sour again Monday, after the temporary reprieve from India's sovereign credit rating upgrade by S&P Global Ratings on Thursday. The 10-year benchmark gilt yield had risen 15 bps till Wednesday from the day before MPC's August policy meeting. Due to the 10-year bond auction, some traders expect the 10-year benchmark gilt yield to hit 6.50% this week. The 10-year benchmark gilt yield had touched 6.5086% on Wednesday, the highest level since Apr. 9.

 

At 1230 IST, the turnover in the gilts market was around INR 156.65 billion, higher than INR 125.80 billion at the same time Thursday, 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)

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India Gilts: Slump on rise in US ylds, feared impact of proposed GST changes

 

	0950 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	99.17	99.34	99.10	99.30	99.49
YTM (%)	6.4449	6.4545	6.4214	6.4263	6.4003

 

NEW DELHI--0950 IST--Government bond prices slumped Monday due to a sharp rise in US Treasury yields since Thursday, dealers said. The proposed changes in goods and services tax are seen as a strain to government revenues, while also dashing the market's hopes of further monetary policy easing, they said. 

 

The yield on the 10-year US Treasury note has risen to 4.31% from 4.23% at the Indian market close on Thursday, after US data weakened hopes of rate cuts by the US Federal Open Market Committee in the remainder of 2025. Domestic bond prices were playing catch-up as India's financial markets were shut on Friday for Independence Day, dealers said. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors.

 

Prime Minister Narendra Modi's announcements of GST reforms in the form of a reduction in tax rates Friday initially led to uncertainty in opening trades as traders assessed market sentiment, dealers said. The revenues foregone by rationalisation in tax slabs and a reduction in the tax rates may lead to the Centre borrowing more, or having less room to conduct buybacks going ahead. A potential rise in state borrowing was also a negative for gilt prices, they said.

 

Moreover, the expected boost to consumption may lead the Reserve Bank of India's Monetary Policy Committee to hold off on further repo rate cuts from the current 5.50%, and the market may have to deal with a long pause on rates, dealers said. The rate-setting panel has cut the repo rate by 100 basis points between February and June, and some traders held out hope for another 25-basis-point rate cut in Oct-Dec.

 

"US yields have gone up by 8-10 bps. There is also a small impact of the GST announcements," a dealer at a state-owned bank said. "But this is likely to be a blip at the opening...bonds may recover as there is some positivity from the rating upgrade."

 

As gilt prices slid, state-owned banks likely bought the 10-year gilt at the psychologically crucial 6.45% mark, while some short sellers also covered their positions, limiting losses, dealers said. Some traders expect the rating upgrade to augur well for foreign investment flows to gilts. However, foreign bankers said the rating upgrade would not lead to material inflows as India was already investment grade and move does not qualify it for inclusion into other global bond indices.

 

S&P is the only major ratings firm to upgrade India – Moody's Ratings and Fitch Ratings still retain India at the lowest rung of investment grade, with a 'stable' outlook. Traders expect the other agencies to also announce their ratings reviews in the coming week, and look forward to the commentary, dealers said. Some sections of the market expect the two other agencies to improve the outlook on India's ratings to 'positive', setting the stage for a potential rating upgrade in the next two years.

 

At 0950 IST, the turnover in the gilts market was around INR 67.65 billion, jumping from INR 6.55 billion at 0930 IST Thursday, 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%.  (Aaryan Khanna)

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India Gilts: Seen down due to weekend developments on GST, rise in US yields

 

NEW DELHI – Government bond prices are seen opening lower after several developments over the three-day weekend. Prime Minister Narendra Modi's comments on goods and services tax rationalisation raised fiscal concerns for some traders and dashed rate cut hopes for others, and a rise in US Treasury yields since Thursday may also weigh on prices, dealers said.

 

India's financial markets were closed on Friday for Independence Day. The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.37-6.45% during the day. On Thursday, the bond ended at INR 99.49, or 6.40% yield. Bonds had their best day since Apr. 2 on Thursday after S&P Global Ratings raised India's sovereign rating by a notch to 'BBB' from 'BBB-', leading to the benchmark yield falling 8 basis points.

 

On Friday, Modi said the government was reviewing the indirect tax regime and next-generation reforms would be brought in by Diwali. He said tax on regular-use items would be brought down significantly, which would help lower prices of such goods and also help domestic micro, small, and medium enterprises. The Centre has proposed continuing with the 5% and the 18% tax slabs under the goods and services tax in its recommendations to the rate rationalisation panel constituted by the GST Council, and doing away with the 12% and 28% tax slabs, a senior government source said later Friday. 

 

Analysts expect the annual fiscal impact of the move at around INR 1.2 trillion, with the impact in the fiscal year ending March estimated at less than INR 500 billion if the indirect tax cuts are implemented within the timeline. While the pain will be borne by both the Centre and states, traders said this was incrementally a negative for gilt prices. Moreover, the consumption boost driven by the GST rates falling along with tax cuts implemented earlier this fiscal year may lead to higher growth, driving down the need for further rate cuts by the Reserve Bank of India's Monetary Policy Committee, dealers said.

 

However, some sections of the market said the cut in tax slabs may reduce prices and lead to lower inflation than expected starting the March quarter, with actual fiscal pressures offset, dealers said. The RBI's projections for CPI inflation and GDP growth for Apr-Jun 2026 have led to the market believing there is a high bar for further rate cuts. A Reuters report said, quoting a finance ministry official, that the government was confident of meeting its fiscal deficit aim of 4.4% of GDP in FY26 despite the proposed cuts in GST. 

 

Meanwhile, the yield on the 10-year US Treasury note rose to 4.31% from 4.23% Thursday after data showed that US retail sales rose in July, rising 0.5% from the prior month, after an unexpected spike in producer price index data on Thursday. The data points reduced market expectations of rate cuts by the Federal Reserve this year.

 

Dealers said there was no further clarity on the additional US tariffs of 25% to be imposed on India from Aug. 27 from the much-awaited meeting between US President Donald Trump and Russia President Vladimir Putin on Friday. They await developments in follow-up meetings between US and European leaders this week.

 

Losses may be limited due to the positive impact of the rating upgrade, which may attract fresh FPI inflow, dealers said. FPIs bought over INR 28 billion worth of gilts under the fully accessible route on Thursday, when S&P announced the rating upgrade after 17 years. However, foreign bankers said the spurt was not representative and the upgrade itself is not likely to materially lead to inflows.

 

Separately, government bonds maturing between 2033 and 2040 may also be under pressure due to the gilt switch auction Monday, dealers said. The government will switch eight short-term bonds worth INR 300 billion with seven bonds maturing in 2033-39 at the auction 1030-1130 IST.  (Aaryan Khanna)

End

 

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

 

Edited by Ashish Shirke

 

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