Informist, Monday, Jun. 30, 2025

By Cassandra Carvalho

MUMBAI – Prices of most government bonds ended higher Monday as traders bought gilts with a focus on valuation of their portfolios on the last day of the June quarter, dealers said. Purchases by foreign portfolio investors for their month-end and quarter-end rebalancing also aided the rise in prices, dealers said. The 10-year benchmark 6.33%, 2035 gilt ended down as traders placed short bets on it to pick up the erstwhile 10-year benchmark 6.79%, 2034 gilt, dealers said. 

The 10-year benchmark 6.33%, 2035 gilt closed at INR 100.03, or 6.32% yield, against INR 100.11, or 6.31%, Friday. The most-traded 6.79%, 2034 bond closed at INR 102.78 or 6.39%, against INR 102.71 or 6.40% Friday. The spread between the two gilts compressed to 6 basis points from 8 bps Friday.

"It's possible that it (the rise in prices nearing the end of day) is because of the book valuation," a dealer at a private-sector bank said. "Could be the FPIs for their month-end rebalancing." Data from Clearing Corp. of India at 1700 IST showed FPIs purchased gilts worth INR 32.28 billion through the fully accessible route Monday. 

After remaining higher throughout the day, prices rose further in the last hour of trade, possibly on foreign inflows, though some gains were erased nearing the close of trade.

Bond prices opened higher as traders covered short bets placed Friday, dealers said. However, trade in the early hours was choppy, as primary dealerships are likely to have dumped auction stock in the secondary market. Friday, the government sold INR 300.00 billion of the 10-year benchmark 6.33%, 2035 gilt and INR 60.00 billion of a new 2028 bond at the weekly bond auction. In anticipation of fresh stock of the 10-year gilt, short bets on the 6.33%, 2035 gilt and the 6.79%, 2034 gilt added up to around INR 297.00 billion Friday, according to the special repo segment of the Clearcorp Repo Order Matching System, which is a proxy for tracking short sales in a particular bond.

The data at 1730 IST showed short bets worth a total of INR 213.71 billion in both gilts. Short bets on the 6.33%, 2035 gilt fell more, to INR 93.23 billion from INR 142.82 billion Friday. Monday, the 6.79%, 2034 gilt was still the most traded paper on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. However, trade in the 6.33%, 2035 gilt picked up compared to previous days, as its outstanding of INR 900.00 billion following Friday's auction allowed for more liquidity in trade, dealers said. 

"The 6.33%, 2035 bond is the main bond now because we are getting a good float (outstanding amount), 90,000 crore (INR 900 billion) float we're getting, which is good float," a dealer at a state-owned bank said. 

The price of the 6.33%, 2035 gilt was down for most of the day as traders sold the gilt to buy the 2034 gilt on hopes of the yield spread between the two compressing to 3-4 bps in the near term. Some traders expect the compression in yield spread to take place by the end of the week. Private-sector banks and primary dealerships were likely to have been placing short bets on the 2035 gilt, dealers said. Some dealers said the bond was too expensive at current prices compared to paper of comparable maturity, and sold the gilt to pick up higher-yielding bonds such as the erstwhile 10-year 7.10%, 2034 gilt, they said. The 7.10%, 2034 gilt yield ended at 6.4189%, 9 bps higher than the 2035 gilt.

Other than yield spreads and portfolio valuations, traders focused on the RBI's future liquidity moves, dealers said. Uncertainty on the liquidity front capped gains, they added. Some traders had expected the central bank to announce another variable rate reverse repo auction after market hours Friday, after conducting an auction for INR 1.00 trillion earlier in the day. They covered short bets Monday since the RBI did not announce any such auction, but some traders still expect a VRRR auction after market hours Monday, Tuesday, or by the end of the week. While the systemic liquidity is unlikely to be significantly affected by these auctions, it will push money market rates higher, dealers said. The call money rate touched a high of 5.70% Monday, 20 basis points higher than the repo rate of 5.50%.

"Market is currently pricing a 5.35% call money rate," a dealer at another private-sector bank said. "If there are more VRRRs, then we would have to look at a (call money) rate of 5.50%. Some people are expecting daily VRRRs also. So now everyone just wants higher spreads (yields). No one will buy gilts without higher spreads (yields). 

An intraday fall in US Treasury yields helped the rise in prices to be sustained, dealers said. The yield on the 10-year benchmark US Treasury note fell to 4.26% at 1700 IST from 4.29% at 0900 IST and 4.27% at 1700 IST Friday. US yields fell as softer economic data bolstered hopes of a quicker rate cut in the world's largest economy. Indian traders are closely tracking the global developments due to lack of domestic cues. If the US Federal Open Market Committee cuts rates in July, Indian bond prices could rise in anticipation of a cut in India, dealers said. 

They said the calendars for the central government's borrowing through Treasury bills and states' borrowing for Jul-Sept were lower than expectations. After market hours Friday, the RBI said states aim to raise INR 2.87 trillion through bonds in Jul-Sept. Economists and bond market traders had expected a figure close to INR 3.00 trillion. As for T-bills, the government said it would raise INR 2.69 trillion through T-bills in Jul-Sept.

A large corporate entity bought T-bills Monday for its short-term portfolio valuation, dealers said. Traders had expected a higher T-bill borrowing with the view that the government would increase its T-bill issuances to fund buyback auctions, to reduce its heavy redemptions in the financial year 2026-27 (Apr-Mar). Since the release of the calendar, most hopes of further buyback auctions have reduced, dealers said, though some still expect more such auctions in the near term.

"This is my strong belief, I still think we'll see INR 2.50 trillion worth of buybacks," a dealer at another state-owned bank said. "It could even be switches, but they will be there."

Long-term bonds were up, possibly on demand for forward-rate agreements by insurance companies, dealers said.

Turnover in the gilts market Monday was INR 407.55 billion, lower than INR 511.60 billion Friday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. There were no trades using the wholesale digital rupee pilot Monday, whereas two trades in the 7.10%, 2034 bond worth INR 100.00 million had been conducted using this method Friday.

OUTLOOK

Tuesday, bond prices may take cues from the overnight movement of US Treasury yields. Traders await comments by US Federal Reserve Chair Jerome Powell, who will join other central bank chiefs at the European Central Bank forum in Sintra in Portugal. Powell's remarks may offer some insight into the US economy and monetary policy decisions.

On the domestic front, traders will now watch for any further announcement of variable rate reverse repo auctions by the RBI. Traders are closely tracking overnight borrowing rates, which have risen since the VRRR auction Friday. State-owned banks may purchase gilts for their held-to-maturity books at the start of the Jul-Sept quarter, dealers said. 

The yield on the 10-year benchmark 6.33%, 2035 bond is seen at 6.28-6.35% Tuesday and that on the most-traded 6.79%, 2034 bond is seen at 6.35-6.42%.

India Gilts: Most up as traders focus on quarter-end portfolio valuations

MUMBAI--1534 IST--Prices of most government bonds were up as traders bought gilts for their quarter-end book valuations, dealers said. Traders also covered short bets as US Treasury yields eased intraday, and after placing short bets Friday before the weekly gilt auction, they said. 

"PSUs (state-owned banks) were selling on Friday because they were selling the auction stock, and some profit-booking for their quarter-end targets," a dealer at a state-owned bank said. "Today's (Monday's) trades will not show up in this quarter, but the valuations will, for the mark-to-market (of portfolios)." State-owned banks were the largest sellers Friday, selling gilts worth INR 34.97 billion. On Friday, the government sold bonds worth INR 360 billion, of which INR 300 billion was stock of the benchmark 6.33%, 2035 gilt. 

Traders focused on valuations of their portfolios at the end of the Apr-Jun quarter, dealers said. A large corporate entity was also purchasing Treasury bills for its portfolio, dealers said. Lower-than-expected T-bill and state bond borrowing in the Jul-Sept quarter aided the rise in prices, they said. Traders also covered short bets as the 10-year US Treasury yield fell to 4.26% from 4.29% at 0900 IST.

Uncertainty on the Reserve Bank of India's future moves on liquidity capped the rise in prices, dealers said. Some traders had expected the central bank to announce another variable rate reverse repo auction post-market hours Friday, after conducting an auction for INR 1.00 trillion earlier in the day. Since the announcement didn't come, traders covered short bets, but some still expect an announcement Monday, or Tuesday, or by the end of this week. Some traders also fear that the central bank could announce daily VRRR auctions, they said. While the systemic liquidity is unlikely to be significantly impacted by VRRRs, it will push money market rates higher, dealers said. The call money rate touched a high of 5.70% Monday, 20 basis points higher than the repo rate of 5.50%. 

The turnover in the gilts market was INR 269.05 billion at 1530 IST, slightly lower than INR 307.95 billion around the same time Friday, according to data on the Reserve Bank of India'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 6.33-6.43%.  (Cassandra Carvalho)

India Gilts: Mixed; yld spread between 6.79%, 2034, 6.33%, 2035 bonds falls

MUMBAI--1226 IST--Government bond prices were mixed Monday. The price of the 10-year benchmark 6.33%, 2035 bond fell due to traders re-adjusting their positions as they found the bond to be expensive, dealers said. Meanwhile, the erstwhile 10-year benchmark 6.79%, 2034 bond price was up. 

"You are getting a good yield premium on the 6.79% (2034 bond) and there are other papers like the 7.10% (2034 bond) also, which is 10 basis points higher than 6.33% (2035 bond) so it's better to go there," a dealer at a primary dealership said. "Plus, these old 10-year papers will become a seven-, eight-year gilt, so if you wish to take a position for six months or a year, you can go for these (gilts)."

The yield spread on the most-traded 6.79%, 2034 gilt over the 10-year benchmark 6.33%, 2035 bond has narrowed to 7 basis points from 8-9 bps on Friday. Traders expect the yield spread to further compress to nearly 3-4 bps by the end of this week, dealers said. This led traders to short sell the 2035 bond. However, the fall in the gilt was limited as traders covered short bets placed Friday, dealers said. 

Meanwhile, prices of gilts maturing in 10 years and more were also up due to lower-than-expected state bond borrowing calendar for Jul-Sept, dealers said. Demand from insurers was firm for gilts maturing in 30-50 years, they said. The 15-year 6.92%, 2039 paper was picked up by banks on attractive yield spreads, dealers said.  

On the other hand, shorter tenure gilts remained largely steady on lack of incremental cues, dealers said. Fears that the Reserve Bank of India could announce more variable rate reverse repo auctions also kept traders at bay, they said. Mutual funds likely sold gilts due to their redemption pressures at the end of Apr-Jun quarter, dealers said. 

The turnover in the gilts market was INR 168.10 billion at 1226 IST, slightly higher than INR 144.65 billion around the same time Friday, according to data on the Reserve Bank of India'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 6.33-6.43%.  (Srijita Bose)

India Gilts: In thin band amid low volumes; PDs, pvt sector bks likely sell

MUMBAI--0954 IST--Government bond prices reversed early gains and moved in a narrow range amid thin volumes. Primary dealers and private sector banks are likely to have sold gilts, dealers said.

"We should see covering come. But for me personally, it doesn't make sense to cover the 6.33% (2035 bond) at these levels," a dealer at a private sector bank said. "Market will be in a choppy and confused zone for sometime until the spreads normalise."

The yield spread on the most-traded 6.79%, 2034 gilt over the 10-year benchmark 6.33%, 2035 gilt is expected to compress, with the yield on the 2034 bond at the higher end of the trading range, dealers said. The yield on the 2034 bond rose above 6.40%, which traders found attractive to buy, they said. However, due to thin trading volumes, the recovery was limited, dealers said.

Traders who placed short bets on Friday before the release of US data are likely to cover them Monday, they said. Traders said the ideal yield spread between the 2035 bond and the erstwhile 10-year benchmark should be around 3-4 basis points and had expected the spread on the bonds to compress after Friday's gilt auction, from around 8 bps. While traders are expected to cover short bets, some said they might wait for the yield spread to compress as they find the current yield on the 2035 bond expensive, dealers said. 

Volumes were lower on Friday on caution before the auction of the 6.33%, 2035 bond. The turnover in the gilts market was INR 30.65 billion at 0930 IST, higher than INR 16.15 billion at the same time Friday, according to data on the Reserve Bank of India'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 6.33-6.43%.  (Srijita Bose)

India Gilts: Seen up as traders cover short bets; long-term seen up

MUMBAI – Government bond prices may open higher Monday after as traders are expected to cover short bets placed on Friday, dealers said. Longer-tenure bonds are expected to rise on a lower-than-expected indicative borrowing calendar for states for Jul-Sept, they said. 

The yield on the 10-year benchmark 6.33%, 2035 gilt is seen at 6.28-6.35% during the day. The gilt ended at INR 100.11 or 6.31% yield on Friday. For the most-traded and erstwhile 10-year benchmark, 6.79%, 2034 gilt, traders expect a range of 6.33-6.40%. The 2034 gilt closed at INR 102.71 or 6.40% yield Friday.

The yield spread on the 2034 gilt over the 10-year benchmark gilt is expected to compress, with the yield on the 2034 bond at the higher end of the trading range, dealers said. Traders who placed short bets on Friday before the release of US data are likely to cover them Monday, they said. Traders said the ideal yield spread between the 2035 bond and the erstwhile 10-year benchmark should be around 3-4 basis points and had expected the spread on the bonds to compress after Friday's gilt auction, from around 8-9 bps. While traders expect trade volumes in the 2035 gilt to surpass the 2034 bond this week, with a rise in outstanding of the bond to INR 900 billion, they will wait for the yield spread to re-adjust as they found the current yield on the 2035 bond expensive, dealers said. 

Meanwhile, longer tenure bonds are expected to remain higher after the Reserve Bank of India Friday said states would borrow a total of INR 2.87 trillion in Jul-Sept, against market expectations of around INR 3 trillion. Demand from long-term investors such as insurers is expected to be firm, dealers said. 

The RBI's liquidity management will also be keenly watched after the central bank Friday conducted its first variable rate reverse repo operation since November. The three-day call rate rose to 5.60% on Friday after the VRRR auction, with some traders fearing that the central bank could conduct more such auctions to align the overnight rates near the repo rate, dealers said. Shorter tenure bonds may remain steady on caution around the VRRR auction, they said. 

Some dealers said foreign portfolio investors could pick up gilts Monday to balance their positions near the end of Apr-Jun quarter. However, with the yield on the 10-year benchmark gilt over the US Treasury yield narrowing due to a pick up in the 10-year US yield to 4.29% at 0840 IST from 4.27% at 1700 IST Friday, inflows could be limited, dealers said. Market participants are now awaiting comments by US Federal Reserve Chair Jerome Powell, who will join other central bank chiefs at the European Central Bank forum in Sintra on Tuesday. Powell's remarks may offer some insight into the US economy and monetary policy decisions.  (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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