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Government Security Market Update:

Indian bond yields rose 2 basis points on September 19 morning, following the upward trend in US treasury yields after the Federal Reserve’s 25-basis point rate cut. The 10-year benchmark bond yield opened at 6.5134 percent, up from its previous close of 6.5139 percent. This rise mirrored the 10-year US treasury yield, which rose to 4.12 percent from 4.08 percent and also the weekly sale of the 10-year benchmark for Rs..30,000 crore. The auction comes at a time when the market remained concerned about constant supply from the states and the centre, which has pushed up the yields and skewed demand-supply dynamics. Earlier in a week the fourteen states sold 4 to 28 years loans in a range of 6.76 to 7.48% and in the Treasury Bill auction the Reserve Bank of India sold 91; 182 & 364 DTB at a yield of 5.4976; 5.6045 & 5.6349% respectively. The RBI sold the 10-year benchmark 6.33% GS 2035 and 5.91% GS 2028 at a yield of 6.5198 & 5.8899 percent respectively. After the auction result the 10-year was pulled down by 5 paise from auction cut-off and rallied by more than 20 paise to close below 6.50%. The yield on the 6.33% Government bond due May 2035 rose to 6.4885% from 6.4651% last week

Global Debt Market Update:

The Federal Reserve, as expected, cut its benchmark interest rate by 25 basis points to 4-4.25 percent, the first reduction since December 2024 and the first of President Donald Trump’s second term. The Federal Open Market Committee voted 11–1 in favour of the cut, with newly appointed governor Stephen Miran dissenting in support of a deeper half-percentage point cut. Governors Michelle Bowman and Christopher Waller, who had pushed for easing in July, backed the quarter-point reduction this time. The Fed said, “Recent indicators suggest that growth of economic activity moderated in the first half of the year. Job gains have slowed, and the unemployment rate has edged up but remains low. Inflation has moved up and remains somewhat elevated.” It added that “downside risks to employment have risen”, prompting the shift in policy. The Economic Projections showed policymakers now expect three rate cuts in 2025 — up from two pencilled in June — with two more quarter-point reductions this year, and additional moves in 2026 and 2027. Median estimates put underlying inflation at 3.1 percent at the end of 2025, unchanged from June, while growth forecasts were lifted to 1.6 percent in 2025 and 1.8 percent in 2026. U.S. 10 years benchmark yield moved to 3.99% after announcement and moved back above 4.10% in the following day.

Bond Market Ahead:

Indian government bonds were caged in a narrow range as traders focussed on present supply concerns instead of the debt's potential inclusion into a global index, a positive action that could spur demand over the medium term. Traders also awaits the borrowing calendar for the second half of the financial year, which is likely to published before the end of September. The RBI has received the suggestions from the market participants to reduce the share of the longer dated securities in overall supply of H2 and also cut weekly auction sizes. On other hand Bloomberg Index Services is seeking views from investors on whether Indian government bonds should be included in its flagship global aggregate index. To address the liquidity into the banking system the RBI is watchful and announced Rs.1 lac crore of the Variable Rate Repo (VRR) auction for September 22, Monday, which indicates that the Central Bank is even open for conducting OMO (Open Market Operation) Purchase if required. The government bond will get support and it will be caped at 6.52% and move may pull down the yields to 6.42% by September end

Bond Strategy:

* Buy 6.33% GS 2035 around 6.48 to 6.49% with a target of 6.45% and a stop loss of 6.53%;

* Buy 7.09% GS 2074 around 7.29 to 7.30% with a target of 7.25% and a stop loss of 7.34%.

Yield Outlook for the week

The Indian 10 year Benchmark (6.33% GS 2035) likely to move in the range of 6.45 to 6.50%.

SEBI Registration number is INH000000081.

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