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Informist, Tuesday, Dec. 30, 2025

 

By Janwee Prajapati

 

MUMBAI – Prices of government bond ended higher Tuesday as the larger-than-indicated supply of state bonds sailed through at the auction at cut-off yields in line with market expectation, dealers said. Demand from investors was robust as traders stayed away from the fresh supply near the quarter- and the year-end. Going ahead, traders are now focused on states' borrowing calendar for the Jan-Mar quarter which is expected to be released after market hours Tuesday or Wednesday.

 

Traders are expecting states to announce a borrowing calendar between INR 4.5 billion and INR 5 billion for the Jan-Mar quarter. In the previous year, the borrowing calendar for same period was INR 4.73 trillion, with states raising INR 4.34 trillion. If the borrowing calendar surprises on the higher side, the yield on the 10-year benchmark 6.48%, 2035 gilt may rise to as high as 6.70%, dealers said. States raised INR 2.53 trillion in the quarter ending December, bringing their total issuance in the current financial year to INR 7.54 trillion. 

 

The 10-year benchmark 6.48%, 2035 gilt closed at INR 99.29, up from INR 99.20 Monday. The bond's yield ended at 6.58%, down from 6.59% Monday. Traders expect the 10-year benchmark yield to fall to 6.55% within the next week despite its upcoming issuance at auction Friday due to optimism around the Reserve Bank of India's bond purchases, dealers said. The central bank will buy INR 500-billion of gilts through an open market operation auction Monday, the second tranche of four auctions announced on Dec. 23.

 

"I think the prices will rise even further," a dealer at a private-sector bank said. "Post (state bond) auction, prices were on higher side, (they) fell due to profit booking but I think it will rise from here as we have OMO lined up in January...Basically there is nothing negative left."

 

At the state bond auction, bonds maturing in 20-years and above were well bid by long-term investors as suggested by the high bid-cover ratio. The RBI accepted three bids out of 36 received for West Bengal's 21-year bond, at a cut-off yield of 7.57%. Investor demand was firm and life insurers and provident funds have been deploying cash into bonds in December.   

State bonds maturing in up to 10 years saw robust demand from public sector banks after they sold gilts of largely similar maturity to the RBI at the INR-500-billion OMO auction Monday. Moreover, public sector banks net sold gilts worth INR 45.51 billion in the secondary market Monday, according to data from Clearing Corp. of India Ltd. State-owned banks likely made space for state bonds in their books and picked up state bonds maturing in up to 6 years at the auction for their asset and liability management, dealers said. The yield spread between these securities and gilts of similar tenures were lucrative, dealers said. Traders picked up state bonds maturing in up to 15 years for their investment books. 

 

Short-term state bonds and gilts were also in favour after the RBI bought INR 240 billion of gilts maturing in under five years at the open market operation auction Monday. The five-year benchmark 6.01%, 2030 bond ended at INR 98.79, up 9 paise from Monday's close.

 

After the auction result, bond prices rose briefly as the result was broadly along expected lines and some states' cut-off yields were better than expectations, dealers said. However, bond prices gave up most gains as traders rushed to book profit. Due to the "T+1" settlement of trades conducted on the RBI's Negotiated Dealing System-Order Matching platform, traders preferred to sell bonds bought at lower prices earlier in the quarter Tuesday to show profits for the Oct-Dec when accounts are closed Wednesday. Traders expect prices in the secondary market to rise Wednesday as traders hope for strong marked-to-market valuations of their portfolios on the last day of the quarter, they said.

 

"It's highly possible that PSUs (public sector banks) were selling because of the quarter-end," a dealer at a private sector bank said. "...Might be because of this, that we saw selling from PSUs from the past two days. Also, they had good buying when the (price) levels were low." 

 

A liquidity deficit in the banking system deterred traders from making aggressive purchases as banks preferred to divert available fund to credit disbursements owing to high demand for loans at the end of the December quarter, dealers said. The RBI's net liquidity injected into the banking system--a proxy for the liquidity deficit--was INR 715.84 billion Monday, higher than INR 623.02 billion Sunday.  

 

Turnover in the gilt market was INR 287.55 billion Tuesday, similar to INR 280.75 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. Trade volume in the secondary market remained subdued near the year-end with several traders on leave. There was no trade using the RBI's wholesale e-rupee pilot Tuesday, the same as Monday.

 

OUTLOOK

On Wednesday, at open, gilts will likely track the overnight movement in US Treasury yields after the release of the minutes of the US Federal Open Market Committee's December meeting at 1930 IST, dealers said. The rupee's movement against the dollar in early trade will also provide cues for bond prices. 

 

After market hours Tuesday, the RBI said it will purchase seven gilts worth INR 500 billion Monday. The 7.10%, 2029, the 7.95%, 2032, the 7.73%, 2034, the 7.40%, 2035, the 7.41%, 2036, the 8.30%, 2040, and the 7.09%, 2054 bonds are selected for the OMO auction. The 6.33%, 2035 gilt price may fall Wednesday, since some traders bought the gilt Tuesday on hopes that the RBI would buy the gilt Monday.

 

Traders are expecting states' borrowing calendar for the March quarter between INR 4.5 trillion and INR 5.0 trillion. The announcement is expected after market hours Wednesday. If the borrowing calendar surprises on the higher side, the yield on the 10-year benchmark 6.48%, 2035 gilt may rise to as high as 6.70%, dealers said.

 

In January, traders expect bond prices to rise due to lower supply as the RBI has scheduled the remaining three tranches of open market operation auctions of INR 500 billion each. Expected foreign inflows due to the likely inclusion of Indian government bonds in Bloomberg's Global Aggregate Index in January will push bond prices higher, dealers said. The banking system liquidity will also likely be in a surplus by mid-January, dealers said.  
 

Traders will monitor developments on the India-US trade deal and will keep an eye on crude oil prices. 

 

The 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.55-6.63%.

 

	TUESDAY		MONDAY
	PRICE	YIELD	PRICE	YIELD
6.48%, 2035	99.2850	6.5786%	99.1950	6.5912%
6.33%, 2035	98.0650	6.6092%	97.9500	6.6261%
6.01%, 2030	98.7850	6.3197%	98.7000	6.3416%
6.68%, 2040	97.1100	7.0000%	96.9900	7.0136%
6.90%, 2065	94.3000	7.3436%	94.3200	7.3419%

 

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India Gilts: Inch higher after state bond result largely within view

 

	1535 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	99.22	99.28	99.12	99.15	99.20
YTM (%)	6.5877	6.5793	6.6018	6.5976	6.5912

 

	1535 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.01%, 2030
PRICE (INR)	98.7575	98.78	98.7075	98.7075	98.7
YTM (%)	6.3268	6.321	6.3397	6.3397	6.3416

 

MUMBAI--1535 IST--Prices of government bonds rose slightly after the result of the state bonds auction as it was largely along expected lines, though some traders were disappointed with the cut-off yields. The RBI set cut-off yields in the range of 7.42-7.54% on states' 10-year bonds, against an Informist poll estimate of 7.43-7.47%. Fifteen states raised INR 354.50 billion at the auction, the entire notified amount and among the largest in the financial year that began April. The large supply was absorbed well and the cut-off yields were lucrative to hold in investment books, dealers said.

 

A few traders refrained from large bids at the state bonds auction on caution ahead of states' borrowing plan for Jan-Mar, which is expected after market hours Tuesday or Wednesday. Traders largely expect states to borrow between INR 4.5 trillion and INR 5.0 trillion in the March quarter, but hope for a lesser quantum to spur a rise in bond prices. Last week, a senior government official familiar with the recommendations told Informist the 16th Finance Commission is likely to have recommended ways to state governments in which they can reduce their debt to align their fiscal management with the Centre's debt-to-GDP ratio targeting.

 

The gain in bond prices was tempered by a focus on profit sales at the end of the December quarter. Due to the "T+1" settlement of trades conducted on the RBI's Negotiated Dealing System-Order Matching platform, traders preferred to sell bonds bought at lower prices earlier in the quarter Tuesday to show profits for the Oct-Dec quarter when accounts are closed Wednesday. Some traders also trimmed stock from held-to-maturity books, they said.

 

A liquidity deficit in the banking system deterred traders from making aggressive purchases as banks preferred to divert available funds to credit disbursements owing to high demand for loans at the end of the December quarter, dealers said. The RBI's net liquidity injected into the banking system--a proxy for the liquidity deficit--was INR 715.84 billion Monday, higher than INR 623.02 billion Sunday. 

 

Short-term bonds were in favour after the RBI bought INR 240 billion of gilts maturing under five years at Monday's open market operations auction. The 6.01%, 2030 bond was last traded at INR 98.77, up 7 paise from Monday's close. In addition to replacement demand after sales to the RBI, traders found the bond's yield spread of 107 basis points over the repo rate of 5.25% attractive enough to add it to available-for-sale books, dealers said. Some traders bought the five-year benchmark gilt and paid fixed rate contracts in the five-year swap rate to play on the spread between the two instruments, they said.

 

"The (6.01%, 2030) yield is being supported, we went to 49 (6.49% yield last week) but since then it's been maintaining at current levels," a dealer at a private-sector bank said.

 

In thin trade, the erstwhile 10-year benchmark 6.33%, 2035 bond performed better than the current 10-year benchmark. Some traders expect the RBI to purchase the bond at the next scheduled OMO auction Monday, while others bought the bond for their investment books, dealers said.

 

"It's a pattern, in the first OMO (on Dec. 11), the RBI bought the old benchmark 6.79%, 2034 gilt, and next auction (on Dec. 18), it bought the 6.33%, 2035 bond. Again yesterday (Monday), it bought the 6.79% so people are thinking it will buy the 6.33% next week," a dealer at another private-sector bank said.  

 

At 1535 IST, the turnover in the gilts market was INR 193.15 billion, up slightly from INR 165.80 billion at the same time Monday, according to data on the RBI's NDS-OM platform. The yield on the 10-year benchmark 6.48%, 2035 bond is seen at 6.55-6.63% for the rest of the day.  (Cassandra Carvalho)

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India Gilts: In thin band amid subdued trade before state bond auction result

 

	1345 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	99.20	99.25	99.12	99.15	99.20
YTM (%)	6.5912	6.5842	6.6018	6.5976	6.5912

 

MUMBAI--1345 IST--Prices of government bonds remained steady in thin trade Tuesday ahead of the result of the larger-than-indicated state bond auction, dealers said. Demand at the auction is seen subdued at the year-end in the face of a large supply of bonds, which are expected to push up spreads of state bonds over gilts. Traders remained absent from the market, which also resulted in lack of aggressive bidding at the state bond auction.

 

"Public sector banks will be there; at auction, demand from them is firm," a dealer at a private-sector bank said. "They likely sold around 25-30 thousand crore (INR 250 billion-INR 300 billion of gilts at OMO auction) yesterday (Monday), so they have space in held-to-maturity books they might replenish around 10-15 thousand crore (INR 100 billion-INR 150 billion at state bond) auction today (Tuesday)." 

 

Public sector banks will likely bid for papers having maturity of up to 15 years to fill in the space in their held-to-maturity books after they sold bonds to the Reserve Bank of India at the open market operation auction Monday. Bonds up to six years will be especially well bid by banks for their asset-liability management books as the yield spread between these papers and the gilt of similar tenure were lucrative, dealers said. Moreover, the RBI bought INR 240 billion of gilts maturing under five years at the OMO auction. Short-term gilts were slightly higher in the secondary market on Tuesday as well. 

 

Long-term investors will likely buy the papers with maturity above 20 years, with cut-off yields seen capped on modest supply, dealers said. Investor demand is likely to be firm as life insurers and provident funds have been deploying cash into bonds in December. Foreign banks had also bid for state bonds maturing in up to 6 years, but their participation was muted near year-end, dealers said. 

 

"We are going for tail (bidding to catch the cut-off price) in some papers as supply in these papers are high and this is the last auction for the quarter," a dealer at another private sector bank said. "...The longer and shorter term paper will go through but the 9-11-year paper will likely receive some tail."

 

Short bets placed on the 6.48%, 2035 bond ahead of its auction Friday weighed on its price since Monday, 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 1202 IST showed trades worth INR 91.55 billion in the 6.48%, 2035 gilt, up more than INR 10 billion from INR 81.08 billion Monday.

 

Trade volume in the secondary market was subdued before the state bond auction result and near the year-end, with several traders on leave. At 1345 IST, the turnover in the gilt market was INR 114.95 billion, slightly up from INR 84.10 billion at 1335 IST 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 6.55-6.63% for the rest of the day.  (Janwee Prajapati)

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India Gilts: Steady ahead of state bond auction; PSU banks to replenish books

 

	0937 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.48%, 2035
PRICE (INR)	99.20	99.22	99.12	99.15	99.20
YTM (%)	6.5902	6.5877	6.6018	6.5976	6.5912

 

NEW DELHI--0937 IST--Prices of government bonds were steady in thin trade Tuesday ahead of the state bond auction, which was larger than indicated and may be met with only modest demand, dealers said. The result of the auction may lend direction to bond prices as traders' risk appetite was dull due to tight liquidity and quarter-end. However, they stepped up their purchases near the psychologically crucial 6.60% yield on the 10-year benchmark 6.48%, 2035 gilt after gilt prices fell at the open.

 

Banks said they are looking to replenish their portfolios with state bonds after selling gilts to the Reserve Bank of India at its INR 500-billion open market operation auction Monday. Lenders were looking to bid for state bonds maturing in up to 10 years at the auction to add to held-to-maturity portfolios as the spreads of these bonds over gilts was attractive, dealers said. States will raise INR 354.50 billion at 1030-1130 IST, with a bulk of the supply in under 20 years. 

 

"One of the other stories emerging from yesterday's (Monday's) buy-sell data is that public-sector banks were selling, which is contrary to the usual situation when prices fall," a dealer at a primary dealership said. "So it looks like some space is being created to pick up state bonds at the auction today (Tuesday)."

 

State-owned banks were the top net sellers in the secondary market Monday, dumping INR 45.51 billion of gilts, according to Clearing Corp. of India data. The new investment accounting norms introduced in April 2024 have prevented most sales out of the held-to-maturity portfolios except for a 5% limit and through the RBI's OMO auctions. Thus, banks may be trimming the profitable part of their trading and available for sale portfolios near the quarter end, dealers said.

 

Several banks have increased internal limits on state bond holdings as a percentage of their total portfolio to improve passive interest income accretion at a time when trading gains are seen limited. Further repo rate cuts by the RBI's Monetary Policy Committee are seen unlikely after a 125-basis-point reduction to 5.25% in 2025, with the minutes of the panel's December meeting showing the members were likely to be data dependent. Latest data weakened the case for a rate cut at the next meeting in February, dealers said. India's industrial output, as measured by the Index of Industrial Production, grew at a two-year-high pace of 6.7% in November, data released during market hours Monday by the statistics ministry showed.

 

"Since yesterday (Monday), that higher IIP number is also glaringly obvious as a negative for the market," a dealer at a private-sector bank said. "I'm not saying that there was any rate cut positioning but incrementally it is another signal that the cycle is over." 

 

Trade volume in the secondary market was subdued before the state bond auction and near the year-end, with several traders on leave. At 0937 IST, the turnover in the gilt market was INR 12.55 billion, against INR 1.55 billion at 0930 IST 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 6.55-6.63% for the rest of the day.  (Aaryan Khanna)

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India Gilts: Seen steady before state bond auction; result may lend cues

 

NEW DELHI – Government bond prices are expected to open steady on caution ahead of the INR 354.50-billion state bond auction at 1000-1030 IST. A larger than expected Treasury bill auction calendar for Jan-Mar may weigh on gilts maturing in up to three years, dealers said. State-owned banks may step up purchases as the 10-year benchmark gilt hits the psychologically crucial 6.60% yield, with traders also looking to prop up bond valuations near the quarter-end.

 

The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.55-6.63% yield after ending at INR 99.20, or 6.59% yield Monday. The yield on the 10-year US Treasury note traded at 4.11% at 0824 IST, its lowest level since Dec. 18, which may aid domestic bond prices. However, activity from foreign banks and portfolio investors is expected to remain muted at the year-end and the state bond auction result may lend cues.

 

Fifteen states will raise INR 345.50 billion through the issuance of bonds at 1030-1130 IST, more than double the indicated quantum of INR 153.21 billion in the Oct-Dec borrowing calendar. The silver lining is that the share of bonds maturing in over 20 years is only INR 40 billion, which may reduce selling pressure in long-term gilts, dealers said. Public sector banks are likely to replenish their portfolios with state bonds maturing in under 10 years at the auction after the Reserve Bank of India Monday bought INR 500 billion worth of gilts through its third open market operation auction this month, taking its total buys in 2025 to INR 7 trillion.

 

Demand at the state bond auction is likely to be subdued as traders fear a hefty quantum of state borrowing in Jan-Mar, as is usually seen in the last quarter of the financial year, dealers said. Traders expect the state bond calendar to be released this week to announce a borrowing number of around INR 4.5 trillion.

 

The T-bill calendar for the March quarter was already larger than expected, which may pinch banking system liquidity at a time of significant seasonal outflows in the form of currency in circulation, dealers said. The government said after market hours Monday that it would raise INR 3.84 trillion through the issuance of T-bills on a gross basis in the March quarter. On a net basis, the government will issue INR 1.17 trillion of the instrument in Jan-Mar, taking its net short-term borrowing to nil in 2025-26 (Apr-Mar), in line with Budget estimates. However, traders had expected the government to undershoot the target, similar to FY25, with a INR-3.5-trillion calendar in the last quarter of the fiscal year.  (Aaryan Khanna)

 

End

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

 

Edited by Akul Nishant Akhoury

 

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