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By Srijita Bose 

 

MUMBAI – Government bond prices ended lower Tuesday but recovered most of the day's losses after S&P Global Ratings said the proposed overhaul of the goods and services tax system is unlikely to majorly hit the central government's revenues. Traders who had placed short bets covered them, leading to a rise in prices, dealers said. 

 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.68, or a yield of 6.5139%, against INR 98.80, or 6.4968% yield on Monday. Though S&P's comments were positive for the market, the recovery in prices was not pronounced as traders were cautious of entering the market due to the recent volatility and uncertainty about rate cuts, dealers said. Moreover, with the INR 300 billion supply of the 2035 bond at Friday's auction, traders felt prices could fall again later in the week and refrained from placing aggressive bets, they said. 

 

"The market is so volatile right now and most people have also tested the risk limits. So even though the S&P news gave some support to the market, the market did not react as much," a dealer at a private sector bank said. "The kind of volatility we have seen recently does not bode well and everyone is in a risk-off mode." 

 

The Centre has sent recommendations to the Group of Ministers, set up by the GST Council, proposing a two-slab GST structure with 5% and 18% rates, Informist reported Friday. Currently, there are four broad rate slabs — 5%, 12%, 18%, and 28%. The proposal led traders to fear that the government's borrowing may exceed the Budget target. This, together with the uncertainty on rates and persisting poor risk appetite in the market, pushed the yield on the 10-year 2035 bond to rise nearly 10 basis points Monday.

 

Some traders expected the government's dated borrowing not to take a hit due to the proposed changes in the GST. State-owned banks were likely buyers Tuesday, dealers said. S&P said that if the proposed rate rationalisation is completed, it could boost the government's revenue in the long run.

 

Prices on longer tenure bonds recovered after S&P's comments and most ended broadly steady. Insurers and pension funds picked up longer tenure bonds as the yields have turned attractive, dealers said, with the 7.09%, 2054 bond yield at around 7.23% Tuesday, a spread of 72 basis points over the 10-year 2035 gilt.

 

"It is important that long bonds find some support now," a dealer at a primary dealership said. "The skewed prices are because of traders. Yields are so good in absolute terms. Some form of support needs to be there from the RBI (Reserve Bank of India) and until that happens, I don't see any recovery in gilts sustain."

 

Long-term investors also picked up state bonds at the auction, with demand from corporates as well, with the cut-off yield on the 10-year Tamil Nadu bond at 58 bps over the 10-year gilt yield, dealers said. Demand from banks was muted at the state bond auction, and the cut-offs on most bonds came higher than estimates in an Informist poll. Traders expect states to borrow more in 2025-26 (Apr-Mar) to compensate for the shortfall in revenue due to the rationalisation of GST rates, if the proposal is accepted.

 

Traders who placed short bets on the 10-year 2035 gilt were 'squeezed' and forced to cover their bets in the secondary market, dealers said. The data at 1837 IST showed trades worth INR 174.16 billion were made in the 6.33%, 2035 gilt in the special repo segment of the Clearcorp Repo Order Matching System – a proxy for tracking short sales in a bond. The last traded rate on the bond in the Clearcorp Repo Order Matching System was 0.01% and the weighted average rate was 1.7353%. However, others placed short bets on the 2035 bond against their buys in other shorter tenure gilts, dealers said.

 

Traders fear that if the 10-year 2035 bond yield breaches the psychological support of 6.55% it may rise to 6.58%-6.60%, and erase all the gains made in the current financial year, dealers said. Some traders also fear that the 10-year benchmark yield will rise to 6.60-6.63% in the near term. A rise in swap rates also weighed on bond prices Tuesday.

 

The turnover in the government bond market was INR 400.00 billion, higher than INR 321.35 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 two trades worth INR 100 million in the 7.10%, 2034 bond using the wholesale digital rupee pilot Monday. 

 

OUTLOOK

On Wednesday, bond yields may take cues from US yields at open. Traders will closely track technical levels on gilts. If sentiment worsens, the 6.58-6.60% level could be the next psychologically crucial level to watch out for on the 10-year benchmark yield.

 

Traders will also track the minutes of the RBI's Monetary Policy Committee 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 in June. The minutes will be released Wednesday.

 

On the policy front, while the GST reforms are seen moderating inflation, the Monetary Policy Committee is only likely to cut rates if growth takes a hit, dealers said. The GST reforms are seen as 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 the auction on Friday where the government is set to sell INR 300 billion of the 10-year benchmark and INR 60 billion of 5.91%, 2028 gilt.

 

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 6.48-6.58%.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	98.6800	6.5139%	98.8000	6.4968%
6.79%, 2034	101.3700	6.5864%	101.4100	6.5806%
6.75%, 2029	101.9000	6.2407%	101.9000	6.2410%
6.68%, 2040	98.0100	6.8949%	98.1600	6.8784%
6.90%, 2065	95.1000	7.2779%	95.1000	7.2778%

 

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India Gilts: Recover; S&P says proposed GST reforms may not hit govt revenue

 

	1550 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.73	98.80	98.44	98.75	98.80
YTM (%)	6.5075	6.5486	6.4969	6.5039	6.4968

 

MUMBAI--1550 IST--Government bond prices recovered most losses from earlier in the day as traders covered short bets on the 10-year benchmark 6.33%, 2035 bond, dealers said. S&P Global Ratings said in a webinar Tuesday that the central government's revenues are unlikely to see a major hit in the near term from the proposed overhaul of the goods and services tax system, which has also led prices to recover from the day's lows, they said. 

 

"The calculations show there is no fiscal slippage," a dealer at a private sector bank said. "Just because S&P says it, suddenly the market is changing tune." Some traders had expected the government's dated borrowing to not take a hit due to the proposed changes in the indirect tax system, but the uncertainty in the market had led the 10-year 2035 bond yield to rise nearly 10 basis points Monday, dealers said.

 

The Centre sent its recommendations proposing a two-slab GST structure with 5% and 18% rates to the Group of Ministers constituted by the GST Council, Informist reported Friday. Currently, there are four broad rate slabs— 5%, 12%, 18%, and 28%. S&P said Tuesday that if the proposed rate rationalisation is completed, it could boost the government's revenue in the long run.

 

This led prices to recover some of the earlier losses. However, the recovery in prices was not pronounced as traders were cautious of entering the market due to the recent volatility and uncertainty in rates, dealers said. Moreover, with the INR 300 billion supply of the 2035 bond at Friday's auction, traders felt prices could fall again, they said. 

 

Traders who placed short bets on the 10-year 2035 gilt also got 'squeezed' and were forced to cover their bets in the secondary market, dealers said. 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 1533 IST showed trades worth INR 174.16 billion in the 6.33%, 2035 gilt. The last traded rate on the bond in the Clearcorp Repo Order Matching System was 0.01% and the weighted average rate was 1.7353%. 

 

At 1530 IST, the turnover in the gilts market was around INR 337.30 billion, higher than INR 230.85 billion at the same time Monday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.56%.  (Srijita Bose)

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India Gilts: Tumble; 6.33%, 2035 gilt yld rises above 6.52%, stop-losses hit

 

	1230 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.54	98.75	98.46	98.75	98.80
YTM (%)	6.5334	6.5458	6.5039	6.5039	6.4968

 

MUMBAI--1230 IST--Prices of government bonds tumbled further as traders hit stop-losses on gilts when the yield on the 10-year benchmark 6.33%, 2035 gilt rose above 6.52% and neared the psychologically crucial 6.55% level, dealers said. The yield hit a high of 6.5458% intraday, the highest 10-year benchmark yield since Apr. 2. Traders placed short bets on gilts due to a lack of positive cues that could support a fall in yields. Moreover, state-owned banks, which usually buy gilts at appealing levels when prices fall, were buying only in small quantums, dealers said. 

 

"We are willing to double down our buys if market stabilises but market is not settling at a level," a dealer at a state-owned bank said. "Earlier we were saying 6.45% is a good level to buy, but now all the levels are good to buy because yields are constantly rising."

 

Traders now fear that the 10-year benchmark yield will rise to 6.60-6.63% in the near term. The yield is seen peaking at 6.55% Tuesday. The 10-year benchmark gilt yield closed at 6.58% on the last trading session of 2024-25 (Apr-Mar), which is now seen as a key technical level for gilts. A rise in swap rates also weighed on bond prices. The five-year swap rate hit the day's high of 5.78%, around 5 basis points higher than the previous day's close.

 

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 174.16 billion in the 6.33%, 2035 gilt. While traders preferred to place short bets on the gilt, some were also getting "squeezed" in the bond as several dealers did not want to actively trade in the market due to volatility. The last traded rate on the bond in the Clearcorp Repo Order Matching System was 0.01% and the weighted average rate was 1.7353%.

  

Traders await the result of the INR-176.00-billion state bond auction. Yield spreads of these bonds over gilts are seen widening due to the plunge in secondary market prices. An Informist poll estimated the cut-off yields on states' 10-year bonds at 7.10-7.13%, a spread of 57-60 basis points over the 10-year benchmark gilt yield as of 1230 IST. Traders expect the yield spread to be capped at around 70 bps on 10-year state bonds. However, if cut-off yields on long-term state bonds, such as Tamil Nadu's 30-year bond, are above 7.40%, secondary market gilt prices could fall more, dealers said. Also, some traders expect states to borrow more in FY26 to compensate for the shortfall in revenue from Prime Minister Narendra Modi's proposed indirect tax cuts, if the proposal is accepted.

 

The uncertainty and caution deterred traders from actively participating, which kept volumes in the secondary market low. At 1230 IST, the turnover in the gilts market was around INR 203.85 billion, higher than INR 156.65 billion at the same time Monday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.56%.  (Cassandra Carvalho)

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India Gilts: Fall on short bets before auction Fri; fiscal concerns persist

 

	0955 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.73	98.75	98.66	98.75	98.80
YTM (%)	6.5075	6.5167	6.5039	6.5039	6.4968

 

MUMBAI--0955 IST--Government bond prices fell on Tuesday as traders placed fresh short bets ahead of the weekly gilt auction Friday. Some traders also expect prices to continue sliding due to concerns about additional bond supply in 2025-26 (Apr-Mar) due to the government's proposed goods and services tax rationalisation, dealers said.

 

"More shorts are being built up, there is no floor to the market," a dealer at a private sector bank said. "The government has said there will be no revenue hit (from the proposed GST changes) but the market continues to trade on the theme of higher supply."

 

State-owned banks said they have limited space to add gilts to their portfolios in large quantums after having picked up stock constantly in line with the rise in yields over the past weeks, without being able to lighten their portfolios significantly and exit at a profit. State-owned banks were the largest net buyers Monday as the 10-year gilt yield rose 10 basis points, and bought INR 37.92 billion worth of bonds, according to Clearing Corp. of India data.

 

Even as the 10-year benchmark yield topped 6.50% and hit its highest level since Apr. 9, traders also avoided picking up the gilt ahead of the auction Friday. The government will sell INR 300 billion of the 2035 gilt at the auction. Some traders expect the yield to hit 6.55% by Friday.

 

The price action in the secondary market was also amplified by low liquidity as traders kept to the sidelines due to volatility in prices over the past two days. Some traders did not make it to desks by the opening of market hours at 0900 IST due to weather-related disruptions in Mumbai, dealers said. This led to delay in the first trade on the Negotiated Dealing System – Order Matching platform due to wide bid-offer spreads. The first trade in the 6.33%, 2035 bond was struck at 0909 IST Tuesday.

 

At 0955 IST, the turnover in the gilts market was around INR 45.10 billion, against INR 35.20 billion at 0930 IST Monday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.56%.  (Aaryan Khanna)

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India Gilts: Seen opening steady due to lack of cues after recent volatility

 

NEW DELHI – Government bond prices are seen opening steady, after a sharp fall Monday, due to a lack of fresh domestic triggers, dealers said. Bond prices may continue to be under pressure ahead of the INR-360-billion weekly gilt auction on Friday.

 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.46-6.55% during the day, against 6.50% Monday. On Monday, bonds had their worst day in 14 months as the 10-year benchmark yield rose nearly 10 basis points on concerns of fiscal slippage and higher bond supply following the government's proposal to rationalise the goods and services tax.

 

Dealers said prices are unlikely to recover after the volatility in bond markets over the past two days has led to significant losses in some portfolios. Before the sharp rise Monday, the 10-year gilt yield had fallen 8 bps on Thursday after S&P Global Ratings upgraded India's sovereign credit rating to 'BBB' from 'BBB-'. Traders may avoid taking large positions, while banks' asset-liability managers may find current yield levels lucrative and prevent the 10-year benchmark yield from rising above 6.52%, dealers said.

 

Though there is a significant build-up of short sales on the 6.33%, 2035 bond, traders are unlikely to cover those positions in large amounts ahead of the weekly gilt auction Friday, with a fresh supply of the bond worth INR 300 billion scheduled. Traders may cover their bets at the auction, and may prefer to also trade in the When-Issued (Re-issues) segment of the Negotiated Dealing System – Order Matching platform in order to prevent a further rise in repo positions. 

 

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 Monday showed trades worth INR 177.11 billion in the 6.33%, 2035 gilt, up from INR 156.99 billion Thursday.

 

Traders expect moderate demand at the state bond auction Tuesday despite the lower-than-scheduled supply, dealers said. Nine states will raise INR 176 billion at the auction at 1030-1130 IST, against INR 261.50 billion indicated in the state borrowing calendar for Jul-Sept. Appetite from state-owned banks for state bonds is dwindling as they have already bought a large quantum of the quasi-sovereign paper, noting the steady rise in yields over the past few weeks, dealers said. Cut-off yields on state bonds last week were higher than expected despite a small auction, which also dented market sentiment.

 

Foreign banks may continue to sell bonds from their proprietary trading books, even as foreign portfolio investors are likely to buy gilts due to the recent widening of their spread over the 10-year US Treasury yields and following the rating upgrade. FPIs have bought fully accessible route gilts worth INR 41 billion in the last two trading sessions.

 

Meanwhile, the 10-year US Treasury yield inched up slightly overnight, to 4.34% at 0826 IST from 4.31% at 1700 IST Monday. However, traders don't see this having a large impact on gilt prices due to the focus on domestic factors.  (Aaryan Khanna)

End

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

 

Edited by Saji George Titus

 

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