May mirth

The yield on the old 10-year benchmark government security (G-sec; 6.79% GS 2034) ended May 2025 at 6.25%, down 11 basis points (bps) compared with the April close of 6.36%, and outside Crisil’s forecast of 6.32–6.42%.

The new benchmark (6.33% GS 2035) closed at 6.18%.

At the start of the first week, domestic bonds traded with a bearish bias as traders trimmed their positions amid escalating tensions between India and Pakistan. However, the Reserve Bank of India (RBI)’s announcement of Open Market Operation (OMO) purchases totalling Rs 1.25 lakh crore through four auctions during the month significantly aided gilt prices. A decline in US Treasury yields also kept the market sentiment upbeat, though concerns over India - Pakistan tensions limited the gains. Consequently, the old 10-year benchmark closed at Rs 103.05 (6.35%) versus the previous week’s closing of Rs 102.98 (6.36%).

The second week opened on a positive note as crude oil prices fell. Through the week, volatility persisted as India - Pakistan tensions escalated. A sharp fall in the rupee also weighed on gilt prices. Consequently, the old 10-year benchmark closed at Rs 102.89 (6.38%) compared with Rs 103.05 (6.35%) in the previous week.

During the third week, domestic bonds traded with a positive bias amid the ceasefire announcement between India and Pakistan. Additionally, a lower domestic inflation reading fuelled hopes for more rate cuts, aiding gilt prices. Expectations of a Rs 3 trillion surplus transfer from the RBI to the government kept market sentiment upbeat.Consequently, the old 10-year benchmark closed at Rs 103.65 (6.27%) as against Rs 102.89 (6.38%) in the previous week.

During the last week, domestic bonds tracked movement in US treasury yields. Anticipation of a record-high surplus transfer of around Rs 3 lakh crore to the government by the RBI aided sentiment. A decline in overnight index swap (OIS) rates also aided gilts. However, a significant fall in the rupee against the greenback weighed on gilt prices to some extent. Consequently, the old 10-year benchmark closed at Rs 103.76 (6.25%) compared with the previous week’s closingof Rs 103.65 (6.27%).