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Informist, Thursday, Oct. 30, 2025

By Aaryan Khanna

NEW DELHI – Government bond prices ended sharply down Thursday due to a surge in US Treasury yields and fading hopes of a December rate cut in India. Caution before the weekly gilt auction worth INR 320 billion on Friday and a sharp fall in the rupee also drove down gilt prices, dealers said. Losses were limited by purchases from state-owned banks as returns on bonds climbed to their highest in a month.

The 10-year benchmark 6.33%, 2035 gilt ended at INR 98.30, or 6.57% yield, against 98.56, or 6.54% yield, at Wednesday's close. It ended at its highest level since Sept. 30, having closed out of the 6.50-6.55% range only once before in October. The more recently issued 10-year 6.48%, 2035 gilt closed at INR 99.92, or 6.49% yield, from INR 100.09, or 6.47% yield, the previous session.

The benchmark bond had its worst day since mid-September after a rise in the 10-year US yield to 4.09% by 1700 IST, from 4.00% at the same time Wednesday. The US Federal Open Market Committee cut its policy rate by 25 basis points as expected, but US Federal Reserve Chair Jerome Powell pushed back against market expectations of another rate reduction in December at the post-policy press conferences. He said rates were closer to neutral after the FOMC's 50 bps of policy easing since September and that the lack of concrete data during the partial government shutdown in the US may lead to caution from policymakers on further action. Fed fund futures are now pricing in a 69% chance of a 25-bps cut in December, from 91% a day ago, according to the CME FedWatch tool.

"(India's) Jul-Sept GDP growth could be around 7.5% when data comes out by the end of next month, and the US rate cut cycle is also not looking aggressive," a dealer at a private-sector bank said. "In such a circumstance, seeing a December rate cut in India becomes difficult, and then if it gets pushed to February, inflation will start inching up." 

The latest commentary in the US compounds prevailing uncertainty about further domestic rate cuts as trade talks between India and the US progress. Some traders expect the Reserve Bank of India's Monetary Policy Committee to avoid rate cuts if the two countries are able to agree on a trade deal soon and the 50% tariff on India's exports to the US is reduced, because that is likely to push GDP growth higher than the central bank projects, dealers said.

However, RBI Deputy Governor and Monetary Policy Committee member Poonam Gupta said Wednesday low CPI inflation continues to give room to ease monetary policy to support growth, as the projected 6.8% GDP growth rate in 2025-26 (Apr-Mar) is both below potential and aspiration. Even as dealers see a limited rise in prices in the coming weeks, they said traders may ramp up their bets on a rate cut just before the Dec. 3-5 MPC meeting as two external members preferred to give an accommodative stance at the last rate decision on Oct. 1. 

Despite the fading view on rate cuts at the MPC's next meeting, long-term bonds fell more than short-term gilts, which are considered more rate sensitive. This was because state-owned banks preferred buying gilts up to 10 years, including the benchmark, rather than bonds maturing after 2035, dealers said. Traders shed their long-term holdings as they do not expect significant positives for the paper, with life insurers and pension funds on the sidelines in the secondary market and likely to pick up auction stock on Friday. The government will sell INR 320 billion of four gilts on Friday after a week's break for Diwali, including INR 120 billion of the 30-year benchmark gilt and 30-year green bond combined. State bond supply is also expected to pick up in November after a muted October issuance that was about a third less than indicated due to a double devolution of tax to states at the beginning of the month, dealers said.

"The spreads are good and I think the limited activity we had prepared for in (gilts maturing in 30 years or more) is done," a dealer at a state-owned bank said. "Now it back to sticking to the fundamentals and gaining 70 bps spread (over the repo rate) in five year and almost 110 bps in 10-year. The way the market is going, nobody wants to expose themselves to more PV01 risk." PV01 refers to price sensitivity per basis point movement in yields, which increases as the bond's maturity rises.

The banks' likely buys helped limit losses in the 10-year benchmark yield around both 6.55% and 6.56% intraday, which were seen at psychologically crucial levels. With a lack of further domestic interest rate cues, traders said the 10-year yield is likely to rise to 6.60-6.62% yield. After a period of dormancy, traders also began placing short bets on gilt prices, and private sector banks were likely selling gilts after being top net buyers Wednesday before the FOMC outcome.

Traders still expect the RBI to buy gilts through an open market operation, which will prevent a sharp rise in yields from current levels, though expectations vary on the timing of the move, dealers said. Some traders expect it at any time as durable liquidity has shrunk due to the central bank's dollar sales to protect the rupee. Currently, daily banking system liquidity also continues to tread in a neutral zone rather than the 1% surplus that RBI Governor Sanjay Malhotra said he would aim to keep in the banking system.

Others said the RBI would hold off until its December MPC meeting to announce any OMO purchases as the last tranche of its cash reserve rate cut takes effect the fortnight of the meeting. The most pessimistic view is the RBI will only begin buying bonds in Jan-Mar, amid a seasonal increase in currency in circulation and durable liquidity leakage. 

Turnover in the gilts market was INR 426.40 billion, up from INR 341.55 billion Wednesday, according to data on the RBI's NDS-OM platform. There were no trades using the RBI's wholesale e-rupee pilot on Thursday for the sixth straight trading session.

OUTLOOK

On Friday, government bond prices may take cues from the overnight movement in US yields after US Fed Chair Powell's comments led to them shooting up Thursday. The result of the auction of four gilts worth INR 320 billion will lend cues later in the day, dealers said.

The government will sell INR 90 billion of the 5.91%, 2028 bond, INR 110 billion of 6.28%, 2032 bond, INR 70 billion of the 7.24%, 2055 bond and INR 50 billion of the 6.98%, 2054 green bond at 1030-1130 IST Friday. Demand for bonds is expected to be modest, with banks looking to cut down on additional statutory liquidity ratio securities amid tight liquidity and firm credit demand. Long-term investors such as life insurers are expected to mop-up the supply of the 30-year bonds after the sharp rise in their yields Thursday, 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 may aid bonds, dealers said. US President Donald Trump said Wednesday he was ready for a trade deal with India.

Movements in crude oil prices and the rupee 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% Thursday.

India Gilts: Down more before Fri auction; 10-yr benchmark gilt yld above 6.56%

MUMBAI--1450 IST--Government bond prices fell more as traders pared expectations of a rate cut by the RBI's Monetary Policy Committee in December, due to dampened hopes of a rate cut by the US Federal Open Market Committee in that same month and the possibility of a potential US-India trade deal that could boost India's GDP growth prospects and reduce the need for monetary policy easing, dealers said. On the technical front, the yield on the benchmark 10-year 6.33%, 2035 gilt rose above the key level of 6.56%, spurring further sales as traders expect the yield to next hit the key level of 6.60%. The yield hit a high of 6.5730%, the highest since Oct. 1.

Traders also trimmed portfolios ahead of the weekly gilt auction, they said. The government will sell INR 320 billion of four gilts Friday, including INR 70 billion of the 7.24%, 2055 bond and INR 50 billion of the 6.98%, 2054 green bond. Long-term bond prices were sharply lower than other maturities. The 6.90%, 2065 bond, the most liquid of the long-term securities, last traded at INR 94.80, down 62 paise from Wednesday's close.

"We will definitely see some tail bidding at tomorrow's (Friday) auction (weekly gilt auction), especially in the longer tenure...the auction for the green bond will be even worse," a dealer at a state-owned bank said. "Even the short-term bonds are illiquid ones but some demand from PSUs (state-owned banks) might be there for these bonds...but (long-term bonds) will be under pressure if the insurers and pension funds don't come."

Appetite for fresh supply of bonds has fallen even further as expectations of a domestic rate cut have weakened after US Federal Reserve Chair Jerome Powell said a rate cut in December was "far from" a foregone conclusion. Losses in shorter-tenure bonds were limited on purchases from banks for their asset and liability management, due to yield levels seen lucrative, dealers said. 

At 1452 IST, turnover in the gilt market was INR 317.40 billion, higher than INR 239.10 billion at 1430 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the day, the yield on the 6.33%, 2035 benchmark bond is seen moving in a range of 6.54-6.60% during the day, and that on the 6.48%, 2035 bond is seen at 6.45-6.50%. (Janwee Prajapati)

India Gilts: Remain down as FPIs likely sell, sharp fall in rupee weighs

MUMBAI--1241 IST--Government bond prices remained down due to a rise in the 10-year US Treasury yield, dealers said. A sharp fall in the rupee against the dollar also exerted pressure on prices, they said. Foreign portfolio investors likely sold gilts as they trimmed their bets on a December rate cut in the US, dealers said. 

"See, trade volumes are still thin but the negative bias is because of US. Rupee has also fallen and OIS (overnight indeed swap rates) are up," a dealer at a primary dealership said. "But the range is not breaking because anyway domestic guys are not going to take aggressive positions now. But FPIs took some positions yesterday, so they are the ones selling."

FPIs and some foreign banks sold gilts as the view of rate cuts in the US turned uncertain after comments by Federal Reserve Chair Jerome Powell while detailing the decisions of the Federal Open Market Committee late Wednesday, dealers said. The rupee fell to 88.67 to a dollar, sharply lower than the close of 88.20 Wednesday. 

Some traders also pared back bets of a rate cut by the Reserve Bank of India's Monetary Policy Committee in December, dealers said. However, losses were limited as most traders had already trimmed their rate cut bets due to expectations that the US would enter into a trade deal with India, which would lower chances of GDP growth slowing down.

State-owned banks also likely bought gilts as the yield on the 10-year benchmark 6.33%, 2035 gilt rose to 6.55-6.56%, considered the upper end of the trading range, dealers said. This also limited prices from falling further, they said. Meanwhile, the fall in shorter tenure bonds maturing in up to five years was limited as traders continued to hold on to these bonds while limiting their exposure to higher duration bonds, dealers said. 

At 1230 IST, the turnover in the gilt market was INR 168.60 billion, slightly higher than INR 152.20 billion at the same time Wednesday, 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 6.52-6.60% during the day, while that on the 6.48%, 2035 bond is seen at 6.44-6.50%.  (Srijita Bose)

India Gilts: Off lows on buys at 6.55% yld on 10-year benchmark gilt

MUMBAI--1000 IST--Government bond prices were off lows on purchases at the key 6.55% yield level on the 10-year benchmark 6.33%, 2035 gilt, a level seen lucrative, dealers said. The yield on the 6.33%, 2035 gilt hit 6.5629% in early trade, the highest since Oct. 1, the day of the Reserve Bank of India's Monetary Policy Committee's rate decision earlier this month.   

Government bond prices remained down, tracking an overnight jump in the 10-year US Treasury yield as traders trimmed bets of a December rate cut both in India and the US. The yield on the benchmark 10-year US Treasury note was 4.06% at 1000 IST, against 4.00% at 1700 IST Wednesday.

In a widely expected move, the US Federal Open Market Committee cut the federal funds target range by 25 basis points late on Wednesday, for the second meeting in a row, to 3.75-4.00%. Bond traders had priced in the cut, and were more focussed on commentary from US Federal Reserve Chair Jerome Powell for guidance on the US rate cut trajectory. Powell unexpectedly said that a US rate cut in December was far from a foregone conclusion. This dampened expectations of a rate cut in December by MPC as well, dealers said. 

Traders are now closely tracking technical levels on gilts, with scope for further upside in yields seen if the 10-year benchmark gilt yield sustains a rise above 6.55%. Some domestic traders expect the 10-year US yield to rise to 4.12–4.20% in the near-term.

"It's a difficult day to determine the range... If the 6.56% (yield) level (on the 10-year benchmark bond) breaks, it can go up to 6.60% levels," dealer at a private sector bank said. 

Bond prices may fall further later in the day, as traders are likely to trim portfolios ahead of the weekly gilt auction Friday. The government will sell four bonds worth INR 320 billion on Friday. The long-term 7.24%, 2055 bond at auction might see its cut-off price lower than market value as investors refrain from aggressive purchases amid uncertainty on a rate cut by the MPC due to the possibility of a trade deal between the US and India.      

At 0930 IST, the turnover in the gilt market was INR 53.40 billion, higher than INR 23.65 billion at the same time Wednesday, 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 6.52-6.60% during the day, while that on the 6.48%, 2035 bond is seen at 6.44-6.50%. (Janwee Prajapati)

India Gilts: Seen lower after Fed Powell walks back Dec rate cut expectation

MUMBAI – Prices of government bonds are seen opening lower Thursday as the yield on the 10-year benchmark US Treasury note marked its biggest single-day rise since Jun. 6 after US Federal Reserve Chair Jerome Powell tempered expectations of a rate cut in December, which took financial markets by surprise.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen moving in a range of 6.50-6.55% during the day. On Wednesday, the 2035 gilt ended at INR 98.56, or 6.54% yield. The newly issued 10-year 6.48%, 2035 bond is expected to move in a range of 6.44-6.50%. On Wednesday, it ended at INR 100.09 or 6.47% yield. 

In a widely expected move, the US Federal Open Market Committee cut the federal funds target range by 25 basis points for the second meeting in a row to 3.75-4.00% Wednesday. The panel also decided to conclude the US Fed's monthly sales of securities, also known as quantitative tightening, from Dec. 1. The yield on the benchmark 10-year US Treasury note was 4.07% at 0830 IST, from 4.00% at 1700 IST Wednesday. The yield rose over 10 bps Wednesday. Domestic traders were betting on the 10-year US yield falling to as low as 3.85% in the medium-term. Lesser chances of a rate cut in the US in December may further dampen hopes of a rate cut by the Reserve Bank of India's Monetary Policy Committee in December, dealers said.   

"A further reduction in the policy rate at the December meeting is not a foregone conclusion," Powell said at the post-policy press conference. "Far from it, policy is not on a preset course." Fed fund futures are now pricing in a 68% chance of a 25-bps cut in December, from 91% chances a day ago, according to the CME FedWatch tool.

On the domestic front, expectations of the RBI announcing open market purchase of gilts through auction may limit losses, as the central bank's dollar sales to support the rupee, at the pace of around $1.0 billion-$1.5 billion per day, has been reducing durable rupee liquidity, dealers said. Recent pressure on systemic liquidity, which has led to the overnight weighted average call money rate being largely above the repo rate, has deterred traders from making any aggressive purchases, dealers said.(Cassandra Carvalho)

End

US$1 = INR 88.69

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

Edited by Deepshikha Bhardwaj

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