More Stories

Informist, Friday, Dec. 26, 2025

MUMBAI – Government bond prices ended sharply lower after the cutoff prices at auction were lower than expected on subdued demand from banks, dealers said. The fall in prices was, however, limited, as traders likely purchased gilts after the yield on the 10-year benchmark 6.48%, 2035 paper approached 6.58% following a 5-basis-point intraday rise in the yield. The 10-year benchmark 6.48%, 2035 gilt closed at INR 99.39, down from INR 99.56 Wednesday. The bond's yield ended at 6.5637%, up from 6.5398% on Wednesday.  

Although banks prefer 2032 gilts for their asset-liability management books, they did not bid aggressively at the auction due to a liquidity crunch in the banking system, which led to a sharp decline in cutoff prices, dealers said. Moreover, demand from public-sector banks was subdued, as they likely preferred state bonds in their investment portfolios to gilts due to their higher yields, dealers said. Foreign banks also refrained from bidding at the auction as the calendar year approached its end.

Mutual funds were absent from the auction due to year-end redemption pressure. In the 7.24%, 2055 bond, demand from long-term investors was not as aggressive as expected after they mopped up heavy supply at the last two weekly gilt auctions and the state bond sale this week, dealers said.

"None of the papers were traders' paper today (at auction, Friday), (these were) only investment papers," a dealer at a private sector bank said. Some banks took the paper for their asset-liability management books, but since it is quarter-end, demand was not that high, dealers said.

Many traders were on leave for Christmas and the New Year, keeping trade volume low. Despite these, the auction of the 7.24%, 2055 bond sailed through on decent demand from long-term investors, dealers said. Some traders gave the auction a miss as it was near the end of the quarter and year, and on the view that the central bank would not accept a large volume of long-term bonds in its OMO purchases.
 

At the open-market operations auction Monday, traders are likely to bid at prices slightly higher than the market levels, dealers said. The 10-year benchmark yield hit an over nine-month high of 6.70% on Tuesday before recovering to close at 6.54% on Wednesday after the central bank announced open-market operations auctions to buy bonds worth INR 2 trillion until Jan. 22, more than traders had anticipated. Traders pointed out that, some of the papers are in-the-money or profitable after the rise in price levels. Traders expect the 10-year yield to moderate to 6.50-6.53% following the remaining three OMO tranches due in January. 

"It can easily go to 6.50% in the next week or so," a dealer at another private sector bank said. "... 6-7 bps move is nothing, we can easily see a 10 bps move. But going ahead, most of the move will depend on the quantum of state borrowing if its significantly higher than yield might rise."   

Turnover in the gilts market was INR 335.25 billion Friday, lower than INR 594.05 billion Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. On Friday, there were no trades using the RBI's wholesale e-rupee pilot, the same as Wednesday. 

OUTLOOK

Gilts are not traded Saturdays. On Monday, at open, gilts will track movements in US Treasury yields. Movement in rupee in early trade will also lend cues to the bond prices. Later in the day, traders will focus on the results of the open market auction.

The Reserve Bank of India will buy INR 500 billion of 7 gilts via OMO auction on Monday. The RBI will purchase the 6.67%, 2035 gilt, the 7.18%, 2037 gilt, the 7.26%, 2033 gilt, the 6.79%, 2034 gilt, the 6.79%, 2029 gilt, the 7.61%, 2030 gilt, and the 7.30%, 2053 bond at auction. The RBI will buy a total of INR 2 trillion worth of government bonds through open market operation auctions in four tranches across December and January, it said in a release Tuesday. It will buy gilts worth INR 500 billion each on Monday, Jan. 5, Jan. 12, and Jan. 22. Traders are expected to offer these bonds at a premium to the market price, dealers said.

Traders will monitor developments on the India-US trade deal and will keep an eye on crude oil prices. Some traders are also hopeful that the likely inclusion of Indian government bonds in Bloomberg's Global Aggregate Index in January will push bond prices higher, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.54-6.59%.

India Gilts: Fall sharply as auction results show lack of PSU bks' interest

MUMBAI--1625 IST--Government bond prices fell sharply after the result of the weekly gilt auction disappointed. The cut-off prices for the 5.91%, 2028 and 6.28%, 2032 gilts were sharply lower than market expectations, mainly due to limited buying interest from state-owned banks, dealers said.

Demand from public sector banks was subdued, as they likely preferred state bonds in their investment books to gilts due to their higher yields, dealers said. Banks have increased their internal limits on holding state bonds as spreads of the state government securities over gilts have risen rapidly. A rise in credit off-take and the banking system liquidity deficit also curtailed demand for asset-liability management needs.

Demand for the three-year bond was expected to be robust, as it offered a spread of over 50 basis points over the policy repo rate of 5.25%, which is considered lucrative. However, with prevailing money market rates often topping the Reserve Bank of India's Marginal Standing Facility rate of 5.50% amid tight liquidity and quarter-end credit demand, both state-owned and private-sector banks demanded higher yields. Banks' loan growth as of Dec. 12 was at an over 13-month high of 11.7%. 

"There are two main reasons for the lack of demand: credit offtake and tight liquidity," a dealer at a state-owned bank said. "Right now, the seven-year (gilt) doesn't make sense either for ALM (asset-liability management) or HTM (held-to-maturity), and there is a lot of confidence that state bond supply will be adequate to replace."

Meanwhile, the RBI set a cut-off price of INR 98.40 for the 6.28%, 2032 bond, below the expected cut-off of INR 98.53 seen in an Informist poll. Some traders had expected the RBI to reject bids for the seven-year bond, as some were demanding yields above the 10-year benchmark of 6.48% for the 2035 bond. Instead, the central bank accepted bids for the full notified amount of INR 110 billion, suggesting it was comfortable with yields rising above current levels. The 10-year benchmark yield hit an over nine-month high of 6.70% on Tuesday before recovering to close at 6.54% on Wednesday after the central bank announced open-market operations auctions to buy bonds worth INR 2 trillion until Jan. 22, more than traders had anticipated.

"Auction was fine, but the 7-year (6.28%, 2032) paper (result) was weak," a dealer at a private-sector bank said. "People were expecting the cut-offs to be higher than the 10-year bond, but it was lower... also some people were expecting cancellation... but that didn't happen." The RBI had rejected all bids for the 6.28%, 2032 bond at the Oct. 31 auction.

Mutual funds were also absent from the auction due to year-end redemption pressure. In the 7.24%, 2055 bond, demand from long-term investors was not as aggressive as expected after they mopped up heavy supply at the last two weekly gilt auctions and the state bond sale this week, dealers said. The RBI accepted 69 bids out of 183 bids received for the 2055 bond, dealers said. The RBI had accepted 14 of 139 bids received for the 7.09%, 2074 paper at last week's gilt auction.

Losses were limited as traders picked up the 6.48%, 2035 bond when its yield approached 6.58%, near the top of the 6.50-6.60% range expected till the new year, dealers said. However, traders do not expect prices to recover sharply for the rest of the day, given the disappointing auction results and caution ahead of the weekend. 

At 1625 IST, the turnover in the gilt market was INR 303.70 billion, lower than INR 525.60 billion at 1635 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Money markets were shut Thursday for Christmas. The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.54-6.59% for the rest of the day. (Janwee Prajapati and Aaryan Khanna)

India Gilts: Off lows before auction result; uncertainty around 7-yr tender

NEW DELHI--1230 IST--Government bond prices were off lows ahead of the result of the INR 320-billion weekly gilt auction. While primary dealers had short sold securities to make room for the auction stock, traders bought the 10-year benchmark 6.48%, 2035 gilt above 6.55% yield on the view its price would rise after the Reserve Bank of India's open market operation auctions begin Monday, dealers said. Immediately after the auction bidding ended at 1130 IST, bonds had recovered nearly all losses. 

Banks will likely opt to fill their portfolios with the three-year bond on offer and traders said demand for the 6.28%, 2032 bond was likely modest. The bond was lucrative to add as it offered a similar yield to the 10-year benchmark gilt but its lack of liquidity pushed it out of favour with traders. Moreover, banks were also not keen to replenish their portfolios in a hurry ahead of the beginning of the RBI's bond purchases through OMOs worth INR 2 trillion by Jan. 22. Dealers said that the sharp fall in yields Wednesday had largely captured the optimism around the central bank's massive liquidity injection and current yields were not attractive to add to held-to-maturity portfolios. The 10-year gilt yield fell by over 9 basis points Wednesday, its largest single-day fall since Apr. 2.

Bond prices may react negatively if the cut-off price on the 2032 bond is lower than the expected INR 98.53 in an Informist poll. However, the RBI could reject some bids so that the government only issues a partial amount of the bond against INR 110 billion notified, dealers said. The central bank had rejected all bids for the 6.28%, 2032 bond at auction on Oct. 31, likely as traders were demanding a higher yield on the seven-year gilt than the level on the 10-year benchmark at the time.

"It will be interesting to see how the seven-year cut-off comes, because without nat (nationalised) bank support there could be quite a bit of a tail (difference between cut-off and weighted average prices)," a dealer at a primary dealership said. "In a bullish market and with all that the RBI has already done, I don't think he should even partially cancel the auction." 

Demand for the 5.91%, 2028 gilt was robust at the auction, dealers said. Asset-liability management desks from both private-sector and state-owned banks had bid aggressively for the three-year paper at levels that offered an over 50 basis point spread over the repo rate of 5.25%, seen lucrative, they said.

Several traders were on leave between Christmas and the weekend, as well as at the year-end, keeping trade volume low. Despite these hurdles, the INR-120-billion supply of the 7.24%, 2055 bond is likely to sail through at the auction due to firm demand for long-term investors, dealers said. Some traders were also keen to participate but gave the auction a miss near the quarter- and year-end, as well as on the view that the central bank would not accept a large quantum of long-term bonds in its OMO purchases.

"The long bond (7.24%, 2055 gilt) should go through at 7.30-7.31% (yield). Even if traders aren't very interested, investors have been there to support the market and there was decent demand during the bidding," a dealer at a private-sector bank said. 

At 1230 IST, the turnover in the gilt market was INR 84.05 billion, sharply down from INR 298.40 billion at 1230 IST Wednesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Money markets were shut Thursday for Christmas. The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.52-6.58% for the rest of the day. (Aaryan Khanna)

India Gilts: Down on short sales ahead of auction; demand seen firm

MUMBAI--1005 IST--Government bond prices fell in thin trade due to short bets placed ahead of the INR-320-billion gilt auction, dealers said. Traders expect demand at the auction to be firm following the Reserve Bank of India's announcement of a larger-than-expected INR 2 trillion worth of open-market operation auctions to buy bonds by Jan. 22, dealers said.

A proxy for tracking overnight short sales on 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 0937 IST showed trades worth INR 80.44 billion in the 6.48%, 2035 gilt, down from INR 83.15 billion Wednesday but up from INR 75.62 billion Tuesday. 

The government will sell INR 90 billion of the 5.91%, 2028 gilt, INR 110 billion of the 6.28%, 2032 gilt, and INR 120 billion worth of the 7.24%, 2055 gilt at the weekly auction Friday. Banks are likely to mop up supply of the 5.91%, 2028 paper at the auction for their asset-liability management needs. They are also likely to bid strongly for the 6.28, 2032 bond, likely for their held-to-maturity books after they sold papers out of the portfolio to the RBI worth INR 1 trillion already in December, dealers said.

"There is some firm demand for the three-year (5.91%, 2028) paper from a particular group of people," a dealer at a primary dealership said. "I think the supply will be easily absorbed as the total quantum is split between three papers."

The 2055 paper is likely to receive aggressive bids from long-term investors such as life insurers and pension funds after the firm demand seen at the state bond auction on Tuesday and the past two weekly gilt auctions, dealers said. However, some traders said a higher than expected underwriting fee cut-off suggested that demand might not be as strong as anticipated. The RBI set the underwriting fee cut-off at 1.10 paise for the 30-year benchmark gilt, against 0.65 paisa seen in an Informist poll.

At 1005 IST, the turnover in the gilt market was INR 23.50 billion, lower than INR 135.45 billion at 1030 IST Wednesday, 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 6.52-6.58% for the rest of the day. (Janwee Prajapati)

India Gilts: Seen steady before INR-320-bln auction, rise may continue after

NEW DELHI – Government bond prices are likely to open steady before the weekly gilt auction worth INR 320 billion at 1030-1130 IST. Firm demand is expected for the fresh supply, which should help prices continue their rise from Wednesday after the auction bidding and result, dealers said.

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.50-6.58% yield after ending at INR 99.56, or 6.54% yield Wednesday. The benchmark yield fell over 9 basis points Wednesday, the most in a single day since Apr. 2. Money markets were shut on Thursday for Christmas. 

The surge in gilt prices was triggered by the Reserve Bank of India's announcement of a larger-than-expected INR 2-trillion worth of open market operation auctions to buy gilts between Monday and Jan. 22. Banks are likely to offload the securities at a profit at auction Monday, which could lead to robust investor demand at the auction as well, dealers said.

 The government will sell INR 90 billion of the 5.91%, 2028 gilt, INR 110 billion of the 6.28%, 2032 gilt, and INR 120 billion worth of the 7.24%, 2055 gilt at the weekly auction Friday. Asset-liability managers will be keen to buy to the 2028 gilt, while the 2032 gilt still offers an attractive yield at par with the 10-year bond and will be lapped up by both traders and investors, dealers said. The 30-year benchmark gilt is likely to see firm demand from life insurance firms, provident funds and pension funds – the usual long-term investors – who have been active at auction this week and keen to lock in yields at current levels.

Moreover, some banks may step up purchases to increase valuations near the quarter- and year-end, dealers said. The 10-year benchmark gilt is seen in a trading range to 6.52-6.58% before the New Year, but aggressive replacement and valuation demand could bring it down to the psychologically crucial 6.50% level, they said. The movement in the rupee may also lend cues during the day, while the 10-year US Treasury yield was largely unchanged at 4.15% from its level at the end of Indian market hours Wednesday.  (Aaryan Khanna)

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.