More Stories

Informist, Wednesday, Dec. 10, 2025

By Janwee Prajapati and Aaryan Khanna

MUMBAI - Government bond yields rose for the third straight day Wednesday after an early dip because traders hit stop losses. Foreign and private-sector banks likely trimmed their gilt portfolios on the view that there will be no further rate cuts in the current cycle after the Reserve Bank of India's Monetary Policy Committee cut the repo by 25 basis points Friday, dealers said.

The 10-year benchmark yield ended at 6.63%, its highest level since March 25, breaking out of the trading range for the current financial year, which started in April, despite 100 basis points of rate cuts by the MPC. The benchmark yield had fallen below 6.20% intraday in June and has erased all gains since then. The yield on the erstwhile benchmark 6.33%, 2035 bond also broke past its late-August high, ending at 6.66%.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 98.93, or 6.63% yield, against INR 99.20, or 6.59% yield Tuesday. The 6.33%, 2035 gilt ended at INR 97.68, or 6.66% yield, against INR 98.01, or 6.62% yield, in the previous session.

Public sector banks are likely to have bought gilts after the 10-year benchmark yield hit 6.60%, though their appetite was limited after net buying of INR 102 billion of gilts in the secondary market since Monday. Bond prices slid further near the end of the day on caution before the US Federal Open Market Committee's rate decision at 0030 IST Thursday. The 10-year US Treasury yield was at 4.20% at 1700 IST from 4.16% at the end of Indian market hours Tuesday.

"Stop losses were hit at 6.58% on 6.48% (6.48%, 2035 bond), which led to other stop losses, but I am not sure what led to the initial fall," a dealer at a private sector bank said. "I am staying out right now before the OMO auction tomorrow... not sure which direction the market will move. Trade volume is also not much."

Despite the policy easing announced Friday, traders said the RBI's lack of action since then amid rising gilt yields was seen as a sign of its comfort with current levels. RBI Governor Sanjay Malhotra said Friday that the open market operations for December are for liquidity management and not to directly influence government bond yields, which was also seen as a signal of comfort on higher yields.

Despite the governor leaving the door open to further rate easing, traders said the bar for a rate cut is high, as it will depend mainly on weaker GDP growth prints, which are unlikely given that readings in the June and September quarters were sharply higher than expected, dealers said. The price of the 6.48%, 2035 bond has fallen by exactly a rupee from the cut-off price of INR 99.93 at its auction Friday. 

On the global front, too, there was caution before the US policy decision. Fed Chair Jerome Powell's comments and Fed officials' estimates of rates at the end of 2026 will be closely watched. Though a rate cut is expected, traders fear the US rate-setting panel will not cut rates after December until May, when Powell's term as Fed chair ends. Heading into the rate decision, US yields remained near 4.20%, up 19 basis points this month, after the job openings and labour turnover survey indicated that the job market was fundamentally steady in October, even as hiring remained subdued.

Traders remain cautious of placing aggressive bets ahead of the RBI's OMO auction to buy bonds Thursday, with views mixed on the result of the first such action since May. The RBI will purchase seven government bonds across tenures worth INR 500 billion at the auction. Traders were disappointed with the selection of bonds for the OMO, as most of the papers are "out of the money" or not profitable. The amount the RBI accepts for the 6.67%, 2050 paper offered at auction will be closely watched, as this is the longest-tenure paper the central bank has offered to buy in 2025. Banks do not possess a large quantum of this paper in their portfolios and investors are not likely to sell it as they hold long-term papers till maturity, dealers said.

"If the RBI does not take the entire amount at OMO, then that will lead to a bigger problem in the market," a dealer at a state-owned bank said. 

Bond prices were up earlier in the day on replacement demand as traders bought gilts at lucrative levels after the bond prices fell sharply on Monday and Tuesday following a rise in the five-year overnight indexed swap rate. The rise in bond prices was supported by a slight intraday recovery in OIS rate to 5.92%, down from 5.96% Tuesday. However, the five-year OIS rate erased the entire fall and ended at 5.97% Wednesday. 

Turnover in the gilts market was INR 455.95 billion, down from INR 513.05 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 Wednesday, the same as Tuesday. 

OUTLOOK

On Thursday, at open, gilts will track overnight movement in US Treasury yields after the US Federal Open Market Committee's rate decision and guidance on rates at 0030 IST Thursday. The rupee's movement in early trade will also lend cues, dealers said. 

Fed fund futures are pricing in a 90% chance of a 25 bps cut in the federal funds rate, according to the CME's FedWatch tool. 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.

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. The cut-offs at the auction and the quantum accepted may provide direction for bond prices, dealers said. 

Later in the day, primary dealers may begin short-selling bonds to make room for gilts at the weekly auction Friday. The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 120 billion of the 6.90%, 2065 gilt at 1030-1130 IST. With the sharp fall in prices this week, demand at the auction for the long-term bonds is likely to be poor, 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 6.55-6.70% Thursday. The yield on the 6.33%, 2035 bond is seen at 6.58-6.75%.

India Gilts: Reverse gains on stop-losses, expectation of no more rate cuts

MUMBAI--1333 IST--Prices of government bonds reversed gains from earlier in the day, as traders offloaded positions due to expectations that the rate cut cycle in India has ended, dealers said. The view comes after the Reserve Bank of India's Monetary Policy Committee cut the policy repo rate by 25 basis points to 5.25% Friday, which took the total quantum of rate cuts to 125 bps for this calendar year so far. Traders hit stop-losses, as the yield on the 6.48%, 2035 gilt rose above the psychologically crucial 6.60% level, dealers said. Foreign portfolio investors also sold gilts, with net sales of INR 10.47 billion as of 1333 IST, according to Clearing Corp. of India data. The yield on the 6.33%, 2035 gilt hit 6.6377%, the highest since Aug. 29. Traders expect the yield on the bond to hit around 6.66% in the near-term, dealers said. 

"The market seems to be in some sort of bearish move, I hope it holds on this level and appreciates again," a trader at a primary dealership said. "OIS is also not seeing much pain, it's stable only, and INR (rupee move) is also stable. It's just the panic in the market, hopefully by evening it should recover. It's the impact of people hitting cut-losses, and people tend to cut their positions very fast, that's another reason why prices are falling so sharply."

A fall in swap rates limited the fall in bond prices. The five-year swap rate reversed its early rise and fell to 5.92%, from the day's high of 5.96%. The 5.96% level is the highest since Mar. 18, and bond prices had slumped when the five-year swap hit this level earlier this week. 

Bond prices were up earlier due to purchases at cheap prices after a slump in prices Monday and Tuesday, dealers said. Traders await the Reserve Bank of India's INR-500-billion open market operation auction Thursday for indications of what prices and quantums the central bank is willing to accept, dealers said. Trade volumes were thin as traders refrained from aggressive bets ahead of the US Federal Open Market Committee meeting's decision at 0030 IST Thursday, even as a 25-bps rate cut at the outcome has been factored in.

Some traders found the yield spread between the 6.68%, 2040 gilt and gilts maturing in 40 years or more to be lucrative, while others picked up the most-liquid 10-year papers, dealers said. The spread between the 15-year benchmark 6.68%, 2040 gilt and the 6.90%, 2065 paper was around 45 bps earlier in the day. 

The RBI will purchase seven government bonds across tenures through an open market operation auction Thursday. The result of the auction is expected to lend direction to bond prices. Some traders expect more OMOs in Jan-Mar. As for this week, traders await the announcement of the gilts selected for the second INR-500-billion OMO auction to be held on Dec. 18.

"Positioning for OMO (open market operation, Thursday) is difficult as most of the papers selected are illiquid papers," a dealer at another private sector bank said. "People will offer these papers at a lower price (than market price) and will try to get rid of it even at smaller margin (profit). This kind of OMO will not help in yield management...OMOs have to be in more liquid papers to see any kind of improvement in the market (bond prices)."

At 1332 IST, the turnover in the gilt market was INR 237.70 billion, lower than INR 207.50 billion at 1330 IST Tuesday, 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 6.58-6.65%, while that on the 6.33%, 2035 bond is seen moving in a range of 6.56-6.66% for the rest of the day. (Janwee Prajapati and Cassandra Carvalho)

India Gilts: Up; levels lucrative to buy as 6.48%, 2035 gilt yld near 6.60%

MUMBAI--0934 IST--Prices of government bonds opened slightly lower, but soon reversed the fall to trade higher as current prices were lucrative to buy gilts, dealers said. The yield on the 10-year benchmark 6.48%, 2035 gilt ended at 6.59% Tuesday, which is the highest close for a 10-year benchmark gilt since Aug. 26, and the upper end of the recent trading range. 

"On 6.48% (2035 bond), we were at 6.59% (yield), almost 6.60%, so value buying will come in at these levels, but let's see whether this will sustain," a dealer at a private sector bank said. "Tomorrow, OMO auction is also there." 

Traders anticipate that bond prices will close higher ahead of the Reserve Bank of India's open market operation auction of INR 500 billion Thursday, dealers said. The RBI will purchase seven government bonds across tenures--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, though most of the papers are "out of the money" bonds held in available-for-sale or held-to-maturity books, and are not profitable at current market prices, dealers said. The 6.67%, 2050 paper will likely be tendered at a lower price, dealers said. The result of the auction is expected to lend direction to bond prices for the rest of the week, dealers said. Traders also await the announcement of the second INR 500-billion OMO auction, which will be held Dec. 18, hoping that the RBI will offer to buy more liquid and "on-the-run" gilts, dealers said. 

A rise in US Treasury yields ahead of the US Federal Open Market Committee's policy decision at 0030 IST Thursday capped gains, dealers said. The yield on the benchmark 10-year US Treasury note was 4.19% at 0934 IST, against 4.16% at 1700 IST Tuesday. US yields rose after the job openings and labour turnover survey indicated that the job market was fundamentally steady in Sept-Oct. 

At 0930 IST, the turnover in the gilt market was INR 33.40 billion, higher than INR 24.55 billion at the same time Tuesday, 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 6.55-6.62%, while that on the 6.33%, 2035 bond is seen moving in a range of 6.56-6.66% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Seen tad lower on rise in US ylds, sharp fall in past two days

MUMBAI – Prices of government bonds are seen opening a tad lower Wednesday after a sharp fall for two consecutive days, dealers said. Caution before the US Federal Open Market Committee's interest rate decision at 0030 IST Thursday may cap volatility. Towards the end of trade, anticipation of the Reserve Bank of India's open market operation auction on Thursday may buoy prices. 

The 10-year benchmark 6.48%, 2035 bond yield is seen in the range of 6.55-6.62% after ending at INR 99.20, or 6.59% yield, Tuesday. The yield on the erstwhile 10-year benchmark 6.33%, 2035 bond is seen at 6.56-6.66%, against INR 98.01, or 6.62% yield in the previous session. The yield on the benchmark 10-year US Treasury note was 4.18% at 0800 IST, against 4.16% at 1700 IST Tuesday. US yields rose after the job openings and labour turnover survey indicated that the job market was fundamentally steady in Sept-Oct. 

Traders will closely track offshore flows in both the gilts and swaps markets, after a surge in swap rates led to a slump in bond prices this week. The five-year overnight indexed swap rate has risen 16 bps this week, which has led to a 10-bps rise in the yield on the 6.48%, 2035 gilt during the same period. Foreign portfolio investors have net sold gilts worth INR 32.90 billion through the fully accessible route so far this week, according to data from Clearing Corp. of India. 

On the global front, traders await the outcome of the US Federal Open Market Committee's meeting at 0030 IST Thursday, wherein the panel is largely expected to cut interest rates by 25 basis points. Fed fund futures are pricing in an 88% chance of a 25 bps cut in the federal funds rate, according to the CME FedWatch tool. The US Federal Reserve's Summary of Economic Projections and comments by Chair Jerome Powell following the decision are awaited for further cues.

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 on 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. The result of the auction is expected to lend direction to bond prices for the rest of the week, dealers said.

Any further fall in bond prices Wednesday may lead to traders hitting stop-losses, as the yield on the 6.48%, 2035 bond nears the psychologically crucial 6.60% level. A fall in prices may be limited by purchases at levels seen lucrative, as the 6.33%, 2035 bond yield is at its highest since Sept. 1. Bond prices will also track the movement of the rupee against the dollar, dealers said. Traders have priced in a fall in the rupee to around 90.50 per dollar. (Cassandra Carvalho) 

End

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

Edited by Saji George Titus

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.