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Informist, Tuesday, Sept. 16, 2025

By Srijita Bose

MUMBAI – Government bond prices ended mixed, with the 10-year benchmark ending steady in volatile trade on caution ahead of the US Federal Open Market Committee's rate decision Wednesday. While most longer-tenure bonds closed higher on firm demand from insurers, some short-term papers ended lower, dealers said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.84, or a yield of 6.49%, against INR 98.81, or 6.50%, Monday. Gilt prices were volatile in choppy trade amid a lack of domestic cues. Traders now await the outcome of the FOMC's two-day meeting, which will begin on Tuesday. 

"There are no fresh domestic triggers right now, so the next volatility will come after the FOMC," a dealer at a private sector bank said. "If the tone of the panel is not as dovish as people are expecting, we could even see 6.55% (yield on the 2035 bond) breach on the upside."

Traders refrained from placing aggressive bets ahead of the FOMC decision. Traders have factored in a 25 basis points cut by the FOMC, with an outside chance of a 50 bps cut. Traders will keep a watch out for the Fed's guidance on future rate trajectory, dealers said. Foreign banks and primary dealers likely covered short bets placed earlier, resulting in a slight rise in prices of 10-year bonds during the day, they said.

However, the 2035 bond gave up most of the day's gains as state-owned banks likely sold gilts and traders booked intraday profits on the bond, dealers said. Traders did not want to carry a heavy stock of the 2035 bond ahead of the INR 300 billion fresh supply at auction Friday, which most expect to be the last supply of the said bond, dealers said. However, short bets from banks on the 2035 bond were limited ahead of the FOMC's decision, they said. Short bets on the 10-year may pick up pace Thursday once the uncertainty around the Fed policy is over, they said.

At 1743 IST, data from the Clearcorp Repo Order Matching System showed trades worth INR 193.62 billion in the 6.33%, 2035 gilt in the special repo segment, a proxy for tracking short sales in a particular bond, down from INR 203.01 billion Monday.

Meanwhile, at the state bond auction, demand from pension funds, provident funds, and life insurers was firm for long-term bonds, dealers said. This led to the RBI setting cut-off yields lower than estimated in an Informist poll. Demand for long-term bonds in the secondary market also remained firm from insurers, resulting in the rise in prices during the day, dealers said. Some traders likely sold some of the bonds maturing in 40 years, which led these gilts to erase gains later in the day, they said.

Demand from banks for the state bonds was better than expected, especially as the auction size was smaller than the amount indicated in the borrowing calendar. However, they demanded higher yields due to uncertainty around the supply of shorter tenure bonds by the Central government in the second half of the financial year, dealers said. Traders expect the supply of longer tenure gilts to be reduced in the Oct-Mar period and that of gilts maturing up to 10 years to be increased.

"Long-term is faring well and demand there has been good, but there is not much scope for a further fall in long-term yields," a dealer at a state-owned bank said. "Because there is no clear cue, we are just churning to make whatever gains we can." State-owned banks churned portfolios to switch between gilt tenures, which gave higher yield returns, dealers said. The 5.63%, 2026 bond was the third-most traded bond on the RBI's Negotiated Dealing System-Order Matching platform, as banks likely switched the bond with other shorter-tenure gilts at yields seen as lucrative, they said. 

Foreign portfolio investors and foreign banks continued to buy gilts due to the relative yield differential between the 10-year Indian government bonds and the US Treasury notes, which was at over 240 bps. A rise in the rupee also aided gilt prices, dealers said. FPI buys were not affected by the reduction in the weightage of Indian government bonds from 10% to 9% in JP Morgan's flagship emerging-market index, as the reduction was largely anticipated. Many traders were expecting a much higher cut in the weightage of India's bonds in JP Morgan's Government Bond Index – Emerging Market Index.

Turnover in the government bond market was at INR 326.85 billion, higher than INR 276.60 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, the same as Monday. 

OUTLOOK

On Wednesday, bond prices may take cues from the overnight movement in US yields, dealers said. Gilts may trade in a thin band, and volumes may be muted as traders await the US FOMC decision later in the day.  

The US rate-setting panel is widely expected to cut its policy rate by 25 basis points, with the CME FedWatch tool showing a 96% chance of a 25 bps cut and nearly 4% chance of a 50 bps rate cut priced in Fed funds futures. Traders will await the committee's commentary and any projection of future rate cuts during the rest of the year. 

By the end of September, some dealers expect the 10-year benchmark gilt yield to fall below 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 traders 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 6.40-6.55%.

India Gilts: Profit booking erases gains of 10-yr gilt, long-term bonds up

MUMBAI--1619 IST--Government bonds were mixed. The 10-year benchmark 6.33%, 2035 bond gave up most gains as state-owned banks are said to have sold it and traders booked intraday profits, dealers said. Longer-tenure bonds remained up on firm demand from insurers, they said. 

At the bond auction by states Tuesday, demand for long-term bonds was firm from insurance companies, with the RBI setting cut-off yields lower than estimated by an Informist poll. Insurers also continued to pick up longer tenure bonds in the secondary market, resulting in rise in prices, dealers said.

Demand from banks for the state bonds was better than expected but they were bidding at higher yields due to uncertainty around the supply of shorter tenure bonds in the second half of the financial year, dealers said. Traders expect the supply of longer tenure gilts to be reduced in the Oct-Mar borrowing calendar and that of gilts maturing up to 10 years to be increased.

The fall in gilts was limited because of short covering by foreign banks and primary dealers ahead of the outcome of the US Federal Open Market Committee's two-day meeting on Wednesday, dealers said. At 1614 IST, data from the Clearcorp Repo Order Matching System showed trades worth INR 193.62 billion in the 6.33%, 2035 gilt in the special repo segment, a proxy for tracking short sales in a particular bond, down from INR 203.01 billion Monday.

Traders refrained from placing aggressive and large bets ahead of the FOMC decision. Traders have factored in a 25 basis points cut by the FOMC, with some-off chance of a 50 bps cut. Traders will watch out for the Fed's guidance on future rate trajectory, dealers said.

Turnover in the gilt market was INR 237.75 billion at 1530 IST, compared with INR 182.45 billion same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. In the rest of trade, the 10-year benchmark 6.33%, 2035 gilt is seen in a range of 6.47–6.52%. (Muskan Lodhi and Srijita Bose)

India Gilts: Rise on short covering; state bond auction result awaited

MUMBAI--1427 IST--Government bond prices rose in choppy trade on account of short covering and likely buys from state-owned banks as the 6.50% yield on the 10-year gilt was seen lucrative, dealers said. Foreign portfolio investors and foreign banks are expected to continue buying gilts even after India's weight on JP Morgan's flagship emerging market debt index was reduced.

Gilt prices were volatile in choppy trade amid a lack of cues, though some dealers expressed optimism on demand for state bonds at auction. Pension funds, provident funds and life insurers are expected to mop up the supply of the longer tenure paper, especially as the auction is smaller than the amount indicated in the Jul-Sept calendar by states. Traders expect a slight contraction in the spread between the 10-year benchmark gilt and the state bond of similar maturity. Last week, Nagaland rejected all bids for its 10-year paper, and the week before that, the spreads had risen to an over five-year high, in excess of 100 basis points.

Banks are expected to buy shorter tenure bond maturing in under 10 years, looking to maximise returns as they are near the top of their internal caps in holding state bonds, dealers said. Traders are also likely to demand higher returns to pick up the fresh supply as the state bonds on offer are poorly traded in the secondary market. Mutual funds were largely absent from the market, dealers said.

"State bond auction result will give direction to the market. If the bidding is at the tail then the yield levels will rise significantly," a dealer at a state-owned bank said.

Meanwhile, bond prices were volatile but in a relatively narrow band amid lack of significant triggers. Traders await the US Federal Open Market Committee outcome after Indian market hours Wednesday for fresh cues, dealers said. The panel is universally expected to cut policy rates by at least 25 basis points. If it delivers a "jumbo" 50-bps rate cut or comments indicate a vigorous rate cut cycle is underway in the US, some traders may pick up bonds betting the Reserve Bank of India's Monetary Policy Committee may also cut rates further in 2025, dealers said.

Foreign portfolio investors and foreign banks are likely to continue to buy due to the relative yield differential between the 10-year India government bond and US Treasury note, at over 240 bps. A rise in the rupee also aided gilt prices, dealers said. FPI buys were not affected by the reduction in the weightage of Indian government bonds from 10% to 9% in JP Morgan's flagship emerging-market index as the reduction was largely anticipated.

The turnover in the gilts market was around INR 179.95 billion, up from INR 140.95 billion at 1430 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 6.45-6.52%. (Janwee Prajapati)

India Gilts: Erase early gains; state bond auction, FOMC outcome awaited 

India Gilts: Erase early gains; state bond auction, FOMC outcome awaited 

MUMBAI--0957 IST--Prices of government bonds erased early gains Tuesday to trade in a thin band as traders awaited the INR 184.00 billion state bond auction result and the outcome of the US Federal Open Market Committee's meeting, dealers said. Gilt prices opened higher tracking a sharp rise in the rupee against the dollar, they said. The rupee opened at 88.0750 per dollar from 88.2100 at 1530 IST Monday.

As for the reduction in the weightage of Indian government bonds from 10% to 9% in JP Morgan's flagship emerging-market index, traders said the reduction was minimal and the move was largely expected due to media reports on the same earlier. The move is unlikely to reduce foreign inflows into Indian government bonds, especially on the cusp of the resumption of rate cuts in the US, dealers said. Foreign portfolio investors have net purchased gilts worth around INR 58 billion so far in September, likely on bets of a widening interest rate differential due to rate cuts in the US and these inflows are expected to continue this week but in thin volumes. The US FOMC's two-day meeting kicks off Tuesday and caution before the crucial rate decision limited trading activity, dealers said. The FOMC is widely expected to cut rates by 25 basis points at the outcome of its meeting Wednesday, the first cut since December. 

"Almost 3 lakh crore (INR 3 trillion) FIIs (foreign investors) have in g-sec (gilts) right now and this news was already there, there's nothing new," a trader at a primary dealership said. "And this week we have the FOMC meet and 10-year auction also. Unless we see tail (cut-off yields being higher than expected) coming in state loans (state bond auction), we'll be in a range only."

Traders expect the states to accept bids for all papers at Tuesday's auction, unlike previous auction recently wherein some states have had to either partially accept or reject all bids due to excessively high yields. Insurance companies, mutual funds and banks are likely to bid for state bonds and yield spreads of these bonds over gilts at the auction could compress due to the smaller-than-indicated size of the sale. Some traders were covering short bets in the secondary gilt market, though traders were largely on the sidelines due to caution ahead of the FOMC outcome due late Wednesday.    

The turnover in the gilts market was around INR 21.85 billion, up from INR 10.35 billion at 0930 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 6.45-6.50%. (Cassandra Carvalho)

India Gilts: Seen lower on JP Morgan index rejig; state bond auction eyed

MUMBAI – Prices of government bonds are seen opening lower Tuesday after JP Morgan Chase & Co. said it would reduce the weightage of India in its flagship emerging-market index to 9% from the current 10% over a period of several months, dealers said. However, the index rejig is unlikely to hamper foreign inflows in the near term as traders focus on the US Federal Open Market Committee's rate decision, dealers said. The fall in prices due to the index rejig could be furthered by short sales in the benchmark 10-year gilt before the auction of the gilt on Friday, dealers said.  

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen moving in range of 6.45-6.55% during the day. On Monday, the bond ended at INR 98.81 or 6.50% yield. The yield on the benchmark 10-year Treasury note was 4.05% as of 0800 IST, marginally lower than 4.07% at 1700 IST Monday.

The US FOMC's two-day meeting kicks off Tuesday, and caution before the crucial rate decision may limit trading activity, dealers said. The FOMC is widely expected to cut rates by 25 basis points at the outcome of its meeting Wednesday, the first cut since December. Foreign portfolio investors have net purchased gilts worth around INR 58 billion so far in September, likely on bets of a widening interest rate differential due to rate cuts in the US, and these inflows are expected to continue this week. Some traders expect a 50-bps cut, while others expect US Federal Reserve Chair Jerome Powell to continue his 'wait-and-watch' approach on rates. The Fed's economic projections will be closely tracked, with traders looking at 75 bps of cuts by the end of 2025. While a 25 bps cut is unlikely to change the perspective on India's rate cut cycle, a 50 bps cut in the US on Wednesday could spur the Reserve Bank of India's Monetary Policy Committee to resume its rate cut cycle, dealers said. 

Traders will also take cues from the result of the weekly state bond auction. States will raise INR 184.00 billion through bonds at auction Tuesday, lower than INR 236.29 billion indicated in states' borrowing calendar for Jul-Sept. The lower state bond supply is after three consecutive weeks of state bond supply being higher than forecast. State bonds gained traction for their lucrative yield spreads over government bonds, especially for banks' held-to-maturity books. At the start of September, yield spreads of states' 10-year bonds over the 6.33%, 2035 benchmark gilt surpassed 100 bps at the auction, but these spreads compressed to around 80 bps in the secondary market Monday.

Bond prices may also take cues from the movement of the rupee against the dollar after the local currency hit a record low last week. (Cassandra Carvalho)

End

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

Edited by Saji George Titus

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