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Informist, Friday, Dec. 12, 2025

By Janwee Prajapati

MUMBAI – Prices of government bonds ended on a mixed note Friday. Most gilts maturing in up to 15 years ended lower as traders trimmed their portfolios after picking up stock at the weekly gilts auction, though the 10-year gilts were off lows on hopes that the Reserve Bank of India would buy the erstwhile benchmark 6.33%, 2035 paper at next week's open market operations auction, dealers said. Long-term bonds ended higher as investors lapped up the supply of the 40-year benchmark 6.90%, 2065 gilt at the auction.

The 10-year benchmark 6.48%, 2035 gilt closed at INR 99.18, or 6.59% yield, against INR 99.25, or 6.58% yield Thursday. The 6.33%, 2035 gilt ended at INR 98.04, or 6.61% yield, the same as Thursday. Meanwhile, CPI inflation of 0.71% in November was in line with an Informist poll of economists and also traders' views. As a result, the release of CPI data at 1600 IST made no impact on bond prices.

The 6.33%, 2035 gilt has outperformed gilts of similar tenure since Thursday. Traders were hopeful of the selection of relatively more liquid bonds at the next INR-500-billion OMO to buy gilts, which the RBI had announced last week. The erstwhile 10-year benchmark was the frontrunner for selection. Banks had likely passed on feedback to the RBI of their preferences, dealers said. After market hours Friday, the RBI announced it would buy the bond at its next OMO auction Thursday.

Traders sold liquid paper after picking up the 15-year benchmark 6.68%, 2040 gilt at auction, dealers said. The RBI accepted 116 of 260 bids for the bond Friday, suggesting the bond was not favoured by end-investors such as banks. The cut-off price of INR 96.88 was in line with an Informist poll. Some bidders got the gilt at a cheaper price than they had expected. They had thought the price would be in the INR 96.90-INR 96.95 band.

"The auction cut-offs were on the tail for both papers, people did not bid aggressively even after selling at the OMO auction yesterday (Thursday)," a dealer at a state-owned bank said. Tail refers to the difference between the cut-off price and the weighted average price. "Market had some momentum in the morning as there was some level buying from banks, but banks also have limited appetite," the dealer said.

The RBI bought INR 500 billion of seven gilts at auction Thursday. Some traders now expect the central bank to announce another OMO auction to buy bonds in addition to the INR 1 trillion it had announced last week. Others still see the RBI's next tranche of bond buys coming only in the March quarter. For December, the additional purchases may be INR 500 billion while for bond purchases in the March quarter, traders are hoping for an announcement of at least INR 1 trillion. 

Banks did not bid aggressively for the 15-year benchmark paper despite selling gilts to the RBI at the OMO auction Thursday, which was seen as a negative sign by some traders, dealers said. Banks did not want to increase the average maturity of their holdings at a time when yields are not seen falling as the RBI's policy easing cycle nears its end.

Even with CPI inflation remaining low, traders did not increase bets of another rate cut by the RBI's Monetary Policy Committee and the bar for a domestic rate cut in February remains high, dealers said. Traders are more focused on the CPI prints from January onwards, with the RBI projecting retail inflation to average 0.6% in the December quarter. Another cut in the repo rate is seen to be unlikely at this stage unless India's GDP growth slumps, dealers said.

"On the curve I would say up to 5 year to 7 year is what we are preferring, even 10 year is fine, because the carry above repo (rate) is good in this paper," a dealer at a public-sector bank said. "But I don't think anybody would want to increase the duration of their portfolio now that the rates are not likely to fall. You only buy long term when you expect a fall in rates, otherwise if there is a rise, long paper will fall more (in price terms)."

On the other hand, the cut-off price on the 6.90%, 2065 bond was sharply higher than expected at INR 93.21, against the Informist poll median of INR 93.02. Traders have already expected firm demand as the 40-year benchmark yield topped 7.45% this month for the first time since January 2024. The INR 120-billion supply of the bond was swept in only nine bids out of 170, with traders speculating about purchases by both large pension funds and a large state-owned insurance firm. Dealers were split as to whether the demand was outright or through bond forwards or forward-rate agreements of INR 80 billion to INR 100 billion, as some traders had expected prior to the result. 

Foreign banks and public-sector banks likely bought gilts as the levels seemed lucrative before the auction result. Primary dealers likely sold gilts after they picked up fresh supply at the auction. Mutual funds were also likely selling gilts, carrying on from Thursday, when they net sold INR 18.39 billion of gilts, according to Clearing Corp. of India data. 

Bond prices had opened lower due to short sales before the auction, with further selling pressure because of the rupee's weakness. The domestic unit fell to a record low of 90.56 per dollar in early trade Friday. Trade volume was thin before the result of the weekly gilts auction and the CPI data.

Turnover in the gilts market was INR 370.85 billion, down from INR 474.05 billion Thursday, 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 this week.

OUTLOOK

Gilts are not traded Saturday. When the market opens Monday, gilt prices may open higher after the RBI's choice of bonds to buy at its OMO auction next week was seen to be favourable and providing profitable exits to traders, dealers said.

The RBI Thursday will buy seven government bonds worth INR 500 billion in the second tranche of OMO purchases this month, the central bank said after gilt market hours Friday. The RBI has offered to buy the 6.75%, 2029; the 6.10%, 2031; the 6.54%, 2032; the 7.18%, 2033; the 6.33%, 2035; the 7.23%, 2039; and the 7.09%, 2054 gilts at the auction. The addition of the erstwhile 10- and 30-year benchmarks is likely to increase the tendering of bonds by banks at the auction, after a modest bid-offer ratio at this week's OMO purchase, dealers said. Banks had passed on their feedback to the RBI to add more liquid gilts at the OMO auctions. 

Bond prices may also track the movement of US Treasury yields over the weekend after scheduled comments from US Federal Reserve officials Friday. The rupee's movement early in trade will also lend cues, dealers said.

Traders will monitor developments on 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 6.53-6.61%. The yield on the 6.33%, 2035 bond is seen at 6.54-6.62%.

India Gilts: Off lows on anticipation of 6.33%, 2035 inclusion in OMO next wk

MUMBAI--1626 IST--Prices of government bonds recovered slightly from the day's low, nearing the end of trade, on expectations that the Reserve Bank of India will announce the details of next week's INR-500-billion open market operation auction post market hours. Traders expect the central bank to include the erstwhile 10-year benchmark 6.33%, 2035 gilt in its OMO purchases, dealers said. Bond prices were little changed after India's CPI inflation for November, released at 1600 IST, printed at 0.71%, in line with traders' estimates and the median of an Informist poll. The rise in November comes after a record low of 0.25% in October. Core inflation in November was 4.4%, unchanged from a month ago. 

"There is nothing to react to in CPI, the CPI number is already priced in," a trader at a primary dealership said. "And post 5 o'clock (1700 IST) we're expecting the RBI to put out the OMO announcement, and people are punting whether 6.33% (6.33%, 2035 gilt) is in that list." Dealers said that only the inclusion of liquid bonds in OMO auctions could lower bond yields. 

Traders had priced in a 0.7% inflation estimate and expected bonds to react only if CPI was 0.2% or lower at the lower end and 1.0% or higher at the upper end. The 0.71% print did not increase bets of another rate cut by the Reserve Bank of India's Monetary Policy Committee, and the bar for a domestic rate cut in February remains high, dealers said. Traders are more focused on the CPI prints from January, with the RBI projecting retail inflation to average 0.6% in the December quarter. Another cut in the repo rate is seen as unlikely at this stage unless India's GDP growth slumps, dealers said.

More than the CPI, traders are awaiting the announcement of the second INR 500-billion OMO auction, scheduled for Dec. 18, which is expected to be made after market hours on Friday. In the second tranche of the INR 1.00-trillion OMO purchases by the RBI this month, dealers expect the central bank to buy liquid, "in the money" papers that are profitable to sell at current levels. The 6.33%, 2035 gilt yield fell over 5 basis points Thursday on bets that the RBI would buy this paper next week, after the central bank had sought suggestions from market participants on the selection of bonds. After cut-off prices at Thursday's open market operation auction were higher than expected, traders expect the RBI to continue this pattern in further OMOs. Some traders also expect the RBI to conduct another OMO auction after the one scheduled next week, for at least INR 250 billion, in December itself, dealers said.    

At 1625 IST, turnover in the gilt market was INR 325.25 billion, lower than INR 413.65 billion at 1630 IST Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. For the rest of the session, the yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.54-6.63%, while that on the 6.33%, 2035 bond is seen in a range of 6.56-6.64%.  (Cassandra Carvalho)

India Gilts: Mixed; most down as traders trim 6.68%, 2040 auction stock

MUMBAI--1510 IST--Prices of most government bonds reversed gains and traded lower, as traders readjusted their portfolios after getting stuck with auction supply, especially stock of the 6.68%, 2040 bond, dealers said. Some traders were disappointed with the cut-off price on the 15-year 6.68%, 2040 bond, dealers said.

The RBI set a cut-off price of INR 96.88 on the 15-year paper, the same estimated in an Informist poll. The weighted average price on the bond was slightly higher at INR 96.92 at auction. Some traders were hoping for a cut-off price of at least INR 96.90-INR 96.95. The RBI accepted 116 out of 260 bids for the bond at auction, indicating that traders got the stock, more than investors. A few banks bought the gilt for their held-to-maturity books, but not enough to bump up the price at the auction, dealers said.

Long-term bonds rose after the cut-off price on the 6.90%, 2065 bond at the auction was sharply higher than expectations. The RBI set a cut-off price of INR 93.21 on the bond, higher than an Informist poll estimate of INR 93.02. The weighted average price on the bond was INR 93.35. A large state-owned insurance company and pension funds lapped up the supply of the bond, with around INR 80 billion to INR 100 billion of the bond purchased for bond forward rate agreements, dealers said. The central bank accepted only nine out of 170 bids at the auction, indicating investors bought large quantum of the bond, dealers said. The 6.90%, 2065 gilt last traded at INR 93.30, up 18 paise from Thursday's close.

"People will sell, they don't want to keep the (auction) stock. And some people will short (short-sell) for future, so I don't think these levels will sustain, we'll go to auction cut-off levels," a dealer at a state-owned bank said. "Maybe people will hold for (until) CPI, though I don't think CPI will affect the market."

Traders have not built significant positions ahead of India's CPI inflation data for November, dealers said. The headline print, due at 1600 IST, is seen at 0.7%. However, caution before the data limited some movement of bond prices, dealers said. If the data is along expected lines and there are no surprises, traders may continue selling bonds after the data is released, they said.

Trade volume picked up after the auction result. At 1510 IST, turnover in the gilt market was INR 270.40 billion, over 100% higher than INR 124.35 billion at 1330 IST, shortly after which the auction result was published; and higher than INR 237.45 billion at 1430 IST Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

For the rest of the session, the yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.54-6.63%, while that on the 6.33%, 2035 bond is seen in a range of 6.56-6.64%.  (Cassandra Carvalho)

India Gilts: Reverse losses on buys post OMO; gilt auction demand seen firm

MUMBAI--1231 IST--Prices of government bonds recovered early losses on optimism over strong demand expected at the weekly gilt auction, dealers said. After selling INR 500 billion worth of bonds to the Reserve Bank of India Thursday, traders bought gilts to replenish their portfolios, dealers said. Bond prices were down earlier tracking a fall in the rupee against the dollar to a record low, but the rupee came off lows later in the session. 

Trade volume was subdued as traders refrained from placing aggressive bets ahead of the gilt auction result, along with the release of India's CPI for November, due at 1600 IST. At 1231 IST, the turnover in the gilt market was INR 113.55 billion, lower than INR 125.10 billion at 1230 IST Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

At the weekly gilt auction, the government sought bids for INR 160 billion of the 6.68%, 2040 bond and INR 120 billion of the 6.90%, 2065 gilt. Banks are likely to pick up the 6.68%, 2040 bond for their held-to-maturity books since current prices are seen lucrative, dealers said. An Informist poll estimated the cut-off yield on the bond at 7.02%, a level hit this week for the first time since Sept. 1. After INR 500 billion worth of bond sales to the Reserve Bank of India at cut-off prices largely higher than indicated, at the open market operation auction Thursday, traders replenished their books by buying bonds in both the secondary and primary markets, but especially favoured the auction, to get stock of the 15-year bond in larger quantums and at a cheaper price, dealers said.

"There is no trader demand, but banks may add it (6.68%, 2040) in their HTM (held-to-maturity) books," a dealer at a public sector bank said. "They will want to add bonds to their HTM only if the carry is good, so if they hold it (6.68%, 2040) till maturity they can make free money."

Demand for the 6.90%, 2065 bond at the auction is likely to be firm from life insurance companies, dealers said. A large state-owned life insurance company is likely to purchase the gilt, dealers said. Purchases of around INR 80 billion to INR 100 billion of the bond were for bond forward rate agreements, dealers said. Some traders had a contradictory view and said investors would prefer bidding for the bond at yields higher than current market levels, and traders would not want to bid for the bond due to lack of risk appetite for this tenure.

The 6.33%, 2035 bond outperformed the 10-year benchmark 6.48%, 2035 bond, though trade volumes in the former were low. Traders await the details of the second INR 500-billion open market operation auction to be held Thursday, an announcement on which is expected post market hours Friday. Traders expect that the RBI will buy liquid, profitable papers such as the 6.33%, 2035 gilt. 

The yield on the 6.48%, 2035 10-year benchmark bond is seen at 6.54-6.63%, while that on the 6.33%, 2035 bond is seen moving in a range of 6.56-6.64% for the rest of the day.  (Janwee Prajapati)

India Gilts: Down on short sales before auction, rupee hits record low

MUMBAI--0927 IST--Prices of government bonds opened lower, tracking the rupee's fall to a record low of 90.5600 per dollar Friday. Traders also placed short bets before the INR 280-billion gilt auction. While cut-off prices on the bonds may be lower than current market prices, the auction is likely to sail through, dealers said. The government will sell INR 160 billion of the 6.68%, 2040 bond and INR 120 billion of the 6.90%, 2065 gilt.

"Auction is there, and rupee is also falling, so it's a cumulative effect," a dealer at a state-owned bank said. "Auction will be good, at least for 2040 (6.68%, 2040 bond). At this level, 15-year is looking very good to buy."

After the auction result, traders await India's CPI inflation for November at 1600 IST. Traders expect India's CPI inflation to rise to 0.7% in November from a record low of 0.25% in October. If core CPI is above 4.5%, bond prices could fall, but traders have largely priced in elevated core CPI figures due to a rise in prices of precious metals. Core inflation in October was 4.4%, up from 4.3% in September. At the Monetary Policy Committee meeting outcome on Dec. 5, Reserve Bank of India Governor Sanjay Malhotra said a rise in precious metal prices was adding 50 bps to headline CPI.

"Yields may soften after auction. Anyway (headline) CPI of 0.6% (for November) is expected, if it's 0.2%, then we can see positivity (a rise in bond prices)," a dealer at another state-owned bank said. Some traders expect headline CPI to surprise on the downside.

Traders await the details of the second INR 500-billion open market operation auction to be held Dec. 18, an announcement on which is expected post market hours Friday. Traders expect that the RBI will buy liquid, profitable papers such as the 6.33%, 2035 gilt. 

At 0927 IST, the turnover in the gilt market was INR 26.95 billion, similar to INR 25.25 billion at 0935 IST Thursday, 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 6.55-6.63%, 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 steady before fresh supply, India Nov CPI; OMO notice eyed

MUMBAI – Prices of government bonds are seen opening largely steady Friday, ahead of the weekly gilt auction and India's CPI inflation data for November, dealers said. Optimism that the Reserve Bank of India will buy the 6.33%, 2035 gilt at next week's open market operation auction may lend a positive bias to bond prices, dealers said.

The 6.48%, 2035 bond is seen in the range of 6.55-6.63% yield after ending at INR 99.25, or 6.58% yield, Thursday. The yield on the erstwhile 10-year benchmark 6.33%, 2035 bond is seen at 6.56-6.66%, against INR 98.04, or 6.61% yield, in the previous session. The yield on the benchmark 10-year US Treasury note was 4.16% at 0800 IST, up from 4.13% at 1700 IST on Thursday.

After cut-off prices at Thursday's open market operation auction were higher than expected, traders await the details of the second INR 500-billion OMO auction to be held Dec. 18, an announcement on which is expected post market hours Friday. In the second tranche of the INR 1.00-trillion OMO purchases by the RBI this month, dealers expect the central bank to buy liquid, "in the money" papers that are profitable to sell at current levels. The 6.33%, 2035 gilt yield fell over 5 basis points Thursday on bets that the RBI would buy this paper next week, after the regulator had sought suggestions from market participants on the selection of bonds. 

Traders may refrain from aggressive bets owing to CPI inflation data for November, due 1600 IST. India's CPI inflation is expected to rise to 0.7% in November from a record low of 0.25% in October, mainly as the statistical effect of a favourable base begins fading away, according to an Informist poll of 17 economists. Traders have priced in this estimate and bonds may only react--on the downside--if CPI inflation is 1.0% or higher. Otherwise, the data may not lend significant cues as the bar for a domestic rate cut in February remains high, dealers said. Traders are more focused on the CPI prints from January, with the RBI projecting retail inflation to average 0.6% in the December quarter. Another cut in the repo rate is seen as unlikely at this stage unless India's GDP growth slumps, dealers said.

Traders will also track the result of the weekly gilt auction. At the auction, 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. Traders are likely to place some short bets ahead of the auction to make space in their portfolios for the fresh auction supply. Demand is seen firm, especially for the 15-year 6.68%, 2040 bond, due to replacement demand after sale of INR 500 billion worth of gilts to the RBI at the OMO auction Thursday.  

Bond sales by foreign portfolio investors may continue to weigh on bond prices, as they trim their books towards the end of the calendar year, and offshore traders trim expectations of further cuts in the repo rate, after the RBI's Monetary Policy Committee cut the repo by 25 bps on Dec. 5, dealers said. FPIs net sold gilts worth INR 11.53 billion Thursday, taking their net sales so far this month to INR 80.57 billion, according to data from Clearing Corp. of India. The rupee's movement will also lend cues, dealers said.  (Cassandra Carvalho)

End

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

Edited by Rajeev Pai

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