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Informist, Thursday, Sept. 18, 2025

 

By Srijita Bose

 

MUMBAI – Government bond prices ended sharply lower as traders placed short bets before the INR 360 billion gilt auction on Friday, dealers said. The US Federal Open Market Committee's decision on Wednesday left traders who hoped for aggressive rate cuts in the US disappointed, which also led to a fall in prices, they said.

 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.69, or a yield of 6.51%, against INR 98.98, or 6.47%, Wednesday. The 2035 bond was the worst hit on fears that cut-off prices at the INR-300-billion auction of the bond will be lower, as demand may not be aggressive, dealers said. 

 

"Demand will be mixed at auction and may not be very aggressive as this may be the last auction (of the 2035 bond)," a dealer at a state-owned bank said. "Also, I am seeing (yield) spreads between the old 10-year and the benchmark (2035) paper narrow down tomorrow because as it goes out of favour, people will want it (spread) to come down to 3-4 basis points."

 

The yield spread on the 2035 bond over the erstwhile benchmark 6.79%, 2034 bond is currently at over 7 bps. Traders will look to pick up the bond at cheaper prices at the auction, with demand from banks seen as modest, dealers said. Traders placed short bets on the 2035 bond, hoping to cover them at cheaper prices at the auction. Trades worth INR 1.00 billion were made of the 2035 bond in the When Issued (Reissues) segment of the RBI's Negotiated Dealing System-Order Matching platform, at INR 98.72, or a yield of 6.5098%.

 

In the special repo segment of the Clearcorp Repo Order Matching System, the volume of the 2035 gilt was INR 198.31 billion as at 1719 IST, higher than INR 190.96 billion Wednesday. The number of trades in a paper in the special repo segment of the Clearcorp Repo Order Matching System is a proxy for the short sales in that bond. 

 

Traders had avoided significant short sales ahead of the US FOMC decision on Wednesday, which was seen as a major cue for gilt prices as it was the first rate cut in the US in nine months. Traders, who had bet that the FOMC would guide for persistent rate cuts or opt to cut rates by a "jumbo" 50 bps, were left disappointed after the panel cut the rate by 25 bps and trimmed their holdings, dealers said.

 

The yield on the benchmark 10-year Treasury note rose to 4.07% from 4.02% at 1700 IST Wednesday. US Federal Reserve Chair Jerome Powell's comments that the committee did not seriously consider a 50-bps rate cut at its meeting raised questions about the depth and persistence of US rate cuts. The projections or "dot plot" guided for another 50 bps of rate cuts in 2025, exactly as the market had expected. However, two members saw no further rate cuts this year and several saw only a 25-bps rate reduction by the end of 2025.

 

Following the rather hawkish view by the FOMC, traders pared their India rate cut bets. Some sections of the market had piled on short-term bonds in the run-up to the FOMC meeting, betting on these bonds to outperform ahead of the Reserve Bank of India's Monetary Policy Committee meeting on Sept. 29-Oct. 1.

 

While a rate cut by the RBI in October seems unlikely, some traders still retain hopes of a rate cut in December because of domestic growth and inflation, dealers said. This limited losses in shorter-tenure bonds, they said. They expected the yield curve to steepen, with shorter-tenure bond yields to fall more compared to longer-tenure bond yields. Banks also preferred to add shorter tenure gilts while short-selling the 10-year gilt to limit their duration risks, as they felt domestic rate cuts remained uncertain, dealers said. 

 

"You are getting a good carry in the shorter tenure bonds, and some chances of a December cut are still open," a dealer at a private sector bank said. "Yes, there are chances supply could increase in this (short-term bond) segment, but I don't think it will be more than INR 300 billion, and if that is divided between three- and five-year bonds, then the impact will not be much." 

 

Traders are widely expecting the share of 30-40 year bonds to reduce by 5% in the Centre's borrowing calendar for Oct-Mar. Some insurers, as well as traders, continued to buy longer tenure bonds due to the expectation of lower issuance of these bonds in the second half of the financial year. This limited losses in longer tenure bonds, dealers said. Likely buying of 2035 bonds by state-owned banks as the yield benchmark neared the day's high of 6.52% also limited losses in the bond, dealers said.

 

Turnover in the government bond market was at INR 377.80 billion, lower than INR 462.15 billion Wednesday, according to data on the RBI's NDS-OM platform. There were two traders worth INR 100 million on the 10-year benchmark using the wholesale digital rupee pilot Thursday, compared with none using the method this week. 

 

OUTLOOK

On Friday, bond prices may take cues from the overnight movement in US yields, dealers said. Gilts may trade in a thin range before the INR 360 billion gilt auction results, they said. 

 

The government will sell INR 300 billion of the 10-year 2035 bond and INR 60 billion of the 5.91%, 2028 gilt on Friday. Demand for the 10-year bond is expected to be modest, as it is widely viewed as the final auction of the bond. Demand for the three-year bond is expected to be firm from asset-liability managers of banks and mutual funds, dealers said. 

 

Friday's auction results are seen providing cues to the market with expectations of a mixed demand at auction, dealers said. Traders could place short bets ahead of the auction, which could drag down gilt prices, they said. Traders will also keenly follow the comments of Reserve Bank of India Governor Sanjay Malhotra at the 25th anniversary of Clearing Corp. of India Ltd. at 1700 IST on Friday.

 

Traders may also take cues from developments on the India-US trade talks after the recent thaw in relations 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 6.47-6.56%. 

 

	THURSDAY		WEDNESDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	98.6900	6.5139%	98.9800	6.4726%
6.79%, 2034	101.3700	6.5859%	101.6600	6.5433%
6.01%, 2030	99.2000	6.2015%	99.2975	6.1777%
6.68%, 2040	98.5550	6.8353%	98.8150	6.8068%
6.90%, 2065	95.3500	7.2583%	95.7300	7.2278%

 

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India Gilts: Remain sharply down on short bets before auction Friday

 

	1635 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.71	98.88	98.66	98.85	98.98
YTM (%)	6.5114	6.4869	6.5182	6.4911	6.4726

 

MUMBAI--1635 IST--Government bond prices remained sharply down Thursday as traders increased short bets ahead of the weekly gilt auction Friday, dealers said. However, the fall was limited as public-sector banks picked up gilts when the yield on the 10-year benchmark 6.33%, 2035 rose beyond 6.50%. Trade stagnated in the middle of the day after a spurt in volumes in the first few hours.

 

State-owned banks considered the level lucrative to pick up the 10-year gilt in the secondary market as it was the upper end of the recent trading range, even as short sales continue to pile up in the gilt. According to a primary dealership, up to INR 80 billion of short sales have been built up without any hedges. A majority of these will get covered at the gilt auction, which has INR 300 billion of supply of the 6.33%, 2035 bond, dealers said.

 

The government will sell INR 60 billion of the 5.91%, 2028 bond and INR 300 billion of the 10-year benchmark bond on Friday. Traders expect the shorter paper to sail through given the small supply while expectations about the 2035 bond are more mixed due to its large supply. Public sector banks are expected to pick up a large supply of the 10-year paper at around 6.54% yield at the auction, dealers said. Traders may also add the gilt to their portfolios in the secondary market and at the auction around 6.53%, which is near its 200-day moving average, a key technical resistance for the yield, they said.

 

"If the RBI (Reserve Bank of India) begins to signal any further monetary easing, then you'll find buyers at all levels," a dealer at a primary dealership said. "But because the FOMC (US Federal Open Market Committee) has not given any more room to the RBI, suddenly the buyers have gone cold." The US FOMC cut its policy rate by 25 basis points Wednesday, as was widely expected, but comments by US Federal Reserve Chair Jerome Powell after the decision disappointed some traders as they had bet on the US panel committing to a larger rate cut or softer commentary on further rate reductions.

 

The turnover in the gilts market was INR 336.00 billion, up from INR 313.20 billion at 1530 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 6.50-6.53%. (Muskan Lodhi and Aaryan Khanna)

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India Gilts: Dn more on short sales before auction Fri; bk buys limit losses

 

	1330 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.72	98.88	98.66	98.85	98.98
YTM (%)	6.5093	6.4869	6.5118	6.4911	6.4726

 

MUMBAI--1330 IST--Government bond prices were sharply down as traders placed fresh short bets on bonds ahead of the gilts auction Friday, after being disappointed by US officials' commentary on rate cuts following the US Federal Open Market Committee's latest meeting, dealers said. Private sector and state-owned banks stepped up purchases after the 10-year benchmark gilt's yield topped 6.50%, with 6.52-6.53% yield seen as the top of the current trading range, which limited the losses. A small intraday fall in US Treasury yields also aided gilts.

 

Traders had avoided significant short sales ahead of the US panel's decision, and were now making room in their portfolios for the auction, dealers said. The government will sell INR 60 billion of the 5.91%, 2028 gilt and INR 300 billion of the 6.33%, 2035 gilt Friday. The large supply is weighing on the 2035 gilt's prices, though the 10-year benchmark gilt is expected to be well-bid at over a 100-basis-point spread over the repo rate, dealers said. The 2035 bond was last traded at a price of INR 98.72, or yield of 6.51%, at 1042 IST in the When-Issued (ReIssues) segment of the Reserve Bank of India's Negotiated Dealing System-Order Matching platform.  

 

Moreover, the quantum of short covering at auction may also be substantial as this may be the last auction of the 6.33%, 2035 gilt. Traders said a new 10-year bond is likely to be issued in October, after the release of the Oct-Mar borrowing calendar. The 2035 gilt's outstanding will reach INR 1.80 trillion, near the top of the unofficial cap for issuance in a single security, especially a 10-year gilt. With a new security being issued at auction, traders may find it more difficult to cover sizeable short sales in the 6.33%, 2035 gilt.

 

The number of trades in the 2035 gilt in the special repo segment of the Clearcorp Repo Order Matching System has been consistently around INR 200 billion so far this month. This figure is a proxy for tracking short sales in a particular bond. Around INR 60 billion-INR 80 billion of these may be covered at the auction as most of the trades are structural and hedges against traders' holdings of other bonds, dealers said. 

 

"I think now the focus is on (the Centre's) borrowing calendar (for Oct-Mar)," a dealer at a private sector bank said. "People were of the hope that there was an outside chance of 50 bps cut (by the FOMC Wednesday) which was why there was some buying leading to the FOMC, but now that hope has been quashed. We'll see how demand is at the auction tomorrow (Friday), and then calendar."

 

Dealers said the next major trigger for gilt prices after Friday's auction will be the Centre's borrowing calendar for Oct-Mar, set for release around the end of the month. The government is expected to reduce the supply share of 30-50 year gilt and split the reduction within bonds maturing up to 10 years, which may drive up short-term bond yields to lucrative levels to pick up for asset-liability management purposes, dealers said.

 

Foreign banks and foreign portfolio investors are likely to continue buying gilts after the US Federal Reserve indicated a median view of of two additional 25-bps rate cuts this year, one in 2026, and another in 2027. Traders had priced in the two additional cuts in the rest of 2025, which is one more than what the panel had projected in June. As short-term bond prices had risen Wednesday, some FPIs likely booked profits on their holdings of the 6.01%, 2030 bond, which fell Thursday after the FOMC decision.

 

This is because the US policy rate cut is not expected to provide a fillip to the domestic rate-cut cycle. Traders' expectation of a rate cut after the October Monetary Policy Committee meeting eroded, though traders continued to hope for a December rate cut in India. Traders are betting on the GDP growth data for the September quarter, due Nov. 28, to point to the need for additional monetary policy support. Some traders look to the next comments from Reserve Bank of India officials after the US rate cut. RBI Governor Sanjay Malhotra will speak at the 25-year anniversary event of Clearing Corp. of India Ltd. at 1700 IST on Friday.

 

The turnover in the gilts market was INR 246.75 billion, up from INR 203.65 billion at 1330 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 6.47-6.53%.

(Janwee Prajapati)

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India Gilts:Down as US ylds rise post FOMC decision on poor rate cut outlook

 

	0955 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.82	98.88	98.76	98.85	98.98
YTM (%)	6.4954	6.4869	6.5040	6.4911	6.4726

 

NEW DELHI--0955 IST--Government bond prices fell sharply as US Treasury yields rose despite the US Federal Open Market Committee cutting rates by 25 basis points to 4.00-4.25%. Traders who had bet on Wednesday that the FOMC would guide for persistent rate cuts or opt to cut rates by a "jumbo" 50 bps were left disappointed and trimmed their holdings, dealers said.

 

The yield on the benchmark 10-year Treasury note was 4.07%, higher than 4.02% at 1700 IST Wednesday, and bouncing back from Wednesday's low of 3.99%. US Federal Reserve Chair Jerome Powell's comments after the rate cut suggested the committee did not seriously consider a 50-bps rate cut at its meeting, and raised questions about the depth and persistence of US rate cuts. The projections or "dot plot" guided for another 50 bps of rate cuts in 2025, exactly as the market had expected. However, two members saw no further rate cuts this year and several saw only a 25-bps rate reduction needed by the end of 2025.

 

Following the guidance of US Fed officials, traders also pared their India rate cut bets. Some sections of the market had piled on short-term bonds in the run-up to the FOMC meeting, betting on these bonds outperforming heading to the Reserve Bank of India's Monetary Policy Committee meeting on Sept. 29-Oct. 1. While a rate cut at the October meeting seems unlikely, traders still retain hopes of a rate cut in December because of domestic growth and inflation, dealers said.

 

"There is some disappointment in the market on the trader side because of FOMC. There is also the INR-300-billion supply (of the 6.33%, 2035 bond tomorrow (Friday)," a dealer at a private sector bank said. "We are seeing some buys around 6.50%, so let's see how much selling comes beyond the initial move or if the level will hold."

 

Traders placed fresh short bets on the 10-year benchmark gilt ahead of the weekly gilt auction. The government will sell INR 60 billion of the 5.91%, 2028 gilt and INR 300 billion of the 6.33%, 2035 gilt Friday. Traders had avoided placing short bets on the 2035 bond in earnest before the FOMC outcome, which was seen as a major cue for gilt prices as it was the first rate cut in the US in nine months, dealers said. The short-selling activity may increase through the day, they said.

 

The turnover in the gilts market was INR 77.70 billion, up from INR 69.20 billion at 1000 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 6.46-6.52%. (Aaryan Khanna)

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India Gilts: Seen down before 10-yr auction; FOMC sees inflation risks in US

 

MUMBAI – Prices of government bonds are seen opening lower Thursday as US Treasury yields were slightly higher after the US Federal Open Market Committee cut the target range for the federal funds rate by 25 basis points to 4.00-4.25%, as widely expected. The FOMC on Wednesday cut rates for the first time since December, but the panel acknowledged that "inflation has moved up and remains somewhat elevated".

 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen moving in a range of 6.45-6.50% during the day. On Wednesday, the bond ended at INR 98.98 or 6.47% yield. The yield on the benchmark 10-year Treasury note was 4.07% as of 0800 IST, higher than 4.02% at 1700 IST Wednesday, and bouncing back from Wednesday's low of 3.99%.

 

Traders were hoping for US Federal Reserve Chair Jerome Powell to pivot completely to a rate-cutting mode, but Powell termed the cut on Wednesday a "risk management cut", and the panel justified the cut by highlighting growing signs of weakness in the labour market. Members said that policy would be decided "meeting by meeting" and warned "there's no risk-free path" ahead. 

 

Other than the tone of the panel's statement and Powell's comments, the outcome of the FOMC was largely along expected lines. In its economic projections, the panel indicated chances of two additional 25-bps rate cuts this year, one in 2026, another in 2027, and none in 2028. Traders had priced in the two additional cuts in the rest of 2025, which is one more than what the panel had projected in June.

 

Short-term bonds are likely to fall the most across tenures after traders piled on to these bonds Wednesday on bets of the yield curve steepening post a US rate cut. A likely fall in the rupee against the dollar may further the fall in bond prices, though the 6.50% yield level on the 10-year benchmark gilt is seen as a strong technical level which is unlikely to be broken, dealers said. Foreign portfolio investors turned net sellers in the gilt market Wednesday, the first time since Sept. 3, recording net gilt sales worth INR 8.88 billion through the fully accessible route. 

 

On the domestic front, fresh supply of the 10-year benchmark gilt at the weekly auction Friday is seen furthering the fall in prices, as traders will continue to place short bets on gilts to make room for auction stock. The government will sell INR 60 billion of the 5.91%, 2028 bond and INR 300 billion of the 6.33%, 2035 bond.

 

Some traders covered short bets ahead of the FOMC outcome Wednesday, but the number of trades in the 2035 gilt in the special repo segment of the Clearcorp Repo Order Matching System has been consistently around INR 200 billion so far this month. This figure is a proxy for tracking short sales in a particular bond. Traders expect these bets to only be covered at the 10-year auction, though some of these short sales were hedges against purchases of other bonds such as the benchmark 5-year 6.01%, 2030 gilt, dealers said. (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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