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Informist, Tuesday, Oct. 28, 2025

By Aaryan Khanna

NEW DELHI – The price of the 10-year benchmark 6.33%, 2035 bond rose near the close of trade likely on some traders betting the Reserve Bank of India would buy gilts through open market operations to inject liquidity into the banking system, dealers said. Most other gilts ended slightly lower, especially long-term bonds, which were out of favour as investors stayed on the sidelines and traders shed their holdings.

The 6.33%, 2035 gilt closed at INR 98.56 or 6.54% yield, against INR 98.48 or 6.55% yield on Monday, the latter being the highest closing yield in October. The 6.48%, 2035 bond closed at INR 100.08, or a yield of 6.47%, against INR 100.12 or 6.46% yield the previous day. Trade volumes through the day was lacklustre amid uncertainty on a December rate cut as traders await further developments on a trade deal between India and the US.

The RBI's dollar sales to support the rupee, at a pace of around $1.0 billion-$1.5 billion per day, has been reducing durable rupee liquidity. This comes at a time when there is seasonal currency in circulation leakage around the festival season, and banking system liquidity has fallen into a deficit. Some traders said that the RBI's defence of the domestic currency may prompt it to buy gilts in the open market, likely through auctions, which would drive up gilt prices when they are announced.

"There is some chatter of an OMO going on in the market, I think that could have led to the buying in the 10-year," a dealer at a foreign bank said. "Everyone seems to be on the defensive since the news on the India-US trade deal (progress) broke. I think most traders are sitting out this one, which is why there are no volumes."

Most traders remained unconvinced about the need for OMOs in the December quarter, which prevented a broader rise in gilt prices despite expectations of the RBI measure floating around through the day, dealers said. The RBI's pre-announced cuts in the cash reserve ratio will add around INR 700 billion of durable liquidity to the banking system Saturday, with another tranche scheduled at the end of the month. This is likely to sterilise the impact of the central bank's dollar sales. Moreover, the RBI has also been selling forward dollars to reduce the liquidity impact of its spot dollar sales, according to dealers in the foreign exchange market.

Gilts maturing in five years and less, remained under pressure as traders continued to assess the rate cut trajectory, amid a liquidity crunch that has persisted over the last week. As per the RBI's latest data, the central bank's net injection into the banking system--a proxy for systemic liquidity deficit--stood at INR 208.62 billion Monday, against a net absorption of INR 275.48 billion Sunday, showing a surplus. This led to overnight money market rates trending above the policy repo rate of 5.50% and also led to a rise in Treasury bill yields in the secondary market, dealers said. 

The five-year benchmark 6.01%, 2030 gilt was the second-most traded paper, a rarity that showed that rate-sensitive instruments were in focus and traders were churning their portfolios, dealers said. The short-term bond had ended lower on Monday, and inched lower Tuesday.

Rate cut hopes have been floundering in the last few days on report that India and the US are nearing terms on a trade deal. The US imposed a tariff of 50% on Indian imports near the end of August, which led to the RBI revising down quarterly GDP growth forecasts starting Oct-Dec. A reduction on those tariffs is likely to push up the RBI's GDP growth estimate for 2025-26 (Apr-Mar), which was already at 6.8% and was not seen by traders as low enough to warrant significant rate cuts unless the external growth drag was in place, dealers said.

Meanwhile, the smaller-than-indicated state bond auction sailed through, with banks and mutual funds more aggressive on bonds maturing up to 12 years while those of longer maturity got moderate interest, dealers said. Nine states raised INR 178 billion through bonds Tuesday, against INR 309 billion for this week indicated in the Oct-Dec calendar. The cut-off on Tamil Nadu's 10-year bond re-issue was at 7.16%, lower than 7.18% estimated in an Informist poll, and its spread at auction over the 10-year benchmark gilt fell to 62 basis points, the lowest since May. However, the cheer was localised to state bonds and the cut-offs had little impact on gilt prices in the secondary market. 

"States have asked the RBI for enhanced borrowing limits as some of their limits are exhausted, plus the market had already expected lower state borrowing in October after the Centre's devolvement on states," a dealer at a private-sector bank said. "In a broader sense, we are also unsure what is happening, why volumes are low and there are no buyers.

Earlier in the day, a fall in the 10-year US Treasury yield to below the key 4.00% mark aided gilt prices and drove them to intraday highs. Dealers said there may be significant cues from the US Federal Open Market Committee meeting outcome, though there are no significant positions built up in the domestic market as a 25-basis-point rate cut is universally expected and priced in. If the FOMC sticks to the script expected by traders, they are unlikely to pick up gilts after the outcome as there is likely to be no impact on the domestic Monetary Policy Committee's decision-making, dealers said. The 4% annual growth in industrial production in September, according to data released at 1600 IST, also did not change traders' rate cut views, they said. 

Turnover in the gilts market was INR 303.85 billion, up from INR 237.20 billion Monday, according to data on the RBI's NDS-OM platform. There were no trades using the RBI's wholesale e-rupee pilot on Tuesday for the fourth trading session.

OUTLOOK

On Wednesday, government bond prices may take cues from overnight movements in US yields at the open, dealers said. The offshore cue may assume importance ahead of the US Federal Open Market Committee outcome at 2330 IST.

The US rate-setting panel is universally expected to cut its policy rate by 25 bps on recent labour market weakness. Expectations of a deeper rate cut cycle in the US may aid bets for a December rate cut by the MPC and push up gilt prices, dealers said.

Dealers are closely tracking developments related to a trade deal between India and the US for rate cues. Progress in trade talks may weigh on gilt prices, but any reports on a delay in the final announcement such as on Friday may aid bonds, dealers said.

Movements in crude oil prices 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 6.43-6.50% Wednesday.

India Gilts: Most in thin band; state bond auction, IIP fails to move market

MUMBAI--1630 IST--Prices of most government bonds were in a thin band as traders avoided large bets amid uncertainty about a December rate cut in India and ahead of the US Federal Open Market Committee outcome on Wednesday. The state bond auction result and the index of industrial production data Tuesday failed to move bond prices, with volumes continuing to be sluggish for the second straight day.

"There's nothing that seems to be breaking the (trading) range," a dealer at a private-sector bank said. "So traders are also sitting out and not playing for a breakout, waiting to see how things unfold on a trade deal and on the FOMC decision."

Demand for bonds was firm at the INR-178-billion state bond auction, with cut-off yields on bonds maturing in 12 years or less slightly better than expected, likely driven by mutual funds and banks, dealers said. The cut-off on Tamil Nadu's 10-year bond re-issue was at 7.16%, lower than 7.18% estimated by an Informist poll. The cut-off on Madhya Pradesh's 21-year paper was in line with expectations at 7.40%, with long-term state bonds likely picked up by insurers and pension funds, dealers said.

Meanwhile, data at 1600 IST showed that India's industrial output, as measured by the Index of Industrial Production, grew 4.0% in September against 3.0% expected in an Informist poll. However, the pace of growth was at a three-month low, as traders said it did not impact their view on rate cuts.

Traders now await the result of the US FOMC meeting on Wednesday, where the panel is widely expected to cut the policy rate by 25 basis points. A fall in the 10-year US Treasury yield below 4% earlier in the day aided gilt prices. Further developments in the India-US trade talks and greater clarity on the domestic rate outlook are likely to be the key determinants of bond prices, as demand and supply seem well-matched, dealers said.

At 1630 IST, turnover in the gilt market was INR 259.20 billion, up from INR 192.75 billion at the same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.33%, 2035 benchmark bond is seen moving in a range of 6.52-6.56% during the day, while that on the 6.48%, 2035 bond is seen at 6.44-6.50%. (Janwee Prajapati and Aaryan Khanna )

India Gilts:Up in lacklustre trade on bets of state bond sale sailing through

MUMBAI--1337 IST--Prices of government bonds were up on expectations that the INR-178-billion state bond auction would sail through due to its lower-than-indicated size, dealers said. The indicative calendar for state borrowing for Oct-Dec showed states would borrow INR 309.00 billion on Tuesday.

"After a GST cut, states' revenue should decrease so we should be seeing more borrowing but the fact that they are borrowing less is good," a dealer at a state-owned bank said. "But we've only gone for some states, we skipped last week's auction also."

Some traders favoured state bonds maturing in upto 10 years, and several traders said the cut-off yields on state bonds maturing within 11 to 20 years would be the highest across the curve, higher than the long-term state bond cut-offs as well. An Informist poll estimated the cut-off yield on Tamil Nadu's 10-year bond reissue at 7.18% and that on Sikkim's 10-year bond at 7.25%, a yield spread of 64 basis points and 71 bps over the 10-year benchmark 6.33%, 2035 gilt respectively. 

Traders are also closely tracking the Reserve Bank of India's operations in the foreign exchange market, and its impact on systemic liquidity. The liquidity in the banking system has largely been in a deficit since late last week, due to outflows for goods and services tax and settlement of the RBI's dollar sales in the spot market. Dealers in the foreign exchange market estimate that the central bank has begun selling around $1.0 billion daily to limit the depreciation of the rupee, most of which is in the spot market. Speculation of the RBI announcing a liquidity measure such as an open market purchase of gilts through auction also grew, though most traders expect the RBI to announce OMOs only in the end of the December quarter or in the Jan-Mar quarter.    

"I don't see gilts breaking the range, though some people are expecting good state bond auction and US yields are slightly down so we are seeing prices up," a dealer at a private sector bank said. "Some are also expecting some support from RBI but I don't think OMOs could come before Q4. Traders are still stuck, so I think it's actually better to stay off gilts right now."

Trade was lacklustre as traders refrained from aggressive bets and preferred staying on the sidelines until there were fresh triggers, or until the uncertainty on the timeline and likelihood of a US-India trade was cleared. Some traders said that bonds have largely priced in a trade deal being cemented, but the timing of the deal would matter more to ascertain if the RBI's Monetary Policy Committee would continue cutting rates after a pause since June. 

At 1330 IST, turnover in the gilt market was INR 155.50 billion, up from INR 104.20 billion at the same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.33%, 2035 benchmark bond is seen moving in a range of 6.52-6.56% during the day, while that on the 6.48%, 2035 bond is seen at 6.44-6.50%. (Cassandra Carvalho)

India Gilts: Tad up on US yld fall; lower-than-indicated state bond sale eyed

India Gilts: Tad up on US yld fall; lower-than-indicated state bond sale eyed

MUMBAI--0924 IST--Government bond prices rose Tuesday due to an overnight fall in US Treasury yields as traders bet on the US Federal Open Market Committee easing rates by 25 basis points each on Wednesday and in December, dealers said. Some traders hope that the FOMC's commentary late Wednesday will indicate scope for further easing post December. The yield on the 10-year US Treasury note was 3.99% at 0924 IST, down from 4.03% at 1700 IST Monday.

However, uncertainty on a domestic rate cut by the Reserve Bank of India's Monetary Policy Committee in December weighed, as the possibility of a trade deal between the US and India will reduce chances of a cut, dealers said. 

"There are no cues in the market, the volumes are so low nothing can be determined. As long as there are no positive cues, the market will remain range-bound only in intraday trading," a dealer at a primary dealership said. "Even for (yield) spreads to move (expand or contract) in the (state bond) auction, there has to be volume. Traders are not interested any more."

Nine states will borrow INR 178 billion through the issue of bonds Tuesday. The cut-off yields at the auction will lend direction to gilt prices in the secondary market later in the day. The yield spread between state bonds and gilts of similar maturity are likely to be similar to last week's auction, dealers said. Traders are likely to avoid bidding for long-term state bonds as long-term investor demand is largely absent from the gilt market amid uncertainty on the global and domestic front, dealers said. 

At 0924 IST, turnover in the gilt market was INR 32.00 billion, up from INR 17.15 billion at 0930 IST Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.33%, 2035 benchmark bond is seen moving in a range of 6.52-6.56% during the day, while that on the 6.48%, 2035 bond is seen at 6.44-6.50%. (Janwee Prajapati)

India Gilts: Seen tad up as US 10-year yield falls below 4%

MUMBAI – Prices of government bonds are seen opening slightly higher Tuesday as the yield on the benchmark 10-year US Treasury note fell below 4% overnight. The yield on the 10-year US Treasury note was 3.98% at 0800 IST, down from 4.03% at 1700 IST Monday, ahead of the US Federal Open Market Committee's rate decision late Wednesday. However, uncertainty over the timeline and likelihood of a US-India trade deal will weigh on bond prices, dealers said.    

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen moving in a range of 6.52-6.58% during the day. On Monday, the 2035 gilt ended at INR 98.48, or 6.55% yield. The newly issued 10-year 6.48%, 2035 bond is expected to move in a range of 6.44-6.50%. On Monday, it ended at INR 100.08 or 6.47% yield.   

Later in the day, traders will track the result of the INR-178-billion state bond auction. The indicative calendar for state borrowing for Oct-Dec showed states would borrow INR 309.00 billion on Tuesday.    

Traders await the US FOMC's decision late on Wednesday. Fed fund futures are pricing in a 25 bps cut each at the FOMC's October and December meetings, hopes of which were cemented by a slightly lower-than-expected US CPI print for September. Traders largely expect the US Federal Reserve to also announce an end to its balance-sheet reduction on Wednesday. If the FOMC signals further rate cuts post December on Wednesday, the 10-year US yield could fall to 3.85%, dealers said.    

Other than the state bond auction Tuesday, a key test for demand from long-term investors such as life insurers will be this week's gilt auction. The government will sell four bonds worth INR 320 billion on Friday, including INR 70 billion of the 7.24%, 2055 bond and INR 50 billion of the 6.98%, 2054 green bond. Some traders expect that long-term investor demand for these bonds will be strong due to lucrative yields. The 7.24%, 2055 bond yield ended at 7.17% Monday, a spread of 167 bps over the repo rate. (Cassandra Carvalho)

End

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

Edited by Akul Nishant Akhoury

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