More Stories

Informist, Tuesday, Dec. 9, 2025

By Janwee Prajapati

MUMBAI - Government bond prices slumped Tuesday, as traders trimmed expectations of further cuts in the repo rate, and began to price in the current repo of 5.25% as the terminal repo rate, after the Reserve Bank of India's Monetary Policy Committee cut the repo by 25 basis points Friday, dealers said. A rise in overnight indexed swap rates weighed on bond prices, as offshore traders and foreign banks sold gilts and paid fixed rates in swaps, dealers said.  

The 6.48%, 2035 gilt, which was the most-traded bond Tuesday, closed at INR 99.20, or 6.59% yield, against INR 99.60, or 6.53% yield Monday. The 6.33%, 2035 gilt ended at INR 98.01, or 6.62% yield, against INR 98.33, or 6.57% yield, in the previous session. The five-year overnight indexed swap rate has risen 16 bps this week, which has led to a 10-bps rise in the yield of the 6.48%, 2035 gilt in the same period. The five-year benchmark 6.01%, 2030 bond yield ended at 6.30%, 7 bps higher from Monday's close. Mutual funds likely sold short-term gilts, and received fixed rate contracts in swaps, as they unwound their bond swap trades, dealers said. 

"Market seems to feel that the cutting cycle is at its end, everyone just wants to get out," a dealer at a private sector bank said. "There is no appetite to receive (swap rates) or hold anything (gilts) because no rate cut, and demand-supply issues remain."   

As of 1700 IST, foreign portfolio investors net sold gilts worth INR 15.22 billion through the fully accessible route Tuesday, according to data from Clearing Corp. of India. Private sector banks also likely continued to sell gilts Tuesday after recording net sales of INR 33.10 billion Monday.

Traders pointed out that the sell-off was also driven by unwinding of long positions built after the RBI's latest policy decision. Several traders had expected bond prices to rise after the Monetary Policy Committee cut the repo rate by 25 bps and the central bank announced INR 1 trillion of gilt purchases in December through open market operations, the best case outcome for bonds. RBI Governor Sanjay Malhotra also did not shut the door on further policy easing in his comments, unlike the June policy review.

However, traders do not see the MPC cutting rates in February and were discouraged by Malhotra's remarks that the central bank was not looking to influence bond yields through OMOs, and that term premiums may rise after a rate cut, seeing it as a signal that the RBI would be comfortable even with higher yields. 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.

Government bond prices dropped sharply after traders hit stop-losses, with the former 10-year benchmark 6.33%, 2035 bond yield reaching 6.61%, its highest since Sept. 1. The yield on the 10-year 6.48%, 2035 bond also rose above 6.54-6.55%, triggering stop-losses. But public sector banks stepped in to buy at attractive levels, limiting further price drops. Mutual funds sold gilts across tenures, dealers said.

Market sentiment was further dampened by weaker-than-expected demand at the state bond auction, with the RBI setting higher-than-expected cut-off yields on bonds from Maharashtra, Bihar, and Jammu & Kashmir. The cut-off yield on Maharashtra's 10-year bond was set at 7.29%, above market expectations of 7.26%. Tamil Nadu's 10-year paper fetched a cut-off of 7.31% yield against 7.20% a week ago. Public sector banks focused on shorter-term state bonds, while institutional investors like pension funds picked up longer-term papers at the auction, dealers said.

Bond prices opened lower but recovered all losses briefly when the rupee strengthened against the dollar and swap rates declined to the day's low. The five-year OIS rate eased to 5.90%, likely as mutual funds unwound bond-swap trades, which aided the 10-year benchmark gilt but led to a flurry of sales in long-term bonds, which also slumped Tuesday. The rupee's recovery to 89.84 per dollar from a low of 90.14 per dollar also provided some support to bond prices. Public sector banks likely bought gilts for the second straight day after the yield on the 10-year benchmark bond climbed to fresh three-month highs.

At the market open, there was a delay in trading due to a wide bid-ask spread as traders adjusted to significant price fluctuations. Volatility has been heightened in the last few days as foreign banks' and primary dealers' activity has reduced near the end of the calendar year, when they close their accounts.

"It is a difficult situation for us also, how much to risk when the market does not seem to have an anchor," a dealer at a state-owned bank said. "PSU banks will not have the appetite or the strength to move market like before because we are also facing MTM (mark-to-market) losses as yields go higher – there is no HTM (held-to-maturity) buffer any more." Changes to banks' investment guidelines in 2024 prevent banks from selling more than 5% of the held-to-maturity portfolio holdings in a given financial year. 

Traders were also cautious before the US FOMC's policy rate decision, due 0030 IST 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.

Turnover in the gilts market was INR 514.50 billion, similar to INR 513.05 billion Monday, 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 Tuesday, the same as Monday.

OUTLOOK

On Wednesday, gilts will open tracking overnight movement in US Treasury yields ahead of the FOMC outcome. The movement in the spot rupee and foreign exchange derivatives as well as the movement in OIS rates may lend cues after significant volatility in those markets, dealers said.

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, except for the 2050 gilt, which is not in portfolios at a profit.

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 6.54-6.64% Tuesday. The yield on the 6.33%, 2035 bond is seen at 6.55-6.66%.

India Gilts: Slump; stop-losses hit as 6.33%, 2035 yld tops 6.60%, FPIs sell

MUMBAI--1510 IST--Prices of government bonds slumped after traders hit stop-losses, as the erstwhile 10-year benchmark 6.33%, 2035 gilt yield hit 6.61%, the highest level since Sept. 1. Stop-losses were also hit on the most-traded 10-year benchmark 6.48%, 2035 bond when its yield rose above 6.54%-6.55%, dealers said. Foreign banks and portfolio investors were selling gilts and paying fixed rates on overnight indexed swaps, dealers said. As of 1510 IST, FPIs net sold gilts worth INR 7.82 billion through the fully accessible route Tuesday, according to data from Clearing Corp. of India. 

FPIs have net sold gilts worth INR 53.14 billion so far this month, taking their total holdings in gilts through the fully accessible route to around INR 3.16 trillion Tuesday, from a record high of INR 3.22 trillion a week ago, according to data from Clearing Corp. of India. Offshore flows also pushed the five-year swap rate to 5.96% earlier in the day, its highest since Mar. 18, dealers said. Private-sector banks were shedding positions alongside foreign banks, dealers said. 

"It's not just OIS driven, there are some people who had built up longs (long positions) after the (Monetary Policy Committee meeting decision) policy, and before the auction, so that's also driving the sell-off," a dealer at a private sector bank said. 

Sentiment was further dampened as demand at the INR-159.64-billion state bond auction was expected to be tepid, dealers said. The RBI set a cut-off yield of 7.29% on Maharashtra's 10-year bond at the auction, against an Informist poll estimate of 7.26%. State bonds, which were less preferred by traders, saw cut-off yields much higher than estimated. The cut-off yields on Bihar and Jammu and Kashmir's 12-year bonds were 7.60% and 7.65% respectively, against a poll estimate of 7.49%.    

Purchases from state-owned banks limited the price decline, dealers said. Most traders expect bond prices to close around current levels, at around 6.60% yield on the 6.33%, 2035 gilt, dealers said. 

At 1500 IST, the turnover in the gilt market was INR 340.70 billion, higher than INR 309.35 billion at the same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.54-6.60%, while that on the 6.33%, 2035 bond is seen moving in a range of 6.55-6.62% for the rest of the day.  (Cassandra Carvalho)

India Gilts:Dn in choppy trade; state bond result seen worse than prior view

MUMBAI--1317 IST--Government bond prices were down in choppy trade, as overnight indexed swap rates rose again after easing off the day's high earlier in the day, dealers said. Bond prices briefly reversed an early fall as the rupee appreciated against the dollar and swap rates eased. However, expectations that the cut-off yields at the state bond auction may be higher than initially viewed, weighed on bond prices.

Traders await the result of the state bond auction, and some traders expect that the cut-off yields on some states could be higher than initial estimates. Ten states aimed to raise INR 159.64 billion through bonds Tuesday, which is lower than the indicated quantum of INR 216.80 billion in states' borrowing calendar for Oct-Dec. An Informist poll estimated the cut-off yield on Tamil Nadu's 2035 bond re-issue at 7.27%, a spread of 72 basis points over the 10-year benchmark gilt. At last week's auction, the Reserve Bank of India set a cut-off yield of 7.20% on Tamil Nadu's 10-year bond, a spread of 71 bps over the 10-year benchmark gilt. Public sector banks likely bid for state bonds maturing in up to 12-years, whereas investors like pension funds and life insurers likely picked up long-term papers at the auction, dealers said.

"I think the market (bond prices) will fall more from here," a dealer at a state-owned bank said. "...It's because of the state bond auction. People did not bid aggressively at auction, the cut-off will not be good." 

Bond prices were down as the five-year overnight indexed swap rate hit 5.96%, its highest since Mar. 18 in early trade Tuesday. The five-year swap rate briefly eased to 5.90% intraday, pulling bond yields lower, before rising again. Foreign portfolio investors likely sold gilts while paying fixed rates in swaps, dealers said. As of 1317 IST, FPIs net sold gilts worth INR 450 million through the fully accessible route, according to Clearing Corp. of India. The fall in bond prices was limited as public sector banks likely bought gilts at levels seen lucrative, dealers said. The yield on the 6.48%, 2035 bond did not rise above the psychological level of 6.55% due to "value buying" from public sector banks at this level.

Traders also covered short bets which they had placed before the RBI's Monetary Policy Committee meeting decision Friday, dealers said. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1317 IST showed trades worth INR 134.10 billion in the 6.33%, 2035 gilt, down from INR 161.05 billion Monday. Recovery in the rupee against the dollar to 89.87 per dollar from the day's low of 90.14 per dollar also limited the fall in bond prices, dealers said. 

At 1228 IST, the turnover in the gilt market was INR 177.55 billion, higher than INR 161.85 billion at the same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.50-6.58%, while that on the 6.33%, 2035 bond is seen moving in a range of 6.52-6.60% for the rest of the day.  (Janwee Prajapati)

India Gilts: Down as 5-year OIS rises over 5 bps; fall limited on value buys

MUMBAI--0930 IST--Prices of government bonds were down as the five-year overnight indexed swap rate hit 5.96%, its highest since Mar. 18 in early trade Tuesday, marking nearly a 17 basis point rise in the swap this week. An overnight rise in US Treasury yields also weighed. However, the fall in prices was limited due to purchases at levels seen lucrative, after the yield on the 10-year benchmark 6.48%, 2035 bond hit the psychologically crucial 6.55% level, dealers said. The five-year swap rate also eased off the day's high. Some traders expected a recovery in prices Tuesday, after the sharp fall in prices Monday, dealers said. Bond prices were sharply down Monday tracking a rise in swap rates, dealers said. 

"Because yesterday (Monday) it (prices) fell so much, right now its kind of recovering," a dealer at a private sector bank said. "I think old 10-year (6.33%, 2035) will settle at around 6.55% as it recovers, because it hit 6.59% right. Currently, its (bond prices) reacting to OIS only."

The yield on the benchmark 10-year US Treasury note was 4.18% at 0930 IST, after hitting a high of 4.20% overnight, from 4.16% at 1700 IST Monday. Subsequently, the five-year swap rate rose. Traders also trimmed expectations of further rate cuts on the domestic front, as Reserve Bank of India Governor Sanjay Malhotra's comments at the outcome of the Monetary Policy Committee meeting failed to provide indications of further policy easing after the panel cut the repo rate by 25 basis points Friday.

There was a delay in trade at market open, due to a wide spread between bid and offer prices, dealers said. Traders were uncertain about the direction of bond prices, and were re-adjusting their bids and offers to match the sharp variation onscreen. "The bid-ask spread for new 10-year (6.48%, 2035 gilt) is 58 (INR 99.58) to 6175 (INR 99.62)," a dealer at another private sector bank had said before trade began in the gilt Tuesday.

At 0930 IST, the turnover in the gilt market was INR 24.55 billion, lower than INR 32.75 billion at the same time Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. The yield on the 6.48%, 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 6.52-6.60% for the rest of the day.  (Cassandra Carvalho)

India Gilts: May open down as further rate cuts seen unlikely; OIS mkt eyed

MUMBAI – Prices of government bonds are seen opening lower Tuesday following the sharp fall Monday, as traders price in the current repo rate of 5.25% as the terminal repo rate, dealers said. Reserve Bank of India Governor Sanjay Malhotra's comments at the outcome of the Monetary Policy Committee meeting failed to provide indications of further policy easing after the panel cut the repo rate by 25 basis points Friday. Traders will closely track the movement of overnight indexed swap rates, after an over 10-bps-rise in the five-year swap rate Monday pulled down bond prices. The next technical levels on the five-year swap rate are 5.92-5.93%, and 5.98-5.99%, after the swap ended at 5.91% Monday, dealers said. 

The 10-year benchmark 6.48%, 2035 bond yield is seen in the range of 6.50-6.60% after ending at INR 99.60, or 6.53% yield, Monday. The yield on the erstwhile 10-year benchmark 6.33%, 2035 bond is seen at 6.52-6.60%, against INR 98.33, or 6.57% yield in the previous session. The yield on the benchmark 10-year US Treasury note was 4.17% at 0800 IST, hitting a high of 4.20% overnight, from 4.16% at 1700 IST Monday. On the global front, traders await the outcome of the US Federal Open Market Committee's meeting early Thursday, wherein the panel is largely expected to cut interest rates by 25 basis points. 

Foreign portfolio investors net sold gilts worth INR 17.69 billion Monday through the fully accessible route, according to data from Clearing Corp. of India. Private sector and foreign banks were net sellers Monday, as traders unwound bets of further rate cuts in India, and offshore traders trimmed risk ahead of the FOMC decision, dealers said. Bond prices may also track the movement of the rupee against the dollar.

Traders may also track the result of the state bond auction. Ten states will raise INR 159.64 billion through bonds Tuesday, lower than the indicated amount of INR 216.80 billion in states' Oct-Dec borrowing calendar. Inspite of the lower borrowing, traders expect yield spreads of these securities to widen over gilts of comparable maturity at the auction, due to fears of heavy state borrowing in Jan-Mar, a seasonal occurence, dealers said. Hopes of the RBI purchasing state bonds through open market operation

auctions were dashed after RBI Governor Malhotra Friday said the central bank would not buy state bonds in OMOs. At last week's state bond auction, the cut-off yield on Punjab's 10-year bond was 100 basis points higher than the yield on the 10-year benchmark gilt. (Cassandra Carvalho) 

End

US$1 = INR 89.88

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

Edited by Tanima Banerjee

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd. by NSE Data & Analytics Ltd., a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt. Ltd.

Informist Media Tel +91 (22) 6985-4000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2025. All rights reserved.