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Informist, Tuesday, Sept. 2, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended higher Tuesday as long-term investors picked up state bonds at the hefty auction. With the supply going through to institutional portfolios, traders covered their short bets amid continued hopes of the Reserve Bank of India's actions or comments to ease bond yields, dealers said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.32, or a yield of 6.57%, against INR 98.19, or a 6.59% yield, on Monday. The bond had opened lower, and just before the auction result had given up all gains, before recovering and remaining higher for the rest of the day.

"Investors were there in the auction today (Tuesday) for the long bonds, so traders didn't get much stock," a dealer at a private-sector bank said. "That helped the market sustain some positivity, which largely came from trader books in the secondary market."

Traders speculated the Employees' Provident Fund Organisation and life insurers picked up 30-year state bonds, helping the cut-offs remain lower than the 7.75% median seen in an Informist poll. Twelve states raised INR 290.83 billion at the auction against the notified amount of INR 316.50 billion, with Maharashtra and Tamil Nadu rejecting bids for bonds maturing around 30 years, another boost for long-term bonds. This also led to a rise in the prices of the 30-year benchmark 7.09%, 2054 gilt and the 15-year benchmark 6.68%, 2040 bond, both of which were outperforming the 6.33%, 2035 gilt for some of the day, dealers said.

However, the cut-off yields on the 10-year bonds issued by Assam and Meghalaya at the auction were higher than the median estimate in the Informist poll by 8 and 9 basis points, respectively. The spreads of Meghalaya's 10-year bond over the 10-year benchmark gilt yield, at 112 bps, was the highest for a state bond since April 2020, and rose into triple digits for the first time since February 2021. These were largely driven by the states offering the bonds seen as being fiscally less prudent, the bonds being illiquid in the secondary market, and due to muted demand from state-owned banks, dealers said. 

Meanwhile, foreign portfolio investors bought gilts under the fully accessible route for the fourth straight day, likely through foreign banks, dealers said. Traders said the pace of the inflows has increased as India's bonds offer higher relative returns than other Asian economies, where bond yields have fallen while the 10-year benchmark gilt yield has risen for three straight months and in August rose the most in nearly three years. Moreover, some of the "chunky" buys are coming from passive FPIs tracking India's inclusion in FTSE Russell's Emerging Markets Government Bond Index on Monday. India's inclusion will be phased in over six months, and is expected to draw around INR 300 billion of inflows over that period from index tracking foreign funds. At 1900 IST, Clearing Corp. of India data showed FPIs bought INR 13.49 billion worth of fully accessible route bonds on Tuesday.

Market sentiment had also turned slightly more positive from the sharp rise in yields and nearly daily stop-losses in the second half of August. State-owned banks have constantly bought the 10-year benchmark gilt near 6.62% yield, and some traders made the most of the early fall in prices by covering their short bets, dealers said. A rise in the 10-year US Treasury yield to 4.29% at 1700 IST from 4.23% earlier in the day led to some traders trimming their holdings, they said.

However, with constant two-way dialogue between the RBI and treasury desks and state-owned banks also staring at large mark-to-market losses in the September quarter, traders remain hopeful of central bank intervention, including through bond buys. This made it imprudent to short sell gilts any further, dealers said. Short sales on the 10-year benchmark gilt were already sizeable and any increase would lead to traders being "short-squeezed" in the gilt.

"Over the last few days, the short-selling setup has changed and the RBI has instilled hope that the worst is over because he is speaking to the market," a dealer at a primary dealership said. "Most of the shorts that you see on CROMS (Clearcorp Repo Order Matching System) are now just spread trades or hedges, rather than a directional view." 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 1552 IST showed trade worth INR 219.94 billion in the 6.33%, 2035 gilt. 

With the state bond auction out of the way, traders also waited for updates on the outcome of the central bank's meetings with bank executives on feedback about the government's Oct-Mar borrowing plan. The series of meetings began during market hours Tuesday, dealers said. Traders expect the government's borrowing calendar for the second half of the fiscal year ending March to have a lower share of gilts maturing in 30-50 years. These bonds made up 35% of the Apr-Sept borrowing calendar of INR 8.00 trillion, at a time when demand from life insurers and pension funds weakened.

Turnover in the government bond market rose to INR 431.70 billion Tuesday, from INR 318.50 billion Monday, according to data on the RBI's Negotiated Dealing System Order Matching platform. There were no trades using the wholesale digital rupee pilot Tuesday for the third straight day. 

OUTLOOK

On Wednesday, gilts may take cues from the overnight movement in US Treasury yields. Though there are limited domestic cues scheduled, gilt prices are likely to be volatile as traders define a new range for the 10-year bond following a sharp rise in the benchmark yield in August, dealers said.

Traders are jittery about placing fresh short bets due to the sizeable short sales in the 10-year benchmark 6.33%, 2035 gilt, with the special repo segment of the NDS-OM showing trades over INR 200 billion. However, some traders are likely to trim their gilt holdings before the INR 250 billion weekly gilt auction on Thursday, dealers said. The auction has moved a day ahead as money markets are shut on Friday for Id-e-Milad.

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. Meanwhile, some banks are also approaching their internal limits on purchasing state bonds, they said. This is likely to increase state bonds' spreads over gilts, with gilt prices largely seen unaffected as state-owned banks are likely to step up purchases of the 10-year benchmark gilt around 6.62% yield.

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. Developments on a potential India-US bilateral trade deal will also be watched closely. Traders also await the Goods and Services Tax Council meeting outcome on Thursday for a clearer idea of potential revenue lost by the exchequer from a proposed rationalisation in GST rates.

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 6.50-6.62%.

India Gilts: Tad up as long-term state bond cut-off yields lower than view

MUMBAI--1552 IST--Prices of government bonds were tad up, reversing brief losses after the result of the state bond auction was better than what some traders had feared, especially in the long-term segment, dealers said. The cut-off yields on a few states were higher than expected, but the highest cut-off yield was set at 7.78%, on Kerala's 20-year bond. This is still lower than 7.82% set on Jammu and Kashmir's 17-year bond at the auction last week. Prices were down before the auction result was announced as the result was published later than usual and traders feared cut-off yields could be sharply higher than expected. 

The Reserve Bank of India set a cut-off yield of 7.63% on Assam's 10-year bond, higher than an Informist poll estimate of 7.55%. The central bank set a cut-off yield of 7.69% on Meghalaya's 10-year bond, also higher than a poll estimate of 7.60%. However, the cut-off yields on the longer-term state bonds were largely along expected lines, with Rajasthan's 30-year bond cut-off yield at 7.73%, and Telangana's 30-year bond cut-off yield set at 7.74%. An Informist poll estimated the cut-off on states' 30-year bonds at 7.75%.

"I think it (the state bond auction result) was slightly better only, except for one or two states like Punjab," a trader at a primary dealership said. "In the long-end people were expecting higher, like 80-85 (7.80-7.85% yield). Compared to that, this is less." 

Maharashtra did not accept any bids for the 7.17%, 2054 bond reissue and the 7.16%, 2055 bond reissue, which was a positive suprise to some traders since Maharashtra had not accepted bids for some bonds at last week's auction. Tamil Nadu also did not accept any bids for the 30-year paper, which was positive for prices, dealers said. However, the yield spread of 10-year state bonds rose above 100 basis points over the benchmark 10-year 6.33%, 2035 gilt, the highest since February 2021. Traders see scope for this spread to rise further if states continue to raise such high quantums every week, they said. 

In the secondary market, mutual funds were buying gilts, dealers said. Some state-owned banks were purchasing the 15-year 6.68%, 2040 gilt and long-term gilts. Some traders expect the supply of long-term bonds to reduce in the central government's borrowing plan for Oct-Mar. Moreover, traders also were unlikely to place short bets aggressively since short sales on the 10-year benchmark gilt were already too high and any increase would lead to traders being "short-squeezed" in the 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 1552 IST showed trade worth INR 219.94 billion in the 6.33%, 2035 gilt. 

Some traders were covering intraday short bets, dealers said. Foreign portfolio investors were likely buying gilts after the inclusion of Indian government bonds under the fully accessible route in the FTSE Russell Emerging Markets Government Bond index took effect Monday. As of 1552 IST, Clearing Corp. of India data showed purchases worth INR 12.44 billion by FPIs through the fully accessible route Tuesday.

Traders await any news on the outcome of the central bank's meetings with bank executives on feedback about the government's Oct-Mar borrowing plan and the recent surge in bond yields. The turnover in the gilts market was around INR 284.90 billion, slightly higher than INR 247.90 billion at 1530 IST Monday, 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 6.54-6.62%.  (Cassandra Carvalho)

India Gilts: Erase some gains as demand at state bond auction seen poor

India Gilts: Erase some gains as demand at state bond auction seen poor

MUMBAI--1305 IST--Government bond prices gave up some gains as demand at the larger-than-indicated state bond auction is seen poor. Gilts were sharply up earlier on likely buys from state-owned banks and mutual funds as market sentiment remained positive on hopes of support from the Reserve Bank of India, dealers said. Traders also covered some short bets placed earlier, they said. 

"Bidding was really poor at the auction, for long bonds also the demand was not much," a dealer at a primary dealer said. "There are chances of a cancellation, maybe Kerala or Telangana, but if the whole thing (amount) is accepted then prices may fall later in the day."

Some state-owned banks have already hit their risk limits to pick up state bonds and refrained from bidding at the auction, dealers said. Others opted for states which were more prudent in their borrowing, and offered attractive yields over gilts, they said. Bidding at the auction was muted from banks, dealers said. Some expected at least one state to cancel the auction as traders bid for higher yields, which will drive up cost for states, they said. 

"Some banks are meeting with the RBI today (Tuesday), and in the coming week there will be more meetings," a dealer at a state-owned bank said. "The outcome from this is expected to be good on borrowing or maybe some other support may come. So some value buying is also coming at these levels,."

RBI will meet select banks this week to discuss the government's borrowing calendar for Oct-Mar, Informist reported earlier. Standalone primary dealerships, mutual funds, and insurance companies are expected to meet the central bank on the subject next week. The central bank and market participants regularly meet ahead of the release of the borrowing calendar every half-year. Some dealers expect a lower share of borrowing through gilts maturing in 30-50 years, while others expect the frequency of issuance to be increased, with the size of each bond issuance at weekly auctions to reduce, they said. 

Volumes in the secondary market remained muted as traders waited for fresh cues, dealers said. While some traders covered short bets placed Monday, others placed intraday short bets which they expect to cover later in the day, when prices fall, dealers said.

The turnover in the gilts market was around INR 112.30 billion, higher than INR 111.85 billion at 1130 IST Monday, 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 6.54-6.62%.  (Srijita Bose)

India Gilts: Rise as traders cover short bets; state bond auction in focus

NEW DELHI--0945 IST--Government bond prices rose as traders picked up bonds and covered short bets on the view that gilt prices will not fall from current levels, dealers said. Gilt prices rose even as traders expected demand at the state bond auction to be poor, though some state-owned banks were keen to buy the higher-yielding assets at spreads they considered lucrative.

"It doesn't look like short sales are going to work out from here, as the market is not sustaining above 6.60% (yield on the 10-year benchmark 6.33%, 2035 gilt)," a dealer at a private sector bank said. "It might be a good idea to go long now near 6.60%."

The market lacks direction, with even the higher-than-expected June quarter GDP figure not changing the market's rate cut views, dealers said. Supply should continue to exceed demand for bonds from institutional investors, leading to some traders being stuck with the auction stock. This is especially likely on Tuesday, with states raising INR 316.50 billion at an auction at 1030-1130 IST, against the indicated amount of INR 214.00 billion for this week in the Jul-Sept calendar. 

Traders expect the spreads of the 10-year state bonds over the 10-year gilt yield to be above 70 basis points, against 65-87 bps last week. At these levels, some state-owned banks are likely to pick up the auction stock, though they would bid at higher yields, dealers said. Life insurers and pension funds are also likely to bid for bonds maturing in 14 years or more, though their purchases are also not expected to be aggressive. 

Bond prices had opened slightly lower ahead of the auction, before the buys from traders led to a quick reversal before bidding began. The turnover in the gilts market was around INR 48.05 billion, higher than INR 35.25 billion at 1005 IST Monday, 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 6.54-6.62%.  (Aaryan Khanna)

India Gilts: Seen down before heavy state bond auction Tue

MUMBAI – Government bond prices are likely to open lower ahead of an INR 316.50-billion state bond auction at 1030-1130 IST Tuesday. Later in the day, traders may take cues from the results of the bond auction, dealers said. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.52-6.66% during the day. On Monday, the bond ended at INR 98.19, or 6.59% yield.

The larger-than-indicated size of the state bond auction may lead to poor demand from investors at the auction Tuesday, dealers said. The indicative calendar for state borrowing for Jul-Sept showed 14 states would borrow INR 214.00 billion on Tuesday. 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, they said.

Meanwhile, some banks are approaching their internal limits on purchasing state bonds, dealers 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. Traders will watch out for technical levels on gilts. If the yield on the 2035 bond tops 6.66% yield levels and sentiment in the market worsens, the yield on the bond could rise to 6.68-6.70% levels, dealers said. 

Meanwhile, US Treasury yields have also risen from Friday's close. US markets were shut on Monday for Labor Day. The 10-year US yield rose to 4.26% at 0814 IST from around 4.21% Friday. This may lead foreign portfolio investors to sell gilts Tuesday, dealers said. Any announcement by the Reserve Bank of India 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.  (Srijita Bose)

End

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

Edited by Deepshikha Bhardwaj

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