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Informist, Thursday, Oct. 9, 2025

 

By Aaryan Khanna

 

MUMBAI – Government bond prices ended lower Thursday as money market rates spiked after having been benign earlier in the week, with traders readjusting their expectations on the Reserve Bank of India's liquidity management back to the weighted average call rate remaining around the repo rate of 5.50%, dealers said. Some traders short-sold heavily traded gilts ahead of the INR 280-billion weekly gilt auction Friday.

 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.63, or a yield of 6.52%, against INR 98.78, or 6.50% yield, Wednesday. Some state-owned banks likely picked up gilts as the 10-year benchmark yield rose to around 6.53% intraday, seen as the upper end of the trading range after the RBI's Monetary Policy Committee acknowledged room to cut rates.

 

The RBI accepted all bids worth INR 468.60 billion at the INR 500-billion overnight variable rate reverse repo auction Thursday. Traders had expected the RBI to drain liquidity earlier this week when the banking system liquidity surplus was higher, but since the central bank did not conduct such an operation, they expected overnight rates to remain below the repo rate. The weighted average call rate rose almost to the repo rate at 5.49% from 5.35% Wednesday, while the weighted average rates in the triparty repo and basket repo markets were above the repo rate.

 

"We are quite bullish, and I didn't expect the liquidity management to have such a big impact on gilts," a dealer at a private-sector bank said. "It is a bit worrisome that we are back to the same levels as policy and that the price action is not supporting the view that there is a rate cut coming."

 

Some traders were uncertain what bonds to bet on to maximise gains on the potential rate cut. Bonds maturing in 2032 and 2033 have been in favour against the 10-year 6.33%, 2035 benchmark over the past week as the latter is now off the run and its trading volumes may fall. The spread of the outgoing benchmark over the newly issued 6.48%, 2035 gilt widened by a basis point to 7 bps Thursday, with traders increasingly trying to get their hands on the new bond as well, dealers said.

 

Sentiment has been seemingly upbeat after concern on both rate cuts and excess supply ebbed. However, bond prices have remained volatile this week after gaining last week, when RBI Governor Sanjay Malhotra commented that the 10-year yield should be lower and the Monetary Policy Committee signalled it had some room to ease policy further. The lower-than-expected indicative calendar for state bond issuances in the current quarter further led to gains in gilts, dealers said.

 

Bond prices also fell Thursday as traders made room for the fresh supply of gilts Friday, contributing to the most-traded 6.33%, 2035 bond's underperformance, dealers said. The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 120 billion of the 6.90%, 2065 gilt Friday. Traders placed short bets on the 15-year benchmark but skipped aggressive bets against the 2065 bond on expectations of firm demand from long-term investors at the auction. Instead, they short-sold the 10-year benchmark gilt, hoping to cover the bet in the secondary market after the auction, dealers said.

"It's the first auction of the 40-year (gilt) after the reduction in supply. I will be very suprised if somebody doesn't try to run it up tomorrow (Friday)," a dealer at a primary dealership said, referring to pushing up of the bond's price. "Let's see how investors approach it--they had wanted higher supply and there may be FOMO (fear of missing out) now that SDL (state bonds) are also not coming."

 

States indicated they would raise INR 2.82 trillion via bonds in the quarter ending December, well below the market's expectation of around INR 3.30 trillion. As for long-term bonds, the share of gilts maturing in 30-50 years in the Centre's Oct-Mar borrowing calendar has reduced to 29.5% from 35.0% in Apr-Sept. Losses in the 6.90%, 2065 gilt were limited despite the auction coming up.

 

Turnover in the gilts market was INR 516.95 billion, lower than INR 600.20 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were five trades in the 5.15%, 2025 gilt worth INR 250 million Thursday using the RBI's wholesale e-rupee pilot, compared with none Wednesday.

 

OUTLOOK

Friday, government bonds may open steady ahead of the weekly gilts auction at 1030-1130 IST, dealers said. The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 120 billion of the 6.90%, 2065 gilt Friday.

 

Traders may demand higher returns to pick up the 2040 bond, especially as its share of supply in the Oct-Mar borrowing calendar remains high. However, demand from pension funds and life insurers for the 2065 gilt is seen to be firm at the first auction of long-term gilts in Oct-Mar. The share of supply for these bonds was cut in the calendar and state bond issuance in Oct-Dec is also scheduled to be lower than expected, which is likely to bring in demand from both investors and traders, dealers said.

 

Geopolitical developments, rupee and crude oil price movements, as well as movements in US Treasury yields may influence gilts Friday. The impact of these offshore triggers may be limited before the auction and with traders' focus on domestic monetary policy easing, dealers said. 

 

The rate-setting panel last week said there was room to ease monetary policy further to support growth. The 2035 bond yield is seen falling up to 6.40?fore the next policy review in December, but bouts of profit-taking have erased gains as traders await fresh economic data, dealers said. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.48-6.55%.

 

	THURSDAY		WEDNESDAY
	PRICE	YIELD	PRICE	YIELD
6.33%, 2035	98.6300	6.5239%	98.7750	6.5030%
6.79%, 2034	101.5100	6.5649%	101.6175	6.5491%
6.01%, 2030	99.4950	6.1307%	99.5875	6.1080%
6.68%, 2040	98.7300	6.8164%	98.8800	6.8000%
6.90%, 2065	96.3800	7.1767%	96.4900	7.1680%

 

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India Gilts: Remain down as sentiment dampens after VRRR auction

 

	1557 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.60	98.75	98.58	98.73	98.78
YTM (%)	6.5282	6.5067	6.5317	6.5095	6.5030

 

MUMBAI--1557 IST--Government bond prices remained down after overnight money market rates rose, with the overnight variable rate reverse repo auction conducted by the Reserve Bank of India earlier in the day. Market sentiments dampened as traders were uncertain whether the central bank will cut the repo rate in their next Monetary Policy Committee meeting in December, dealers said.

 

"The RBI has been supporting the market by not bringing any VRRR auction for the past few days, but with the VRRR today (Thursday), people are reading it as maybe RBI is not okay will letting the overnight rates fall and may not cut rates in December," a dealer at a private sector bank said. "There is also auction tomorrow (Friday), so that is also keeping some pressure on the 15-year (gilt)."

 

Since the central bank did not conduct a VRRR auction earlier in the week, traders had expected overnight rates to remain below the repo rate, and took some bets on a rate cut in December, dealers said. Traders now sold shorter tenure bonds on fears that such a policy easing may not come, they said. However, asset-liability managers of banks found yields attractive and the reaction exaggerated and they picked up these shorter tenure gilts, dealers said. 

 

Some traders preferred gilts maturing in seven to eight years as they offered yields on par with the 10-year benchmark 6.33%, 2035 gilt, dealers said. With the newly issued 6.48%, 2035 bond expected to take over as the benchmark gilt, traders trimmed positions in the 6.33%, 2035 gilt, which widened the yield spread between the two bonds to over 7 basis points from around 5-6 bps earlier, they said.  

 

Meanwhile, a fall in the 6.90%, 2065 bond was limited as traders expect demand for the paper at auction Friday to be firm. Some demand for forward rate agreements on the 40-year benchmark paper was also seen, limiting its fall Thursday, dealers said. The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 120 billion of the 6.90%, 2065 gilt Friday. Demand for the 15-year gilt is seen mixed Friday. Some pension funds and banks are expected to pick up the gilt at auction, but some dealers expect demand from traders to be muted.  

 

At 1530 IST, the turnover in the gilts market was INR 364.90 billion, lower than INR 465.45 billion at the same time Wednesday, 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 6.48-6.55%.  (Srijita Bose)

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India Gilts: Down as overnight rates spike after RBI conducts VRRR auction

 

	1345 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.63	98.75	98.58	98.73	98.78
YTM (%)	6.5246	6.5067	6.5317	6.5095	6.5030

 

MUMBAI--1345 IST--Government bond prices fell across tenures as the Reserve Bank of India conducted a variable rate reverse repo auction, which pushed up weighted average overnight money market rates by over 15 basis points from Wednesday, dealers said. Traders also made room for fresh supply, and some traders sold the 6.33%, 2035 gilt at a profit.

 

The RBI accepted all bids worth INR 468.60 billion at the INR-500-billion, overnight VRRR auction conducted Thursday. Traders had expected the RBI to drain liquidity earlier this week when the banking system liquidity surplus was higher, but since the central bank did not conduct such an operation, expected overnight rates to remain below the repo rate. The weighted average triparty repo rate – an indicator of the collateralised money market – had been set around the Standing Deposit Facility rate of 5.25% Monday to Wednesday. After the auction, it spiked to 5.45% at 1322 IST.

 

"The market has already priced in comfortable liquidity in the system, including the tax outflows and other VRR (variable rate repo) auctions. A sudden VRRR (variable reverse rate repo) auction came as a shock to the market," a dealer at a state-owned bank said. Gilts maturing in up to five years had outperformed the 10-year benchmark 6.33%, 2035 paper as overnight rates were unexpectedly easy. However, the prices of these tenures fell sharply Thursday as these papers are more rate-sensitive than longer-term bonds, dealers said.

 

Bond prices have risen for the past few days on positivity around RBI Governor Sanjay Malhotra's comments last week that the 10-year yield should be lower, and since the Monetary Policy Committee signalled it had some room to ease monetary policy further. The lower than expected indicative calendar for state bond issuances in the current quarter further led to gains in gilts, dealers said.

 

Primary dealers were also likely short-selling the 15- and 40-year benchmark gilts ahead of the gilt auction on Friday. The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 120 billion of the 6.90%, 2065 gilt Friday. Traders are likely to demand higher returns to pick up the 2040 paper due to supply pressure on this tenure in the Oct-Mar borrowing calendar. The auction for the longer-tenure paper is likely to sail through as demand for these papers is firm from life insurers and pension funds, dealers said. Further, a reduction in the share of the longer-tenure bonds in Oct-Mar is expected to aid the cut-off price at the auction, as this would be the first auction featuring 30-50 year gilt in October. The share of 30-50 year bonds was cut to 29.5% in Oct-Mar from 35.0% in Apr-Sept.

 

At 1345 IST, the turnover in the gilts market was INR 279.20 billion, lower than INR 355.80 billion at 1330 IST Wednesday, 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 6.48-6.55%.  (Janwee Prajapati)

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India Gilts: Down on profit booking; traders await fresh domestic cues

 

	1000 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.68	98.75	98.65	98.73	98.78
YTM (%)	6.5170	6.5067	6.5210	6.5095	6.5030

 

MUMBAI--1000 IST--Government bond prices fell as traders sold bonds at a profit after the 10-year benchmark gilt rose in the previous session, dealers said. Traders avoided placing aggressive bets due to lack of fresh domestic triggers, they said.

 

"The benchmark bond is down mostly because of profit booking, it was trading at higher prices for the past-some days," a dealer at a primary dealership said. Shorter tenure gilts rose in early trade due to comfortable liquidity in the banking system and also as traders placed bets of a rate cut by the Reserve Bank of India's Monetary Policy Committee, dealers said. However, due to the large supply of these bonds in the Oct-Mar borrowing calendar, as well as traders booking profits, these bonds reversed early gains, they said. 

 

The government will auction INR 280 billion of 6.68%, 2040 and 6.90%, 2065 gilts on Friday. At the auction, demand from traders for the 15-year gilt is seen firm. Banks may buy the 15-year paper for their held-to-maturity books. Some traders may place short bets on the 15-year gilt to pick up the paper cheaper at the auction, delears said. Traders also sold the 40-year gilt to make room to buy at the auction Friday, they said.

 

The turnover in the gilt market was INR 80.70 billion at 1030 IST, lower than INR 141.20 billion at the same time Wednesday, 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 6.48-6.55%.  (Janwee Prajapati)

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India Gilts: Seen steady on lack of fresh domestic triggers

 

MUMBAI – Government bond prices are seen steady as traders await fresh domestic cues to trade, dealers said. During the day, traders are seen taking intraday bets, which could lead to some volatility in prices, they said. 

 

The yield on the 6.33%, 2035 gilt is seen moving in a range of 6.45-6.60% during the day. On Wednesday, the 2035 gilt ended at INR 98.78 or 6.50% yield. In the past week, the yield on the 10-year benchmark has fallen only 2 basis points even as the Reserve Bank of India's Monetary Policy Committee kept the door to a further rate cut open. 

 

Some traders are still unsure about a rate cut and are waiting for domestic economic data and news about an India-US trade deal to place bets, dealers said. The CPI inflation print for September, which will be detailed Monday, will be the next cue for the market, they said.

 

However, traders may place bets of a rate cut on gilts maturing within five years to limit duration risks, dealers said. While traders see steepening of the yield curve as rate cuts are priced in, they might refrain from placing aggressive bets, especially on the five-year 6.01%, 2030 bond due to a higher supply of the tenure in Oct-Mar. 

 

Longer tenure bonds may trade in a thin range before the INR 280-billion gilt auction Friday, which has heavy supply of bonds in this segment. The 6.68 40 bond and 6.90%, 2065 gilt may fall during the day, as traders will look to pick up these bonds cheaper at the auction, dealers said. 

 

On the global front, minutes of the Federal Open Market Committee's meeting in September showed officials expected two additional quarter-point cuts by the year-end. But they also pointed to division on the committee, with six of the 19 participants projecting one or no cuts in 2025. Many members also expressed caution, driven by concerns about inflation. The yield on the 10-year US Treasury note rose to 4.12%, 2 bps higher than at 1700 IST Wednesday.

 

However, Indian bond traders may not take cues from minutes of the meeting, as they await domestic triggers.  (Srijita Bose)  End

 

US$1 = INR 88.78

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

 

Edited by Rajeev Pai

 

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