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Informist, Friday, Aug. 29, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply lower on Friday following the lower-than-expected cut-off prices at the weekly gilt auction and sharply higher-than-expected GDP growth for the Apr-Jun quarter, dealers said. However, as gilt prices were not pricing in any more rate cuts by the Reserve Bank of India's Monetary Policy Committee, prices recovered from the day's lows on likely purchases from state-owned banks. 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.31, or a yield of 6.5678%, against INR 98.55, or 6.5328% yield, Thursday. The 10-year 2035 gilt prices were volatile during the day, with the yield moving the most in a day since S&P Global Ratings upgraded India's sovereign credit rating on Aug. 14. 

"Gilts are not pricing any rate cuts, so, even though the (GDP) print was sharply higher, the movement was limited," a dealer at a state-owned bank said. "Plus, people have already shorted or sold at higher levels, so these are good levels to buy." 

India's GDP growth for Apr-Jun was sharply higher than expected at 7.8%, the highest in five quarters. An Informist poll had projected the GDP growth at 6.7%. It was also sharply higher than the RBI's forecast of 6.5%, which dashed any hopes of further rate cuts, dealers said. Traders had purchased bonds ahead of the GDP release, betting on a reading near 6.3%. "For all I know, there may be an error in the GDP number and it could be revised down later," a dealer at a private sector bank said. 

Apart from state-owned banks, foreign portfolio banks were also likely buyers as US Treasury yields remained lower, dealers said. FPIs purchased bonds worth INR 10.26 billion through the fully accessible route as of 1821 IST, according to data from the Clearing Corp. of India. Some mutual funds are also likely to have bought the 10-year 2035 bond after the GDP data, due to attractive yield levels, dealers said. However, some dealers said mutual funds were likely net sellers Friday due to month-end redemption pressures, they said.  

Gilts slumped after the auction results showed demand was poorer than expected, dealers said. Following the auction results, some intraday stop-losses were triggered on the 10-year benchmark 6.33% 2035 bond, which led to a further decline in prices, dealers said. The rupee's fall to a record low of 88.31 against the dollar during the day also led to a decline in gilt prices, they said.

"Demand at the auction was poor and it is very difficult to say what the market is looking at right now," a dealer at a primary dealership said. " See, in absolute terms, the yields are good, but the market wants some support from the RBI. The easier thing for the RBI to do will be to make the auction on a uniform price (method) instead of multiple prices (method)... There are so many options for the RBI, let's see now."

Though the auction sailed through, against some expectations of a devolvement in the 6.92%, 2040 bond, prices in the secondary market adjusted after the auction results, dealers said. The cut-offs on both the 15-year bond and the 6.90%, 2065 bond were much lower than estimated in an Informist poll. 

For the 2040 bond, demand from state-owned banks was mixed. Banks bid for the 15-year bond at lower prices, as the books of some of them were already full and they did not want to significantly increase their gilt exposure amid persisting fears that gilt yields would rise from current levels, dealers said. Gilt prices have recovered since Thursday, driven by expectations of support from the Reserve Bank of India. However, with the RBI not making any announcement, traders refrained from picking up the 15-year gilt at the auction, they said. The bid-cover ratio on the 15-year bond was just 1.8 times, as against the usual 2.5 times cover. 

Meanwhile, for the 2065 bond, some said the cut-offs were near expectations. There was demand from insurers and pension funds, with some demand for forward rate agreements on the bond, dealers said. However, with the heavy supply of longer tenure gilts and state bonds this week, investors bid at lower prices for the 40-year gilt at the auction, they said. 

Turnover in the government bond market was INR 456.40 billion Friday, similar to INR 469.75 billion Thursday, according to data on the RBI's Negotiated Dealing System Order Matching platform. There were no trades using the wholesale digital rupee pilot Friday, against two trades worth INR 100 million using the digital rupee Thursday. 

OUTLOOK

Gilts are not traded on Saturdays. On Monday, gilts may take cues from the movement in US yields, dealers said. Any announcement by the RBI that could provide support to gilt prices will also be keenly watched, dealers said.

The US Personal Income and Outlays for July, released post-market, showed that core inflation rose to its highest level since late 2023, at 2.9%, which may lead to a rise in US yields. Traders also await further developments on US tariffs following the imposition of an additional 25% on Indian goods from Wednesday.

Traders will closely track technical levels on gilts. If sentiment worsens again and the 2035 bond yield tops the 6.65-6.66% level, 6.68-6.70% could be the next psychologically crucial level to watch out for, dealers said. 

Prices of longer tenure gilts may fall as the RBI post-market hours said 12 states will raise INR 316.50 billion through bonds Tuesday. The indicative calendar for state borrowing for Jul-Sept showed states borrowing INR 214.00 billion this week. There are concerns that state borrowing will increase in the current financial year if the proposed reforms in the goods and services tax are announced by Diwali, dealers said. This could also lead to muted demand by long-term investors in the secondary market, dealers said. 

Bond prices 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 6.50-6.65%.

India Gilts: Remain sharply down after Q1 GDP growth higher than expected

MUMBAI--1625 IST--Government bond prices remained sharply down after India's GDP growth for Apr-Jun was sharply higher than expected, at 7.8%, a five-quarter high. However, a fall further did not sustain due to likely buys from state-owned banks around 6.60% yield on the 6.33%, 2035 bond and because rate cuts were not being priced into gilts, dealers said.

An Informist poll of 17 economists saw GDP growth in the June quarter at 6.7%, while the Reserve Bank of India's estimate was 6.5%. Traders had picked up bonds ahead of the GDP print, betting on a reading near 6.3% that would have increased the chances of a rate cut by the Reserve Bank of India's Monetary Policy Committee. Those hopes were dashed after the reading and traders said that hopes of a further rate cut were now minuscule, dealers said.

"I guess the market is stable because we have seen buying at these levels coming in earlier this week," a dealer at a state-owned bank said. "In bonds, there was no rate-cut being priced in because we have not seen the data show that yet."

The turnover in the gilts market was around INR 383.90 billion at 1625 IST, against INR 405.15 billion at 1630 IST Thursday, 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 6.54-6.66%.  (Aaryan Khanna)

India Gilts: Slump on weaker-than-expected demand at auction, fall in rupee

MUMBAI--1519 IST--Government bond prices slumped after results of the auction showed demand was poorer than expected, dealers said. A fall in rupee against the dollar to record lows also led to a fall in gilts, they said. 

After auction results, prices slumped, with some intraday stop-losses getting triggered on the 10-year benchmark 6.33%, 2035 bond as the yield topped 6.59-6.60%, dealers said. The rupee falling to a record low of 88.31 against the dollar also led to a sharp fall in gilt prices, they said. Traders now awaited the Apr-Jun GDP data due at 1600 IST for further cues on interest rates. 

"The auction cut-offs and the ruppe is the reason for the fall," a dealer at a private sector bank said. "Demand is not coming in and the weekend is also there, so some caution is also leading to the fall. PDs (primary dealers) are selling auction stock now."

Though the auction sailed through, against some expectations of a devolement in the 6.92%, 2040 bond, prices in the secondary market adjusted after the auction results, dealers said. The cut-offs on both the 15-year bond and the 6.90%, 2065 bond was much lower than estimated by an Informist poll. 

For the 2040 bond, demand from state-owned banks was mixed. Banks bid for the 15-year bond at lower prices as some of them were already full on their books and did not want to add their gilt exposure significantly amid persisting fears of gilts yields rising from current levels, dealers said. Gilt prices have recovered since Thursday on expectation of support from the Reserve Bank of India, however, with the lack of any such announcement yet, traders refrained from picking up the 15-year gilt at the auction, they said. The bid to cover ratio on the 15-year bond was just 1.8 times, against the usually 2.5 times cover seen as good demand. 

Meanwhile, for the 2065 bond, some said the cut-offs were near expectations. Demand from insurers and pension funds was present, with some demand for forward rated agreements on the bond at auction as well, dealers said. However, with the heavy supply of longer tenure gilts and a higher state bond supply this week, investors bid at lower prices for the 40-year gilt at the auction, they said. 

The turnover in the gilts market was around INR 307.30 billion at 1520 IST, similar to INR 310.10 billion at 1530 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 6.54-6.66%.  (Srijita Bose)

India Gilts: Off lows on traders' buys ahead of gilt auction result

MUMBAI--1300 IST--Government bond prices were off lows on firm buys from traders at levels seen lucrative, though trade volumes were thin ahead of the result of the INR-320-billion auction, dealers said. Demand for the 6.68%, 2040 bond was seen as lacklustre, though life insurers were seen bidding firmly. 

The government offered INR 160 billion of each bond at the auction at 1030-1130 IST. Gilt prices had fallen sharply before the bidding ended, likely due to short-selling by primary dealers, making room for the fresh supply, dealers said. However, prices recovered almost immediately after bidding ended at 1130 IST. Some traders remained hopeful the Reserve Bank of India would soon announce support to the gilt market to keep yields in check after the 10-year benchmark yield hit a five-month high of 6.66% on Tuesday.

State-owned banks had a sizeable appetite to pick up the 2040 gilt at auction, but were seen demanding higher returns, dealers said. Demand from institutional investors, including provident funds, was seen modest, while traders were also expected to pick up some of the stock. Should the auction cut-off fall significantly below the INR 97.55 median in an Informist poll, some traders see the risk of the RBI partially devolving the bond on underwriters.

"Everyone is doing tail bidding today (Friday), even PSU banks," a dealer at a state-owned bank said. "Although we expect the cut-off around INR 97.50, there are downside risks to it."

Meanwhile, demand for the 2065 bond was more widespread and the fresh supply was seen sailing through near market levels, dealers said. The cut-off yield expected at the auction, at around 7.37%, is near the highest level for the 40-year benchmark yield since January 2024. Life insurers were also locking in the current lucrative yields using bond forwards and forward-rate agreements, which are expected to total INR 30 billion to INR 50 billion.

The auction result, particularly for the 2040 bond, is expected to lend direction to gilt prices in the second half of the day, dealers said. However, some traders were looking past the auction result and awaited GDP data, set for release at 1600 IST, as the next major cue. The median of an Informist poll of economists pegged the GDP growth rate in the June quarter at 6.7%, against the RBI's forecast of 6.5%. Some traders picked up bonds on bets the growth print would disappoint and lead to increased hopes of further rate cuts in India, dealers said.

"Over the last few weeks, we have seen that the auction result is largely on expected lines and moves the market very little," a dealer at another state-owned bank said. "We will have to look at where the GDP comes in."

The turnover in the gilts market was around INR 124.35 billion, sharply lower than INR 228.60 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%.  (Aaryan Khanna)

India Gilts: Dn on short sales before auction; poor demand seen for 2040 bond

MUMBAI--0955 IST--Government bond prices fell ahead of the INR-320-billion weekly gilt auction as traders placed fresh short bets, with the surge in prices on Thursday largely led by short-covering, dealers said. Traders expect poor demand from institutional buyers for the 6.68%, 2040 gilt at the auction.

"The big jump in prices yesterday (Thursday) was driven by short covering rather than investor demand – PSU banks sold, 'others' were flat," a dealer at private sector bank said, referring to daily net buy-sell numbers published by Clearing Corp. of India. "So, it doesn't look like there is going to be a buyer for the 15-year bond emerging, especially at these prices."

The 2040 bond may land in the hands of traders, who made room for the fresh supply by short-selling both the 15-year paper as well as the most-liquid 6.33%, 2035 gilt. Demand for the 6.90%, 2065 gilt is seen firm from life insurers as they are expected to step up purchases with the current levels seen lucrative, dealers said. Some traders also cited demand for bond forwards and forward rate agreements of around INR 30 billion to help the 40-year benchmark gilt's supply sail through. The government will sell INR 160 billion each of the 2040 and 2065 bonds at the auction.

The price action later in the day will be dictated by the cut-off prices at the auction, dealers said. Dealers also await India's GDP data for the June quarter, to be released at 1600 IST. An Informist poll of economists pegged GDP growth at 6.7%, against the Reserve Bank of India's estimate of 6.5%. A miss from the central bank's forecast may lead to traders ramping up bets on further rate cuts in India in 2025, dealers said.

Some traders were also disappointed about lack of RBI support for bonds, which was expected this week. The turnover in the gilts market was around INR 35.25 billion, slightly lower than INR 39.75 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%.  (Aaryan Khanna)

India Gilts: Seen tad down ahead of auction; bids seen poor for 15-year bond

MUMBAI – Government bond prices are likely to open slightly lower ahead of the INR-320-billion weekly gilt auction at 1030-1130 IST. After covering short bets on Thursday as prices rose, traders are likely to short-sell bonds to make room for the fresh supply. At the same time, foreign banks are expected to continue buying gilts as US Treasury yields fell slightly overnight.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.60% during the day. On Thursday, the bond ended at INR 98.55 or 6.53% yield, with the benchmark yield closing at its lowest in a week. After hitting a five-month high yield of 6.66% on Tuesday, expectations of the Reserve Bank of India supporting the market through bond buys soon have led to a sharp reversal in gilt yields.

Foreign banks were the largest net buyers on Thursday, picking up nearly INR 29 billion of gilts, according to Clearing Corp. of India data. They may continue covering short bets and foreign portfolio investors might also pick up some auction stock as the interest rate differential between India and US benchmark yields declines. The yield on the 10-year US Treasury note fell further to 4.21% at 0820 IST from 4.23% at the end of Indian market hours. In the US, GDP growth for the June quarter was unexpectedly revised upwards to 3.3%, against a Wall Street Journal consensus estimate of 3.1%. Investors await US inflation data for July with core inflation seen at its highest since late 2023 at 2.9%. Weekly jobless claims for the week ended Saturday fell 5,000 to 229,000, against the consensus estimate of 230,000.

However, some traders may be disappointed with the lack of announcement of Tuesday. Moreover, with state-owned banks being top net sellers on Thurday, traders remain uncertain about demand for gilts at the weekly auction, dealers said. The government will sell INR 160 billion each of the 6.68%, 2040 gilt and the 6.90%, 2065 gilt at the auction. Demand from long-term investors such as life insurers and pension funds is expected for the 40-year benchmark, but the 15-year bond is not seen attracting firm bids. Both bonds underperformed against the 10-year benchmark on Thursday.  (Aaryan Khanna)

End

US$1 = INR 88.20

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

Edited by Saji George Titus

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