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Informist, Tuesday, Sept. 30, 2025

 

By Srijita Bose

 

MUMBAI – Prices of most government bonds ended sharply lower Tuesday as the revised liquidity management directions released by the Reserve Bank of India did not provide any ease to the market, against expectations of some. Traders also trimmed their holdings and reduced their long positions due to caution ahead of the outcome of the RBI's Monetary Policy Committee meeting, due Wednesday, dealers said. However, shorter tenure bonds were up, with light volumes due to expectations of a soft tone at the policy outcome, they said.

 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.26, or a yield of 6.57%, against INR 98.41 or 6.55% yield Monday. Traders placed short bets on the 2035 bond ahead of the event, while placing long bets on shorter tenure gilts maturing within five and eight years before the policy decision, dealers said.

 

The RBI Tuesday released the revised liquidity management framework. Though the initial reaction to the revised framework was limited, gilts fell, possibly as the framework was broadly similar to the previous liquidity framework. The RBI said it would retain the current symmetric Liquidity Adjustment Facility corridor of 25 basis points on either side of the repo rate, and endeavour to align the weighted average call rate with the policy repo rate. Traders limited their risk after the framework on fears that the policy could be a non-event, dealers said.

 

"People had expected something good to come out of the framework, but apart from the removal of 14-day VRR (variable rate repo operations), there was not much change," a dealer at a state-owned bank said. "So, that added to the caution before MPC led to the fall in the market."

 

The 6.79%, 2034 bond was down more Tuesday as traders exited positions from the bond with the paper bound to become illiquid once the new 10-year bond is introduced, dealers said. Some dealers attributed the fall in the bond to the narrowing of the spread on the 6.79%, 2034 bond over the 10 year benchmark 6.33%, 2035 gilt on Monday. The fall in the 2035 bond was limited as traders covered some short bets as there will be no more fresh supply of the bond at auctions, dealers said. The government will sell INR 320 billion of a new 10-year gilt on Friday. However, INR 620 billion of supply of a 10-year security two weeks apart built pressure on the 10-year gilt, dealers said.

 

"There was some short-squeeze in the morning, but most of its was genuine covering demand which kept the 10-year up in the first half," a dealer at a private sector bank said. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1834 IST showed trades worth INR 146.98 billion in the 6.33%, 2035 gilt. The rate on the bond on CROMS hit 0.05% at the day's low, and was last traded at 3.00% as traders rushed to cover their short sales in the bond. 

 

Shorter tenure bonds outperformed other tenures on expectations that the RBI's rate-setting panel will open up scope for further rate cuts, dealers said. Majority of traders expect RBI Governor Sanjay Malhotra's commentary to focus on supporting growth amid low inflation. This is seen paving the way for a rate cut at the December meeting. A few traders also expect a 25-basis-point cut in the upcoming meeting.

 

On Tuesday, banks were also looking to push up gilt prices to improve the overall valuations of their portfolios before the end of the September quarter, dealers said. State-owned banks' buys to boost book valuations also limited the fall in the 2035 gilt, they said. 

 

Foreign portfolio investors initially sold due to the depreciation in the rupee. On Tuesday, the rupee settled at a record closing low of 88.7875 to a dollar. However, towards the end of the session, FPIs bought gilts, limiting the fall in the market on expectations of a solf tone at the policy decision Wednesday, dealers said. FPIs bought INR 13.22 billion worth of gilts through the fully accessible route Tuesday, data from Clearing Corp. of India showed. Meanwhile, traders booked profits on the government's floating rate bond maturing in 2033 as the end of Jul–Sept quarter approached, dealers said.

 

The result of the INR-341-billion state bond auction was broadly in line with traders' expectations and drew firm demand despite the heavy supply, dealers said. Demand at the auction was firm from banks and mutual funds for bonds maturing in up to 10 years, they said. Long-term state bonds drew demand from provident funds and insurance companies, they said. However, the demand for West Bengal's 20-year paper was poor as the cut-off yield was 7.56%. It was 10 bps higher than the median forecast in an Informist poll. This was on expectations of higher indicated state bond supply in the Oct-Dec calendar, which is due to be released this week, dealer said. 

 

The turnover in the government bond market was INR 423.15 billion, up from INR 533.00 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 for the fifth straight day Tuesday.

 

OUTLOOK

On Wednesday, government bond prices are seen steady ahead of the outcome of the RBI's Monetary Policy Committee meeting, due at 1000 IST. The decision and comments of the panel will give cues to the market. 

 

Traders expect a soft tone by the panel, with a downward revision of 25-70 basis points in the CPI inflation estimate for the current financial year ending March from 3.1%. Others see the panel raising concern about India's growth prospects amid external headwinds. However, some fear the forecast for GDP growth in FY26 to be increased with the rationalisation in Goods and Services Tax. 

 

If the RBI's panel chooses to cut the repo rate by 25 bps Wednesday, the 10-year gilt is seen falling to 6.35%, dealers said. If the the comments of the panel suggests scope of further rate cuts without cutting the rate, the 2035 bond yield is seen falling up to 6.40-6.45% levels. However, if the tone of the panel is harsh and it signals that further rate cuts are not on the cards, the 10-year gilt yield could rise to 6.65% levels, dealers said.

 

Traders may also take cues from developments in India-US trade talks. Bond traders may also track the movement of crude oil prices. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.40-6.65% on Wednesday.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	98.2550	6.5770%	98.4100	6.5547%
6.79%, 2034	100.9850	6.6428%	101.2100	6.6095%
6.01%, 2030	99.2200	6.1975%	99.1500	6.2146%
6.68%, 2040	98.1900	6.8755%	98.3400	6.8590%
6.90%, 2065	95.3200	7.2610%	95.6800	7.2321%

 

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India Gilts: Down on short sales, caution ahead of MPC outcome

 

	1606 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.31	98.55	98.30	98.45	98.41
YTM (%)	6.5691	6.5351	6.5702	6.5494	6.5547

 

MUMBAI--1606 IST--Prices of government bonds fell on likely sales from primary dealerships and private banks, dealers said. The 6.33%, 2035 gilt came under pressure as traders placed short bets and shifted their positions to other shorter tenure gilts ahead of the Reserve Bank of India's Monetary Policy Committee meeting outcome Wednesday. Traders also trimmed their holdings of the 10-year benchmark ahead of the supply of a new 10-year gilt Friday, they said.

 

The RBI Tuesday released the revised liquidity management framework. Though the initial reaction to the revised framework was limited, gilts fell likely as the framework was broadly similar to the previous liquidity framework. The RBI said it will retain current symmetric Liquidity Adjustment Facility corridor 25 basis points either side of repo rate, and will endeavour to align weighted average call rate with policy repo rate. Traders trimmed their positions on caution ahead of the MPC outcome.

 

The 6.79%, 2034 bond was further down Tuesday as traders exited their positions from the bond with the paper bound to become illiquid once the new 10-year bond is introduced, dealers said. However, some dealers attributed the fall in the bond to the narrowing of the spread on the 6.79%, 2034 bond over the 10 year benchmark 6.33%, 2035 gilt on Monday. "The spread between the 6.79%, 2034 paper and the 6.33%, 2035 paper is usually around 7–8 basis points but Monday it contracted to 5 basis points as the yield on the 10-year benchmark hit 6.57%," a dealer at a state-owned bank said.

 

The fall in the 2035 bond was limited as traders covered some short bets as there will be no more fresh supply of the bond at auctions, dealers said. State-owned banks' buys on the last day of the September quarter, to boost book valuations, also limited the fall in gilts, they said. 

 

The result of the INR-341-billion state bond auction was broadly in line with traders' expectations and drew firm demand despite the heavy supply, dealers said. "Unlike the last 3-4 state bond auctions which saw specific investor groups dominate, this auction saw diverse participation across different segments," a dealer at a private-sector bank said. Long-term state bonds drew demand from provident funds and insurance companies, they said. However, the demand for West Bengal's 20-year paper was poor as cut-off yield was 7.56%. It was 10 bps higher than the median forecast of Informist poll.

 

Activity of foreign portfolio investors was muted Tuesday. Dealers expect some selling from FPIs later in the day as the rupee continues to depreciate. On Tuesday, the rupee closed at a record low closing of 88.7875 to a dollar. Meanwhile, traders booked profits on the government's floating rate bond maturing in 2033 as the end of Jul–Sep quarter approached, dealers said.
 

The turnover in the gilt market was INR 291.70 billion at 1530 IST, much lower than INR 402.65 billion at the same time Monday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.58%. (Muskan Lodhi)

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India Gilts: Up more as state bond auction seen sailing through,focus on MPC

 

	1135 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.52	98.55	98.40	98.45	98.41
YTM (%)	6.5390	6.5354	6.5562	6.5494	6.5547

 

MUMBAI--1135 IST--Prices of government bonds rose further after the state bond auction of INR 341 billion ended as demand for these bonds is seen to be firm in spite of the heavier-than-indicated supply, dealers said. Traders were also expecting bond prices to rise in the secondary market after the auction as they would shift their focus to the Reserve Bank of India's Monetary Policy Committee meeting outcome Wednesday, wherein some traders are expecting a 25 basis point rate cut.

 

Large state-owned and private-sector insurance companies are seen sweeping up the long-term state bonds such as Tamil Nadu's 30-year bond and Telangana's long-term bonds in single bids, dealers said. Banks bid for the short-term state bonds, especially for Maharashtra's bonds, dealers said. Interest from traders is also seen helping the auction sail through. 

 

"I think Haryana 14-year paper is good buy for trading because no one wants to go light into policy," a dealer at a state-owned bank said. "And this paper will give a high yield."

 

In the secondary market, volume was low until the state bond auction and picked up later. However, traders expect volumes to remain on the lower side for most of the day due to caution ahead of the key rate decision Wednesday, dealers said. The turnover in the gilt market was INR 117.65 billion, lower than INR 194.30 billion at 1130 IST Monday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform.

 

Activity was concentrated in the belly of the yield curve--gilts maturing in seven to 15 years--after the RBI post market hours Monday said the central government will sell a new 10-year gilt on Friday. Four of the five top traded bonds on the RBI's Negotiated Dealing System-Order Matching platform were gilts of these maturities. Traders covered short bets in the 10-year benchmark 6.33%, 2035 gilt. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1135 IST showed trades worth INR 146.98 billion in the 6.33%, 2035 gilt. The rate on the bond on CROMS hit 0.05% at the day's low, and was last traded at 3.00% as traders rushed to cover their short sales in the bond.      

 

"People were expecting this bond to continue but now they won't get to cover their shorts at auction so there's short-covering now," a dealer at another state-owned bank said. For the rest of the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.56%.(Cassandra Carvalho)

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India Gilts: Up on short covering as RBI to auction new 10-year gilt this wk

 

	1022 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.47	98.69	98.27	98.57	98.41
YTM (%)	6.5462	6.5146	6.5748	6.5318	6.5547

 

MUMBAI--1022 IST--Government bond prices rose after the Reserve Bank of India announced the government would issue INR 320 billion of a new 10-year bond at Friday's auction. This led to some traders covering short bets in the 6.33%, 2035 paper going off the run, dealers said.

 

Continuing the momentum from near the end of market hours Monday, state-owned banks likely picked up bonds at levels they considered lucrative ahead of the outcome of the RBI Monetary Policy Committee meeting Wednesday. Banks were also looking to push up gilt prices to improve the overall valuations of their portfolios before the quarter-end Tuesday, dealers said. The yield on the 10-year benchmark has risen 23 basis points in the September quarter, indicative of the fall in prices of other bonds. 

 

"All the triggers will now take a back seat till tomorrow (Wednesday)," a dealer at a primary dealership said. "After the meeting, all these triggers will show their impact in the market." These included industrial production growth, which fell to 4.0% in August from 4.3% in July, a positive for gilt prices, and Moody's Ratings' affirmation of India's sovereign debt rating at 'Baa3', the lowest rung of investment grade, a negative, the dealer said. 

 

The reaction to the Oct-Mar borrowing calendar had largely played out on Monday, and further movements would be dictated by demand at the INR-341-billion state bond auction at 1030-1130 IST Tuesday and the MPC outcome Wednesday, dealers said. Some traders were short-selling the liquid 10-year paper to hold position on the longer-tenure paper hoping for a positive outcome of the meeting, with the majority of traders expecting RBI governor Sanjay Malhotra's commentary to focus on supporting growth amid low inflation. This is seen paving the way for a rate cut in the December meeting. A few traders are also expecting a 25-basis-point cut in the upcoming session.

 

The turnover in the gilt market was INR 51.70 billion, higher than INR 79.60 billion at 1030 IST Monday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.54%.(Janwee Prajapati)

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India Gilts: Seen steady; may rise later on bets of soft MPC outcome

 

MUMBAI – Prices of government bonds are seen opening steady with a downward bias Tuesday, ahead of heavy state bond supply of INR 341 billion, dealers said. After the auction, prices may rise as it being the last day of the Jul-Sept quarter, banks would prefer closing their books with a strong mark-to-market value to report for quarterly earnings. Bets of a soft policy at the Monetary Policy Committee meeting outcome Wednesday are also likely to aid prices, dealers said.

 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen moving in a range of 6.50-6.60% during the day. On Monday, the bond ended at INR 98.41 or 6.55% yield. The yield on the benchmark US 10-year Treasury note was 4.15% as of 0800 IST, down from 4.16% at 1700 IST Friday, due to expectations that economic growth in the US will likely take a hit if the government shuts down.

 

The Reserve Bank of India, post market hours Monday, said that the Centre would issue a new 10-year, 2035 bond at the weekly gilt auction Friday. Traders had feared more supply in the current benchmark 6.33%, 2035 gilt would be a pain point for bonds. The government will sell INR 320 billion of just one gilt on Friday; a new 10-year 2035 gilt. Several traders were anticipating this as the current benchmark's outstanding is nearly INR 2.00 trillion. Short sales on the 6.33%, 2035 bond are likely to increase closer to the auction, but traders will largely depend on the MPC outcome before placing any aggressive bets. Traders placed short bets on the 10-year gilt Monday to purchase gilts of other tenures after the Centre reshaped its tenure-wise supply of gilts for Oct-Mar.

 

Traders expect the tone and commentary of the MPC and of RBI Governor Sanjay Malhotra to signal scope for a 25-basis point rate cut at the panel's meeting in December, while some traders are positioning for a 25-bps rate cut Wednesday itself. Traders expect the RBI to also downgrade its CPI inflation forecast for 2025-26 (Apr-Mar) by 20-40 bps due to the latest rejig in the goods and services tax structure. Short-term bond prices could rise more than other tenures due to expectations of a soft policy. Traders largely expect at least one or two members of the six-member panel to vote for a 25 bps rate cut this meeting. (Cassandra Carvalho)

End

 

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

 

Edited by Avishek Dutta

 

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