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Informist, Wednesday, Aug. 20, 2025

 

By Srijita Bose

 

MUMBAI – Government bond prices ended higher Wednesday as traders covered short bets placed earlier, dealers said. Traders also bought gilts as worries about a fiscal slippage from the government's proposed goods and services tax rejig eased, they said. 

 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.80, or a yield of 6.4969%, against INR 98.68, or 6.5139% yield, Tuesday. Short bets on the 10-year gilt did not increase significantly as traders refrained from selling aggressively for fear of getting "squeezed" ahead of Friday's gilts auction. The lowest traded rate on the bond in the Clearcorp Repo Order Matching System was 0.01% and the weighted average rate was 0.2201%. The total traded amount on the 2035 bond in the special repo segment--a proxy for tracking short sales--was INR 171.58 billion at 1721 IST.

 

"Some value buying is coming from banks, but the buys are not aggressive since most of them are still full on their books," a dealer at a primary dealership said. "There was also short-covering because some think they might get squeezed before the auction... but I don't see much of a recovery in gilts still."

 

As fiscal concerns emanating from the proposed GST reforms eased, some banks considered the 6.50% yield on the 10-year benchmark bond a good level to buy the gilt, even as their purchases were limited ahead of the weekly gilts auction. The government will sell INR 300.00 billion of the 6.33%, 2035 bond and INR 60.00 billion of the 5.91%, 2028 gilt Friday. The 2035 bond was traded at INR 98.70 or yield of 6.5112% in the When Issued (ReIssues) segment of the RBI's Negotiated Dealing System-Order Matching platform. Some large state-owned banks and corporate houses were on the buying side Wednesday, dealers said.

 

State-owned banks also likely bought the 15-year benchmark 6.68%, 2040 bond, the yield on which was down over 3 basis points, as they found the yield attractive, dealers said. Reduced concerns over additional borrowing in dated securities due to the proposed GST reforms also led some traders to buy the gilt, they said. Depending on the nature of the hit, a shortfall in revenue due to the changes in GST was seen being funded by a larger supply of Treasury bills or state government bonds. However, this did not negatively impact cut-offs at Wednesday's T-bill auction, where demand from mutual funds for the 91-day paper was firm, dealers said.

 

Meanwhile, demand from insurers and some mutual funds was also there, dealers said. Demand for state bonds picked up in the secondary market with INR 7.20 billion worth of bonds traded, as yields on these have become attractive, they said. Corporations and some insurers likely picked up state bonds, dealers said. 

 

"There is some pick-up in state bonds. Yields are so good and some corporates are going for these bonds rather than other corporate bonds," a dealer at a private-sector bank said. "But people are not aggressive because there is still a lot of uncertainty on (interest) rates."

 

Gains in gilts were capped on profit sales by banks and on caution ahead of the release of the minutes of the Reserve Bank of India's Monetary Policy Committee's August meeting after market hours. Expectations from the minutes remained subdued as traders do not see the panel members' comments on growth and inflation differing from the comments of RBI Governor Sanjay Malhotra on Aug. 6, but they were keen to know the outlook for interest rates. The RBI's forecasts in Apr-Jun for growth and inflation have largely erased hopes of further repo rate cuts in India. Traders avoided large bets ahead of the release of the minutes, dealers said.

 

The turnover in the government bond market was INR 335.50 billion, lower than INR 400.00 billion Tuesday, according to data from the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot for the second day Wednesday. 

 

OUTLOOK

On Thursday, traders will assess the minutes of the RBI's rate-setting panel's August meeting. Traders may also place some short bets ahead of Friday's gilts auction, dealers said. 

 

At the meeting on Aug. 4-6, Poonam Gupta said she did not see scope or rationale for further cuts in the RBI's policy rate. However, Rajiv Ranjan said a case could be made that there is room for policy easing due to concerns over a slowdown in growth.

 

Traders will closely track technical levels on gilts. If sentiment worsens and the 2035 bond yield breaches 6.55% Thursday, the 6.58-6.60% level could be the next psychologically crucial level to watch out for on the 10-year benchmark yield.

 

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 improving GDP growth, they said. Traders now see CPI inflation falling below the RBI's forecast for the financial year 2025-26 (Apr-Mar) by 30-50 basis points.

 

Traders also await the Jackson Hole Economic Symposium, where US Federal Reserve Chair Jerome Powell is scheduled to speak Friday. Bonds may also track the movement of crude oil prices and 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%.

 

	WEDNESDAY		TUESDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	98.8000	6.4969%	98.6800	6.5139%
6.79%, 2034	101.4800	6.5703%	101.3700	6.5864%
6.75%, 2029	101.9950	6.2154%	101.9000	6.2407%
6.68%, 2040	98.3000	6.8630%	98.0100	6.8949%
6.90%, 2065	95.1700	7.2722%	95.1000	7.2779%

 

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India Gilts: Remain up; caution ahead of MPC minutes

 

	1615 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.80	98.89	98.56	98.56	98.68
YTM (%)	6.4973	6.5309	6.4842	6.5309	6.5139

 

MUMBAI--1615 IST--Government bond prices remained up as traders' worries about a fiscal slippage from the government's proposed goods and services tax rejig eased, dealers said. Gains were capped on profit booking from banks and on caution ahead of the release of the minutes of the Reserve Bank of India's Monetary Policy Committee August meeting post-market hours.

 

Traders did not place significant fresh short bets on the 10-year bond, or sell gilts on the view of fiscal worries, which aided bond prices, dealers said. As the fiscal concerns eased, some banks considered the 6.50% yield on the 10-year benchmark bond a good level to buy the gilt, even as their purchases were limited ahead of the weekly gilt auction Friday. The government will sell INR 300 billion of the 6.33%, 2035 bond and INR 60 billion of the 5.91%, 2028 gilt on Friday.

 

"We felt that the fall in the last two days was overdone, and that these were good levels to buy," a dealer at a state-owned bank said. "But I don't think that a sharp move from the current levels in either direction is likely."

Traders' outlook on bond prices improved after state-owned banks stepped up gilt purchases on Tuesday, when the 10-year benchmark gilt's yield had risen to 6.55%. Moreover, comments from State Bank of India's research team and S&P Global Ratings Tuesday also suggested the government would not have to increase fiscal deficit to fund the indirect tax cuts announced by Prime Minister Narendra Modi on Friday.

 

Meanwhile, expectations from the minutes remained subdued as traders do not see the panel members' comments on growth and inflation to differ from the comments of RBI Governor Sanjay Malhotra on Aug. 6. The RBI's forecasts for growth and inflation in Apr-Jun 2026 have largely erased hopes of further repo rate cuts in India. Traders avoided large bets ahead of the minutes, the Jackson Hole Economic Symposium, where US Federal Reserve Chair Jerome Powell is scheduled to speak Friday, and the weekly gilt auction, dealers said.

 

"If the market is not expecting anything from the MPC (minutes), then that could be a good reason to buy," a dealer at a primary dealership said. "We don't want the MPC to say anything more than they are data dependent, but they should acknowledge that both inflation and growth are lower than their forecasts."

 

The US Federal Open Market Committee's minutes are also scheduled overnight. Turnover in the gilts market was around INR 267.85 billion, lower than INR 359.15 billion at 1630 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 6.48-6.52%.  (Aaryan Khanna)

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India Gilts: Off highs on profit booking, though fiscal concerns ease

 

	1345 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.76	98.89	98.56	98.56	98.68
YTM (%)	6.5026	6.5309	6.4842	6.5309	6.5139

 

MUMBAI--1345 IST--Government bond prices were off highs as traders sold bonds at a profit after initial gains, dealers said. They remained higher as traders continued to cover short bets. More traders said they see a limited fiscal impact from the proposed goods and services tax reforms.

 

State-owned banks have bought around INR 80 billion of gilts in the secondary market since Monday. They were likely booking profit after the sharp rise in the 10-year bond's price from Tuesday's low of INR 98.44. At the same time, short sellers covered their earlier bets as bondholders were asking for cheap funds to lend them bonds. The weighted average rate for the 6.33%, 2035 gilt in the special repo segment of the Clearcorp Repo Order Matching System was 0.22%, with a low of 0.01%.

 

"We have seen the buying come in, and the market is more calm now than it was initially on the hit from the GST changes," a dealer at a primary dealership said.

 

Since Monday's open, bond prices have slid as traders had feared a sharp fall in government revenues should the GST rationalisation proposed by Prime Minister Narendra Modi in his Independence Day speech take effect by Diwali. Depending on the nature of the hit, this was seen being funded by larger supply of Treasury bills or state government bonds. However, some market participants now believe that some of the uncertainty is easing and the shortfall in revenue may be matched by other means.

 

"While I agree that the bond supply is not going to rise, the issue is that the overhang of the move is still going to be negative for the market," a dealer at a private sector bank said. "And it'll be difficult for the RBI to come and justify cutting rates from here on, or at most it will be a 25-basis-point cut without a big fall in (gilt) yields."

 

They also said the Centre's fiscal deficit is unlikely to slip beyond the 4.4% of GDP target for 2025-26 (Apr-Mar), especially with S&P Global Ratings Thursday upgrading India's sovereign rating to 'BBB' from 'BBB-'. The agency Tuesday said it does not expect the two-slab GST structure to be a drag on government revenue. State Bank of India also said in a research report Tuesday that the government would meet its fiscal deficit aim. Moreover, the government would seek upgrades from other major credit rating agencies, and so it is likely to manage its books to show it will meet its fiscal consolidation goals, dealers said.

 

Traders expect prices to consolidate near current levels after the recent volatility, though some expect fresh short sales ahead of the weekly gilt auction on Friday, which features INR 300-billion of the 6.33%, 2035 bond. Dealers also said they do not expect the minutes of the Reserve Bank of India's Monetary Policy Committee meeting to show comments divergent from RBI Governor Sanjay Malhotra's remarks after the policy outcome.

 

Turnover in the gilts market was around INR 221.10 billion, higher than INR 214.65 billion at 1330 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.54%.  (Aaryan Khanna)

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India Gilts: Rise on short covering; PSU banks seen likely buyers

 

	0955 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.83	98.84	98.56	98.56	98.68
YTM (%)	6.4927	6.5309	6.4919	6.5309	6.5139

 

MUMBAI--0955 IST--Government bond prices rose as some traders covered short bets in early trade, dealers said. Traders avoided large bets due to lack of fresh cues overnight.

 

The negative carry generated from short sales led some traders to cover their bets, dealers said. The weighted average rate for the 6.33%, 2035 gilt in the special repo segment of the Clearcorp Repo Order Matching System was 0.22%, with a low of 0.01%. Rates nearing zero suggest a lack of bonds available to cover short sales. The total traded amount on the 2035 bond in the special repo segment – a proxy for tracking short sales – was INR 171.58 billion. 

 

"The market is slightly positive because of the short covering – CROMS rates were down to 0.01%," a dealer at a private sector bank said. "It's difficult to say whether this will sustain. People may start placing fresh short sales in the second half."

 

The recovery in bond prices on Tuesday led traders to believe that a sharp fall in prices is unlikely ahead of the weekly gilt auction on Friday, with state-owned banks buying gilts aggressively as the 10-year benchmark yield rose to 6.55% Tuesday, dealers said. State-owned banks were the top net buyers on Tuesday, buying INR 42.41 billion worth of gilts, according to Clearing Corp. of India data.

 

Minutes of the Reserve Bank of India's Monetary Policy Committee meeting, scheduled after market hours Wednesday, are unlikely to lend fresh cues on interest rates, dealers said. With the decision to hold the repo rate at 5.50% unanimous at the August meeting, dealers said individual members' assessmnent of growth and inflation is unlikely to differ sharply from RBI Governor Sanjay Malhotra's comments following the policy outcome on Aug. 6.

 

Comments by US Federal Reserve Chair Jerome Powell at the Jackson Hole Summit on Friday are also likely to be closely watched on the interest rate trajectory in the US. However, bond prices are only likely to take cues from the reaction in US Treasury yields after the comments, and traders are unlikely to place large bets in gilts before the speech, dealers said. 

 

At 0950 IST, the turnover in the gilts market was around INR 50.45 billion, against INR 15.65 billion at 0930 IST Tuesday, 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 6.48-6.54%.  (Aaryan Khanna)

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India Gilts: Seen steady amid lack of fresh cues; eye on Friday auction

 

MUMBAI – Government bond prices are expected to open steady due to lack of fresh cues overnight, with US Treasury yields little changed. Traders may continue to trim their gilt holdings ahead of the INR-360-billion weekly gilt auction on Friday, dealers said.

 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.55% during the day. On Tuesday, the bond ended at INR 98.68 or 6.51% yield. The benchmark yield had hit a fresh four-month high, rising to 6.55% on Tuesday before short covering and purchases by state-owned banks led to a slight recovery.

 

Traders remain uncertain about demand for fresh supply, especially with INR 300 billion of the 10-year gilt on offer Friday. Amid persistent concerns about potential fiscal slippage in 2025-26 (Apr-Mar) due to proposed changes in goods and services tax slabs, traders said they were not keen on adding gilts to their portfolios. Moreover, demand from several state-owned banks has also been muted after they were consistent buyers over the past two weeks, dealers said.

 

Traders are also likely to be cautious before the minutes of the Reserve Bank of India's Monetary Policy Committee, scheduled to be released after market hours Wednesday. Dealers await comments from the panel's six members on growth and inflation to gauge the future trajectory on interest rates. The MPC held the repo rate at 5.50% and the policy stance at neutral at its Aug. 4-6 meeting.

 

Most traders do not expect further rate cuts in India as the RBI's projections show resilient growth and above-target inflation in Apr-Jun 2026. Opinions on these forecasts changing after the proposed GST changes are mixed – the government's step is expected to boost growth, while bringing down CPI inflation by 20-50 basis points. Should MPC members suggest comfort on inflation and focus on boosting growth during an expected slowdown from US tariffs imposed on Indian exports, traders may once again price in a rate cut at the October or December policy reviews.  (Aaryan Khanna)

 

End

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

 

Edited by Rajeev Pai

 

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