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Informist, Monday, Sept. 1, 2025

 

By Aaryan Khanna

 

NEW DELHI – Government bond prices ended off lows as traders covered intraday short bets on persistent hopes of Reserve Bank of India action to arrest the rise in gilt yields, including the announcement of purchases through open market operations, dealers said. Bond prices had fallen sharply earlier in the day ahead of the larger-than-indicated state bond auction Tuesday and dim hopes of further repo rate cuts.

 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.19, or a yield of 6.59%, against INR 98.31, or a 6.57% yield, on Friday. As has been the pattern in the market over the past few days, gilt prices were volatile, with no sharp rise in traded volumes.

 

The market has been expecting the RBI to provide some support over the past week, as discussions between treasury officials and the central bank have intensified. The 10-year benchmark yield rose as much as 26 bps in the last two weeks of August. State-owned banks, which have been consistent buyers, likely picked up the 10-year benchmark 6.33%, 2035 gilts as the yield on the paper rose above 6.62% intraday, dealers said.

 

At its highest, the 10-year benchmark yield climbed 26 bps in the last two weeks of August. State-owned banks, which have been consistent buyers, likely picked up the 10-year benchmark 6.33%, 2035 gilts as the yield on the paper rose above 6.62% intraday, dealers said. With some support at the psychologically crucial level, short sellers covered their bets, and at one point, helped the bond recover nearly all its losses. 

 

"The market is constantly jittery that the RBI will announce something sooner rather than later to cool gilt yields," a dealer at a private-sector bank said. "That's why intraday shorts (short sales) are not sustaining, but the market sells off sharply on auction days." Short sellers are also erring on the side of caution due to the thin liquidity in the market in the past two weeks, along with the large build-up of short positions in the market, dealers said.

 

At 1700 IST, the number of trades in the 6.33 35 gilt in the special repo segment of the Clearcorp Repo Order Matching System, a proxy for tracking short sales in a bond, recorded trades worth INR 199.34 billion, according to the data.

 

Foreign portfolio investors were also speculated to be buying gilts as the differential between India's 10-year benchmark gilt over the 10-year US Treasury yield remained in excess of 230 bps, from a low of less than 170 bps in May. FPIs had bought INR 36.80 billion of fully accessible route gilts on Friday, according to data from the Clearing Corp. of India. However, traders said the flows were unlikely to sustain and that Indian bonds drew some foreign money as investors rebalanced their portfolios at the month-end. Data showed purchases of only INR 1.51 billion by FPIs as of 1852 IST Monday.

 

Even after the recovery, gilt prices ended lower than Friday's close, with poor demand expected for fresh supply at the state bond auction. Twelve states plan to raise INR 316.50 billion on Tuesday, against INR 214.00 billion scheduled this week in the indicative calendar of state borrowing for Jul-Sept.

 

Additional purchases by state-owned banks are also likely to be limited, as they are nearing their internal limits on portfolio distribution towards state bonds, dealers said. Even with poor demand for gilts at Friday's auction and a sharp rise in yields in the last two weeks of August, dealers were left disappointed by the lack of on-screen RBI gilt buys in the data released on Friday, for the week ended Aug. 22.

 

"It's not as if banks will completely stop buying state bonds, but ultimately you know that prices will take a beating and you can buy whatever you want cheaper tomorrow (Tuesday)," a dealer at a state-owned bank said. "So you don't really have an incentive to buy today (Monday), which is why ultimately the recovery did not really bear fruit entirely."

 

The initial sharp fall in gilt prices during the day was due to traders' views that the closing gilt prices on Friday were distorted higher by late buys from mutual funds to ensure more rosy portfolio valuations for August, dealers said. Mutual funds were the top net buyers in the secondary market on Friday, purchasing INR 43.47 billion worth of gilts, according to data from the Clearing Corp. of India. 

 

Moreover, some sections of the market pared their hopes for a rate cut after the Apr-Jun GDP data showed India's economy grew at 7.8%, a five-quarter high. Traders said it was a negative for gilt traders at the margin, but bonds had not priced in a rate cut and prices have not reacted sharply since the data was released on Friday. Some dealers also said that the possibility of a fall in GDP data in the coming quarters could hold if US tariffs on India remain in place.

 

Turnover in the government bond market was INR 318.50 billion Monday, lower than INR 456.40 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 for the second straight day. 

 

OUTLOOK

On Tuesday, gilt prices are likely to fall before the state bond auction at 1030-1130 IST, with poor demand expected for the fresh supply, dealers said. The RBI Friday said 12 states will raise INR 316.50 billion through bonds Tuesday, against INR 214.00 billion indicated for this week in the Jul-Sept borrowing calendar.

 

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. Meanwhile, some banks are also approaching their internal limits on purchasing state bonds, they said. State-owned banks are likely to step up purchases of the 10-year benchmark gilt around a 6.65% yield on Tuesday if the auction goes poorly and leads to a slump in gilt prices.

 

Gilts may also take cues from the movement in US yields after the long weekend there, with US markets shut Monday for Labor Day, dealers said. Any announcement by the RBI that could provide support to gilt prices will also be keenly watched, with the market waiting on tenterhooks for such an announcement over the past week.

 

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%.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	98.1850	6.5850%	98.3050	6.5678%
6.79%, 2034	100.7500	6.6774%	100.9025	6.6549%
6.01%, 2030	98.8000	6.2972%	98.8400	6.2874%
6.68%, 2040	97.2000	6.9847%	97.2500	6.9791%
6.90%, 2065	93.7000	7.3927%	93.8000	7.3844%

 

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	1600 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.17	98.27	97.89	98.15	98.31
YTM (%)	6.5868	6.6272	6.5728	6.5900	6.5678

 

India Gilts: Off lows on short covering; recovery limited on fresh short bets

 

MUMBAI--1600 IST--Prices of government bonds were off lows on account of short covering by traders and likely purchases from foreign portfolio investors, dealers said. Some traders placed fresh bets on gilts ahead of the larger-than-scheduled supply of state bonds at the auction Tuesday, while others covered intraday short sales that took place earlier in the day. State-owned banks purchased gilts when the yield on the 10-year benchmark 6.33%, 2035 bond hit the psychologically crucial 6.62% yield level earlier in the day.

 

Traders speculated that foreign portfolio investors were also buying gilts on expectations of a rate cut by the US Federal Open Market Committee at its meeting this month. As of 1600 IST, data from Clearing Corp. of India showed gilt purchases worth INR 1.51 billion by foreign portfolio investors through the fully accessible route.   

 

Some traders who had placed intraday short bets earlier in the day covered the bets at lucrative levels, dealers said. However, others initiated fresh short positions on gilts, which limited the recovery in gilt prices. Traders said it would be cheaper to buy bonds Tuesday, when the market would be hit by the larger-than-indicated supply of state bonds. States plan to raise INR 316.50 billion on Tuesday, against INR 214.00 billion scheduled this week in the indicative calendar of state borrowing in Jul-Sept. The yield spread between 10-year state bonds and the 10-year benchmark gilt is seen widening to around 80-90 basis points from 65-87 bps last week. 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. At 1600 IST, trades worth INR 199.34 billion were recorded in the 6.33%, 2035 gilt, data showed.

  

Further, bets of an intervention by the Reserve Bank of India to prevent a further rise in yields also faded, as weekly data for the past two weeks did not show any on-screen gilt purchases by the central bank, while traders were expecting some buys. However, some traders remain optimistic of the RBI announcing an open-market purchase of gilts through auction, due to the sharp rise in gilt yields in August. 

 

"People are hiking their home loan rates and we're not even in a rate hike cycle," a dealer at a state-owned bank said. "No one is even expecting a rate hike anytime soon and all this is happening. Still rate cut transmission is left, so if this goes to the (RBI) governor, he will have to do something about this. "

 

The central bank is likely to meet some bank executives soon, but the agenda of the meeting was unclear, dealers said, with reasons ranging from the central government's borrowing plan for Oct-Mar, to the recent rise in bond yields. 

 

The turnover in the gilts market was around INR 259.10 billion, slightly lower than INR 309.20 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 6.57-6.65%. (Cassandra Carvalho)

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India Gilts: Remain sharply dn as traders make room for state bond sale Tue

 

	1335 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.01	98.17	97.89	98.15	98.31
YTM (%)	6.6107	6.6272	6.5871	6.5900	6.5678

 

India Gilts: Remain sharply dn as traders make room for state bond sale Tue

 

NEW DELHI--1335 IST--Government bond prices fell further due to short sales before the state bond auction Tuesday, but recovered some losses as traders stepped up purchases at levels seen as lucrative, dealers said. Two-way trade around 6.62% yield on the 10-year benchmark 6.33%, 2035 gilt led to initially lacklustre trading volumes picking up.

 

Traders made room for the fresh supply of INR-316.50-billion of state bonds at the auction Tuesday, with demand from provident funds, pension funds and life insurers seen poor. Additional buys from state-owned banks are also seen as limited as they are nearing internal limits of portfolio distribution towards state bonds, dealers said. Gilt prices have remained lower through the day due to muted hopes of further rate cuts and the auction size, which was announced on Friday and is sharply higher than the INR-214-billion indicated in the states' borrowing calendar for Jul-Sept.

 

However, some traders picked up the 10-year 6.33%, 2035 gilt as its yield topped the psychologically crucial 6.62% mark, dealers said. State-owned banks were also likely picking up the bond as they considered the level lucrative, while setting a stop-loss around 6.65% yield. The benchmark yield hit 6.66% last week, a five-month high, before reversing some losses. Short sellers are also likely to cover bets around those levels, but a significant recovery in gilt prices Monday is unlikely, dealers said.

 

"The market functioning has broken down as traders don't know what is to be done with the additional supply," a dealer at primary dealership said. "The market is getting hammered between Tuesdays (state bond auction) and Fridays (gilt auction) and then there's another Tuesday...such a cycle can't sustain without the Reserve Bank of India stepping up."

 

The central bank has sought feedback from various banks on what steps it should take to keep a lid on bond yields, which rose as much as 26 basis points in the last two weeks of August, dealers said. The market feedback has been to announce open market operations, either outright to buy gilts or simultaneous operations to buy long-term gilts and sell short-term bonds – an 'Operation Twist'. However, ICICI Securities Primary Dealership said in a note that the latter suggestion is potentially harmful to the RBI's aim of monetary policy transmission, as most corporate houses borrow in the 3-5 year segment.

 

The turnover in the gilts market was around INR 144.60 billion, slightly higher than INR 132.15 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 6.58-6.65%.  (Aaryan Khanna)

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India Gilts: Sharply down on high Q1 GDP growth, large state bond auction

 

	1005 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.02	98.17	98.00	98.15	98.31
YTM (%)	6.6086	6.6115	6.5871	6.5900	6.5678

 

NEW DELHI--1005 IST--Government bond prices fell sharply as rate cut hopes weakened after data on Friday showed India's GDP growth in Apr-Jun was sharply higher than expected. The larger-than-indicated state bond auction for this week announced after market hours Friday also weighed on prices, dealers said. 

 

Prices had fallen sharply on Friday after weaker-than-expected demand at the weekly gilt auction, and India's GDP growth was 7.8% in Apr-Jun against 6.7% expected in an Informist poll of economists. However, large purchases by mutual funds on Friday towards the close of trade, likely to prop up their portfolio valuations at the end of the month, had distorted the closing price levels to higher than fundamentals dictated, dealers said. Mutual funds were the top net buyers in the secondary market on Friday, picking up INR 43.47 billion worth of gilts, according to Clearing Corp. of India data. 

 

"Mutual funds were quoting aggressively on screen near the close of trade Friday, bidding large volumes of INR 2 billion-INR 3 billion (per trade)," a dealer at a private sector bank said. "That was likely due to valuation buying, and now that that has gone the market has corrected automatically."

 

While most traders were not expecting further rate cuts and did not significantly realign their gilt portfolios, some picked up bonds ahead of the print on hope of a disappointing reading below the Reserve Bank of India's 6.5% forecast. The overhang of long-term bond supply is likely to keep prices of bonds maturing in over 15 years under pressure through the day, dealers said. States plan to raise INR 316.50 billion on Tuesday, against INR 214.00 billion scheduled this week in the indicative calendar of state borrowing in Jul-Sept.

 

Through the day, prices are expected to remain sharply down due to lack of fresh cues. State-owned banks are expected to step up purchases around 6.62-6.63% yield on the 10-year benchmark 6.33%, 2035 bond, while short sellers may also cover their bets. Traders will now await the result of the state bond auction Tuesday for further direction on gilt prices, dealers said.

 

The turnover in the gilts market was around INR 35.25 billion, slightly lower than INR 35.75 billion at 0955 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 6.56-6.65%.  (Aaryan Khanna)

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India Gilts: Seen down after RBI rate cut hopes dashed post strong GDP data

 

MUMBAI – Government bond prices may open lower Monday, as expectations of any more rate cuts by the Reserve Bank of India's Monetary Policy Committee were erased after the strong domestic GDP data for Apr-Jun released Friday, dealers said. However, the fall in prices could be limited as yield levels have turned attractive, which may lead to some buys, they said. 

 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.52-6.66% during the day. On Friday, the bond ended at INR 98.31, or 6.57% yield, with the yield moving the most in a day since S&P Global Ratings upgraded India's sovereign credit rating on Aug. 14.

 

India's Apr-Jun GDP rose 7.8%, against market expectations of 6.7%. 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.

 

However, some traders are likely to cover some short bets placed ahead of the weekend Friday, which could lead to a rise in gilts as well, dealers said. Some dealers also said that the possibility of a fall in GDP data in the coming quarters could hold if US tariffs on India remain in place. This could lead traders to refrain from a broad-based and major sell-off in gilts, dealers said, 

 

Longer-tenure bonds are expected to be lower after the Reserve Bank of India said 12 states would 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. 

 

On Friday, the US core Personal Consumption Expenditures Price Index inflation rose 0.3% on month in July, unchanged from June and in line with expectations. The US Federal Reserve's preferred inflation gauge rose 2.9% on year, its quickest pace since late 2023. Fed fund futures still showed nearly an 88% chance of a 25-bps rate cut by the US Federal Open Market Committee in September, according to the CME's FedWatch tool. Traders will watch out for the slew of US jobs data during the week which could determine the Federal Open Market Committee's rate decision later in the month. Uncertainty over US President Donald Trump's tariff campaign mounted after a US federal court ruled most of his global levies were imposed illegally. Traders will look forward to any development on the same and watch out for the movement in the rupee during the day.  (Srijita Bose)

 

End

 

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

 

Edited by Saji George Titus

 

 

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