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Informist, Wednesday, Oct. 1, 2025

By Srijita Bose

MUMBAI – Government bond prices surged Wednesday after the Reserve Bank of India Governor Sanjay Malhotra said the 10-year gilt yield has the scope to fall further as part of the transmission of monetary policy, dealers said. The Monetary Policy Committee decision Wednesday also opened up chances of rate cuts in the future, which led bond prices to rise, they said.  

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.68, or a yield of 6.52%, against INR 98.26 or 6.57% yield Tuesday. The yield on the 10-year gilt fell 6 basis points Wednesday, the most since Aug. 28. 

Malhotra addressing the media in a post-policy conference said RBI feels the 10-year gilt yield should head downwards and had contemplated in that regard, even as it was comfortably below the high of around 6.86% hit in January. This led to a spurt of both short covering and fresh purchases in the 10-year bond, reversing earlier losses. Some traders said that the 10-year benchmark rose on likely buys from foreign and private banks adding to their trading book. 

"I think the rally was largely technical, there were a lot of bids at INR 98.25 and stop-losses were triggered after the rise," a dealer at a private sector bank said. "But, the governor's comments were more balanced this time around and since he said that there is more opportunity for the 10-year gilt yield to fall, the support will be there in the market." 

Traders held their bets of a 25-basis-point rate cut at the MPC's next meeting in December, dealers said. External MPC members Nagesh Kumar and Ram Singh were of the view that the policy stance should be changed to 'accommodative' from the current stance of 'neutral', which was a positive trigger for bond prices, dealers said. A change of stance to 'accommodative' will open up scope of more rate cuts by the panel.  

On the other hand, the RBI raised the GDP estimate for the financial year ending March to 6.8% from 6.5% earlier. This led to a whipsaw in trades earlier in the day, dealers said. Traders had also placed some short bets on the 2035 bond to make room for the new 10-year bond supply worth INR 320 billion at auction Friday, they said. Traders who had expected a 25 bps rate cut Wednesday exited their positions as the panel kept the rate at status quo, dealers said.

"Yes the GDP was increased for the year, but even with GST rationalisation, RBI lowered the Oct-Dec and Jan-Mar GDP estimates, which actually goes to show there is more scope of cuts," a dealer at state-owned bank said. RBI Governor Malhotra in his address said growth continues to remain below aspiration, which was what traders were anticipating and bond prices rose.

Meanwhile, with the CPI inflation estimate for FY26 lowered by 5 bps to 2.6%, dealers said. "The policy was really dovish, and the whole curve moved because of this. I see some steepening in yields on rate cuts bets", a dealer at another private sector bank said.  "I think the 10-year could fall to 6.45% in the near-term."

The soft tone at the policy decision led to a more pronounced rise in shorter tenure gilts. The five-year benchmark 6.01%, 2030 bond ended at INR 99.55, with the yield 8 bps down at 6.12% Wednesday. Since the Monetary Policy Committee said it had room to ease monetary policy to support growth, banks and mutual funds picked up these gilts for both asset-liability management and trading purposes, dealers said.

Long-term bonds are tracking the rise in the 10-year gilt, dealers said. Traders picked up longer tenure gilts to capture a bigger rise in prices as they expect the yield spread on these bonds over the 10-year gilt to compress due to rate cut bets, they said. Longer-tenure bonds also rose as traders priced in the reduction in share of these bonds in the Oct-Mar gilt borrowing calendar with the policy event over, dealers said. However, a rise in prices was capped as traders awaited the release of the indicative state bond auction calendar for Oct-Dec, with most expecting the supply to be higher than the September quarter, they said. 

The turnover in the government bond market was INR 1.07 trillion, sharply up from INR 421.80 billion Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Trade volume in the 10-year benchmark, usually the most traded bond in the market, was the most since Apr. 29. There were no trades using the wholesale digital rupee pilot for the sixth straight day Tuesday.

OUTLOOK

Money markets are shut Thursday for Gandhi Jayanti. On Friday, government bond prices are seen steady ahead of the INR-320-billion worth gilt auction of a new 10-year bond. Gilts will take cues from the result of the auction later in the day, dealers said. 

Traders expect gilts to rise after the RBI's Monetary Policy Committee opened up doors for a rate cut in the future. The 2035 bond yield is seen falling up to 6.40-6.45% levels, but traders will wait for the auction and the CPI inflation for September as the next trigger to take further cues, 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 movement in the rupee against the dollar and US Treasury yields could also lend cues to gilts, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.45-6.60% on Friday.

India Gilts: Surge after RBI Malhotra says scope for 10-year yld to fall more

MUMBAI––1615 IST––Government bond prices surged after Reserve Bank of Governor Sanjay Malhotra said the 10-year gilt yield has the scope to fall further as part of the transmission of monetary policy, even as it was comfortably below the high of around 6.86% hit in January. He said the RBI feels it should head downwards and had contemplated in that regard. Dealers said this led to a spurt of both short covering and fresh purchases in the 6.33%, 2035 bond, reversing earlier losses.

Some traders said that 10-year benchmark rose on likely buys from foreign and private banks adding to their trading book. With the purchases in the 10-year benchmark gilt, long-term bonds also rose as traders were of the view the spread between the two papers should in lockstep, with the issuance share of long-term bonds reduced in the Oct-Mar gilt borrowing calendar, dealers said.

"Today (Wednesday), it's the 10-year effect. Aggressive buying in the benchmark is driving momentum across other tenures, especially the long-bonds," a dealer at a primary dealership said.

The trend was seen even in short-term gilts, with the five-year benchmark yield falling more than the 10-year benchmark yield. Since the Monetary Policy Committee said it had room to ease monetary policy to support growth, the rate-sensitive bonds were in favour from banks, dealers said. Earlier in the day, the MPC held the policy repo rate steady at 5.50% in a unanimous vote and retained its 'neutral' policy stance.

"Foreign banks that had dumped the 10-year paper earlier are likely buying because the governor's speech has left enough room for a rate cut later this year," a dealer at a state-owned bank said. 

The turnover in the gilt market was INR 802.25 billion at 1530, sharply higher than INR 291.70 billion at the same time Tuesday, 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 6.48-6.65%. (Muskan Lodhi)

India Gilts: Off lows as tone of MPC seen leaving space for more rate cuts

MUMBAI-–1133 IST--Prices of government bonds were off lows as several traders interpreted the tone and commentary of RBI Governor Sanjay Malhotra and the Monetary Policy Committee as open to cutting rates further, at the outcome of the MPC meeting Wednesday, dealers said. 

"The current macroeconomic conditions and the outlook has opened up policy space for further supporting growth," Malhotra said in the governor's statement, a sentence viewed by traders as an indication of further rate cuts, they said.

Traders still held their bets of a 25 basis point rate cut at the MPC's meeting in December, they said. External MPC members Nagesh Kumar and Ram Singh were of view that the policy stance should be changed to 'accommodative' from the current stance of 'neutral', which was a positive trigger for bond prices, dealers said. A change of stance to 'accommodative' is seen as the ultimate trigger to drive down bond yields, bond traders have said repetitively. RBI Governor Malhotra in his address said growth continues to remain below aspiration, which was what traders were anticipating and bond prices rose.

"When he was talking about growth that time prices rose, but then when the GDP was raised we (bond prices) fell," a dealer at a state-owned bank said.  

Prices of most bonds were sharply down just after the policy outcome in volatile trade as traders who had expected a 25 bps rate cut Wednesday exited their positions, dealers said. Moreover, some dealers were taken by surprise when the RBI hiked its GDP growth forecast for 2025-26 (Apr-Mar) to 6.8% from 6.5%. Some traders had also expected at least one or two members of the six-member rate-setting panel to vote for a rate cut this meeting, but the MPC voted unanimously to hold rates steady. 

"I think in one or two trading sessions buying momentum may emerge," a dealer at another state-owned bank said. "If not today (Wednesday), then probably after Friday's auction."

Some traders expect bond prices to rise in the next few days after the weekly gilt auction, even if not Wednesday itself, due to the positive outlook on more rate cuts. However, selling pressure on the benchmark 10-year 6.33%, 2035 bond and gilts of similar maturity persisted Wednesday due to fresh supply worth INR 320 billion of a new 10-year gilt on Friday. The bond price of the 15-year benchmark was up, and the 6.90%, 2065 bond also recovered most losses.   

The turnover in the gilt market was INR 354.85 billion, sharply higher than INR 193.65 billion at 1230 IST Tuesday, 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 6.48-6.65%. (Cassandra Carvalho)

India Gilts: Seesaw on mixed cues from MPC outcome; repo unch, CPI view lower

MUMBAI--1015 IST--Prices of government bonds were mixed, with the 10-year benchmark 6.33%, 2035 gilt swinging from sharp gains to sharp losses, retracing the path and then trading largely steady before falling again after the Reserve Bank of India's Monetary Policy Committee left the repo rate unchanged at 5.50%, in line with most traders' view. RBI Governor Sanjay Malhotra also revised down the CPI inflation forecast for 2025-26 (Apr-Mar) to 2.6% from 3.1% earlier, in line with market expectations. The 6.90%, 2065 gilt price regained sharply after briefly erasing most gains but last traded sharply down. Short-term bonds also reversed gains. 

RBI Governor Malhotra in his address said growth continues to remain below aspiration, which was what traders were anticipating and bond prices rose. However, the RBI hiked the GDP growth forecast for FY26 to 6.8% from 6.5%, which some dealers did not expect. The 10-year benchmark gilt yield swung in a range of 8 basis points within the first 15 minutes of the governor's address. Traders said the tone and commentary of the governor was mixed, shifting between a soft and harsh indication on further rate cuts.

"Tone of MPC was a bit dovish," a dealer at a private-sector bank said.

"The policy was neutral, neither hawkish nor dovish," a dealer at a state-owned bank said. "CPI was revised lower but GDP is increased upwards...But since inflation is lowered, there is space for a December rate cut."

Bond prices were sharply up before the policy outcome on hopes of a soft commentary which would set the stage for a rate cut in December, with some expecting a 25 bps rate cut Wednesday itself. The turnover in the gilt market was INR 222.95 billion, sharply higher than INR 71.95 billion at 1030 IST Tuesday, 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 6.48-6.65%. (Cassandra Carvalho)

India Gilts: Seen steady before key MPC decision; focus on commentary, tone

MUMBAI – Prices of government bonds are seen opening steady ahead of the rate decision of the Reserve Bank of India's Monetary Policy Committee meeting Wednesday. Several traders have priced in a 25 basis point cut while market consensus is a soft commentary by the rate-setting panel and by RBI Governor Sanjay Malhotra to set the stage for a rate cut in December. The movement of bond prices during the day will hinge on the tone and commentary of the MPC, more than the rate decision itself, dealers said.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen moving in a range of 6.35-6.65% during the day. On Tuesday, the bond ended at INR 98.26 or 6.58% yield.

Traders see the RBI panel raising concern about India's growth prospects amid external headwinds. Traders expect the RBI to downgrade its CPI inflation forecast for 2025-26 (Apr-Mar) by 20-70 bps from 3.1% due to the latest rejig in the goods and services tax structure. However, some fear the forecast for GDP growth in FY26 may be increased with the rationalisation in goods and services tax. Traders largely expect at least one or two members of the six-member panel to vote for a 25 bps rate cut in this meeting.

If the RBI's panel chooses to cut the repo rate by 25 bps Wednesday, the 10-year gilt yield is seen falling to 6.35%, dealers said. If the comments of the panel suggest scope of further rate cuts without cutting the rate, the 2035 bond yield is seen falling 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 the 6.65% level, dealers said. The result of the Treasury bill auction of INR 190 billion--the first auction in the Oct-Mar calendar--will also hinge on the MPC outcome.

Nearing the end of trade, dealers may trim positions to make room for fresh supply of INR 320 billion of a new 10-year gilt, especially since Indian financial markets are shut Thursday for Mahatma Gandhi Jayanti. Traders may also trim positions ahead of events lined up overseas. The yield on the benchmark US 10-year Treasury note was 4.15% as of 0800 IST, same as 1700 IST Tuesday after hitting 4.11% overnight, hours before a government shut down in the US takes effect. (Cassandra Carvalho)

End

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

Edited by Deepshikha Bhardwaj

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