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Informist, Wednesday, Sept. 3, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices rose as traders bought gilts expecting positive development to emerge from the recent communication and meetings between banks and the Reserve Bank of India, dealers said. Continued bond purchases from foreign portfolio investors after India's inclusion in FTSE Russell's Emerging Markets Government Bond Index on Monday also lent positive cues.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.48, or a yield of 6.54%, against INR 98.32, or a 6.57% yield, on Tuesday. Bond prices remained volatile and at several points during the day gave up most gains as traders booked some profits and short sellers placed fresh bets ahead of the INR-250-billion weekly gilt auction Thursday.

Over the past two weeks, the RBI had reached out to banks seeking reasons for the sharp rise in yields after Aug. 14, when the 10-year benchmark spiked by nearly 26 bps at its highest. Bank treasury officials are meeting central bank officials this week to give their feedback on the government's borrowing programme for Oct-Mar. The expected suggestion to bring down the share of supply of 30-50 year gilts in the upcoming calendar led to longer-term gilts outperforming the 10-year benchmark. The 30-year benchmark 7.09%, 2054 gilt rose nearly 60 paise to INR 97.87, and its yield fell 5 basis points to 7.27%.

At the meetings, market participants are also urging the central bank to take steps to bring down gilt yields to promote transmitting the Monetary Policy Committee's 100-basis-point repo rate cut since February. These actions may include open market operations to buy gilts or state bonds, dealers said.

The RBI may also reduce its actions that have been pushing up overnight rates, such as reducing the size of its variable rate reverse repo operations and allow more liquidity in the hands of banks, allowing them to invest those in gilts, dealers said. The overnight Mumbai Interbank Outright Rate, a call money benchmark, fell to its lowest in nearly a month at 5.39% Wednesday.

"The RBI might start easing off the pedal in terms of overnight rates first," a dealer at a primary dealership said. "We need to see whether the RBI will start delivering on the expectations and turn (away) from its hawkish actions in the next few days."

Foreign banks and portfolio investors were also buying fully accessible route gilts through the day, dealers said. India's inclusion in the last remaining index for emerging market bonds had drawn passive investment flows towards the end of last week. Moreover, active FPIs was also chasing India's bonds as its yields were relatively attractive against other Asian peers, dealers said. However, the pace of the FPI purchases on Wednesday were lacklustre compared with the past week, and foreign banks may have been buying from their proprietary books, they said. Clearing Corp. of India data at 1730 IST showed FPIs bought INR 2.75 billion worth of fully accessible route gilts on Wednesday, the fifth straight day of purchases.

Traders had largely taken "defensive" positions over the past two weeks in order to minimise losses, at a time when investor demand was poor and gilt prices slid on concern of a fiscal slippage and potentially higher gross borrowing by the Centre. These positions included buying gilts maturing in five years or lower, where marked-to-market losses are less than those of longer-tenure bonds. However, traders now became wary that short-term gilts would get the brunt of the supply share being potentially slashed from long-term bonds, as banks had asked the RBI.

As fiscal concern had ebbed slightly and market sentiment improved, traders picked up longer tenure gilts including the 6.68%, 2040 bond. The 15-year benchmark yield fell the most among liquid securities Wednesday, down nearly 6 bps to 6.91%. Some traders also bought the bond as they considered its spread over the 10-year gilt yield, at over 35 bps, to be lucrative.

However, the 6.33%, 2035 gilt saw several rounds of profit booking during the day as it was seen near the bottom of its current trading range of 6.53-6.62%, dealers said. The profit booking was not significant as most positions built up by state-owned banks were still facing losses, they said. Traders were not keen to trim their holdings at current levels as they expected a potential rise in prices should the RBI buy gilts in the open market.

Traders also placed short bets on the 10-year benchmark gilt on caution ahead of the gilt auction on Thursday. The auction has been moved up by a day as money markets are shut Friday for Id-e-Milad. The government will sell INR 110 billion of the 6.28%, 2032 gilt and INR 140 billion of the 7.09%, 2074 gilt. Demand for the long-term bond is seen firm, especially due to the relatively small auction size, dealers said. 

"The proof is in the pudding. Last week too, the market rallied before an auction and then there was no demand," a dealer at a foreign bank said. "It would be a big positive if the RBI took action, but the market has run ahead of itself before and there is no reason to stick your neck out and buy gilts when supply is coming."

Comments from Commerce Minister Piyush Goyal on Tuesday that the government was in talks with the US on a bilateral trade agreement also led to some traders expecting further foreign inflows into India, dealers said. The weakness in the domestic currency to a fresh record low of 88.3300 a dollar on Monday had led to traders selling some gilts, before reversing course, they said. 

Turnover in the government bond market rose to INR 528.10 billion Wednesday, from INR 431.70 billion Tuesday, 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 fourth straight day.

OUTLOOK

On Thursday, gilts may open lower as traders make room for fresh supply ahead of the INR-250-billion weekly gilt auction at 1030-1130 IST, dealers said. Money markets are shut on Friday for Id-e-Milad.

The government will sell INR 110 billion of the 6.28%, 2032 gilt and INR 140 billion of the 7.09%, 2074 gilt. Traders are jittery about placing fresh short bets due to the sizeable short sales in the 10-year benchmark 6.33%, 2035 gilt. Demand for the long-term gilt is seen firm from life insurers and provident funds. However, traders are less enthusiastic for the seven-year benchmark gilt as it may face additional share of supply in Oct-Mar, dealers said. The supply of the 50-year bond hitting traders' portfolios in a big way would be a negative for gilt prices.

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 limit 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.

Details of the meeting between the RBI and bank treasury officials may lend cues. Developments on a potential India-US bilateral trade deal will also be watched closely. Traders also await the GST Council meeting outcome on Thursday for a clearer idea of potential revenue loss by the exchequer from a proposed rationalisation in GST rates.

The movement in US Treasury yields may also lend cues amid key US jobs data scheduled between Wednesday and Friday. The Job Openings and Labor Turnover Survey were released post market hours, while traders also look forward to cues from weekly unemployment numbers and non-farm payroll addition, 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 6.50-6.62%.

India Gilts: Up more on RBI support hopes, yields at attractive levels to buy

MUMBAI--1537 IST--Prices of government bonds were up more as traders were optimistic that the Reserve Bank of India's slew of meetings with bond market participants this week and the next, would result in some form of support to the market. The support could either come through reduction in supply of long-term bonds in the central government's borrowing plan for Oct-Mar or through gilt purchases by the central bank, dealers said. Sentiment was largely positive since negative triggers were priced in. However, gains were capped due to profit-booking and sales before the INR 250-billion gilt auction Thursday, dealers said.

The 6.60% yield level on the benchmark 10-year 6.33%, 2035 gilt is crucial, especially for daily and weekly closing levels, and as long as the yield doesn't rise above 6.60%, bond prices could rise further, which led to value-buying in the secondary market, dealers said. Some traders were also tracking the 200-day moving average on the 10-year benchmark yield, which is currently at 6.54-6.55%, dealers said.

"The closing 6.60% (yield on the 10-year 6.33%, 2035 benchmark gilt) is very important, we can see a further rally (in prices) if we close at or below 6.60% (yield)," a dealer at a private sector bank said.

Some state-owned banks met the central bank Tuesday, and asked for lower supply of long-term bonds and smaller notified sizes of each bond at weekly auctions, dealers said. Some private sector banks will meet the central bank Wednesday, and traders await the outcome, dealers said.

Foreign banks and some foreign portfolio investors were also buying gilts in light volumes, dealers said. Offshore investors were likely purchasing gilts on expectations of a bilateral trade deal between India and US after Commerce Minister Piyush Goyal said a deal between the two countries could be finalised by November. Offshore funds were also tracking bond indices, including the inclusion of Indian government bonds in FTSE Russell's Emerging Markets Government Bond Index Monday, dealers said. State-owned banks were churning portfolios, dealers said, by booking profits in some tenures and purchasing gilts in other tenures. Some domestic banks picked up gilts maturing in two to three years, they said.

At the Treasury bill auction, the cut-off yield on the 364-day T-bill was higher than expectations at 5.67%, compared to an Informist poll estimate of 5.64%. Traders said they preferred purchasing gilts of similar maturity due to higher returns, over a one-year T-bill. The 6.97%, 2026 gilt, which matures on Sept. 6, 2026 had an indicative yield of 5.75%, as per levels from Financial Benchmarks India Pvt. Ltd. Tuesday. The 91-day and 182-day T-bill cut-off yields were largely along expectations.

Turnover in the gilts market was around INR 325.55 billion, higher than INR 284.90 billion at 1530 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the day, yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.52-6.60%. (Cassandra Carvalho)

India Gilts: Remain up on likely purchases by foreign banks, FPIs

India Gilts: Remain up on likely purchases by foreign banks, FPIs

MUMBAI--1258 IST--Government bond prices stayed higher Wednesday, likely supported by purchases from foreign banks and foreign portfolio investors, dealers said. Market sentiment remained positive on hope of support from the Reserve Bank of India, dealers said. 

A few state-owned banks have already met with the RBI seeking a reduction in the borrowing amount for 30- to 50-year bonds in the Oct–Mar calendar, dealers said. More market participants are expected to meet the RBI to suggest the same. Some banks may also suggest increasing the frequency of issuance of the 10-year bond at auction, and thereby lowering the size of bond issuances at weekly auctions, dealers said. 

"There is space of around INR 250 billion to INR 300 billion in the three-year segment, so I think the concentration could go to the three-five-year segment if they lower the 30-50-year borrowing (amount)," a dealer at a private sector bank said. "There is also buying coming from foreign banks and some mutual funds. These levels look supported and if there is RBI support then we might break (lower than) 6.50%, so buying is coming at these levels."

Foreign banks and FPIs likely continued to buy Wednesday as India's bonds offer higher relative returns than other Asian economies, dealers said. Moreover, some purchases also came due to passive FPIs tracking India's inclusion in FTSE Russell's Emerging Markets Government Bond Index Monday. India's inclusion will be phased over six months, and is expected to draw around INR 300 billion of inflows over that period from index tracking foreign funds. At 1250 IST, Clearing Corp. of India data showed FPIs bought only INR 268.3 million worth of fully accessible route bonds Wednesday.

Some mutual funds also likely bought gilts maturing in 10 years or more, dealers said. State-owned banks also bought gilts maturing in 15 years or more, they said. However, some traders placed short bets ahead of INR 250 billion worth of bond auction Thursday, dealers said. Traders also sold bonds at a profit, capping gains. 

The turnover in the gilts market was around INR 192.50 billion, against INR 112.30 billion at 1230 IST Tuesday, 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 6.52-6.60%. (Srijita Bose)

India Gilts: Up as levels seen lucrative; profit booking caps gains

India Gilts: Up as levels seen lucrative; profit booking caps gains

NEW DELHI--1010 IST--Government bond prices rose as traders picked up bonds at levels they considered lucrative, with lack of negative triggers and a slump in prices over the last two weeks. Market sentiment turned due to the 10-year 6.33%, 2035 bond's failure to close above 6.60% yield last week, which also drew long-term investors back in at Tuesday's state bond auction, dealers said. Some traders booked profits at the day's high, capping gains, as the 2035 bond's yield was seen at the lower end of its current trading range.

Concerns about higher borrowing, either by the Centre or states, after the proposed rationalisation in goods and services tax had spooked traders. Those fears were slowly ebbing, with Fitch Ratings telling Informist in an interview it does not expect the Centre to miss its fiscal deficit target of 4.4% of GDP in 2025-26 (Apr-Mar). Recent research reports by State Bank of India and Nomura with similar commentary had also calmed traders' nerves, dealers said. Traders now await the outcome of the GST Council's two-day meeting, which begins at 1100 IST Wednesday, for a better perspective on the likely fiscal hit.

"Trading interest is high in the market as there is confort that 6.60-6.65% level is the top of the trading range," a dealer at a state-owned bank said. "There has been no chatter about extra borrowing for a few days, and people keep expecting the RBI (Reserve Bank of India) to come in and support the market."

Long-term bonds outperformed the 10-year gilt, both as spreads over the benchmark were seen attractive by traders and due to chatter the government could bring down the share of supply in 30-50 year gilts in its borrowing calendar for Oct-Mar. The central bank is meeting bank treasury officials for feedback on the borrowing calendar. Traders considered the spread of 6.68%, 2040 bond over the 6.33%, 2035 gilt of around 40 basis points lucrative, dealers said. 

"The market is running on a hope trade across multiple fronts, but as the last two weeks were driven by a fear trade," a dealer at a private sector bank said. "This might be a better option to keep a cap on yields as an RBI action could mean an immediate rally and then another sell-off, with no positives to look forward to."

During the day, traders are likely to make room for the INR-250-billion weekly gilt auction on Thursday, moved a day ahead as money markets are shut on Friday. The government will sell INR 110 billion of the 6.28%, 2032 bond and 140 billion of the 7.09%, 2074 gilt. A slight rise in US Treasury yields overnight did not have a large impact on gilt prices, dealers said.

The turnover in the gilts market was around INR 74.40 billion, against INR 81.70 billion at 1030 IST Tuesday, 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 6.52-6.60%.  (Aaryan Khanna)

India Gilts: Seen dn as US ylds up; fall may be limited on atttractive ylds

MUMBAI – Government bond prices are seen opening lower Wednesday due to a slight rise in US Treasury yields, dealers said. However, the fall in prices may be limited as yield levels are seen as attractive for investors. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.52-6.66% during the day. On Tuesday, the bond ended at INR 98.32, or 6.57% yield.

The 10-year US Treasury yield was 4.28% at 0833 IST compared to 4.27% at 1700 IST Tuesday. However, buys from passive foreign portfolio investors tracking India's inclusion in FTSE Russell's Emerging Markets Government Bond Index on Monday, could lead to some rise in prices during the day, 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 Negotiated Dealing System Order Matching showing trades over INR 200 billion, as per data Tuesday. 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.

Long-term bonds may remain under pressure due to 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. However, expectations of a lower share of borrowing through gilts maturing in 30-50 years in Oct-Mar, may lead to some traders picking up longer-tenure bonds during the day, dealers said. 

US President Donald Trump late Tuesday said he is not looking at lowering tariffs on India, Bloomberg reported. His statement came exactly one week after the US' additional 25% punitive tariffs on India for buying Russian crude oil came into effect, making them the highest ever tariffs imposed on any country. The news may lead to a fall in the rupee, which could further lead to a fall in gilts, 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 Akul Nishant Akhoury

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