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Informist, Tuesday, Sept. 23, 2025

By Srijita Bose

MUMBAI – Most government bond prices ended higher Tuesday after cut-offs at the state-bond auction were better than expected, dealers said. Longer-tenure bonds rose after recovering the day's losses on likely purchases by insurance companies, they said. 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.98, or a yield of 6.47%, against INR 98.87, or 6.49% Monday. Gilts were down in early trade on expectations of poor demand at Tuesday's INR 270-billion auction and a fall in the rupee to record lows. The rupee fell to a record low of 88.7950 a dollar on Tuesday as the sharp hike in US H-1B visas reduced risk appetite. The hike in visa fees is expected to reduce remittances to India, Moody's said in a note Monday. A weakness in the rupee increases risks of imported inflation and weakens the case for rate cuts. However, most gilts gave up the day's losses due to firm appetite at the auction, dealers said. 

Demand from long-term investors was firm at the auction, with the Reserve Bank of India setting the highest cut-off yield of 7.45% for Bihar's 25-year bond against 7.50% expected in an Informist poll. Insurers and pension funds also purchased longer-term bonds in the secondary market, despite another INR 320 billion supply of bonds in the segment at Friday's gilt auction.

"There was good demand from all market segments at the auction," a dealer at a primary dealership said. "In the long-term, especially, there was demand from a large state-owned insurer and pension funds also, which continued in the secondary market too."

Long-term bonds were also in demand as traders expect the government to reduce its share of borrowing via 30-50 year gilts by 3-5% in Oct-Mar from the 35% in Apr-Sept, dealers said. Traders were also optimistic that the RBI's Monetary Policy Committee may signal further rate cuts or cut the repo rate at its meeting next week. However, traders likely booked profits on longer-term bonds, bringing down the prices of some of them from their highs, dealers said. Traders also likely switched to gilts maturing around 30 years, while selling the 40-year 6.90%, 2065 bond, which is up for auction Friday, they said. 

Demand from state-owned banks at the auction was in line with expectations, which reflected in short-term bonds being well bid and the 10-year state bonds seeing cut-offs in line with expectations. However, shorter-term bonds underperformed in the secondary market as traders refrained from placing aggressive bets after the rise in most bonds in the segment over the past three sessions, dealers said. 

"The sentiment in the market is positive with most expecting a dovish policy (next week) and a good calendar," a dealer at a private sector bank said. "However, the five-year does not look good anymore because it's already risen so much, but there is scope in the belly, so today we saw pick up there."

Several investors were looking to replenish their portfolios, with around INR 700 billion of two gilts maturing on Wednesday and Thursday. Meanwhile, some corporate houses also purchased the 10-year benchmark 6.33%, 2035 gilt earlier in the day when its yield rose over 6.50%. Foreign portfolio investors also bought gilts Tuesday, with most of the buys seen in gilts maturing in seven years or more, while selling shorter-term gilts, dealers said. According to data from the Clearing Corp. of India, as of 1750 IST, FPIs bought gilts worth INR 8.40 billion through the fully accessible route.

Turnover in the government bond market was INR 592.65 billion, higher than INR 467.30 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were two trades Tuesday worth INR 250 million in the 10-year benchmark using the wholesale digital rupee pilot, the same as on Monday. 

OUTLOOK

Bonds may take cues from the overnight movement of US yields at market open on Wednesday, dealers said. Traders are optimistic the RBI's rate-setting panel could open the door to further rate cuts, either by raising concerns about India's growth prospects amid external headwinds or cutting the CPI inflation forecasts further. As caution sets in before the policy outcome, traders are seen preferring the liquid 10-year benchmark bond over the relatively illiquid bonds, dealers said. 

Traders may refrain from aggressively placing bets with the release of the gilt borrowing calendar for Oct-Mar, seen as the next cue for the market. The calendar is expected to be released on Friday or early next week. However, purchases of longer-term bonds may pick up on expectations of lower supply in the segment in the second half of the financial year, dealers said. 

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 rupee closed at a record low of 88.7550 to a dollar Tuesday.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.42-6.52%.

India Gilts: Up after state bond auction result; FPIs, insurers likely buy

MUMBAI--1630 IST--Government bond prices rose after the cut-off yields at the state bond auction were better than expected, showcasing firm demand from long-term investors, dealers said. Gilt prices were also up on likely purchases by foreign portfolio investors and a large life insurance firm, they said.

The Reserve Bank of India set the highest cut-off yield at the auction for Bihar's 25-year bond at 7.45%, against the median of 7.50% expected in an Informist poll, dealers said. Demand from state-owned banks was in line with expectations, reflected in good bidding for short-term bonds at the auction and the 10-year state bonds seeing cut-offs in line with expectations.

With around INR 700 billion of two gilts maturing Wednesday and Thursday, several investors were looking to replenish their portfolios. Meanwhile, some corporate houses bought the 10-year benchmark 6.33%, 2035 gilt earlier in the day when its yield topped 6.50%, while FPIs had bought INR 7.64 billion of fully accessible route gilts as of 1623 IST, according to Clearing Corp. of India data.

"The market has had a positive signal from the auction, where everything was really well bid," a dealer at a state-owned bank said. "Since long-term yields have settled down now and supply went through, the market is drawing a lot of comfort." The state bond auction was larger than indicated in the issuance calendar for Jul-Sept, though states only borrowed INR 250 billion Tuesday against the notified INR 270 billion. Maharashtra rejected all bids for its reissues of the 2045 and 2046 bonds.

Long-term bonds were also in demand as traders expect the government to reduce its share of borrowing via gilts maturing in 30-50 years by 3-5% from the 35% seen in Apr-Sept, dealers said. Traders were also optimistic that the Reserve Bank of India's Monetary Policy Committee may cut repo rates at its upcoming meeting next week or signal further rate cuts. 

The turnover in the gilts market was INR 539.45 billion, against INR 390.95 billion at 1630 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 6.46-6.55%.  (Muskan Lodhi and Aaryan Khanna)

India Gilts: Recover losses after state bond auction ends; demand seen firm

MUMBAI--1410 IST--Government bond prices recovered losses on view that the larger-than-indicated state bond auction of INR 270 billion would sail through with firm demand from investors. Some traders also have a positive view on the rate cuts ahead of the upcoming Monetary Policy Committee meeting next week and they preferred adding gilts to their portfolios, dealers said.

Banks and mutual funds were keen on picking up bonds maturing up to 2032, with several large private-sector and state-owned banks looking for these bonds to match their liabilities. Demand for longer tenure state bonds were not aided as much by the view of a reduction in share of supply, though provident funds and insurers were seen keen to pick up bonds maturing above 18 years around 7.50%.  

"The market has a broadly positive sentiment, as the SDL (state bond auction) is expected to sail through and the fiscal concerns has also ebbed," dealer at a private sector bank said. "The market is entering into the new policy with some positive views."

Concern over fiscal slippage have risen as the Centre is expected to substantially miss its direct tax collection target for 2025-26 (Apr-Mar), though finance ministry officials have said the gross borrowing aim of INR 14.82 trillion would remain unchanged. On Monday, Chief Economic Adviser to the government V. Anantha Nageswaran said the Indian bond market gives a good opportunity to investors at the current 10-year level but there is still scope for bond yields to go down. He also said the government was confident of maintaining the fiscal deficit for FY26 and keeping the second half market borrowing unchanged. 

Traders were optimistic the MPC could open the door to further rate cuts, either by raising concerns on India's growth outlook amid external headwinds or cutting its CPI inflation forecasts further. As caution before the policy outcome sets in, traders are seen preferring the liquid 10-year benchmark bond over the relatively illiquid bonds, dealers said. Some traders said they had already stocked up on the 6.01%, 2030 gilt and the bond may not rise substantially any more. Since its last auction on Sept. 12, the five-year benchmark yield has fallen 16 basis points from the 6.29% cut-off set at the auction. During the same period, the 10-year benchmark yield has been flat.

The turnover in the gilts market was INR 258.80 billion, similar to INR 254.95 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 6.46-6.55%.  (Janwee Prajapati)

India Gilts: Fall as rupee hits record low, state bond auction weighs

MUMBAI--1000 IST--Government bond prices fell as the rupee tumbled to a record low against the dollar, dealers said. The state bond auction of INR 270 billion also weighed on gilt prices as traders made room in their portfolio for the larger-than-indicated auction at 1030-1130 IST. Losses in the 10-year benchmark 6.33%, 2035 bond were limited near the psychologically crucial 6.50% yield. 

The rupee fell to a record low of 88.5675 a dollar due to reduced risk appetite of traders after the US hiked the fee on H-1B visas last week. This is expected to reduce remittances to India, Moody's said in a note Monday. Weakness in the rupee increases India's imported inflation and weakens the case for rate cuts, as easier monetary policy puts further pressure on the currency.

Meanwhile, the 6.68%, 2040 gilt and 6.90%, 2065 gilt fell more than the 10-year benchmark gilt ahead of their fresh supply at the weekly gilt auction on Friday. At the state bond auction later Tuesday, long-term investors may pick up state bonds as spreads over gilts are still considered lucrative and on the view that the Centre will reduce the share of supply in 30-50 year gilts in its Oct-Mar borrowing calendar, expected by the end of the week, dealers said. 

"Demand in the shorter tenure is firm but the spread won't contract, it will remain same," a dealer at a private sector bank said about the auction, which features four papers maturing in 2032 or earlier. "Demand in the longer tenure will only be because of the supply share reduction."

Short-term bonds are expected to remain well-bid by state-owned and private sector banks on the view that the Reserve Bank of India's Monetary Policy Committee will acknowledge room to further cut interest. Some traders also expect the MPC to cut rates by 25 basis points at its meeting outcome on Oct. 1, while others only expect a rate cut at the next policy review in December.

The turnover in the gilts market was INR 53.45 billion, higher than INR 42.05 billion at 1000 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 6.46-6.55%.  (Janwee Prajapati)

India Gilts: Seen steady; state bond auction result to lend cues later in day

Prices of government bonds are seen opening steady with a downward bias Tuesday ahead of the larger-than-indicated supply of state bonds worth INR 270 billion at an auction, dealers said. The indicative calendar for state borrowing for Jul-Sept showed 12 states would borrow INR 201.00 billion on Tuesday. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen moving in a range of 6.46-6.52% during the day. On Monday, the bond ended at INR 98.87 or 6.49% yield. The yield on the benchmark 10-year Treasury note was 4.15% as of 0800 IST, a tad higher than 4.13% at 1700 IST Monday. There was no cash trading of US Treasuries in Asian trade as Japanese financial markets were closed for Autumn Equinox Day.

Traders may continue to prefer short-term bonds Tuesday due to less supply of these tenures in state bonds, they said. Yield spreads of short-term state bonds at the auction are seen at around 60 bps over gilts of similar maturity, a dealer said. This is compared to a yield spread of 64-68 bps seen for states' six-year bonds last week. Moreover, preference for short-term bonds has increased as traders expect the Reserve Bank of India's Monetary Policy Committee to indicate a softer stance on easing monetary policy at the outcome of its meeting next week, through its tone and commentary. Some traders also expect the MPC to cut rates by 25 basis points at its meeting outcome on Oct. 1, especially after the US Federal Open Market Committee cut rates by 25 bps last week and pencilled in further cuts of 50 bps in the rest of 2025. 

Traders await the release of the Centre's Oct-Mar borrowing calendar, expected at the end of this month. They hope the Centre will reduce supply of gilts maturing in 30 to 50 years to 31-32% from 35% after feedback from market participants to the RBI. Nearing the end of the Jul-Sept quarter, traders, especially from state-owned banks, hope their quarterly earnings reflect good gilt prices after a sharp rise in treasury gains the previous quarter, dealers said.  (Cassandra Carvalho

End

US$1 = INR 88.76

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

Edited by Saji George Titus

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