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Informist, Monday, Dec. 8, 2025

 

By Janwee Prajapati

 

MUMBAI – Prices of government bonds ended sharply down, tracking a rise in overnight indexed swap rates as expectations of another rate cut in February by the Reserve Bank of India's Monetary Policy Committee faded, dealers said. The five-year OIS rate ended at 5.91%, up 11 bps from Friday's close and the highest closing level since Mar. 27. Offshore traders likely opted to pay fixed rates in swaps and sold gilts, with private-sector banks also likely selling gilts they had picked up on Friday. 

 

The jump in five-year OIS rate to levels last seen in 2024-25 (Apr-Mar), despite 100 basis points of repo rate cut in the current financial year, triggered stop-losses for traders in gilts as well. Offshore traders also likely sold bonds ahead of the Federal Open Market Committee policy decision and comments from US policymakers Thursday. As of 1745 IST, foreign portfolio investors net sold gilts worth INR 16.87 billion through the fully accessible route, according to data from Clearing Corp. of India.

 

"Although it was a dovish cut from the RBI, the market is taking this 5.25% as the terminal repo rate," a dealer at a primary dealership said. "Market is expecting that it (repo) will stay here only for some time before moving up, that's why we're seeing this kind of 10 bps movement in (five-year) OIS... Whosoever has bought at the auction is all out of the money (facing losses), and people are hitting cut-loss (stop-losses), and whatever they bought in the morning also, they're selling off." The government sold INR 320 billion of the 10-year benchmark 6.48%, 2035 gilt on Friday at a cut-off price of INR 99.93. 

 

The 6.48%, 2035 gilt, was the most-traded bond Monday, closed at INR 99.60, or 6.53% yield, against INR 99.89, or 6.49% yield Friday. The 6.33%, 2035 gilt ended at INR 98.33, or 6.57% yield, against INR 98.70, or 6.52% yield, in the previous session. The erstwhile 10-year benchmark bond underperformed other gilts through the day as the RBI did not offer to buy the bond at its open market operation auction Thursday.

 

The RBI post market hours Friday said it will buy seven gilts of varying tenures worth INR 500 billion Thursday, namely; the 6.75%, 2029 gilt; the 7.02%, 2031 gilt; the 7.26%, 2032 gilt; the 6.79%, 2034 gilt; the 7.54%, 2036 gilt; the 6.92%, 2039 gilt, and the 6.67%, 2050 gilt. This is out of the total INR 1 trillion announced by RBI Governor Sanjay Malhotra for injecting durable liquidity into the banking system in December. Some traders are expecting an announcement of another up to INR 2 trillion of gilt purchases by the RBI through OMO in the Jan-Mar quarter. Some traders were disappointed with the selection of bonds that the RBI would buy Thursday.

 

"2050 paper OMO will not be a success," a dealer at a private sector bank said. "Banks don't have that bond in their books, investors will not sell the long-term bond, and for most of the people that (6.67%, 2050 gilt) paper is not in-the-money (profitable)... traders could even offer at a lower price because they just want to get rid of the paper."

 

Traders sold the 6.33%, 2035 bond in favour of the 6.48%, 2035 bond as the outstanding in the latter rose to INR 960 billion after the government sold INR 320 billion of this gilt at the weekly auction Friday. The 6.48 35bond recorded a total trade volume of INR 288.10 billion on the RBI's Negotiated Dealing System-Order Matching platform, compared with INR 126.85 billion for the 6.33 35 gilt. Traders now expect the newer bond to become the most-traded security from now on, two months after its issuance. After shrinking to less than half a basis point intraday on Friday, the spread of the 6.33%, 2035 bond over the 6.48%, 2035 gilt widened to over three bps at close Monday.

 

At the state government bond auction Tuesday, traders are expected to bid at lower prices after the governor said at the post-policy press conference that the RBI will not buy state government bonds through OMO. Some traders were of the view that the auction would sail through, as the auction amount of INR 159.64 billion is lower than the indicative amount of INR 216.80 billion. The spread between the state government bond and gilt of similar maturity will likely widen at the auction. Traders also expect the state borrowing quantum to increase going forward, which will also weigh on the price at which traders will bid at the auction Tuesday.

 

Traders refrained from placing aggressive bets ahead of the US FOMC's policy rate decision due early Thursday and before the Statement of Economic Projections to be released along with the decision. Comments from Fed Chair Jerome Powell and Fed officials' estimates of rates at the end of 2026 will also be closely watched. Some traders fear the US rate-setting panel will not cut rates after December until May, when Powell's term as Fed chair ends. US Treasury yields have been rising in the run-up to the policy decision, which traders had ignored until the MPC outcome. With the US rate decision now in focus, the five basis point rise in the 10-year US Treasury yield over the weekend to 4.16% at 1700 IST Monday weighed on gilt prices, dealers said. 

 

The bond prices opened a tad up as the outcome of the monetary policy was perceived as slightly positive for bond prices, even as the hope of another rate cut in February dimmed. The bonds chosen by the RBI for its open market operation auction to purchase gilts Thursday rose in thin trade, with all of the gilts illiquid and held mainly in banks' held-to-maturity portfolios. The rupee's continued weakness and its fall to 90.26 a dollar also weighed, though the pressure eased as it ended off lows at 90.07 a dollar.

 

However, with the outlook for state-owned banks' reinvestment in gilts still clouded even after the OMO announcement, traders said they did not expect a sharp price rise from current levels. Any further policy easing also seemed dependent on poor GDP growth prints, which were unlikely after sharply higher-than-expected readings in the June and September quarters, dealers said. Private sector banks likely sold gilts they had picked up on Friday – the segment net bought gilts worth INR 56.75 billion in the secondary market in the previous session, according to Clearing Corp. of India data.

 

Turnover in the gilts market was INR 513.05 billion, up from INR 458.30 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the RBI's wholesale e-rupee pilot Monday.

 

OUTLOOK

On Tuesday, gilts will open tracking overnight movement in US Treasury yields and the rupee's movement. Traders will closely track movement in OIS rates through the day after the sharp rise seen Monday.

 

The result of the state bond auction results may lend cues later in the day, dealers said. Ten states plan to raise INR 159.64 billion via bonds at auction 1030-1130 IST, lower than the indicated amount of INR 216.80 billion in the Oct-Dec calendar. 

 

Traders will watch out for the US Federal Open Market Committee's rate decision and guidance at 0030 IST Thursday. Fed fund futures are pricing in an 88% chance of a 25 bps cut in the federal funds rate, dealers said. On the domestic front, CPI inflation data for November is due Friday, but may not lend significant cues after the RBI revised down its CPI inflation forecast for the December quarter to 0.6%. Traders expect the bar for a rate cut in February to remain high.

 

Bonds at the OMO auction Thursday may continue to be in favour. The RBI will purchase INR 500 billion worth of seven government bonds across tenures through an open market operation auction Thursday. The RBI will buy seven gilts--the 6.75%, 2029 gilt; the 7.02%, 2031 gilt; the 7.26%, 2032 gilt; the 6.79%, 2034 gilt; the 7.54%, 2036 gilt; the 6.92%, 2039 gilt; and the 6.67%, 2050 gilt. Traders expect aggressive participation for the bonds across tenures. However, the 6.67%, 2050 paper will likely be tendered at a lower price, dealers said.

 

Traders will monitor developments in the India-US trade deal and may also track crude oil prices for cues. The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.48-6.56% Tuesday. The yield on the 6.33%, 2035 bond is seen at 6.50-6.60%.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	99.6000	6.5342%	99.8850	6.4944%
6.33%, 2035	98.3300	6.5697%	98.6950	6.5166%
6.01%, 2030	99.1350	6.2264%	99.3300	6.1768%
6.68%, 2040	97.8300	6.9179%	98.2300	6.8733%
6.90%, 2065	93.7000	7.3931%	93.9000	7.3766%

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India Gilts: Dn as 5-yr OIS up 9 bps; offshore traders trim books before FOMC

 

	1547 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	99.72	99.95	99.69	99.89	99.89
YTM (%)	6.5177	6.4853	6.5216	6.4937	6.4944

 

	1547 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.44	98.69	98.42	98.69	98.70
YTM (%)	6.5541	6.5174	6.5566	6.5181	6.5166

 

MUMBAI--1547 IST--Prices of government bonds were sharply down, falling further tracking a rise in overnight indexed swap rates, dealers said. The five-year overnight indexed swap rate hit a day's high of 5.88%, up nearly 9 bps from Friday's close. Offshore traders were paying fixed rate contracts in swaps and likely selling gilts, as they trimmed positions ahead of the US Federal Open Market Committee's policy decision later in the week, dealers said. As of 1547 IST, foreign portfolio investors net sold gilts worth INR 6.98 billion through the fully accessible route Monday, according to data from Clearing Corp. of India. 

 

The five-year swap rate jumped on likely offshore paying, which triggered stop-losses for traders, dealers said. The swap rate rose to its highest level in the current financial year. Swap rates rose due to a rise in forward rates in the foreign exchange market, dealers said. Some traders also hit stop-losses on gilts, dealers said. Private sector banks were trimming stock of gilts, while state-owned banks were likely buyers, dealers said. The selling pressure was furthered by traders selling the 6.33%, 2035 gilt, since contrary to expectations, the Reserve Bank of India did not include it in its choice of bonds to be purchased through the open market operation auction scheduled Thursday. 

 

"Today's (Monday's) movement seems to have been initiated by offshore, domestic hit stops (stop-losses)," a dealer at a private sector bank said. "All rates are on the upside today - forwards, MIBOR, OIS. And G-sec is seeing the pressure. It's position-driven, someone wants to close before FOMC, looks like."   

 

The US Federal Open Market Committee's interest rate decision is due early Thursday. The yield on the benchmark 10-year US Treasury note rose intraday to 4.16%, from 4.14% at 0900 IST, and 4.11% at 1700 IST Friday. Fed fund futures reflect an 87% probability of a 25-bps rate cut this week. Traders will also pay close attention to comments from US Federal Reserve Chair Jerome Powell, and the central bank's economic projections.

 

At 1530 IST, the turnover in the gilt market was INR 348.45 billion, lower than INR 751.60 billion at the same time Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.48%, 2035 benchmark bond is seen at 6.50-6.56%, while that on the 6.33%, 2035 bond is seen moving in a range of 6.53-6.60% for the rest of the day.  (Cassandra Carvalho)

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India Gilts: Dn on profit sales from PSU bks; rise in OIS, rupee fall weigh

 

	1351 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	99.79	99.95	99.79	99.89	99.89
YTM (%)	6.5076	6.4853	6.5083	6.4937	6.4944

 

	1351 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.50	98.69	98.50	98.69	98.70
YTM (%)	6.5450	6.5174	6.5450	6.5181	6.5166

 

MUMBAI--1351 IST--Government bond prices reversed early gains and were lower, tracking a fall in the rupee against the dollar, dealers said. State-owned banks likely sold gilts at a profit, while others trimmed gilts due to lack of expectations of further rate cuts. Traders await fresh cues on rates, including the US Federal Open Market Committee's meeting outcome and commentary early Thursday and India's CPI inflation for November, due Friday. A rise in overnight indexed swap rates also weighed on bonds. The five-year overnight indexed swap rate hit 5.87%, the highest level since Mar. 28. 

 

Traders were uncertain of a rate cut in February after the Reserve Bank of India's Monetary Policy Committee cut the repo rate by 25 basis points Friday, and hence they did not want to aggressively buy bonds, dealers said. RBI Governor Sanjay Malhotra's commentary Friday did not indicate scope for further cuts, and any further easing would depend on economic data showing weakness in growth, dealers said. Depreciation of the rupee against the dollar weighed on bond prices, dealers said. The rupee fell to the day's low of 90.26 per dollar, from 90.06 per dollar at 0900 IST. 

 

Public sector banks likely booked profits Monday after the rise in bond prices post the MPC decision Friday, dealers said. Public sector banks net sold gilts worth INR 43.01 billion Friday, according to data from Clearing Corp. of India. However, they also purchased gilts, such as the 6.68%, 2040 bond for their held-to-maturity books, dealers said. Traders expect to offload stock from held-to-maturity books at open market purchase auctions conducted by the RBI. Some traders were of the view that bond prices could rise if public sector banks start picking up gilts in the secondary market, especially to replace bonds sold to the RBI at OMOs. The RBI will conduct its first open market purchase of gilts through auction since May 19 on Thursday, for INR 500 billion.

 

"Market (bond prices) is fairly rangebound because (RBI) governor's commentary did not give any indication for a further rate cut," a dealer at a private sector bank said. "...Even in FOMC people are expecting a hawkish cut and rupee, on the other hand, is also not giving any comfort." Some traders fear that if the FOMC cuts rates this week, it may signal that this would be the last cut of the rate-easing cycle. 

 

The 6.33%, 2035 bond fell further during the day as traders sold this bond to buy the 10-year benchmark 6.48%, 2035 bond. The total outstanding amount of the 10-year benchmark bond rose to INR 960 billion after INR 320 billion of this gilt was auctioned Friday. The 6.48%, 2035 bond saw a total trade volume of INR 145.90 billion so far in the day, as per the RBI's Negotiated Dealing System-Order Matching platform, compared to INR 84.20 billion in the 6.33%, 2035 gilt. Traders also sold the 6.33%, 2035 bond after the RBI did not choose to buy the paper through Thursday's OMO auction, contrary to traders' expectations.   

 

At 1351 IST, the turnover in the gilt market was INR 270.40 billion, lower than INR 594.60 billion at 1330 IST Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.48%, 2035 benchmark bond is seen at 6.47-6.54%, while that on the 6.33%, 2035 bond is seen moving in a range of 6.50-6.57% for the rest of the day.  (Janwee Prajapati)

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India Gilts: Most tad up; 6.33%, 2035 dn as not included in Thu OMO gilt buy

 

	0915 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.33%, 2035
PRICE (INR)	98.69	98.69	98.66	98.69	98.70
YTM (%)	6.5177	6.5174	6.5217	6.5181	6.5166

 

	0915 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	99.95	99.95	99.89	99.89	99.89
YTM (%)	6.4853	6.4853	6.4937	6.4937	6.4944

 

MUMBAI--0915 IST--Prices of most government bonds opened a tad higher Monday, after the outcome of the Reserve Bank of India's Monetary Policy Committee was perceived as slightly positive for bond prices, even as the bar for another rate cut is high, dealers said. The bonds chosen by the RBI for its open market operation auction to purchase gilts Thursday were up more in thin trade. The RBI post market hours Friday detailed its INR-500-billion OMO auction for Thursday. The bonds chosen were of varying tenures, largely satisfying traders' expectations, dealers said.   

 

The 6.33%, 2035 bond was down, on contrary to traders' expectations, the RBI will not buy the bond at the OMO auction Thursday. In the run-up to the policy decision and OMO auction announcement Friday, traders had expected the RBI to buy the 6.33%, 2035 bond through OMO auctions. More OMO auctions are expected in Jan-Mar, and some traders hope that the RBI will buy the bond at these auctions, dealers said. The RBI post market hours Friday said it will buy seven gilts of varying tenures worth INR 500 billion Thursday, namely; the 6.75%, 2029 gilt; the 7.02%, 2031 gilt; the 7.26%, 2032 gilt; the 6.79%, 2034 gilt; the 7.54%, 2036 gilt; the 6.92%, 2039 gilt, and the 6.67%, 2050 gilt.

 

"The 6.33%, 2035 bond is the old 10-year bond, people are preferring the 6.48% (2035) bond now. And people were expecting 6.33% in OMO, its not included in OMO that's why it is being sold-off," a dealer at a state-owned bank said. "And we were observing last week that the spread (yield spread between the 6.33%, 2035 and 6.48%, 2035 bonds) had compressed to 2 bps from 6 bps average earlier." The yield spread between the 6.33%, 2035 bond and the 10-year benchmark 6.48%, 2035 gilt compressed to lesser than 2 bps last week--the lowest since the latter's issuance--from a high of 8 bps at market close on Oct. 30.

Some traders also sold the 6.33%, 2035 bond to purchase the 10-year benchmark 6.48%, 2035 bond after INR 320 billion of fresh supply of the latter Friday. Post Friday's auction, the total outstanding of the 10-year benchmark bond is INR 960 billion. Since the issuance of the 6.48%, 2035 bond on Oct. 3, traders have largely preferred to take positions in the 6.33%, 2035 bond due to its higher liquidity, making it easier to exit in times of volatility, dealers said. The average daily turnover of the 6.33%, 2035 bond has been INR 218 billion since Oct. 3 till Friday, sharply up compared to INR 84 billion in the 6.48%, 2035 bond in the same period. As of 0915 IST Monday, the turnover in the 6.48%, 2035 gilt was slightly higher than the 6.33%, 2035 gilt. 

     

Traders may refrain from aggressive bets until the US Federal Open Market Committee's interest rate decision early Thursday, dealers said. US Treasury yields are expected to soften closer to the policy outcome, dealers said, as Fed fund futures reflect an 88% probability of a 25 bps rate cut this week. Traders will also pay close attention to comments from US Federal Reserve Chair Jerome Powell, and the US Federal Reserve's economic projections. The yield on the benchmark 10-year US Treasury note was 4.14% at 0915 IST, from 4.11% at 1700 IST Friday.

 

At 0930 IST, the turnover in the gilt market was INR 32.75 billion, higher than INR 21.50 billion at the same time Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.48%, 2035 benchmark bond is seen at 6.45-6.52%, while that on the 6.33%, 2035 bond is seen moving in a range of 6.48-6.55% for the rest of the day.  (Cassandra Carvalho)

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India Gilts: Seen tad higher after MPC policy outcome, OMO notice

 

MUMBAI – Prices of government bonds are seen opening a tad higher Monday after the Reserve Bank of India's Monetary Policy Committee meeting outcome Friday. The RBI post market hours Friday, detailed the bonds it would buy at Thursday's open market operation auction. The bonds chosen were of varying tenures, largely satisfying traders' expectations, dealers said. 

 

The 10-year benchmark 6.48%, 2035 bond yield is seen in the range of 6.45-6.52?ter ending at INR 99.89, or 6.49% yield, Friday. The yield on the most traded 6.33%, 2035 bond is seen at 6.48-6.55%, against INR 98.70, or 6.52% yield in the previous session. The yield on the benchmark 10-year US Treasury note was 4.14% at 0830 IST, from 4.11% at 1700 IST Friday. On the global front, traders await the outcome of the US Federal Open Market Commitee's meeting this week, wherein the panel is largely expected to cut interest rates by 25 basis points. 

 

Traders will digest the outcome of the RBI's MPC meeting last week. The MPC unanimously cut the repo rate by 25 bps, and the tone and commentary of RBI Governor Sanjay Malhotra were positive for bond prices. However, the likelihood of another rate cut is less, dealers said, and further indications on the rate trajectory will depend on economic data, echoing remarks by the governor. 

 

The RBI post market hours Friday said it will buy seven gilts of varying tenures worth INR 500 billion Thursday, namely; the 6.75%, 2029 gilt; the 7.02%, 2031 gilt; the 7.26%, 2032 gilt; the 6.79%, 2034 gilt; the 7.54%, 2036 gilt; the 6.92%, 2039 gilt, and the 6.67%, 2050 gilt. The tenures of the bonds are spread across the yield curve. Traders were hoping for long-term gilts to be included in the auction, since several of them are holding these bonds in their books at lower prices than when purchased. RBI Governor Sanjay Malhotra Friday said that the central bank will purchase INR 1 trillion worth of bonds through open market operation auctions this month. Traders are hoping for similar announcements for auctions in Jan-Mar as they look to book profits from their held-to-maturity books. The RBI may also infuse durable liquidity through onscreen bond purchases in January, to replenish its portfolio due to redemption of the 7.59%, 2026 bond, a quantum of which is held by the central bank, dealers said.        

 

Bond prices, especially those maturing in more than 10-years, may be supported by a lower-than-estimated state borrowing this week. The RBI post market hours Friday said 10 states will raise INR 159.64 billion through bonds Tuesday, lower than INR 216.80 billion indicated in states' borrowing calendar for Oct-Dec. However, state borrowing is seen rising in the Jan-Mar quarter, a seasonal trend, and traders may refrain from purchasing state bonds aggressively before that, dealers said. (Cassandra Carvalho)

 

End

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

 

Edited by Saji George Titus

 

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