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The 6.68%, 2040 bond outperformed the 10-year benchmark as traders expected the government to reduce the share of the 15-year bond in the borrowing calendar for Apr-Sept, dealers said. Bankers have asked the RBI for bond issuances in the three- to seven-year tenures to be increased as it would better match their liabilities. This is likely to compress the spread of longer-term gilts over the five-year bond and some traders expect the 15-year bond to underperform other benchmarks in the coming days.

Short-term bonds are seen to be safer bets in an environment where bond yields are seen going up with the RBI's Monetary Policy Committee likely to be at the end of its rate-cutting cycle. With the minutes of the February meeting of the six-member rate-setting panel suggesting it is comfortable with the CPI inflation trajectory, traders are not betting on further repo rate cuts after the 125 basis-point reduction between February and December 2025. However, RBI Governor Sanjay Malhotra's reassurance that liquidity would remain in surplus to ensure transmission of the rate cuts to all markets, including gilts, may keep banks interested in picking up short-term gilts, dealers said.

"(The RBI) governor's comments on borrowing and liquidity were positive since yesterday (Monday)," a dealer at a private-sector bank said. "Apart from that, (Monetary Policy committee meeting) minutes were neutral..."

Bond prices opened slightly lower Tuesday as traders sold gilts to make space for the state bond supply, dealers said. The rupee's decline against the dollar, driven by rising crude oil prices and uncertainty over US tariffs, also contributed to the fall in prices. The domestic unit threatened to weaken below 91 a dollar before the RBI's intervention prevented the key level breaking, helping it to close only 0.1% lower at 90.95 a dollar.

Turnover in the government securities market was INR 536.05 billion, up sharply from INR 354.75 billion Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trade using the RBI's wholesale e-rupee pilot Tuesday for the third straight session.

OUTLOOK

On Wednesday, gilt prices may open tracking overnight movement in US Treasury yields. However, later in the day, prices may fall as traders make room for the weekly gilt auction Friday, dealers said.

On Friday, the government will sell INR 320 billion of the 6.48%, 2035 bond, its last scheduled auction of the 10-year benchmark gilt in the financial year ending March. The large supply is likely to be mopped up, though traders expect lower demand from banks as they have focused on aggressively picking up higher-yielding state bonds in recent weeks, dealers said.

Traders may also track any further developments in the face-off between Iran and the US, dealers said. Significant movement in the rupee, the five-year OIS rate, and crude oil prices may also lend cues, they said. The 10-year benchmark 6.48%, 2035 bond is seen in the range of 6.64-6.75% Wednesday.

India Gilts:Sharply up as state bond cut-off ylds below view, OIS falls more

MUMBAI--1609 IST--Prices of government bonds were up sharply after cut-off yields at the state bond auction were below expectations, dealers said. Foreign portfolio investors were buying gilts and receiving fixed rate contracts in overnight indexed swap rates, dealers said. As of 1609 IST, FPIs net bought gilts worth INR 3.73 billion through the fully accessible route, taking their total gilt holdings through this route to a record INR 3.29 trillion, according to data from Clearing Corp. of India. The 10-year benchmark gilt yield hit 6.6553%, the lowest in a week.

The Reserve Bank of India set cut-off yields on states' 10-year bonds at 7.40-7.53%, against an Informist Poll estimate of 7.45-7.50%. The cut-off yield on Tamil Nadu's three-year bond was 6.54%, sharply lower than a poll estimate of 6.61%. Cut-off yields on long-term state bonds were also lower than expected, with the cut-off on Bihar's 28-year bond at 7.69%, against the consensus estimate of 7.73%. Demand for state bonds was robust across the state bond yield curve. Some banks also bid for longer maturities instead of the usual preference for terms under 10 years, dealers said. 

An intraday fall in US Treasury yields and the five-year OIS rate aided the rise in bond prices, dealers said. The five-year OIS rate last traded at 6.02%, from 6.04% at market open. A few traders speculated that the RBI was purchasing gilts onscreen. Others did not think so. RBI Governor Sanjay Malhotra had reiterated Monday that the central bank would ensure enough durable liquidity in the banking system for the transmission of policy rates in all markets, including government bonds. The lack of escalation in US-Iran tensions also aided sentiment, dealers said. The 10-year benchmark bond yield, however, is not seen sustaining a fall below the key 6.65% level until the bond's auction Friday, dealers said.

"Yields had only gone up because of geopolitics, now nothing has happened there, crude (oil) has also settled at this level, so they've come back down," a trader at a primary dealership said. "Momentum is good, state loan supply has also sailed through. But by tomorrow (Wednesday) evening or by Thursday you'll see traders begin to place short bets before the auction. Unless suddenly geopolitics flare up again."

At 1609 IST, the turnover in the gilts market jumped to INR 479.20 billion, doubling from INR 235.95 billion at 1530 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 6.64-6.70% during the rest of the day.  (Cassandra Carvalho)

India Gilts: Up on fall in OIS, US yields; auction result to lend cues

MUMBAI--1225 IST--Prices of government bonds were up, reversing early losses, tracking a fall in overnight indexed swap rates, dealers said. The fall in OIS was likely due to offshore players receiving fixed rate contracts as US Treasury yields eased intraday. At 1225 IST, the benchmark 10-year US Treasury yield was at 4.04%, from 4.05% at 0900 IST, and 4.08% at 1700 IST Monday. The five-year OIS rate hit a day's low of 6.02%.

At the state bond auction, traders picked up short-term state bonds while provident funds and insurers were eager to buy longer-term maturities, dealers said. Banks picked up bonds maturing between five and 10 years to replenish their held-to-maturity books after recent sales to the Reserve Bank of India at open market operation auctions, dealers said. However, bidding from banks was not aggressive, dealers said. Traders await the auction result for further cues on the movement of bond prices.

In the secondary gilt market, traders preferred the 15-year benchmark 6.68%, 2040 bond as the bond offers a yield of 7.05%, which is seen as lucrative, dealers said. The 10-year benchmark 6.48%, 2035 bond price rose likely due to purchases from offshore players, dealers said. Additionally, traders also bought bonds maturing in around five years after Reserve Bank of India Governor Sanjay Malhotra Monday reiterated that the central bank would ensure enough durable liquidity in the banking system for the transmission of policy rates in all markets, including money markets, banks, and government bonds. The five-year benchmark 6.01%, 2030 bond last traded at INR 99.08, up 6 paise from Monday's close.

Traders expect bond prices to fall later in the day as traders look to place short bets to make space in their portfolios for large supply of the 6.48%, 2035 gilt at auction Friday, dealers said. The government will sell INR 320 billion of the bond.

"I think all the big players are on the sidelines now," a dealer at a primary dealership said. "It's foolish to wait for any escalation in US-Iran tensions. Now, I think GDP (India's GDP growth for Oct-Dec) is a big indicator and there won't be any major movement before Friday's GDP." Some traders had placed short bets with the view that rising tensions between US and Iran would pull down bond prices, which has not materialised so far, dealers said.

At 1225 IST, the turnover in the gilt market was INR 146.60 billion, higher than INR 90.40 billion at 1230 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 6.66-6.72% during the rest of the day.  (Janwee Prajapati)

India Gilts: Down ahead of state bond sale; demand at auction seen firm

MUMBAI--0941 IST--Prices of government bonds were down Tuesday as traders placed short bets on gilts to make room for the INR-445.50-billion state bond supply, dealers said. The rupee's fall against the dollar also weighed, dealers said. The rupee last traded at 90.95 per dollar, as against 90.88 per dollar at 1530 IST Monday, tracking a rise in crude oil prices and uncertainty regarding the US' imposition of tariffs.

The state bond auction size is largely in line with expectations. Demand at the auction is seen firm across tenures, especially due to lower gilt supply in the coming weeks, dealers said. There are only two gilt auctions scheduled for the rest of 2025-26 (Apr-Mar), totalling INR 610 billion. Long-term investors are also seen bidding for longer-term state bonds, dealers said. 

"Demand will be there, last week also we saw spreads narrow down. Our G-sec auctions we have only one or two left, so people will go for state bonds," a dealer at a state-owned bank said. At the state bond auction last week, the Reserve Bank of India set cut-off yields on states' 10-year bonds at a spread of 78-85 basis points over the 10-year benchmark yield.

At 0941 IST, the turnover in the gilt market was INR 15.25 billion, more than INR 6.45 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 6.68-6.75% during the rest of the day.  (Cassandra Carvalho)

India Gilts: Seen down on heavy state bond supply, geopolitical tensions

MUMBAI – Prices of government bonds are seen opening lower due to heavy supply of state bonds at the auction Tuesday, and fears of US strikes on Iran and likely retaliation by the latter, dealers said. Focus is also on the weekly gilt auction Friday, wherein the government will sell INR 320 billion of the 10-year benchmark 6.48%, 2035 gilt. Bonds may also track the movement of the rupee against the dollar and the five-year overnight indexed swap rate, dealers said.

The yield on the 10-year benchmark 6.48%, 2035 bond is seen in a range of 6.68-6.75% Tuesday, after ending at INR 98.47, or 6.70% yield Monday. The yield on the benchmark 10-year US Treasury yield was 4.05% at 0810 IST, down from 4.08% at 1700 IST Monday, hitting a low of 4.03% overnight, as traders assessed US President Donald Trump's latest tariff threats and comments from US Federal Reserve officials.

On the domestic front, 16 states will raise INR 445.50 billion through the sale of bonds Tuesday. Gujarat and Maharashtra have provided for a greenshoe. This is largely in line with the INR-442.21-billion figure in the indicative calendar for state borrowing for Jan-Mar. However, due to the heavy supply, traders are likely to place short bets on gilts, they said. Demand at the auction is seen robust, albeit at higher cut-off yields than last week's auction, dealers said. The 10-year benchmark gilt may underperform ahead of its fresh supply Friday, as traders short-sell the gilt to make room for auction stock, they said.

Globally, traders are on watch for any move from the US on Iran, ahead of scheduled talks between the two countries in Geneva Thursday. Brent crude oil for April delivery was at $71.90 a barrel in Asian trade at 0810 IST, up from $71.43 a barrel at the end of Indian market hours on Monday. The US has ordered non-essential officials and eligible family members at the US Embassy in Beirut to leave Lebanon.

As for tariffs, US President Donald Trump has cautioned nations against retracting their recently agreed trade agreements with the US after the Supreme Court nullified his emergency tariffs, saying that if they chose to do so, he would impose significantly higher tariffs under alternative trade regulations.  (Cassandra Carvalho)  End

US$1 = INR 90.9500

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

Edited by Rajeev Pai

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