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Informist, Thursday, Aug. 21, 2025

 

By Srijita Bose

 

MUMBAI – Government bond prices ended sharply lower Thursday as traders placed short bets on the 10-year benchmark 6.33%, 2035 bond ahead of INR 300.00 billion worth of fresh supply at the gilts auction Friday, dealers said. Traders expect demand at the auction to be poor and so refrained from adding gilts, which drove prices down, they said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.58, or a yield of 6.5278%, against INR 98.80, or 6.4969% yield, Wednesday. At Friday's auction, while short-sellers are likely to cover around INR 80 billion worth of short bets, traders are uncertain where the demand for the rest would come from.

 

"Cut-offs (at the auction Friday) could be poor, some ALM (asset-liability management) demand and short covering will be there, but I don't think there will be aggressive demand," a dealer at a state-owned bank said. "Let's see how the cut-offs go, that will give the market some cues."

 

Traders also avoided adding gilts to their portfolios after the volatility over the past few days, which kept trade volumes low amid uncertainty about further rate cuts in India and persistent worries of the government missing its budgeted revenue target and upping its borrowing. Although fears of a large additional issuance in dated securities have faded a little, dealers still fear a rise in supply of Treasury bills or state bonds. State-owned banks likely remained on the buying side, dealers said, after having net bought over INR 96.00 billion this week, according to data from Clearing Corp. of India. However, demand from state-owned banks may not be aggressive at the auction, dealers said.

 

Short bets on the 10-year gilt rose as traders expected a lower cut-off price at the auction. The total traded amount on the 2035 bond in the special repo segment--a proxy for tracking short sales--was INR 178.19 billion at 1758 IST, up from INR 171.58 billion Wednesday. "Cut-off at the auction could be 1-2 basis points higher but will also depend on where prices are tomorrow before the auction begins," a dealer at a private-sector bank said. Some traders had hit limits on the amount of short sales mandated by the Fixed Income and Money Market Dealers Association and preferred to trade in the when-issued segment to express their view on cut-off prices at the auction, dealers said. Around INR 2.00 billion of the 2035 bond was traded in the When Issued (ReIssues) segment of the RBI's Negotiated Dealing System-Order Matching platform, with the last trade at INR 98.72, or a yield of 6.5082%.

 

Meanwhile, demand for the 5.91%, 2028 bond at Friday's auction is also seen to be modest, but the supply of INR 60.00 billion is likely to sail through on demand from banks' asset-liability management desks. Demand from mutual funds is also expected for the three-year bond at the auction, some dealers said. 

 

Gilts also fell after the HSBC flash Composite Purchasing Managers' Index rose to 65.2 in August from 61.1 a month ago, showing robust expansion in India's private-sector activity. This was the sharpest expansion since HSBC started collecting survey data for the Purchasing Managers' Index in December 2005. Services sector activity was at a record high in August and manufacturing sector activity also galloped to an over-17-year-high. A rise in economic activity is seen reducing the need for monetary policy easing.

 

Thin trading volumes and wide bid-offer spreads for even the most-traded 2035 bond also weighed on prices due to the lack of trader interest, dealers said. The lack of liquidity led to sharper moves in the gilt's price. However, banks preferred to continue to hold the 6.33%, 2035 bond even though it offered 8 basis points less than the erstwhile benchmark 6.79%, 2034 gilt and nearly 12 bps less than the 7.10%, 2034 gilt. Demand from banks' asset liability managers and some traders as the yield on the 2035 bond topped 6.52% limited losses, dealers said.

 

The minutes of the Monetary Policy Committee's August meeting did not lend direction to gilt prices, in part because traders were focused on the auction, dealers said. The comments of the RBI's rate-setting panel's members suggested they were slightly more open to cutting rates than the market had expected, they said. After the monetary policy outcome on Aug. 6, bond prices no longer reflect further rate reductions despite overnight indexed swap rates suggesting a policy rate cut of 25 bps in Oct-Dec. The minutes did not change that view, dealers said.

 

In the minutes, external members Nagesh Kumar and Ram Singh appeared to be in favour of further rate cuts after the rate-setting panel held the line in August, dealers said. They cited the numerous risks to economic growth and employment from the tariffs imposed by the US on India's exports as a reason.

 

At the same time, RBI Deputy Governor Poonam Gupta said she did not see "the scope or rationale for a further policy rate cut at this point". RBI Executive Director Rajiv Ranjan's comments were seen to be balanced and he came across as the central banker closest to voting on rate cuts again. However, some traders played down the weight of his comments as he is set to retire before the next meeting of the Monetary Policy Committee, which is due Sept. 29-Oct. 1.

 

The view on RBI Governor Sanjay Malhotra's comments was mixed, with the lack of comments on the strength of economic growth seen to be toning down the negative impact of his comments on policy day, dealers said. "The governor was on the neutral to dovish side, while DG (Deputy Governor) Gupta was on the neutral to hawkish side," a dealer at a state-owned bank said. "We are sticking with our view that one more rate cut could come and the data will determine when that is."

 

The turnover in the government bond market was INR 289.50 billion, down from INR 335.50 billion Wednesday, according to data from the RBI's NDS-OM platform. There were nine trades worth INR 3.00 billion on six different state bonds using the wholesale digital rupee pilot. Some traders speculated that the central bank had urged banks with access to the facility to conduct test trades to achieve their targets. There were no trades using the method Wednesday.

 

OUTLOOK

On Friday, gilts may open steady on caution ahead of the INR 360.00-billion gilts auction at 1030-1130 IST. Some traders may place short bets ahead of the auction, dealers said. Later in the day, the result of the auction will provide cues to traders, they said.

 

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

 

On the policy front, while the goods and services tax 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. The group of ministers on GST rate rationalisation has accepted the Centre's proposal to shift to a two-slab GST structure.

 

Traders will also keep an eye out for news from 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 6.48-6.60%.

 

	THURSDAY		WEDNESDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	98.5825	6.5278%	98.8000	6.4969%
6.79%, 2034	101.3000	6.5966%	101.4800	6.5703%
6.75%, 2029	101.9200	6.2348%	101.9950	6.2154%
6.68%, 2040	98.1600	6.8784%	98.3000	6.8630%
6.90%, 2065	95.0000	7.2860%	95.1700	7.2722%

 

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India Gilts: Fall further; auction of 6.33%, 2035 gilt Fri looms large

 

	1612 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.61	98.83	98.56	98.80	98.80
YTM (%)	6.5239	6.5310	6.4934	6.4969	6.4969

 

MUMBAI--1610 IST--Government bond prices fell further as traders made room for the weekly gilt auction Friday, which features INR 300 billion of the 10-year benchmark 6.33%, 2035 gilt, dealers said. Expectations of modest demand at the auction have been driving gilt prices lower through the week, they said.

 

While short-sellers are likely to cover around INR 80 billion worth of bets at the auction, traders were uncertain where demand for the remaining amount would come from. State-owned banks have been on the buying side throughout the week, but there was lack of aggression in picking up gilts ahead of the auction, dealers said. Private sector banks had already bought gilts earlier in the week for their available-for-sale portfolios, and further appetite is seen modest, even as the 10-year gilt's yield approaches a four-month high.

 

"My sense is that the 10-year's cut-off (yield) will be 6.53% or 6.535% at the auction tomorrow (Friday)," a dealer at a state-owned bank said. "The market is just converging towards that figure now."

 

Traders also avoided adding gilts to their portfolios after the volatility over the last few days, amid uncertainty of further rate cuts in India and persistent worries over the government missing its budgeted revenues and upping its borrowing. Although fears of a large additional issuance in dated securities have faded somewhat, dealers still fear a rise in Treasury bills or state bond supply.

 

Thin trading volumes and wide bid-offer spreads for even the most-traded 2035 bond also weighed on prices due to lack of trader interest, dealers said. The lack of liquidity led to sharper moves in the gilt's price. However, banks still preferred to hold the 6.33%, 2035 bond even as it offered 8 basis points less than the erstwhile benchmark 6.79%, 2034 gilt and nearly 12 bps less than the 7.10%, 2034 gilt.

 

"Even for carry, we can find an exit in the bond, so we prefer that," the dealer quoted above said.

 

Some banks may have also stepped up purchases as the 10-year gilt's yield topped 6.52%, dealers said. Meanwhile, demand for the 5.91%, 2028 bond at auction is also seen modest, but the supply of INR 60 billion will likely sail through due to demand from banks' asset-liability management desks.

 

Turnover in the gilts market was INR 238.55 billion, lower than INR 272.85 billion at 1630 IST Wednesday, 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 6.48-6.54%.  (Aaryan Khanna)

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India Gilts: Fall on fresh short sales before auction Fri; volume low

 

	1320 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.64	98.83	98.62	98.80	98.80
YTM (%)	6.5203	6.5225	6.4934	6.4969	6.4969

 

MUMBAI--1320 IST--Government bond prices fell as traders placed fresh short bets ahead of the weekly gilt auction Friday. Trade volume was muted and banks avoided large purchases despite considering levels lucrative as they wait for the fresh supply of the 10-year benchmark 6.33%, 2035 gilt, dealers said.

 

The government will sell INR 60 billion of the 5.91%, 2028 bond and INR 300 billion of the 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 1300 IST showed trades worth nearly INR 180 billion in the 6.33%, 2035 gilt.

 

Though the number was very large, traders said that only INR 60 billion to INR 80 billion may be covered at the auction, while the rest were held by traders to mitigate the risk of other bonds of different tenures in their portfolios. Regardless, some traders had hit limits on the amount of short sales mandated by the Fixed Income and Money Market Dealers Association and preferred to trade in the when-issued segment to express their view on cut-off prices at the auction, dealers said. INR 2 billion of the 6.33%, 2035 bond was traded in When-Issued (Re-issues) segment of the Negotiated Dealing System – Order Matching platform.

 

"The auction is coming up, plus PMI (Purchasing Managers' Index) was on the higher side," a dealer at a primary dealership said. "So at this stage there's no positive in the market to drive it up."

 

India's private sector activity showed robust expansion in August, with the HSBC Flash Composite Purchasing Managers' Index rising to 65.2 from 61.1 in July, according to S&P Global Thursday. This was the sharpest expansion since HSBC started collecting survey data for PMI in December 2005. The services sector activity was at a record high in August and manufacturing sector activity also galloped to over a 17-year-high. A rise in economic activity is seen reducing the need for monetary policy easing.

 

Traders did not take fresh bets on bonds after the minutes of the Reserve Bank of India's Monetary Policy Committee meeting, released Wednesday, as there was no change in the rate view, dealers said. Some traders looked ahead to US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Economic Symposium on Friday. Powell may change his earlier stance and signal further rate cuts are in the offing, bringing down US Treasury yields and potentially leading to a rise in bond prices Monday, dealers said.

 

Turnover in the gilts market was INR 125.30 billion, lower than INR 206.20 billion at 1330 IST Wednesday, 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 6.48-6.54%.  (Aaryan Khanna)

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India Gilts: Steady on caution before auction Fri; short sales may pick up

 

	0945 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.79	98.83	98.74	98.80	98.80
YTM (%)	6.4991	6.5054	6.4934	6.4969	6.4969

 

MUMBAI--0945 IST--Government bond prices fell slightly as traders looked ahead to the INR-360-billion weekly gilt auction on Friday. Minutes of the Monetary Policy Committee's August meeting did not change the market's view on rate cuts, with hopes of an October or December rate reduction hinging on slowing growth, dealers said.

 

The fresh supply on Friday includes INR 300 billion of the 10-year benchmark 6.33%, 2035 gilt. Dealers said the cut-off prices at the auction will determine the outlook on gilt prices in the near term, and were cautious of placing large bets before it. Short sellers are likely to increase their activity in the second half of trade, which may weigh on prices, they said. Some state-owned banks are seen picking up stock of the 10-year gilt as its yield tops 6.50%, while others are more cautious of picking up the gilt ahead of the auction. Moreover, some state-owned banks already have a sizeable quantum of the bond in their available for sale portfolios and were not bidding aggressively for it in the secondary market.

 

Meanwhile, the MPC minutes released Wednesday did not move bond prices too much as traders remained uncertain about further rate cuts in India. External members Nagesh Kumar and Ram Singh were seen favouring further policy easing amid risks to growth from the US tariffs imposed on India, dealers said. At the same time, Reserve Bank of India Governor Sanjay Malhotra and Deputy Governor Poonam Gupta did not seem in favour of easing rates further, dealers said.

 

"It is not really dovish, but based on what market had expected, the external members were a little dovish," a dealer at a primary dealership said.

 

The turnover in the gilts market was around INR 17.90 billion, lower than INR 50.45 billion at 0950 IST Wednesday, 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 6.47-6.54%.  (Aaryan Khanna)

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India Gilts:Seen opening steady; MPC minutes do not alter traders' rate view

 

MUMBAI – Government bond prices are seen opening steady Thursday as the minutes of the Reserve Bank of India's Monetary Policy Committee's August meeting did not lend fresh cues on the interest rate trajectory in 2025, dealers said. While some committee members seemed to favour further policy easing should growth falter, at least two of the members and RBI Governor Sanjay Malhotra seemed to suggest a high bar for a rate cut.

 

The 10-year benchmark 6.33%, 2035 bond is seen at 6.46-6.54% Thursday, with cues from the minutes coming ahead of the INR 360-billion weekly gilt auction on Friday. On Wednesday, the 2035 gilt ended at INR 98.80, or 6.50% yield. 

 

In the minutes of the MPC's August meeting, released Wednesday, some members including Nagesh Kumar seemed to favour further rate cuts, citing the numerous risks to economic growth and employment from the tariffs imposed by the US on India's exports. At the same time, RBI Deputy Governor Poonam Gupta said she did not see "the scope or rationale for a further policy rate cut at this point". However, with all the members noting the need for data dependence, some traders remain optimistic about further rate cuts should growth slow down.

 

The outlook for CPI inflation in the coming months is benign, dealers said, and MPC members' worries about the future inflation trajectory after January may be eased by the impact of the government's proposed goods and services tax reforms. The reforms are expected to pull down headline inflation by 20-50 basis points. Despite this view, dealers see further rate cuts hinging on slower growth rather than inflation meeting the RBI's 4% target.

 

Earlier Thursday, State Bank of India's Group Chief Economic Adviser Soumya Kanti Ghosh said in a research report that he expects Apr-Jun GDP growth to print at 6.8-7.0%. The central bank's estimate for June quarter GDP growth is 6.5%. With growth resilient in the upcoming print, traders said they are unlikely to increase their bets on a rate cut in the October policy unless there is a sharp negative surprise when the data comes out on Aug. 29. 

 

In the second half of the day, traders may step up their short sales to make room for the fresh supply at the auction Friday. The government will sell INR 60 billion of the 5.91%, 2028 gilt and INR 300 billion of the 6.33%, 2035 bond. The appetite and cut-off price for the 10-year benchmark at the auction will be a key trigger for bond prices going ahead, dealers said.

 

Elsewhere, the minutes of the US Federal Open Market Committee meeting were released late Wednesday. MUFG termed the minutes "somewhat hawkish" in a note. However, the 10-year US Treasury yield was little changed overnight at 4.30%.  (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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