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Informist, Friday, Jun. 13, 2025

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended off lows Friday as traders purchased gilts at yield levels seen as lucrative, dealers said. Earlier in the day, bond prices slumped tracking a surge in crude oil prices after Israel launched "pre-emptive strikes" on Iran early Friday. The depreciation of the rupee against the dollar also weighed on gilts, dealers said. The "risk-off" sentiment due to the geopolitical uncertainty in west Asia added to the already-negative market sentiment.

"There won't be a full recovery in prices by end of day because of the risk over the weekend and we don't know what developments will be there over the weekend," a dealer at a private-sector bank said near the end of the day's trade. "So the price action doesn't show it (full recovery)."

However, bond prices recovered some losses on purchases from state-owned banks and some private-sector banks as the yield on the most-traded 6.79%, 2034 gilt hit the key 6.40% level, the highest in over a month. For traders who were light on their trading books before the Reserve Bank of India's Monetary Policy Committee outcome last week, the prices were lucrative to buy, dealers said. Some foreign banks were also purchasing gilts tracking an overnight fall in US Treasury yields, despite the uncertainty on the global front, dealers said. A positive outcome for traders at the weekly gilts auction also supported the recovery in prices.

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.21, or 6.30% yield, compared with INR 100.36, or 6.28% yield at Thursday's close. The most-traded 6.79%, 2034 bond closed at INR 102.99, or 6.36% yield, compared with INR 103.09, or 6.34% yield, Thursday. The slight recovery in bond prices was most pronounced in papers maturing within 10-15 years. The 15-year 6.92%, 2039 gilt recovered almost all of the day's losses and ended at INR 102.43, or 6.65% yield, from the day's lowest price of INR 102.00.

At the weekly gilts auction, the RBI did not accept any bids for the 6.98%, 2054 green bond, possibly because of bids at higher yields than those at the time of its issuance, dealers said. According to an Informist poll, investors were seen bidding for the green bond in the yield range of 7.04-7.11%, against 7.00% yield according to indicative prices published by Financial Benchmarks India Pvt. Ltd. Thursday. This was a relief for traders, especially those from primary dealerships. The 30-year benchmark 7.09%, 2054 bond price was off lows afer the auction result.

"There were decent bids for the green bond, it's just that the yields were very high," a trader at a primary dealership said. "This is a very good sign for the market since it indicates that the government will not accept at higher yields. It's a very small amount, but still had they devolved it, this is not a liquid paper that PDs (primary dealerships) could easily get rid of. It would have simply worsened the market sentiment."

The RBI received 90 bids worth a total of INR 109.44 billion for the green bond. The cut-off prices on the other two gilts auctioned; the 6.79%, 2031 gilt and the 7.09%, 2074 gilt, were largely along expected lines, which was a comfort for traders as most had feared at least partial devolvement of the 2054 green bond and the 2074 gilt. The underwiting commission at the gilts auction shot up to 12 paise for the green bond Friday, from 0.40 paisa on the same gilt at the bond's last auction in April.

The seven-year 6.79%, 2031 bond saw firm demand from both banks and mutual funds, dealers said. They preferred the gilt over longer-tenure bonds as the outlook on rate cuts seems bleak and geopolitical tensions persist, dealers said. Surplus liquidity in the banking system increased demand for short-term gilts, they said. 

Primary dealerships were sellers in the secondary market, while foreign banks and foreign portfolio investors were picking up gilts, especially those maturing in 10-15 years, dealers said. Foreign banks, however, continued to sell short-term gilts, the supply of which was lapped up by state-owned banks. The sales from foreign banks limited the recovery in prices of short-term bonds compared to other tenures, dealers said. The 6.75%, 2025 gilt ended 7 paise lower at INR 102.98 Friday.

The fall in bond prices was limited owing to an overnight fall in US yields. The yield on the 10-year benchmark US Treasury note fell to 4.34% at 1700 IST, from 4.41% at the same time Thursday. US yields fell as investors bet on a rate cut by the US Federal Open Market Committee in September after soft US labour data.

The turnover in the gilts market was INR 574.90 billion, lower than INR 693.30 billion Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. No trades were conducted using the wholesale digital rupee pilot Friday, as was the case Thursday.

OUTLOOK

Gilts are not traded Saturdays. Monday, bond prices are likely to take cues from developments on the geopolitical front. After the shock from the surge in crude oil prices and a depreciating rupee against the dollar Friday, bond traders are wary of any escalation in the Israel-Iran conflict. Iran has promised retaliation, and some traders speculate that the situation could worsen if Iran chooses to attack US bases in west Asia. While bonds have priced in the rise in crude oil prices, they may be indirectly hit by movement in the foreign exchange market, along with geopolitical uncertainty. 

"When crude was sharply lower also the government didn't cut pump prices and retained the same," a trader at another primary dealership said. "So now when it's higher I don't think the government will change it. The rise (in crude oil prices) may have an impact on inflation, but for now that doesn't seem too major. Crude has also fallen (from its highs) during the day and our market has recovered alongside."

Gilts may also take cues when the market opens from the movement of US yields over the weekend, dealers said. Traders now look forward to the outcome of the FOMC meeting next week. They expect a status quo on rates, but will keenly track the commentary from Fed officials.

Market sentiment continues to be "sour" and bond prices are likely to be volatile for the next few trading sessions, dealers said. Traders are yet to find a trading range. Bond prices will take cues from the result of the INR 250-billion switch auction Monday, when the government will switch six gilts with eight other bonds.

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.25-6.35%. The yield on the most-traded 6.79%, 2034 bond is seen at 6.30-6.42% Monday.

India Gilts: Largely unch; 30-yr gilt recovers some losses on auction results

MUMBAI--1548 IST--Government bond prices remained largely unchanged after the results of the INR 300-billion gilt auction. The government did not accept any bid for the 6.98%, 2054 green bond at the auction, which led to some recovery in the 30-year benchmark 7.09%, 2054 bond. However, some traders were already expecting chances of cancellation at the auction, and as negative market sentiment persisted, most bond prices did not react to the auction results, dealers said. 

"There were chances that the auction of the green bond would be cancelled," a dealer at a state-owned bank said. "It (the green bond being cancelled) is a good thing. But on the whole, market sentiments are pretty negative. So, we are not seeing a big reaction."

On the 30-year green bond, the Reserve Bank of India received bids worth INR 109.44 billion. However, due to investors demanding a significantly higher yield, the government rejected all bids, dealers said. According to an Informist poll, investors were seen bidding for the green bond in the yield range of 7.04-7.11%, against 7.00% yield according to indicative prices published by Financial Benchmarks India Pvt. Ltd. Thursday. "This was even lower than the issue price, so RBI was not comfortable accepting bid for the (green) bond at such lower greniums," a dealer at a private sector bank said. The 7.09%, 2054 bond recovered 25 paisa after the results of the auction on demand from insurers, dealers said. Insurers and pension funds also picked up the 7.09, 2074 bond at the auction as they found yields attractive, they said. 

Meanwhile, the seven-year 6.79%, 2031 bond saw firm demand from both banks and mutual funds, dealers said. Some traders deemed shorter tenure bonds expensive; these had risen sharply before the RBI's Monetary Policy Committee poicy decision on Jun. 6. However, both traders and asset liability managers preffered the seven-year bond at auction over longer-tenure bonds as the outlook on rate cuts seems bleak and geopolitical tensions persist, dealers said. 

In the secondary market, state-owned banks were likely on the buying side while primary dealers were selling, dealers said. Foreign banks likely remained on the selling side due to dampened sentiment on rising geopolitical tensions in West Asia, they said.

The turnover in the gilts market was INR 464.95 billion at 1530 IST, slightly lower than INR 508.85 billion at the same time on Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.28-6.34%. For the 6.79%, 2034 gilt, dealers see the yield at 6.35-6.42%.  (Srijita Bose)

India Gilts: Some losses recovered as 6.40% yld on 2034 gilt seen lucrative

MUMBAI--1232 IST--Prices of government bonds remained down, but recovered some losses on purchases from state-owned and private-sector banks at levels seen lucrative, dealers said. Depreciation of the rupee against the dollar and the surge in crude oil prices weighed on bond prices, along with the geopolitical uncertainty after Israel launched "preemptive strikes" on Iran early Friday. 

"The fall in the rupee and the spike in crude prices has triggered 'risk-off' sentiment, mostly from foreign banks," a dealer at a private bank said. "Crude has risen 11%! Because of these geopolitical tensions, I think our market will remain volatile for the next two to three months." 

Brent crude for August delivery rose to $73.83 a barrel in Asian trade at 1214 IST from $68.53 a barrel at the end of Indian market hours on Thursday. The rupee breached the crucial 86-per-dollar level after the jump in crude oil prices.

The yield on the most traded 6.79%, 2034 gilt hit the key 6.40% level after over a month, which is a lucrative level to buy gilts, dealers said. Traders covered short bets, and some banks' asset and liability managers also stepped in to buy at cheaper prices, dealers said. Foreign banks were likely sellers, after buying gilts worth INR 14.83 billion Thursday. Foreign banks were likely selling gilts and unwinding paid contracts in swap rates, 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 1232 IST showed trades worth INR 115.66 billion in the 6.79%, 2034 gilt, down from INR 132.28 billion Thursday, as traders covered short bets.

Demand at the weekly gilt auction of INR 300 billion is seen mixed, though most dealers see tepid response to the offered bonds across tenures. The government will sell INR 110 billion of the 6.79%, 2031 bond, INR 50 billion of the 6.98%, 2054 green bond and INR 140 billion of the 7.09%, 2074 bond. Traders fear that the long-term bonds could be partially devolved due to negative market sentiment, though some said that pension funds, provident funds and insurance companies will likely purchase the long-term gilts due to attractive yield levels. Purchases for around INR 50.00 billion of the 2074 gilt was seen at the auction for bond forward-rate agreements, and Separate Trading of Registered Interest and Principal of Securities, dealers said. An Informist poll estimated the cut-off yield on the 2054 green bond at 7.09%. The bond was last traded at such a high yield on Feb. 28. The bond was not traded Friday. 

Some dealers expect muted demand for the 2031 gilt as well, while most said the bond's auction will sail through due to comfortable liquidity in the banking system. On Thursday, the RBI net absorbed INR 2.76 trillion, marginally higher than INR 2.56 trillion Wednesday, central bank data showed.

The turnover in the gilts market was INR 200.25 billion at 1230 IST, slightly lower than INR 245.65 billion at the same time on Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.28-6.34%. For the 6.79%, 2034 gilt, dealers see the yield at 6.35-6.42%.  (Cassandra Carvalho) 

India Gilts: Slump due to rise in crude oil; fall in US yields limits losses

MUMBAI--0955 IST--Prices of government bonds slumped Friday due to a sharp rise in crude oil prices amid the geopolitical tensions in West Asia, dealers said. The yield on the erstwhile 10-year benchmark 6.79%, 2034 bond rose above 6.40%, the highest yield since May 9, which led traders to buy the bond, thereby limiting the losses. The 10-year US treasury yield was down 6 basis points since Thursday's Indian market close, which also helped limit the losses in gilts, dealers said. 

"There is a panic selling in the market right now because of crude," a dealer at a private sector bank said. "But these are also good levels, so some value buying is also coming in at the lows. And US yields are down, so these levels should hold now. The rest depends on how the auction goes."

ICE Brent crude oil futures for August delivery were at $76 per barrel, rising sharply after Israel carried out strikes on nuclear sites in Iran. Foreign banks that bought near the end of trade Thursday likely sold gilts in early trade leading to the slump in prices, dealers said. Meanwhile, state-owned banks were likely on the buying side, but in light volumes, as they found current yields attractive to buy, they said.

The fear of escalation in geopolitical tensions may lead to muted demand for longer tenure bonds at the INR 300 billion weekly gilt auction too. The government has offered to sell INR 110 billion of the 6.79%, 2031 gilt; INR 50 billion of the 6.98%, 2054 green bond; and INR 140 billion of the 7.09%, 2074 gilt at the auction at 1030-1130 IST. The underwriting cut-off for the green bond and the 50-year bond was seen at 4 paise and 3 paise, respectively, in an Informist poll. Some dealers said that insurers and pension funds may demand higher yield premium on the longer tenure bonds, with chances of a partial devolvement on both the papers. 

The turnover in the gilts market was INR 52.95 billion at 0930 IST, slightly lower than INR 57.05 billion at the same time on Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.28-6.35%. For the 6.79%, 2034 gilt, dealers see the yield at 6.35-6.40%.  (Srijita Bose) 

India Gilts: Seen down on jump in crude prices, drop in US ylds to limit fall

MUMBAI – Government bond prices may open lower due to a jump in crude oil prices amid geopolitical tensions in West Asia, dealers said. However, the fall in prices may be limited due to an overnight drop in US Treasury yields, they said. Traders will also await the results of the INR 300-billion gilt auction for further cues.

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.28-6.35%. The gilt ended at INR 100.36 or 6.28% yield on Thursday. For the most-traded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.35-6.40%. The 2034 gilt closed at INR 103.09 or 6.34% yield on Thursday.

"I am seeing a gap-down opening with the 10-year around 1-2 basis points higher (in yield) because of the geopolitical situation developing and crude might rise up further from here," a dealer at a primary dealership said. "Some amount of buying could come because of US yields, mostly people will wait for the gilt auction. But I don't see huge sell-off too."

Crude oil prices surged after Israel carried out strikes on nuclear sites in Iran, which led to worries about disruption in oil supplies. ICE Brent crude oil futures for August delivery rose to $77 per barrel from $69 per barrel at 1700 IST. However, the yield on the 10-year benchmark US Treasury note fell to 4.33% at 0800 IST from 4.41% at 1700 IST Thursday, which could limit the losses in gilts, dealers said. Some said inflows from foreign banks and porfolio investors could also be seen during the day. Traders now await the outcome of US Federal Open Market Committee's meeting next week. While they expect status quo on rates, they will track the commentary from Fed officials.

At the gilt auction Friday, demand for the 6.98%, 2054 and the 7.09%, 2074 bonds could be muted due to continued pressure on longer-tenure bonds, dealers said. Underwriting commissions at the auction are expected be lower than last week, though at the higher end, especially on the green bond, dealers said. However, some said that with the yield spread widening, long-term investors such as insurers and pension funds will find it attractive to pick up the green bond and the 50-year paper at the auction. Demand for the 6.79%, 2031 bond is seen firm, with banks seen bidding, dealers said. (Srijita Bose)

End

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

Edited by Rajeev Pai

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