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Informist, Thursday, Oct. 23, 2025

By Srijita Bose

MUMBAI – Government bond prices ended sharply lower Thursday as optimism around a trade deal between India and the US dampened hopes of a rate cut by the Reserve Bank of India's Monetary Policy Committee at its December meeting, dealers said. An intraday rise in US Treasury yields and overnight indexed swap rates also led to a sharp fall in gilt prices, they said.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 98.56, or a yield of 6.54%, against INR 98.78, or 6.50% yield, Monday. The yield on the 10-year benchmark gilt ended at its highest level since Oct. 10. During the day, the yield on the bond topped 6.54%, the highest since the Monetary Policy Committee's decision on Oct. 1. The 6.48%, 2035 bond closed at INR 100.12, or a yield of 6.46%, against INR 100.29, or 6.44%, Monday. Most financial markets in India were shut Tuesday and Wednesday for Diwali.

Renewed optimism about a trade deal between India and the US with the possibility that US tariffs on Indian exports could be slashed to 15-16% from the current 50% led to a fall in gilts as hopes of domestic rate cuts withered. While traders were unsure of the timeline of when the deal would be cemented, they appeared certain that it would take place, leading them to trim back bets of a rate cut.

Most traders had thought that further cuts in the repo rate would come only if domestic GDP growth was impacted by the higher tariffs imposed by the US. In the minutes of the rate-setting panel's October meeting, RBI Governor Sanjay Malhotra had said domestic economic growth is expected to soften because of the tariffs, though the Centre's cut in goods and services tax would partially cushion the impact. The US has imposed a 50% tariff on India's exports since late August.

"If there is a trade deal, rate cuts will not happen, and yields will also begin to harden," a dealer at a private-sector bank said. "Now, only if supply side eases, the RBI could bring down the yield. Otherwise, a stronger reaction could come."

Some dealers held on to the hope that the RBI would come up with some operation to reduce the supply of gilts in case yields rise further. This could be by way of a puchase of gilts through open market operations, a few dealers said.

Meanwhile, the yield on the 10-year benchmark US Treasury note also inched up intraday to 4.00% from 3.95% at 0900 IST. Foreign banks and some foreign portfolio investors likely sold gilts on fears that the 10-year US yields will not sustain below 4.00% and may rise further, dealers said. These traders also trimmed India rate-cut bets, they said.

A likely shift in India's crude oil purchases to the US from Russia due to US sanctions on Russian producers Rosneft and Lukoil could lead to a rise in India's crude oil import bill, dealers said. This, they said, may cause a spike in inflation in India, the biggest buyer of discounted Russian crude oil. This possibility also led investors to pare domestic rate-cut bets, dealers said. The Brent Crude contract for December delivery rose above $66 per barrel Thursday from nearly $61 per barrel at 1700 IST Monday.

Some dealers were of the view that the thin trading volume Thursday led to a sharper fall in prices and that the fall was overblown as a trade deal has not been announced yet. However, others said the fall could be more profound when more traders are back at their desks after the extended Diwali holiday.

Traders reduced their duration risk selling longer tenure gilts due to the uncertainty and on fears that losses in longer tenure gilts would be higher if yields rose further, dealers said. They held on to positions in shorter tenure gilts, but refrained from adding fresh positions in them due to the uncertainty on rates. "Today was not a great day to take aggressive bets because volumes are so thin," a dealer at a state-owned bank said. "But depending on what the view is, I think it's still wise to hold on to some short bonds because it's less risky."

Meanwhile, others trimmed their stock of liquid and short-term papers as rate-cut hopes faded, dealers said. The five-year benchmark 6.01%, 2030 bond was the third most traded paper on the RBI's Negotiated Dealing System-Order Matching platform. However, traders avoided aggressive bets to avoid risk, dealers said. The five-year OIS rate rose to 5.67% Thursday from 5.61% Monday. This also led some traders to sell shorter tenure gilts, dealers said.

Traders are now waiting for US CPI inflation data for September, due Friday, for cues on the interest rate trajectory of the US Federal Open Market Committee, which may have an impact on policy decisions by the RBI's Monetary Policy Committee. With limited economic data from the US due to the partial government shutdown, the delayed CPI print for September could be an important data point for the FOMC to decide whether to cut the interest rate this month. US core CPI is expected to have risen 0.3% in September, according to a Dow Jones poll.

Turnover in the gilts market was INR 345.05 billion, similar to INR 344.70 billion Monday, according to data on the RBI's NDS-OM platform. There were no trades using the RBI's wholesale e-rupee pilot Thursday.

OUTLOOK

Government bond prices may take cues from the overnight movement in US yields Friday, dealers said. Any further development on a trade deal between India and the US could lead traders to pare back domestic rate-cut bets, they said.

Trade volume may be low Friday, too, with some traders likely to be on extended leave ahead of the weekend. The absence of a gilts auction Friday could prevent a steep fall in prices, dealers said.

Traders' focus will be on the US CPI inflation for September, due Friday despite a partial government shutdown. Traders may place intraday bets on the same but may choose to trim risks ahead of the weekend, which could lead to a fall in prices near the end of the day's trade, dealers said.

Traders will also track other offshore triggers ahead of the US FOMC's meeting next week, dealers said. The FOMC is largely expected to cut rates by 25 bps this month.

Movement of crude oil price may also influence gilts. The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.48-6.58%. Meanwhile, the 6.48%, 2035 bond is seen moving in a range of 6.42-6.48% Friday. 

India Gilts: Near day's low as US yields up; 10-yr bond down most since Oct 1

MUMBAI--1626 IST--Government bonds fell close to the day's low on optimism around a trade deal between India and US and as US Treasury yields rose. The yield on the 10-year benchmark 6.33%, 2035 bond was at its highest level since the outcome of the Reserve Bank of India's Monetary Policy Committee meeting on Oct. 1.

Likelihood of an US-India trade deal curbed expectations of a rate cut by the Monetary Policy Committee in the December meeting, dealers said. Traders unwound some of their bets of a rate cut. Foreign banks and some foreign portfolio investors likely sold Indian gilts, some dealers said. Muted trade volume also likely led to a sharper reaction in gilts, they said.

"The US Treasury yield has been below 4% for almost a week now...these are not the levels at which UST (US Treasury yield) will sustain, it will eventually rise," a dealer at a state-owned bank said. The 10-year US yield rose to 3.99% at 1612 IST from 3.95% early in the day. 

A likely shift in India's crude oil purchases to the US from Russia due to US sanctions on Russian producers Rosneft and Lukoil could lead to a rise in India's crude oil import bill, dealers said. This, they said, will lead to a spike in inflation as India was the biggest buyer of discounted Russian crude oil. This also led investors to pare domestic rate cut bets, dealers said.

Traders are waiting for US CPI inflation data for September scheduled Friday for cues on the rate trajectory by the US Federal Open Market Committee, which may subsequently have an impact on policy decisions by the RBI's Monetary Policy Committee. With limited data points from the US due to a partial government shutdown, the delayed CPI print for September could be an important data for the FOMC in deciding whether to cut the interest rate this month. US core CPI is expected to have risen 0.3% in September, according to a Dow Jones poll.

At 1624 IST, turnover in the gilts market was INR 302.65 billion, up from INR 126.10 billion at 1630 IST Monday, but still lower than usual, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Most financial markets in India were shut Tuesday and Wednesday for Diwali.  (Janwee Prajapati)

India Gilts: Remain sharply dn in thin trade; traders pare Dec rate cut bets

MUMBAI--1259 IST--Prices of government bonds remained sharply down as traders unwound bets of a rate cut by the Reserve Bank of India's Monetary Policy Committee in December, dealers said. However, volumes were low since several traders were on leave for Diwali, which amplified the price action, dealers said. 

The yield on the benchmark 10-year 6.33%, 2035 gilt hit the key 6.53% level, which is seen as lucrative to buy gilts since this yield is the upper limit of the recent trading range. Some state-owned banks were purchasing gilts at this level, dealers said. This yield level is seen sustaining Thursday, especially since there is no fresh supply Friday. The RBI will not conduct a weekly gilt auction Friday, as is tradition in Diwali week. However, if the 10-year gilt yield rises above this level, it could rise to 6.55-6.56%, dealers said. A rise in overnight indexed swap rates also weighed on bond prices. The five-year overnight indexed swap rate was last traded at 5.66%, five basis points higher than Monday's close. The yield on the benchmark 10-year US Treasury note also inched up intraday to 3.98% from 3.95% at 0900 IST. 

"If you see technically, then it is a good buying level but if tariffs are lower then the growth will be higher, so there's some selling," a dealer at a state-owned bank said.  

The Mint newspaper reported that the US and India were nearing a trade deal and that US tariffs on Indian exports could be slashed to 15-16% from the current 50%. While traders were unsure of the timeline of when a trade deal would be cemented, the certainty of a deal was there, and they trimmed expectations of a rate cut in December since GDP growth could be higher with lower tariffs, they said. In the minutes of the MPC's October meeting, RBI Governor Sanjay Malhotra had said that domestic economic growth is expected to soften due to the impact of tariffs, even as the Centre's recent cut in goods and services tax would partially cushion the impact. 

Traders trimmed stock of liquid and short-term papers, dealers said. The five-year benchmark 6.01%, 2030 bond was the second most traded paper on the RBI's Negotiated Dealing System-Order Matching platform. However, due to low volumes, traders avoided aggressive bets to avoid risk, they said.

"Ideally with such low volumes, this kind of movement should've not been there also", a dealer at a private sector bank said. "But now that its there, its risky to be trading, because any big player can enter and just move the market. I'd rather be on sidelines since its just a matter of one or two days, and return when volumes are back to normal." 

At 1230 IST, the turnover in the gilts market was INR 153.45 billion, up from INR 41.50 billion at the same time Monday, but still lower than usual, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Most financial markets in India were shut Tuesday and Wednesday for Diwali. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.56% and yield on the 6.48%, 2035 bond is seen at 6.44-6.48%.  (Cassandra Carvalho)

India Gilts: Sharply dn as signs of US-India trade deal dim rate cut prospect

MUMBAI--1029 IST--Government bond prices were sharply down, reversing early gains as traders trimmed bets of a rate cut by the Reserve Bank of India's Monetary Policy Committee in December on signs of the US and India nearing a trade deal, dealers said. Bond prices opened higher Thursday tracking a fall in US Treasury yields and a slight rise in the rupee against the dollar.

Traders pared bets of a rate cut by the central bank at its next policy meeting in December on indications that a trade deal between the US and India was close. The Mint newspaper Wednesday reported citing three people aware of the matter that New Delhi and Washington are closing in on a trade deal that could reduce tariffs on Indian exports to 15-16% from the current 50%. Separately, US President Donald Trump said India would not buy "much oil from Russia", reigniting expectations of a US-India trade deal.

"Now that there are expectations of a trade deal, it raises prospects for better growth so rate cut expectations are fading," a trader at a primary dealership said. 

Traders are likely to prefer gilts to state bonds as the spread between the two securities has contracted significantly following the comparatively lower supply of the state bonds in the weekly auctions so far this month, dealers said. Moreover, lack of fresh gilt supply may limit losses and support prices Thursday and Friday as the RBI will not conduct a weekly gilt auction Friday, as is tradition in the Diwali week.  

Traders await US CPI inflation data for September scheduled Friday for cues on the rate trajectory by the US Federal Open Market Committee, which may subsequently have an impact on policy decisions by the Monetary Policy Committee in India.

At 1030 IST, the turnover in the gilts market was INR 84.10 billion, up from INR 23.70 billion at the same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Most financial markets in India were shut Tuesday and Wednesday for Diwali. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.48-6.56% and yield on the 6.48%, 2035 bond is seen at 6.44-6.48%.  (Janwee Prajapati)

India Gilts: Seen slightly up on fall in US ylds; volumes expected to be thin

MUMBAI – Prices of government bonds are seen opening slightly higher Thursday tracking a fall in US Treasury yields, dealers said. The movement of the rupee against the dollar may also lend cues. The rupee is seen opening higher after US President Donald Trump said India would not buy "much oil from Russia", reinstating hopes about US-India trade deal. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen moving in a range of 6.47-6.53% during the day. On Monday, the 2035 gilt ended at INR 98.78, or 6.50% yield. Most financial markets in India were shut Tuesday and Wednesday for Diwali. The newly issued 10-year 6.48%, 2035 bond is expected to move in a range of 6.42-6.47%. On Monday, it ended at INR 100.29 or 6.44% yield. 

Trade volume may continue to be low this week as several traders are on leave for Diwali. Turnover in the gilt market was INR 139.10 billion Monday, the lowest daily traded volume since December 2022, data showed.

Focus is likely to be on offshore cues Thursday due to lack of domestic triggers and fresh supply. As is the tradition during the Diwali week, the government has not offered to sell any gilts this week. The yield on the 10-year benchmark US Treasury note was 3.95% at 0800 IST, down from 4.01% at 1700 IST Monday. Demand for safe-haven assets increased amid a fresh round of sanctions by the US on Russia, and a report of Washington mulling curbs on some exports to China.

Traders await the US CPI inflation print for September on Friday despite the government shutdown. A poll by The Wall Street Journal forecast the print at 3.1% on year, up from 2.9% in August. Core inflation is expected to remain at 3.1%. Fed fund futures have priced in 97% chance of a 25 basis points cut in the federal funds rate by the US Federal Open Market Committee at its meeting next week.

The fall in US yields may continue to buoy gilt prices due to purchases by foreign portfolio investors. FPIs net purchased gilts worth INR 11.84 billion through the fully accessible route Monday, totalling net purchases worth INR 79.07 billion so far in October.  (Cassandra Carvalho)  End

US$1 = INR 87.84

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

Edited by Rajeev Pai

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