January jostle
 

Yield on the 10-year benchmark government security (G-sec) opened at 6.78% and closed at 6.69%, down 7 basis points (bps) from its December close of 6.76% and within Crisil’s forecast range of 6.69-6.79%.

The domestic bond market opened the month on a steady note, as traders covered short bets. Buying picked up following better-than-expected cut-off at the weekly G-sec auction, coupled with bullish market sentiment on hopes of a rate cut by the Reserve Bank of India Monetary Policy Committee (MPC) at its meeting in February 2025.Towards the closing session, a fall in the five-year overnight index swap (OIS) rates and news of change in United States (US) President Donald Trump’s tariff plan aided gilt prices. Yield on the 10-year benchmark G-sec closed the first week at 6.75%.

At the start of the second week, bonds traded with a bearish sentiment due to a surge in US Treasury yields and rising OIS rates. A surge in US Treasury yields ahead of the non-farm payrolls data weighed on bond prices to some extent. A significant fall in the rupee to a record low against the dollar also weighed on the bond prices. In line with expectations, domestic Consumer Price Index (CPI) data did not lend any fresh direction. Gilts closed 5-10 bps weaker across the curve. The 10-year benchmark G-sec closed the week at 6.83%.

The third week started on a bullish note. The RBI’s announcement of daily variable rate repo (VRR) auctions revived expectations of a policy rate cut in February 2025. Moreover, weaker-than-expected cut-off at the weekly auction weighed on bond prices. Traders also awaited clarity on tariffs under Trump 2.0. Consequently, trade volumes remained muted. The 10-year benchmark closed the week at 6.76%.

In the fourth week, domestic bonds traded with a positive bias, tracking an overnight decline in US-treasury yields. Moreover, expectations of lower gross borrowing for fiscal 2026 than 2025 kept market sentiment upbeat. With this, gilts closed 1-3 basis points stronger across the curve. RBI announced measures to infuse durable liquidity using open market operation (OMO) purchases and 56-day VRR auction. During the session, a rise in US treasury yields and profit booking by market participants weighed on the bond prices. Traders awaited the outcome of the US Federal Open Market Committee (FOMC) meeting outcome on January 29, 2025 and the Union Budget for fiscal 2026 on February 1, 2025, for further direction. The benchmark 10-year yield closed the week at 6.69%.