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Informist, Friday, Aug. 22, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply lower Friday as traders placed fresh short bets after the INR 360-billion gilt auction, dealers said. Caution ahead of US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Symposium later in the day also led to a fall in bond prices, they said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.42, or a yield of 6.5510%, against INR 98.58, or 6.5278% yield, Thursday. Appetite for fresh stock in the secondary market reduced after the auction due to uncertainty over interest rates and yields, dealers said.

"Cut-offs at the auction were within expectations, but the fall in prices was because there is no clarity on where (gilt) yields will go in the near term, so apart from ALM buys (purchases by banks for asset-liability management), even PSUs (state-owned banks) are not giving enough support to the market," a dealer at a primary dealership said. "At the auction also, though PSU (banks) were there, a large part was picked up by insurers and some mutual funds."

Traders who had placed short bets before the auction, covered some of them at the auction and in the secondary market, which led to a brief recovery in bond prices in the secondary market, dealers said. However, there was a fresh bout of short sales due to caution before the weekend and fears of a further fall in bond prices next week before India's GDP data for Apr-Jun is released on Aug. 29, dealers said. This led to further fall in bond prices. The total traded volume in the 2035 bond in the special repo segment--a proxy for tracking short sales--was INR 185.05 billion at 1722 IST, up from INR 178.19 billion Thursday, according to the Clearcorp Repo Order Matching System. 

The Reserve Bank of India set a cut-off price of INR 98.39 on the benchmark 2035 gilt, in line with an Informist poll estimate. Traders covered some short bets at the auction, and participants across segments bid for the gilt. The cut-off price on the 5.91%, 2028 gilt was INR 99.75, higher than an Informist poll estimate of INR 99.68. Bank asset and liability managers, especially from state-owned banks, along with corporate houses and mutual funds, likely bid for the gilt. The RBI accepted four out of 83 bids for the 2028 gilt at the auction.

In the case of the 2035 bond, 6.55-6.56% were seen as attractive yield levels, which led state-owned banks to buy and limit losses, dealers said. The 6.55% is a psychologically crucial level, which is the 200-day moving average, for the 10-year bond. Some market participants had also hoped Friday's weekly statistical data would show purchases by the RBI in the secondary market in the week ended Aug. 15. "Market is hoping that the RBI will give some support to the market at these levels, since the cost of funds for government is also increasing and the view is also very bleak," a dealer at a state-owned bank said. However, the data released by the central bank post market hours showed the RBI did not buy or sell any gilts through open market operations last week.

Caution before US Federal Reserve Chair Jerome Powell's speech at 1930 IST also led traders to place fresh short bets, dealers said. Some traders said Powell's speech was unlikely to significantly impact the gilt market, and gilts would only react by tracking movement of US Treasury yields. Other traders said they would closely track any comment by Powell on the US rate trajectory. Traders also realigned portfolios ahead of the weekend, they said.

Turnover in the government bond market was INR 422.50 billion, higher than INR 287.05 billion Thursday, according to data from the RBI's Negotiated Dealing System Order Matching platform. There were seven trades worth INR 5.10 billion in two gilts using the wholesale digital rupee pilot Friday. On Thursday, there were nine trades worth INR 3.00 billion in six different state bonds using the same method. Some traders speculated that the central bank had urged banks with access to the facility to conduct test trades to achieve their targets.

OUTLOOK

Gilts are not traded Saturdays. On Monday, gilts will take cues from the movement of US yields after Powell's speech. Any cues on a rate cut by the US Federal Open Market Committee at its meeting in September would lead to rise in gilt prices Monday, dealers said.

Prices of longer tenure gilts may fall Monday as post market hours, the RBI announced that 15 states plan to raise INR 341.50 billion in an auction Tuesday. Traders fear borrowing through state bonds will increase in the current financial year if the proposed GST reforms are announced by Diwali, dealers said.

Traders will closely track technical levels on gilts. If sentiment worsens and the 2035 bond yield tops 6.55-6.56%, the 6.58-6.60% level could be the next psychologically crucial level to watch out. Traders are also waiting for India's GDP data for Apr-Jun, due on Aug. 29, for further cues on domestic interest rates. Most expect the GDP to meet RBI's forecast of 6.5%, but if it is below 6.3%, gilt prices could rise, dealers said.

On the domestic front, traders await clarity on the impact of the proposed reforms in goods and services tax structure on the central government's borrowing, along with updates on US tariffs on India, set to come into effect on Aug. 27.

Bonds may also track the movement of crude oil prices and the rupee against the dollar. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.50-6.60%.

India Gilts: Slump as traders place fresh short bets after auction 

MUMBAI--1538 IST--Prices of government bonds were sharply down, with the 10-year benchmark 6.33%, 2035 bond near the day's lows as traders placed fresh short bets after the auction, dealers said. Poor appetite for gilts after traders bought auction stock, along with caution ahead of US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Symposium after market hours, led to a fall in prices, they said. 

"There is so much uncertainty here and the bearish sentiment is persisting," a dealer at a primary dealership said. "People got auction stocks around current market levels, and the shorts before the auction are also covered, so they don't see the need to pay higher prices."

Traders feared that if there is a fresh bout of selling in the secondary market and the yield on the 10-year benchmark 2035 bond tops 6.55-6.56%, stop-losses may be triggered and the yield on the bond could rise to 5.58%, dealers said. If the yield rises to 6.58%, the 10-year gilt will erase all gains made in the current financial year. 

The Reserve Bank of India set a cut-off price of INR 98.39 on the 2035 benchmark gilt, in line with an Informist poll estimate. Traders covered some short bets at the auction, and participants across segments bid for the gilt. Prices recovered slightly after auction results as traders covered short bets placed earlier, dealers said. Insurance companies and mutual funds also picked up stock of the 10-year gilt at the auction, dealers said. The cut-off price on the 5.91%, 2028 gilt was INR 99.75, higher than an Informist poll estimate of INR 99.68. Bank asset and liability managers, especially from state-owned banks, along with corporate houses and mutual funds, likely bid for the gilt. The RBI accepted 4 out of 83 bids for the 2028 gilt at the auction.

"It (the yield on the 6.33%, 2035 gilt) can go to 6.50% or it can go above 6.55%," a dealer at a state-owned bank said. "There's no real demand for bonds now, and we have to see later in the day who gets more (auction) stock, the real investors, or traders. If it's traders, then we can definitely see some more selling."

Caution before US Federal Reserve Chair Jerome Powell's speech at 1930 IST also led traders to place fresh short bets, dealers said. Some traders said the speech was unlikely to significantly impact the gilt market, and gilts would only react by tracking movement in US Treasury yields, while others said they would closely track any remark on the US rate cut trajectory. Traders may also realign portfolios ahead of the weekend, they said. On the domestic front, traders await clarity on the impact of the proposed reforms in goods and services tax structure on the central government's borrowing, along with updates on US tariffs on India, set to go into effect on Aug. 27. 

At 1530 IST, the turnover in the gilts market was INR 302.40 billion, higher than INR 201.10 billion at the same time Thursday, 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 6.48-6.60%.  (Cassandra Carvalho and Srijita Bose)

India Gilts: Remain down; demand widespread for 6.33%, 2035 gilt over 6.55% yld

MUMBAI--1230 IST--Government bond prices remained lower ahead of the result of the weekly gilt auction. Traders expect widespread demand for the 6.33%, 2035 gilt above 6.55% yield at the auction, the highest traded level hit on the 10-year benchmark in the current financial year started April, dealers said.

The government offered to sell INR 300 billion of the 2035 gilt at the weekly auction. Banks likely bid for the gilt as the 10-year yield was at a four-month high, while also offering over 100 basis points of spread over the policy repo rate of 5.50%, dealers said. Moreover, traders likely covered their short sales at the auction after building up those bets during the week. Demand from mutual funds was also firm at the expected cut-off levels, dealers said. The 6.33%, 2035 bond's median cut-off price was seen at INR 98.39 in an Informist poll. Since the expected cut-off was only slightly lower than secondary market prices, dealers said they do not expect the Reserve Bank of India to devolve the 2035 gilt on underwriters.

"The auction should clear at the expected cut-off level," a dealer at a primary dealership said. "Banks have bought at these levels, traders have covered and we also got bids from mutual funds and insurers."

If the 10-year bond's cut-off is on expected lines, traders may cover their short bets in the secondary market and the benchmark yield may retreat from 6.55%, which is a strong technical resistance as the 200-day moving average. However, if the cut-off price at the auction disappoints, traders may hit stop-losses and the benchmark yield may quickly shoot up to 6.60%, erasing all gains for FY26 despite the 75-basis-points of rate cuts delivered by the Reserve Bank of India's Monetary Policy Committee so far in the financial year. 

Meanwhile, demand for the 5.91%, 2028 bond was seen firm from asset-liability managers at banks and the bond's cut-off price may be higher than earlier estimates, dealers said. The limited supply at INR 60 billion may lead to the positive cut-off, they said. The median estimate in an Informist poll in the paper was INR 99.68.

The turnover in the gilts market was INR 95.55 billion, similar to INR 100.55 billion at 1230 IST Thursday, 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 6.48-6.58%.  (Aaryan Khanna)

India Gilts: Fall as traders make room for 6.33%, 2035 bond at auction

MUMBAI--1000 IST--Government bond prices were down as traders made room for fresh supply at the weekly gilt auction of INR 360 billion, dealers said. Other than the expectations from the auction, which features the 6.33%, 2035 bond, there was "nothing" driving bond prices, dealers said.

Despite levels considered lucrative, traders avoided picking up gilts as they expected to be able to pick up the 10-year benchmark gilt cheaper at the auction. The government will sell INR 300 billion of the 2035 bond. Some traders placed fresh short bets, while others were selling outright before the auction at 1030-1130 IST.

"Traders should bid at the 6.55% level (on the 10-year bond), which is the technical level here," a dealer at a state-owned bank said, referring to the 200-day moving average. "It shouldn't move beyond that."

While state-owned banks are expected to bid for a large quantum of the gilt, traders are also likely to cover their short sales, which have ballooned in recent days ahead of the 10-year gilt's auction, dealers said. However, if investors demand the 10-year bond at higher than 6.55% yield, some traders fear the Centre could devolve the gilt on underwriters. More clarity of underwriters' fears of devolvement may emerge after the result of the underwriting fee auction.

"The underwriting could come a bit higher as primary dealers will bid realistically about the chance of a devolvement," a dealer at primary dealership said. The underwriting fee for the 5.91%, 2028 gilt was seen at 0.10 paisa, while for the 2035 bond, it was seen at 0.40 paisa, according to the median of an Informist poll.

"Even the PSU (state-owned) banks' demand is not there, and people will bid at a tail," the dealer said.

After the auction result, bond prices are likely to move in line with the cut-off prices on the 10-year benchmark gilt, dealers said. The three-year benchmark's fresh supply is seen sailing through due to demand from banks' asset-liability managers and mutual funds, which are the usual investors in the gilt. 

The turnover in the gilts market was around INR 17.25 billion, similar to INR 17.90 billion at 0945 IST Thursday, 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 6.48-6.58%.  (Aaryan Khanna)

India Gilts: Seen tad down before auction; 10-year cut-off seen key driver

MUMBAI – Government bond prices are seen opening slightly lower ahead of the weekly gilt auction worth INR 360 billion at 1030-1130 IST. Traders were uncertain of demand for the fresh supply, particularly the 10-year benchmark 6.35%, 2035 gilt, dealers said. The cut-off price on the 2035 gilt is likely to drive prices through the day.

The 10-year benchmark gilt yield is seen in a range of 6.48-6.58% on Friday. On Thursday, the 2035 bond closed at INR 98.58 or 6.53% yield. At the auction, the government will sell INR 300 billion of the 6.33%, 2035 bond and INR 60 billion of the 5.91%, 2028 bond.

Traders are uncertain about the market's appetite for the 10-year gilt, especially as state-owned banks have been buying the bond in the run-up to the auction despite prices being under pressure, dealers said. Some state-owned banks have said picking up the bond above 6.53%, considering the level lucrative as it provides a significant return over the policy repo rate of 5.50%. However, others said their "available-for-sale" portfolios have a large stock of the bond, and they would not prefer to add the gilt to the trading book unless the market's momentum shifts to prices recovering. So far this week, the 6.33%, 2035 bond's yield is up nearly 13 basis points, with its price down by 90 paise.

This is due to the large quantum of short sales that have built up in the bond, around INR 80 billion of which may be covered at the auction, dealers said. Mutual funds, life insurers and even foreign portfolio investors may bid for the 10-year gilt at current levels, with the 10-year US Treasury yield little changed overnight. However, traders expect the cut-off price to be lower than market prices as end-investors are unlikely to pick up the entire fresh supply of the gilt.

The 10-year benchmark yield is not expected to rise above 6.55%, especially before the auction as it is a key technical resistance, forming the 200-day moving average, dealers said. Some traders also expect a recovery in bond prices after the auction bidding is complete at 1130 IST. If the auction cut-off is lower than expected, stop-losses may be hit and the 10-year gilt yield could rise to 6.58-6.60% as well, dealers said.

Meanwhile, the three-year benchmark 5.91%, 2028 gilt may be more firmly bid for by asset-liability managers at banks, dealers said. However, they may demand higher returns on the gilt as well with the Reserve Bank of India keeping marginal liquidity tight and driving up overnight rates through variable rate reverse repo auctions, and with no certainty of rate cuts in India, they said.

Later in the day, traders may lighten their portfolios ahead of US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Economic Symposium at 1930 IST. Some traders expect Powell to pivot towards showing comfort on rate cuts, while others remain sceptical the Fed Chair would do so. Caution before the event may prompt traders to limit risk before the speech, dealers said.  (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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