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Informist, Monday, Aug. 25, 2025

 

By Srijita Bose

 

MUMBAI – Government bond prices ended sharply lower Monday on fiscal concerns with Fitch Ratings not upgrading India's rating, and as traders placed short bets before the heavy state bond auction Tuesday, dealers said. Reserve Bank of India Governor Sanjay Malhotra's comments also dampened traders' sentiments, dealers said.

 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.10, or a yield of 6.5967%, against INR 98.42, or 6.5510% yield, Friday. The yield on the 10-year benchmark gilt closed at its highest level since Mar. 27. With this, the benchmark 10-year gilt has given up all the gain made in 2025-26 (Apr-Mar). 

 

Fitch Ratings Monday affirmed India's long-term foreign-currency issuer rating at 'BBB-' with a stable outlook. S&P Global Ratings had earlier this month upgraded India's long-term sovereign rating to 'BBB' from 'BBB-', raising hopes of other rating agencies following suit.

 

Fitch has forecast a slight rise in India's general government debt to 81.5% in FY26, due to lower nominal growth. Traders said this sent mixed signals on outlook and were unsure whether demand from foreign investors would come in, even as chances of rate cuts in the US would lead to a higher interest rate differential between US yields and the emerging market bond yields. A higher interest rate differential makes it more attractive for foreign investors to invest in the emerging market, dealers said. Foreign banks likely sold on the Fitch Ratings news, they said.

 

"There are fiscal concerns, and the demand outlook is also dull, so every support is being broken in the market," a dealer at a state-owned bank said. "We also have the state bond auction tomorrow (Tuesday), and no one knows how bad that will go, so that last bout of selling likely came because of that." 

 

Traders placed short bets on the 10-year 2035 gilt on fears that prices could fall further during the week, dealers said. The total traded volume in the 2035 bond in the special repo segment--a proxy for tracking short sales--was INR 143.21 billion at 1824 IST, according to the Clearcorp Repo Order Matching System. 

 

A heavy supply of state bonds and longer-tenure gilts during the week kept long-term investors such as insurers away from the secondary market, dealers said. Fifteen states plan to raise INR 341.50 billion through bonds, as against INR 208.50 billion indicated for the week in the calendar for Jul-Sept. Traders will watch out for the cut-offs at Tuesday's state bond auction, with many expecting a higher yield spread on state bonds over gilts at the auction, they said. Demand for state bonds was seen as lacklustre as state-owned banks had already piled into the higher-yielding papers earlier in the quarter without being able to exit the investments at a profit, dealers said. However, some state-owned banks likely bought state bonds in the secondary market and switched between tenures as these bonds offered a higher return compared to gilts, dealers said. 

 

Dealers said muted demand from state-owned banks, many of which have already hit their risk limits, led to a bigger fall and a larger bid-offer spread on the 10-year 2035 bond in the secondary market. Moreover, expectations that domestic growth may not slow down and the RBI was comfortable with current growth rates also led to fears of a longer pause in rates, dealers said. RBI governor Monday said India's economy is characterised by robust macroeconomic fundamentals and that corporate balance sheets are very healthy. Speaking at the FIBAC 2025 conference in Mumbai, Malhotra said the central government's fiscal position is very strong.

 

Gilts are no longer pricing in any more rate cuts in the current year, though some traders still expect another 25 bps of cut later in the current financial year ending March, they said. However, traders said that even with a 25 bps cut, the reversal in gilt yields will be limited, as demand is expected to be moderate due to fears of higher borrowing, especially by states, due to the reforms in the goods and services tax. Yield on the 2035 bond had fallen to a low of 6.1059% on Jun. 6, the day when the RBI's Monetary Policy Committee slashed the repo rate by 50 bps to 5.50%.

 

"We need a 50 bps cut to see any reversal in yields," a dealer at a private sector bank said. "Also, there is no communication or support from the RBI even as yields are almost near a five-month high, so there is a lot of nervousness around how much more the market will fall. As a trader, I will want to sit it out and not take any more positions here."

 

The fall in gilts was limited as state-owned banks bought gilts at yields seen as attractive, dealers said. The 10-year 2035 bond yield is at nearly 110 bps above the RBI's repo rate of 5.50%, even as traders do not see a rate hike by the central bank soon, they said. 

 

In early trade, gilt prices were up, tracking a fall in US Treasury yields after US Federal Reserve Chair Jerome Powell, in his speech at the Jackson Hole Economic Symposium on Friday, opened the door to resuming rate cuts in the US, dealers said. The 10-year benchmark US Treasury yield had fallen to 4.27% during the day, from 4.33% at 1700 IST Friday. Some foreign portfolio investors likely bought gilts in early trade, dealers said. 

 

Turnover in the government bond market was INR 432.10 billion, similar to INR 422.50 billion Friday, according to data on the RBI's Negotiated Dealing System Order Matching platform. There were no trades using the wholesale digital rupee pilot Monday. On Friday, there were seven trades worth INR 5.10 billion in two gilts using the digital rupee. 

 

OUTLOOK

On Tuesday, traders will wait for the results of the INR-341.50-billion state bond auction for further cues to trade, dealers said. Traders will closely track technical levels on gilts. If sentiment worsens and the 2035 bond yield tops the 6.60% level, 6.65-6.66% could be the next psychologically crucial level to watch out for, they said.

 

Prices of longer tenure gilts may fall due to the heavy supply of state bonds Tuesday and long-term gilts Friday. The government will sell INR 160 billion of the 6.68%, 2040 bond, and INR 160 billion of the 6.90%, 2065 bond at the auction Friday. Traders fear that state borrowing will increase in the current financial year if the proposed GST reforms are announced by Diwali, dealers said.

 

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 be around the RBI's forecast of 6.5%. If the growth is below 6.3%, gilt prices could rise, dealers said. According to an Informist poll, India's GDP is likely to have expanded 6.7% in the first quarter of 2025-26 (Apr-Mar).

 

On the domestic front, traders await clarity on the impact of the proposed reforms in goods and services tax rates on the central government's borrowing and updates on the additional 25% US tariffs that are 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 6.55-6.66%.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	98.1000	6.5967%	98.4200	6.5510%
6.79%, 2034	100.8800	6.6582%	101.1900	6.6126%
6.75%, 2029	101.7975	6.2659%	101.8800	6.2444%
6.68%, 2040	97.7000	6.9291%	98.0300	6.8927%
6.90%, 2065	94.1000	7.3595%	94.8800	7.2957%

 

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India Gilts: Recover some losses as PSU banks likely buy gilts

 

	1601 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.24	98.57	98.14	98.53	98.42
YTM (%)	6.5775	6.5917	6.5305	6.5354	6.5510

 

MUMBAI--1601 IST--Government bond prices recovered some losses due to likely gilt buys from state-owned banks as the yield on the 10-year benchmark 6.33%, 2035 bond touched highest levels since March end, dealers said. Gilts remained sharply down after Fitch Ratings did not upgrade India's rating and after Reserve Bank of India Governor Sanjay Malhotra's comments dampened traders' sentiments, they said. 

 

Gilts had fallen more, with the day's low on the 10-year 2035 bond at INR 98.1350 or a yield of 6.5917% as stop-losses were triggered on the bond, dealers said. However, with the 10-year bond interest differential widening to over 109 basis points of the RBI's repo rate of 5.50%, demand from state-owned banks came in, they said, 

 

"There is no confidence in the market and every support level is getting breached," a dealer at a private-sector bank said. "And whatever demand is there is getting absorbed in the primary auctions only, so secondary (market) is worse-off."

 

Fitch Ratings Monday affirmed India's long-term foreign-currency issuer default rating at 'BBB-' with a stable outlook. A few days ago, on Aug. 14, S&P Global Ratings had upgraded India's long-term unsolicited sovereign credit rating to 'BBB' from 'BBB-'. Traders said this sent mixed signals on outlook and were unsure whether demand from foreign investors would come in even as chances of rate cuts in the US will lead to a higher interest rate differential between US yields and the emerging market bond yields. A higher interest rate differential between the two markets usually makes it more attractive for foreign investors to invest in the emerging market, dealers said. Foreign banks likely sold on the Fitch Ratings news, they said. 

 

Moreover, expectations that domestic growth may not slow down and the RBI was comfortable with current growth rates also led to traders' fears of a longer pause in rates, dealers said. Gilts are no longer pricing in any more rate cuts in the current year, though some traders had still expected another 25-basis-point of cut later in the current financial year ending March, they said. "But even a 25 bps cut won't be enough for the market, because even if that happens the yield (on the 10-year 2035 bond) will go to some 6.30-6.35% levels only, which is still higher than where we were after rate cuts," a dealer at a state-owned bank said. Yield on the 2035 bond had fallen to a low of 6.1059% on Jun. 6, the day when the RBI's Monetary Policy Committee slashed the repo rate by 50 bps to 5.50%. 

 

Dealers said muted demand from state-owned banks, many of which have already hit their risk limits, led to a bigger fall and a larger bid-offer spread on the 10-year 2035 bond in the secondary market. Moreover, a heavy supply of state bonds and longer-tenure gilts during the week also kept long-term investors such as insurers away from the secondary market, dealers said. Traders will watch out for the cut-offs at Tuesday's state bond auction, with many expecting a higher yield spread on state bonds over gilts at the auction, they said. However, some state-owned banks likely bought state bonds and switched between tenures as these bonds offered a higher return compared to gilts, dealers said. 

 

Turnover in the gilts market rose, and was around INR 329.50 billion, higher than INR 302.40 billion at 1530 IST Friday, 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 6.55-6.62%.  (Srijita Bose)

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India Gilts: 10-yr gilt gives up all FY26 gains after Fitch retains India rtg

 

	1349 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.21	98.57	98.20	98.53	98.42
YTM (%)	6.5817	6.5825	6.5305	6.5354	6.5510

 

MUMBAI--1349 IST--The 6.33%, 2035 gilt yield rose above the crucial 6.58% level, giving up all price gains the benchmark 10-year gilt accumulated in 2025-26 (Apr-Mar), after Fitch Ratings affirmed India's sovereign credit rating at 'BBB-' with a stable outlook. S&P Global Ratings had upgraded India's rating to 'BBB' from 'BBB-' with a stable outlook on Aug. 14, and traders were disappointed that Fitch did not do the same. 

 

Prices of government bonds fell more as some traders' stop-losses were triggered after the yield on the 6.33%, 2035 gilt rose above the key 6.56% level earlier. After breaching the 6.58% level, traders speculate that the yield could rise to 6.60%. Some traders said the yield could fall back to 6.56-6.57?ter rising above 6.58%, due to buys from state-owned banks at lucrative levels, they said. Traders, especially from foreign banks, placed short bets on gilts.  

 

"Fitch has kept India rating at 'BBB-' and also for the GDP they have the same expectation for the FY as RBI. Foreign banks are selling," a dealer at a state-owned bank said. "We also have a heavy supply tomorrow (for state bonds) so that's also why market is giving in." Fitch forecast India's GDP growth for FY26 at 6.5%, same as the Reserve Bank of India's forecast.  

 

The heavy supply of INR 341.50 billion at the state bond auction Tuesday also weighed on gilts. Losses were limited as state-owned banks purchased bonds at prices seen as lucrative. State-owned banks preferred gilts maturing within seven to 15 years, especially the erstwhile 10-year benchmark gilts, while they were switching state bonds in their portfolios to book profits but remain invested at current levels, dealers said. 

 

Turnover in the gilts market rose, and was around INR 244.60 billion, higher than INR 149.50 billion at 1330 IST Friday, 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 6.55-6.62%.  (Cassandra Carvalho)

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India Gilts: Reverse gains after RBI Malhotra says growth remains strong

 

	1122 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.39	98.57	98.35	98.53	98.42
YTM (%)	6.5561	6.5607	6.5305	6.5354	6.5510

 

MUMBAI--1122 IST--Prices of government bonds fell, reversing early gains, after Reserve Bank of India Governor Sanjay Malhotra said India's economy is characterised by robust macroeconomic fundamentals, dealers said. 

 

At the FIBAC 2025 conference in Mumbai, Malhotra said India is all set to become the world's third largest economy, and that corporate balance sheets are very healthy. He also said that the central government's fiscal position is very strong. Malhotra said the central bank has "not lost sight of the objective of growth" and would continue with its monetary policy to maintain price stability, with a focus on growth.

 

"He didn't mention anything (that dimmed chances of a rate cut), he just spoke about growth," a dealer at a private sector bank said. "It didn't feel negative but still some traders let go (sold some gilts)."

 

Volumes were thin and traders speculated that a dealer got "spooked" by the governor's comments and sold gilts, they said. Bond prices came off highs before the governor's comments because of caution and some profit-booking by traders, they said. 

 

Turnover in the gilts market was around INR 102.55 billion, higher than INR 74.05 billion at 1130 IST Friday, 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 6.52-6.58%.  (Cassandra Carvalho)

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India Gilts: Up as US ylds fall, gains capped on higher state bond sale size 

 

	1002 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.47	98.57	98.45	98.53	98.42
YTM (%)	6.5440	6.5468	6.5305	6.5354	6.5510

 

MUMBAI--1002 IST--Prices of government bonds were up Monday, tracking a fall in US Treasury yields after US Federal Reserve Chair Jerome Powell, in his speech at the Jackson Hole Economic Symposium on Friday, opened the door to resuming rate cuts in the US, dealers said. However, gains were capped due to higher than indicated state bond supply this week, and as traders booked profits. Moreover, Powell's comments did not change traders' expectations of a quicker or deeper rate cut cycle by the Reserve Bank of India's Monetary Policy Committee in India. 

 

The yield on the benchmark 10-year US Treasury note was 4.27% as of 0911 IST, down from 4.33% at 1700 IST Friday. Powell Friday seemed to suggest some long-awaited policy easing would come through quickly. Noting weakness in the labour market and considering a base-case when increased tariffs have a one-time impact on inflation, Powell said a change in the US Fed's stance on rates might be necessary.

 

However, on the domestic front, the state bond auction size of INR 341.50 billion weighed on prices, since the indicative calendar for state borrowing for Jul-Sept showed states would borrow INR 208.50 billion on Tuesday. Powell's comments provided fleeting relief to Indian bond traders, but for cues on the domestic rate cut cycle, traders were now awaiting India's GDP growth print for Apr-Jun, due at 1600 IST Friday. 

 

"Powell's speech is definitely lending some positive sentiment to the market, but the state loan supply is the problem," a trader at a primary dealership said. "And the supply is higher in duration (bonds maturing within 7-15 years) so some pressure there."

 

Some traders preferred bonds maturing in 7 to 15 years due to lucrative yield spreads over the 6.33%, 2035 benchmark 10-year bond, they said. Traders also await RBI Governor Sanjay Malhotra's comments at the FIBAC 2025 conference, though most do not expect any comments on rates from the governor. Bonds are seen trading in a narrow range during the day, dealers said.  

 

The turnover in the gilts market was around INR 40.25 billion, higher than INR 9.20 billion at 0930 IST Friday, 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 6.50-6.55%.  (Cassandra Carvalho)

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India Gilts: Seen up as US yields fall post Fed Powell's Jackson Hole speech

 

MUMBAI - Government bond prices are seen opening higher Monday as US Treasury yields fell after US Federal Reserve Chair Jerome Powell's comnments at the Jackson Hole Economic Symposium on Friday, dealers said. A larger-than-scheduled state bond auction this week may keep gains in long-term bonds limited as traders focus on absorbing fresh supply, they said.

 

The 10-year benchmark gilt yield is seen in a range of 6.51-6.60% on Monday. On Friday, the 2035 bond closed at INR 98.42 or 6.55% yield. Bond prices had fallen sharply on Friday after the result of the INR-360-billion gilt auction, with traders placing fresh short bets ahead of Powell's speech after covering some bets by picking up the 10-year gilt at auction.

 

Powell Friday seemed to suggest some long-awaited policy easing would come through quickly. Noting weakness in the labour market and considering a base-case when increased tariffs have a one-time impact on inflation, Powell said a change in the US Fed's stance on rates might be necessary. The US rate-setting panel has held policy rates so far 2025 despite pressure from US President Donald Trump, after cutting its policy rate by 100 bps in Sept-Dec 2024.

 

Consequently, Fed funds futures priced in an 87% chance of a 25-basis-point rate cut in the Federal Open Market Committee's September meeting, up from around 70?fore the speech, according to the CME FedWatch tool. The yield on the 10-year US Treasury note fell to 4.27% from 4.33% at 1700 IST Friday, the close of Indian market hours. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors. Foreign portfolio investors are expected to step up purchases as well, after being net sellers Friday ahead of the speech, dealers said. 

 

However, bond prices may not rise sharply beyond the initial covering of short bets as traders would trim their gilt holdings at a profit, dealers said. Moreover, traders look ahead to the state bond auction on Tuesday and may place fresh short bets. Fifteen states plan to raise INR 341.50 billion through bond issuance, against INR-208.50-billion indicated in the calendar for Jul-Sept. Demand for state bonds was seen lacklustre as state-owned banks had already piled into the higher-yielding assets earlier in the quarter without being able to exit the investments at a profit, dealers said.  (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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