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Informist, Thursday, Sept. 11, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds were mixed in choppy trade Thursday. The 10-year benchmark 6.33%, 2035 gilt ended higher as traders covered intraday short bets ahead of US CPI inflation data for August due at 1800 IST, dealers said. Some short-term and long-term bonds ended lower as traders made room for INR 150 billion of the 6.01%, 2030 bond and INR 130 billion of the 7.24%, 2055 bond at the weekly gilt auction Friday. 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 99.02, or a yield of 6.47%, against INR 98.93, or 6.48%, Wednesday. The five-year benchmark 6.01%, 2030 bond ended at INR 98.92 or 6.27% yield, against INR 98.99 or 6.25% Wednesday. The 7.09%, 2054 gilt ended 13 paise lower at INR 98.18 from Wednesday's close. The yield on the benchmark 10-year US Treasury note was at 4.05% at 1700 IST, down from 4.09% at the same time Wednesday.

According to a Wall Street Journal poll, the US CPI for August is seen rising 2.9% on year, from 2.7% a month earlier. Traders will closely track the data for cues on whether the US Federal Open Market Committee will cut interest rates by 25 basis points or 50 basis points at its meeting next week. A 25 bps cut by the FOMC has already been priced in, dealers said. US yields fell overnight after producer prices in the US surprised on the downside, with PPI down 0.1% in August. According to the CME Group's FedWatch tool, 8.2% of Fed fund futures are betting on a 50-bps cut by the FOMC, while the remaining 91.8% are pricing in a 25-bps cut.

"Lower (US) CPI (for August) is a possibility because the last data that has come, the PPI has been on the negative side," a dealer at a state-owned bank said. "If CPI is in line with that, if CPI is marginally lower, then people are saying a 50 bps cut (by the FOMC) is also possible... but if you see, the buying has only been in 10-year (benchmark gilt), it's not like there were purchases across the curve."

At 1800 IST, the special repo segment of the Clearcorp Repo Order Matching System – a proxy for tracking short sales in a particular bond – showed trades worth INR 202.63 billion in the 6.33%, 2035 gilt, up from INR 193.36 billion Wednesday.

Some traders, especially from primary dealers, preferred to place short bets in the liquid 10-year benchmark ahead of the fresh gilt supply Friday, since both the gilts which will be sold at the auction are illiquid papers, dealers said.  

Demand for the five-year paper is seen firm due to demand from banks' asset and liability desks, dealers said. Demand for the 30-year gilt at Friday's auction is expected to be mixed. Investors and traders seem interested in picking up the gilt to maximise price gains, as the share of long-term bond supply is expected to decrease in Oct-Mar, based on market feedback to the RBI over the past two weeks. However, some demand for the paper may have been erased this week, with some provident funds and life insurers picking up state bonds in the secondary market, noting the spreads on offer. Some mutual funds also have been selling gilts in the secondary gilt market to pick up state bonds, dealers said. 

While Friday's auction is seen as more of an investor's auction due to the nature of the papers being sold, traders are actively positioning ahead of next week's auction of the 10-year benchmark bond. Short bets in the 10-year benchmark gilt have continuously been around INR 200 billion since the beginning of this month, even when the 6.33%, 2035 gilt yield hit 6.44% Tuesday — the lowest since Aug. 18. Traders expect most of these short bets to be covered only at next week's auction. 

Despite opening higher, tracking a slight overnight fall in US yields, prices were down earlier in the day on likely sales by mutual funds, dealers said. Mutual funds were likely net sellers for the fifth consecutive trading session, facing redemptions from corporate houses ahead of the advance tax payments due Monday, while also taking profit on some trades made last week, when they had picked up gilts, dealers said. Moreover, Reliance Industries is looking to issue around INR 180 billion through a pass-through certificate next week, offering a pass-through rate of 7.75% to investors in three- to five-year papers. This has led to mutual funds trimming their holdings of gilts while looking to invest in the asset-backed security, dealers said.  

A fall in the rupee to a record low also weighed on prices, dealers said. The rupee closed at a record low of 88.4425 per dollar at 1530 IST Thursday. However, foreign portfolio investors were purchasing gilts, which limited losses, dealers said. As of 1800 IST, FPIs purchased gilts worth INR 2.56 billion through the fully accessible route Thursday, according to data from Clearing Corp. of India. State-owned banks also purchased gilts for their held-to-maturity books. State-owned banks, especially, preferred higher-yielding state bonds maturing in eight to 10 years for their investment books. 

"The rupee has already fallen past 88 and now it's nearing 88.50, and there's no cue on rate cuts for us (domestically)," a dealer at a private sector bank said. "But (on the positive side) (the 10-year) US yields should not move above 4.20%, and will trade in a 3.90-4.15% range so that should give us some support, and there's some buying coming in for investment (books), for state bonds also."

Turnover in the government bond market was INR 525.65 billion, down from INR 693.60 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were 16 trades using the wholesale digital rupee pilot Thursday for a total of INR 7.70 billion in the 2031 floating rate bond. There were no trades using the digital rupee Wednesday.

OUTLOOK

Friday, bond prices will track the overnight movement in US Treasury yields at the opening after the release of economic data in the world's largest economy, dealers said. Jobless claims for the week ended Saturday in the US rose by 27,000 to 263,000, higher than a Wall Street Journal poll of 235,000, and to the highest level in almost four years. Headline inflation in August rose 2.9% on year in the US, in line with estimates. Core CPI inflation rose 3.1% on year, also in line with estimates. After the data, at 1811 IST, the CME FedWatch tool showed that Fed fund futures reflected a 5.6% probability of a 50 bps rate cut by the FOMC next week, down from 8.2% before the data.

Demand for the long-term bond at the weekly gilt auction will lend cues to bond prices later in the day, dealers said. The next cue on domestic interest rates will come in the form of India's CPI inflation data for August at 1600 IST Friday, dealers said. CPI inflation likely rose to 2.1% in August from an eight-year low in July because of the fading of the statistical effect of a favourable base and a rise in food and gold prices, according to an Informist poll. The reading was broadly priced into bonds, and would not move the market if it were on expected lines, dealers said.

Details of meetings between the RBI and bank treasury officials on the central government's borrowing plan for Oct-Mar may also lend cues to traders. Aggressive sales or purchases from mutual funds will also impact bond prices. 

By the end of September, some dealers expect the 10-year benchmark gilt yield to reach 6.38-6.40% if the FOMC cuts rates and bets of a cut by the RBI's rate-setting panel in October build up. In the near term, an upside in the yield on the 10-year benchmark gilt could be capped at 6.55%, dealers said. Developments on a potential India-US trade deal will also be watched closely following signs of a thaw in the relationship between the two countries. 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 6.38-6.55%.

India Gilts: Reverse losses on intraday short covering; gains limited 

India Gilts: Reverse losses on intraday short covering; gains limited 

MUMBAI--1619 IST--Government bond prices reversed losses as traders covered short bets placed earlier in the day, dealers said. However, the rise in prices was limited as some traders continued to place short bets ahead of the gilt auction Friday and US CPI inflation data due after market hours Thursday, they said. 

"These look like just intraday short covering. Also, even if US CPI comes a little higher, a 25 bps cut is a sure shot," a dealer at a private sector bank said. "Rupee is somewhat of a drag, but the move has been range-bound until there's more domestic clarity. I don't see much of a move."

Mutual funds and foreign banks likely sold ahead of the key US data, which will provide more cues whether the Federal Open Market Committee will cut the interest rate by 50 basis points next week, dealers said. The base case for a 25-bps cut by the FOMC has already been cemented, with the CME's FedWatch tool showing 92% chances of a 25-bps cut and 8% chances of a 50-bps cut. The fall in the rupee to record lows of 88.4425 to a dollar also weighed on gilt prices, dealers said. 

Some traders were short-selling ahead of the fresh supply of gilt due on Friday while other were shorting it for next week's auction. Next week, the government is scheduled to sell INR 300 billion of the 10-year gilt auction, according to the borrowing calendar.

Banks' asset-liability managers likely bought gilts maturing in five to 10 years as they found yields attractive, dealers said. However, the demand at the auction on Friday, where the government is selling INR 150 billion of 6.01%, 2030, may be mixed as traders expect the supply of shorter tenure bonds to increase in the second half of the financial year. 

"Traders are shifting their buying from gilts to state bonds since it's more sustainable and earning more compared to gilts," a dealer at the state-owned bank said. Traders are buying state bonds for the held-to-maturity portfolio since the yield is lucrative, the dealer said. At the auction, demand for the 7.24%, 2055 bond is expected from long-term investors and traders. Traders expect the supply of bonds maturing in 30-40 years to fall in the Oct-Mar borrowing calendar, which will be released later this month. 

Traders will also watch out for CPI inflation data for August, to be released Friday. CPI inflation in India likely rose to 2.1% in August from an eight-year low in July because of the fading of the statistical effect of a favourable base and a rise in food and gold prices, according to an Informist Poll.

At 1530 IST, the turnover in the gilts market was around INR 351.15 billion, much lower than INR 522.85 billion at the same time on Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Traders expect the 10-year 6.33%, 2035 bond to trade in the range of 6.45-6.52% during the day.  (Rizwan Ali and Srijita Bose)

India Gilts: Fall as PDs make room before auction Fri, MFs trim holdings

NEW DELHI--1330 IST--Government bond prices reversed earlier gains and fell. Primary dealers placed short bets on the most traded 6.33%, 2035 bond to make room for fresh supply at the weekly gilt auction worth INR 280 billion on Friday. Mutual funds continued to trim their gilt holdings, though the pace may have slowed from the previous two days, dealers said. 

The government will sell INR 150 billion of the 6.01%, 2030 gilt and INR 130 billion of the 7.24%, 2055 bond Friday. The five-year bond may be in favour with banks' asset-liability managers, especially those who want to bet on another repo rate cut by the Reserve Bank of India's Monetary Policy Committee in October or December, dealers said. On the other hand, the large supply may lead to cut-off prices much lower than secondary market levels, they said.

Demand for the 30-year gilt is seen more mixed. Investors and traders both seem interested in picking up the gilt to maximise price gains as the share of long-term bond supply is expected to come down in Oct-Mar, based on market feedback to the RBI over the past two weeks. However, some demand for the paper may have been erased this week with some provident funds and life insurers picking up state bonds in the secondary market noting the spreads on offer. As neither bond at auction is heavily traded, short sellers preferred placing bets on the liquid 10-year gilt so as to find cover after the auction, dealers said. 

Meanwhile, mutual funds have sold INR 47.85 billion worth of gilts this week, according to Clearing Corp. of India data. The selling pressure has come as they are facing redemptions from corporate houses ahead of the advance tax payments due Monday, while also taking profit on some trades made last week, when they had picked up gilts, dealers said. Moreover, Reliance Industries Ltd. is looking to issue around INR 180 billion through a pass-through certificate next week, offering a pass-through rate of 7.75% to investors in three-five year paper. This has led to mutual funds trimming their holdings of gilts while looking to invest in the asset-backed security, dealers said.

"Mutual funds have been facing redemption pressures and are also stockpiling cash ahead of the RIL (Reliance Industries Ltd.) structured deal," a dealer at a primary dealership said. "They may not be selling too heavily right now, but that has been made up by the usual shorting (short selling) before auction."

Bond prices had risen earlier in the day due to a slight overnight fall in US Treasury yields, as well as purchases by banks' asset liability managers. Banks had been underinvested in bonds in the early part of the financial year started April, choosing to book profit rather than add to their portfolio as bond yields fell to multi-year lows. As yields have gone up and the market has stabilised from the constant selling pressure seen in August, banks are adding gilts to their portfolios, both in the secondary market and at auctions, dealers said.

The market lacked triggers and would likely remain choppy due to uncertainty on both demand-supply dynamics and future monetary policy actions, dealers said. The turnover in the gilts market was around INR 285.85 billion, down from INR 333.55 billion at 1330 IST Wednesday, 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 6.45-6.53%. (Aaryan Khanna)

India Gilts: Steady on lack of domestic cues; slight fall in US yields helps

NEW DELHI--1005 IST--Government bond prices were steady in early trade, with a slight fall in US Treasury yields overnight aiding prices at the open. Traders expect the choppy trading in the market to continue despite lacking firm cues on the domestic front, dealers said.

The yield on the 10-year US Treasury note fell to 4.06% from 4.09% at 1700 IST Wednesday. This led to some short covering at the open, which was short-lived as the movement in the US yield was considered of little significance by gilt traders. Moreover, the expectation that the US Federal Open Market Committee would cut rates is largely factored in to gilt prices, though it may continue to bring in foreign portfolio investors, dealers said.

"We are expecting that FPI activity will continue to be on the positive side. They have been asking for quotes from all banks," a dealer at a state-owned bank said. "Not sure of it today (Thursday), but people focus on the auction tomorrow (Friday) than any small positives."

Traders also booked profit as prices rose, with the view that the 6.33%, 2035 bond's price is unlikely to rise much, especially ahead of the weekly gilt auction on Friday. The government will sell INR 150 billion of the 6.01%, 2030 gilt and INR 130 billion of the 7.24%, 2055 bond. With both bonds at the auction largely illiquid, primary dealerships are likely to place short bets in the 10-year gilt through the day to make room for auction stock, dealers said.

Traders expect the 10-year 6.33%, 2035 bond to trade in the range of 6.44-6.53% in the near term, including the rest of the day. Concerns over additional bond supply due to the goods and services tax rejig have faded, making the 6.53% level seen as lucrative by banks. On other hand, traders are likely to book profit at the lower end of the trading range as they do not expect the Reserve Bank of India's Monetary Policy Committee to cut rates further in 2025, dealers said.

The turnover in the gilts market was around INR 66.90 billion, down from INR 79.90 billion at 0945 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. (Aaryan Khanna)

India Gilts: Seen up on fall in US ylds, may fall later before auction Fri

MUMBAI – Government bonds are seen opening slightly higher, tracking an overnight fall in US Treasury yields, dealers said. Prices may fall later as traders are likely to place short bets ahead of the INR 280-billion gilts auction on Friday. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.44-6.55% during the day. On Wednesday, the bond ended at INR 98.93 or 6.48% yield.

The yield on the 10-year US Treasury note fell to 4.06% at 0822 IST from 4.09% at 1700 IST Wednesday. Purchases by foreign banks and portfolio investors are expected, but these aren't likely to be aggressive as traders will watch out for US CPI inflation data on Thursday to further gauge the Federal Open Market Committee's rate decision next week, dealers said. 

Banks may step up purchases if the yield on the 10-year gilt tops 6.50% levels, dealers said. Some buys for their asset-liability management may also be seen during the day as the yield on the 10-year gilt has already tested 6.53% levels Wednesday, where investors found yields attrative to buy, they said. 

On Friday, the government will sell INR 150 billion of the 6.01%, 2030 bond and INR 130 billion of the 7.24%, 2055 bond. Some traders may place short bets on the 10-year gilt before the auction. Demand at the auction is seen mixed, with some expecting banks' asset-liability managers to pick up the five-year bond at attractive yields, while others expect muted demand as concentration of the bond may increase in the Oct-Mar period. Traders expect the concentration of bonds maturing in 30-40 years to fall in the Oct-Mar calendar for gilts which will be released later this month. This is expected to lure traders along with long-term investors for the 2055 bond at the auction, dealers said. 

Traders will also watch out for CPI inflation data for August, to be relased Friday. CPI inflation in India likely rose to 2.1% in August from an eight-year low in July because of the fading of the statistical effect of a favourable base and a rise in food and gold prices, according to an Informist Poll.  (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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