Informist, Monday, Mar. 3, 2025

By Vidhushi RajPurohit

MUMBAI – Government bond prices ended down as traders continued selling bonds in low volumes to lighten their portfolios at a profit near the year-end, dealers said. Trading volumes remained muted due to the absence of fresh cues for gilts during the day, though a larger-than-expected state bond auction this week weighed on gilt prices. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.35, or 6.74% yield, against INR 100.42, or 6.73% yield, on Friday. The market-wide turnover was INR 203.50 billion, down from INR 273.00 billion Friday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. There were two trades worth INR 100 million using the wholesale digital rupee pilot, against none on Friday.

While the gilt supply for 2024-25 (Apr-Mar) ended on Friday, the ramping up of state bond supply dented demand for gilts, especially long-term bonds, dealers said. Traders were also wary of state bond supply shooting through the roof like a year ago, when the Reserve Bank of India had to conduct two state bond auctions in a single week, including an unscheduled auction. Post market hours on Friday, the Reserve Bank of India said 14 states will raise INR 505 billion on Tuesday, higher than the indicated quantum of INR 403.50 billion for the week.

Traders looked to take advantage of the spread increasing between the 10-year benchmark paper and long-term bonds, dealers said. At the close of trade on Thursday, the spread of the 7.09%, 2054 paper over the 6.79%, 2034 bond widened to 41 basis points, the highest since the 30-year paper was issued in August. The spread between the two bonds was at 40 bps Monday, with the 2054 bond ending little changed, in contrast with the fall in the 10-year gilt's price.

"The levels are lucrative to do spread trading, plus people were also selling (gilts) as the state bond supply will increase more this month so they might sell g-sec (gilts) and buy state bonds as the spread have widened there as well," a dealer at a state-owned bank said. At the state bond auction last week, the spread between the 10-year benchmark 6.79%, 2034 bond and 10-year state bonds was in the range of 46-49 bps. Dealers expect the spread to further widen by 3-4 bps at auction on Tuesday.  

Foreign portfolio investors continued to buy gilts owing to the ease in US Treasury yields over the past week and also due to the increase in the weightage of Indian bonds in JP Morgan's emerging market bond index at the month-end on Friday, dealers said. The 10-year benchmark US Treasury note fell 24 bps last week to 4.26% at 1700 IST on Friday, and was at the same level at the end of Indian market hours Monday.

A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors. On Monday, FPIs purchased gilts worth INR 8.65 billion through the fully accessible route, according to data from Clearing Corp. of India at 1700 IST, following up on INR 186.52 billion worth of gilt buys last week.

FPIs concentrated their buying of gilts in shorter tenures on expectations of steepening in the yield curve on likely repo rate cut by the RBI's Monetary Policy Committee in April. The yield curve is also expected to steepen on account of the increased supply of long-term bonds in state bond auctions and reduced investment appetite from life insurance firms. However, the fall in US Treasury yields has not fully translated into the prices of gilts due to the reduced demand from domestic investors, dealers said. 

"Domestic traders are mostly on the sidelines as even the replacement demand was not there after the OMO (open market operation) auctions, mostly because the current yield levels are not lucrative to pick up gilts for their HTM (held-to-maturity) books," a dealer at another state-owned bank said. The central bank has purchased INR 1.00 trillion of gilts through three open market operation auctions so far in Jan-Mar in a bid to infuse durable liquidity into the banking system.

Traders expect trade volumes to pick up slightly on Tuesday, as the systemic liquidity might improve owing to the inflows from the $10-billion RBI's dollar/rupee buy/sell swap auction conducted on Friday. On Sunday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--was at INR 1.18 trillion, RBI data showed. 

Dealers do not expect any significant triggers for gilts this week until the release of the US non-farm payrolls data, due post-market hours on Friday. The reaction to India's GDP data, released 1600 IST Friday, was muted as the print was on expected lines. India's GDP grew 6.2% in the December quarter against a 6.3% estimate in an Informist poll. However, the advance estimate for GDP growth in FY25 was raised by 10 bps to 6.5%, which is seen as reducing the need for sharp rate cuts beyond April, dealers said. 

OUTLOOK

On Tuesday, government bond prices will take cues from the result of the INR 505-billion state bond auction, the largest weekly debt sale so far in FY25. Gilt prices may also take cues from the overnight movement of US Treasury yields, though February employment data on Friday may be the biggest cue, dealers said.

Dealers also look to the RBI's liquidity infusion measures as March is seasonally a month of tight liquidity. Market participants will closely assess any statements by US President Donald Trump on tariffs and their potential impact on global trade. Crude oil prices could also be a trigger if they move significantly, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.68-6.75% during the day.

India Gilts: Down as traders trim portfolios near year-end; volumes muted

MUMBAI--1400 IST--Prices of government bonds were down as traders trimmed their holdings at a profit as 2024-25 (Apr-Mar) is coming to a close, dealers said. Increased supply of state-owned bonds, with Tuesday's state bond auction quantum being higher than indicated in the Jan-Mar calendar, also weighed on gilt prices, they said. Dearth of significant cues kept trade volumes muted. The marketwide turnover was INR 81.95 billion, compared with INR 99.20 billion at 1430 IST Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform.

"Volumes are too low as there is nothing significant lined up in terms of domestic cues, the downward moment of prices is because of the year-end period as traders do not want to show heavy position in their books when reporting," a dealer at a private bank said. "Prices might also be reacting to the (state-bonds) auction figure but that was mostly expected by the market."

Post market hours on Friday, the Reserve Bank of India said 14 states aimed to raise INR 505 billion on Tuesday, higher than the indicated quantum of INR 403.50 billion. Dealers expect the spread between the 10-year benchmark 6.79%, 2034 bond and 10-year state bonds to widen further this month by 3 to 4 basis points. At the state bond auction last week, the spread between them was in the range of 46-49 bps. 

On the global front, the fall in US Treasury yields has not translated to a fall in gilt yields due to weak appetite from domestic investors, dealers said. The yield on the 10-year benchmark US Treasury note fell 24 bps last week to 4.26% at 1700 IST Friday. It briefly hit 4.21% Friday, the lowest level since mid-December. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors. Last week, FPIs purchased gilts worth INR 186.52 billion through the fully accessible route, according to data from Clearing Corp. of India. 

During the day, the yield on the 6.79%, 2034 bond is seen at 6.70-6.76%. (Vidhushi RajPurohit)

India Gilts: Steady; higher-than-indicated state bond auction size weighs

MUMBAI--0954 IST--Prices of government bonds were briefly a tad down, but recovered losses and were steady due to lack of significant cues, dealers said. Some disappointment over Tuesday's state bond auction quantum being higher than indicated weighed on bond prices, dealers said. 

Post market hours on Friday, the Reserve Bank of India said 14 states aimed to raise INR 505 billion on Tuesday through auction. The calendar of market borrowing by states for the Jan-Mar quarter had indicated the quantum of Tuesday's auction to be INR 403.50 billion. While traders had expected the state bond auction quantums to increase nearing the end of the financial year, the higher-than-expected number -- after states have undershot the indicative amount so far in Jan-Mar -- weighed on gilts as well, dealers said.

This is likely to lead to spreads at Tuesday's auction widening by 3-4 basis points, dealers said. As spreads widen, banks are looking to refill their 'held-to-maturity' portfolios through these bonds. The Reserve Bank of India has bought INR 1 trillion worth of gilts through open market purchase auctions so far this quarter, most of which was stock from state-owned banks' 'held-to-maturity' books.

"The slight downward movement was because states' amount (at auction) was higher (than indicated) but there's no other cue until NFP (US non-farm payrolls)," a dealer at a private bank said. 

Lack of domestic and global cues this week could see bond prices trading in a thin range, dealers said. The main cue for gilt traders is US non-farm payrolls data, due post market hours on Friday, in case US Treasury yields moved significantly after the event, dealers said. Until then, the state bond auction outcome would be the main cue for gilt prices, with the gilt issuance calendar at an end in February, dealers said.

The marketwide turnover was INR 20.55 billion, compared with INR 17.30 billion at 0930 IST Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.70-6.76%. (Cassandra Carvalho)

India Gilts: Seen steady on lack of significant cues; US yields unch

MUMBAI – Prices of government bonds are seen opening steady due to a lack of significant cues, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.70-6.76%, compared with 6.73% on Friday. 

Bond prices ended lower on Friday after cut-off prices at the last gilt auction of 2024-25 (Apr-Mar) were weaker than expected, dealers said. India's GDP growth data for Oct-Dec released on Friday printed at 6.2%, against an Informist poll estimate of 6.3%. The data was in line with traders' expectations and was unlikely to lend cues to movement of bond prices Monday, dealers said. There may be some selling pressure on bond prices after data released post market hours Friday showed that the Reserve Bank of India did not purchase any gilts on-screen from Feb 17-21 for the third consecutive week, dealers said. However, most dealers said this was expected and would not take cues from the data.

The yield on the benchmark 10-year US Treasury note was little changed at 4.24% as of 0815 IST, from 4.25% at Friday's Indian market close, hitting a low of 4.21% over the weekend. The US core personal consumption expenditures price index rose 0.3% on month in January, data released post market hours Friday showed. The print was in line with consensus estimates, and indicated that inflation in the world's largest economy was not heating up, dealers said. Traders now await the US February employment report due on Friday for cues on interest rates in the US.

Fears of the implementation of US President Donald Trump's tariffs and a possible global trade war could weigh on market sentiment, dealers said. The Trump administration is set to implement tariffs on Canada and Mexico on Tuesday, but the rate could be revised from the proposed 25%, US Commerce Secretary Howard Lutnick said on Sunday. However, Lutnick confirmed that the 10% additional tariff on imports from China is a done deal. A global trade war could fuel a rise in inflation, which could cause the RBI's Monetary Policy Committee to refrain from cutting rates. Bond prices may also track the movement of the rupee against the dollar during the day, dealers said. (Cassandra Carvalho)

End

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

Edited by Saji George Titus

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