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Informist, Thursday, Sept. 4, 2025

 

By Cassandra Carvalho

 

MUMBAI – Prices of government bonds surged Thursday after the forecast for the revenue loss from the restructuring of goods and services tax into two primary slabs was less than what traders had expected. Mutual funds also likely purchased gilts, dealers said. Long-term bonds were up the most on hopes that the central government would reduce the supply of these gilts in its borrowing plan for the second half of the financial year 2025-26 (Apr-Mar). Towards the end of market hours, prices rose further as traders covered some short positions taken ahead of the scheduled long weekend. The short-covering was likely on speculation that the Reserve Bank of India would shift the holiday for Id-e-Milad to Monday from Friday. The central bank later announced the change on its website.

 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.83, or a yield of 6.49%, against INR 98.48, or 6.54%, Wednesday. The 10-year benchmark gilt yield fell nearly 5 basis points. Bonds maturing in more than 10 years outperformed other tenures, with the 15-year benchmark 6.68%, 2040 gilt ending 66 paise higher at INR 98.56. Its yield ended 7 bps lower, the largest fall since Aug. 14, when S&P Global Ratings upgraded India's sovereign credit rating. In spite of the fresh supply Thursday, the 7.09%, 2074 bond ended 42 paise higher at INR 96.86 in choppy trade, reversing the brief losses seen after its cut-off price at the auction was lower than expectations.

 

"There were two uncertainties (fiscal slippage and further rate cuts), one major one is out of the way, market was worried about it for so long," a dealer at a private-sector bank said. "The final number is total for both states and Centre and it's much less than what market was expecting. Anything like 2 lakh crore (INR 2 trillion additional borrowing) or so would have spooked the market, but this much (about INR 480 billion) can be easily absorbed."

 

The GST Council approved a move to a two-slab structure Wednesday and pegged the total revenue loss at INR 930 billion. However, INR 450 billion from the new 40% tax on "sin" and luxury goods will mitigate some of the shortfall, a minister said.

 

Traders had expected bond prices to open sharply higher owing to the lower revenue loss estimate. An Informist Poll had estimated that the 6.33%, 2035 gilt yield would open at 6.50% yield, but it opened at 6.53%. Traders were likely waiting for the gilts auction result to be published before making aggressive purchases, so there was a delayed reaction to the GST rejig, dealers said. "We were supposed to open higher in the morning itself, but that didn't happen, so we are seeing that reaction now," a dealer at a private-sector bank said near the end of market hours.

 

Moreover, traders had placed short bets ahead of the long weekend, especially ahead of the US non-farm payrolls data for August due Friday, as Friday was earlier a scheduled holiday for the money markets. But near the end of the day's session, traders saw the possibility of the RBI postponing the holiday after the Maharashtra government issued a notification moving the public holiday for Id-e-Milad in the state to Monday and began covering some of those short bets.

 

The 15-year 6.68%, 2040 gilt was the second-most traded gilt on the RBI's Negotiated Dealing System-Order Matching platform. Bond market participants have, in meetings with the RBI this week, requested the central bank for a lower supply of long-term bonds in the central government's borrowing plan for Oct-Mar, dealers said. Mutual funds were buying the 2040 gilt and paying fixed rate contracts in the five-year swap, dealers said. However, the 10-year benchmark gilt underperformed other tenures as traders preferred to place short bets on it to hedge trades in other tenures. Additionally, some dealers suspected that if the supply of long-term gilts is reduced, the balance supply could be in gilts maturing in 5-10 years. Bankers have asked the central bank for a cut of about 5% in the supply of long-term bonds, dealers said.

 

"I think spread-wise it could go to 30 bps," said a dealer at another private-sector bank, referring to the yield spread of the 2040 gilt over the 10-year benchmark. Thursday, the yield spread between the two gilts was 34 bps.

 

Bond prices briefly gave up some gains after the result of the weekly bond auction. The cut-off prices on both gilts were lower than expected. The government sold INR 110.00 billion of the 6.28%, 2032 bond and INR 140.00 billion of the 7.09%, 2074 bond. Banks' asset and liability managers did not bid as aggressively as expected for the 2032 paper. Demand from traders was tepid, as had been expected. Interest from long-term investors was less than expected, and purchases for bond forward-rate agreements was less than INR 20.00 billion.

 

A fall in US Treasury yields also aided sentiment, as traders ramped up bets of a rate cut by the US Federal Open Market Committee at its upcoming meeting this month. The 10-year US Treasury yield fell to 4.22% at 1700 IST from 4.28% at the same time Wednesday after weak jobs data. Fed fund futures now show a 97% chance of a 25-bps rate cut by the FOMC in September, up from 87% a week ago, according to the CME's FedWatch tool.

 

Turnover in the government bond market jumped to INR 744.60 billion Thursday, from INR 528.10 billion Wednesday, according to data on the NDS-OM platform. There were no trades using the wholesale digital rupee pilot for the fifth straight day.

 

OUTLOOK

Friday, gilts may open lower on constant pressure from the heavy state bond supply. The RBI, after market hours, said seven states would raise INR 153.00 billion at Tuesday's auction. This is slightly higher than the indicated amount of INR 151.50 billion. This is the third consecutive state bond auction that the supply is higher than indicated. There are concerns that state borrowing will increase due to the GST reforms, dealers said. Meanwhile, some banks are approaching their internal limit on purchasing state bonds, they said. This is likely to increase the spreads of state bonds over gilts.

 

Bonds may also track the overnight movement in US Treasury yields after the release of weekly jobless claims in the US for the week ended Saturday. Nearing the end of trade, traders may trim portfolios ahead of the long weekend, especially before the release of the US employment report for August after market hours Friday. Now that Monday is a holiday, trade volumes could be lower Friday since many traders will be on scheduled leave.

 

Details of meetings between the RBI and bank treasury officials may lend cues. Developments on a potential India-US bilateral trade deal will also be watched closely. 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 6.42-6.60%.

 

	THURSDAY		WEDNESDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	98.8300	6.4934%	98.4800	6.5430%
6.79%, 2034	101.4725	6.5710%	101.1000	6.6258%
6.01%, 2030	98.9300	6.2662%	98.8500	6.2852%
6.68%, 2040	98.5600	6.8346%	97.9000	6.9071%
6.90%, 2065	95.0500	7.2822%	94.3200	7.3584%

 

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India Gilts: Give up some gains as auction cut-off prices lower than view

 

	1432 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.65	98.76	98.55	98.55	98.48
YTM (%)	6.5190	6.5332	6.5041	6.5332	6.5430

 

MUMBAI--1432 IST--Prices of most government bonds gave up some gains as the cut-off prices for both bonds at the weekly auction were slightly lower than expected, dealers said. The reduction in gains was most pronounced in long-term bonds, with the 7.09%, 2074 bond reversing gains.

 

The Reserve Bank of India set a cut-off price of INR 98.52 on the 6.28%, 2032 gilt at the auction, lower than an Informist Poll estimate of INR 98.55. The bid-to-cover ratio on the 2032 paper was slightly lower than usual, dealers said. The cut-off price on the 2074 bond was INR 96.11, also lower than a poll estimate of INR 96.23. Long-term investors such as insurance companies were not as aggressive in bidding at the auction, compared to what traders had initially expected, dealers said. However, the auction result was along expected lines for some traders, and they were getting rid of the auction stock in the secondary market, they said.  

 

Some traders trimmed positions ahead of the long weekend. The RBI and money markets are shut Friday for Id-e-Milad. However, traders speculated that the holiday could be postponed, and await clarity from the central bank after the Maharashtra government issued a notification postponing the holiday to Monday.   

 

Some traders expect a recovery in bond prices by the end of the day's trade. However, Thursday's closing yield level on the 10-year benchmark 6.33%, 2035 gilt will be crucial to lend direction to bond prices next week if markets are shut Friday. Traders said the yield on the 10-year benchmark could fall to 6.48% by next week, since most of the negative factors for gilts were already priced in. "I think there could be some recovery, we could go to 6.50-6.51% by end of the day since there is nothing negative," a dealer at a state-owned bank said. 

 

The turnover in the gilts market was around INR 426.85 billion, higher than INR 278.95 billion at 1430 IST Wednesday, 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 6.48-6.55%.  (Cassandra Carvalho)

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India Gilts: Near day's high on short covering, market sentiment improves

 

	1239 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.73	98.76	98.55	98.55	98.48
YTM (%)	6.5076	6.5332	6.5041	6.5332	6.5430

 

NEW DELHI--1239 IST--Government bond prices were sharply up after fears of higher borrowing through dated securities ebbed and US Treasury yields fell. Traders also covered short bets placed in previous sessions as market sentiment improved, which led to a rise in prices, dealers said. 

 

At Friday's auction, investors are likely to demand higher returns for the fresh supply of the 7.09%, 2074 gilt, dealers said. Bids for the 50-year benchmark gilt from life insurers and provident funds are likely to be firm around current market prices, but not in a large enough quantum to pick up the entire INR 140 billion supply on offer. Long-term investors have also tied up limited pools of cash at Tuesday's state bond auction, picking up long-dated state bonds, dealers said. Bond forward-rate agreements had been struck between banks and insurers, but these were less than INR 20 billion. Banks preferred not to take the risk of the longest duration bond on offer.

 

Traders are keen to stock up on long duration bonds on hopes that the government will reduce the share of these bonds in its Oct-Mar borrowing calendar, following market feedback this week. However, they avoided picking up the largely illiquid 50-year gilt. Instead, the 6.68%, 2040 gilt and the 6.95%, 2065 gilt were both sharply up due to demand from bank traders and likely demand from mutual funds, dealers said. 

 

"The long bond is not participating in the rally today (Thursday) because there are concerns about a tail," a dealer at a foreign bank said, referring to a situation where the cut-off price is sharply below the weighted average price. "I have a feeling that both bonds could surprise on the negative side today."

 

However, the appetite from banks for the seven-year 6.28%, 2032 gilt was mixed, with some banks preferring the bond for their asset-liability management books at attractive yields. Others said expectations of an increase in the share of shorter tenure bonds in the second half of 2025-26 (Apr-Mar), thereby limiting buys in the segment. Mutual funds also likely bid for the seven-year gilt at auction, dealers said. 

 

"We are hearing good demand from other PSU banks as well," a dealer at a state-owned bank said. "A lot of people are looking to bid higher than the market price on the 7-year, and pick it up at par with the 10-year (yield)."

 

The turnover in the gilts market was around INR 252.20 billion, against INR 192.50 billion at 1230 IST Wednesday, 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 6.48-6.55%.  (Aaryan Khanna)

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India Gilts: Up as GST rejig's revenue hit lower than expected, US ylds fall

 

	0955 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.64	98.73	98.55	98.55	98.48
YTM (%)	6.5211	6.5332	6.5073	6.5332	6.5430

 

NEW DELHI--0955 IST--Government bond prices rose as the fear of extra borrowing in 2025-26 (Apr-Mar) eased after the outcome of the GST Council meeting late Wednesday, dealers said. A fall in US Treasury yields overnight after job openings data in the US also aided prices. With the bevy of triggers, trading volumes surged. 

 

The government estimates a net revenue loss of around INR 480 billion from the Council's decision late Wednesday to move to a two-slab GST rate structure. This is lower than market estimates of an INR 600 billion - INR 1 trillion hit to revenues, dealers said. The new rates will take effect from Sept. 22, Finance Minister Nirmala Sitharaman said.

 

"The Centre should be able to manage the hit with Treasury bill issuances and cutting a little bit of spending," a dealer at a primary dealership said. "Earlier, the market was fearing that dated securities issuance could also happen, now there are very few (with that view)."

 

Moreover, the 10-year US Treasury yield fell to 4.22% from 4.28% at 1700 IST Wednesday after US job openings at end-July were sharply lower than expected and led to traders widely expecting that the US Federal Open Market Committee would cut rates at its meeting this month. Short sellers covered their bets in gilts, though stop-losses on these positions were not hit unlike what some traders had expected, dealers said. Caution ahead of the INR-250-billion weekly gilt auction at 1030-1130 IST also kept gains capped, they said. 

 

The government will sell INR 110 billion of the 6.28%, 2032 gilt and INR 140 billion of the 7.09%, 2074 bond at the auction. The supply is likely to sail through, with firm demand from banks for the seven-year gilt and from life unsurers and pension funds for the longest-duration 50-year gilt. Some insurers have already entered forward-rate agreements with banks to buy the 50-year gilt, dealers said. Buoying demand are expectations that the government will bring down the share of long-term bond supply in the Oct-Mar borrowing calendar, after two rounds of meetings between banks and the Reserve Bank of India, the government's debt manager. Informist reported Wednesday that the government was open to cutting the share of long-term bonds in the Oct-Mar calendar if the market wants.

 

The yield on the 10-year benchmark 6.33%, 2035 bond is only likely to fall below the psychologically crucial 6.50% mark if the auction turns out along expected lines or cut-off prices are better than expected, dealers said. That may lead to a fresh round of short covering and a move towards 6.48% yield, they said. With the sharp rise in prices over the last two days, fresh supply landing on traders' portfolios will be a negative for the market. State-owned banks were likely selling gilts to book profit.

 

The turnover in the gilts market was around INR 121.65 billion, against INR 49.95 billion at 0930 IST Wednesday, 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 6.48-6.55%.  (Aaryan Khanna)

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India Gilts: Seen up as US yields fall on bets of FOMC rate cut

 

MUMBAI – Government bond prices are seen opening sharply higher after weak US jobs data increased chances of a rate cut by the US Federal Open Market Committee. However, the rise in prices may be capped due to caution ahead of the INR 250-billion gilt auction Thursday, dealers said. 

 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.56% during the day. On Tuesday, the bond ended at INR 98.348 or 6.54% yield.

 

US job openings in July stood at 7.18 million, Job Openings and Labor Turnover Survey data showed on Wednesday, declining from the 7.35 million revised reading recorded in June. Job openings fell the most in 10 months and were lower than the 7.4 million anticipated. The data increased chances of a rate cut in the US this month, with the CME FedWatch tool showing traders are now almost fully pricing in a 25 basis-points rate cut by the Federal Open Market Committee. It also projected at least two reductions this year. The 10-year US Treasury yield fell to 4.22% at 0839 IST from 4.28% at 1700 IST Wednesday. Foreign banks and porfolio investors are likely to buy gilts as the interest rate differential between the safe heaven and emerging market bonds has widened. However, with futher incoming data from US such as non-farm payrolls data and a long weekend ahead, purchases of gilts may be limited, dealers said. 

 

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 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. 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 due to the reforms in goods and sevices tax, dealers said. The GST Council Wednesday approved a move to a two-slab goods and services tax rate structure with a new special tax of 40% to be effective from Sept. 22. The total loss of revenue from the entire rate change process will be INR 930 billion, but INR 450 billion revenue will come from the new 40% tax on sin and luxury goods, which will mitigate some of the revenue shortfall, said Rajesh Dharmani, minister of technical education, vocational and industrial training of Himachal Pradesh, after the council meeting.  (Srijita Bose)

 

End

 

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

 

Edited by Rajeev Pai

 

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