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Informist, Monday, Jul 15, 2024

By M.C. Adhiinthran

MUMBAI – Government bond prices erased early gains and ended a tad higher, with short-term bonds leading the gains. Banks locked in higher returns after higher-than-expected CPI inflation data for June pushed bond prices lower in the first half of the day, dealers said.

The 10-year benchmark 7.10%, 2034 bond ended at 100.85 rupees, or 6.98% yield, against 100.77 rupees, or 6.99% yield, on Friday. Today, the Reserve Bank of India extended trading hours till 1745 IST as the results of the gilt switch auction were delayed past 1700 IST, the scheduled market close, dealers said.

Both state-owned and private banks bought gilts for their asset-liability management. These purchases were concentrated in the 7.37%, 2028 and 7.32%, 2030 bonds, as the old benchmark papers offered higher yields than the current bonds, dealers said.

"Short-term bonds are usually taken for asset-liability management by banks," a dealer at a state-owned bank said. "Even the FRB 2028 bond that was in favour a few days back was for that only. Not just PSUs (state-owned banks) even private banks are buying bonds in the 2028-2030 basket."

Bond prices had fallen earlier in the day after India's CPI inflation came in at 5.08% in June, above the median estimate of 4.8% in an Informist poll. The data was released after market hours on Friday. However, the fall in prices post the CPI print was not as sharp as feared, suggesting that investors were not trimming their holdings in a hurry after the adverse print. After stagnant trade in the first three hours, traders covered their short bets on the view that prices would not fall further, based only on one inflation print, dealers said.

Meanwhile, domestic traders ignored an intraday rise in US yields as the reason was seen as more relevant to the US fiscal situation instead of an interest rate view. Moreover, the view of a US rate cut in September was not rattled by a higher-than-expected US producer price inflation for June, which was a positive for domestic gilts, dealers said. US producer prices rose 0.2% sequentially in June, against a 0.1% rise expected.

According to CME FedWatch Tool, Fed Fund Futures traders see a 92.5% chance of a rate cut in September, against 96.3% on Friday. The yield on the benchmark 10-year US Treasury note rose to 4.22% from 4.18% at settlement on Friday.

Chances of the Republican challenger Donald Trump winning the US presidential election rose after an assassination attempt on Saturday left him injured. Globally, investors believe that Trump coming to power would mean lower corporate taxes and stricter trade relations, leading to higher bond yields. Trump's policies are considered inflationary and pro-growth.

Earlier in the day, state-owned banks bought the 7.10%, 2034 bond when the 10-year benchmark yield was within touching distance of the psychologically crucial 7.00% mark for the first time in over a week, dealers said. The buying momentum dwindled as bond prices rose. Primary dealerships trimmed their holdings ahead of the gilt auction on Friday, dealers said. The government will sell 200 bln rupees of the 7.10%, 2034 bond and 110 bln rupees of the 7.46%, 2073 bond on Friday, it said in a release during the extended market hours.

"I don't think domestic guys were too keen on buying bonds today," a dealer at a primary dealership said. "If my auction has a 10-year (bond) then I would wait till then to buy heavily. Why stock up now when the primary issue is coming?"

Overall, foreign investor buys in the market today were dull today. Foreign portfolio investors bought 1.15 bln rupees worth of index eligible gilts under the fully accessible route today, data from the Clearing Corp of India Ltd at 1740 IST showed.

An FPI was said to have sold 8 bln rupees of the 7.18%, 2037 bond, and replaced the bond with the 7.10%, 2034 gilt, dealers said. The 2037 bond's coupon payment is due next week, and foreign investors may have divested themselves of the gilt to avoid paying withholding tax on the interest payment, they said.

According to data on the RBI's Negotiated Dealing System–Order Matching platform, the turnover today was 438.05 bln rupees, a tad lower than Friday's turnover of 457.20 bln rupees. Today, no trades were carried out using the wholesale digital rupee pilot, against two trades totalling 200 mln rupees on Friday.

OUTLOOK

On Tuesday, bond prices may open steady due to a lack of firm domestic and offshore cues, dealers said. Traders may take cues from US Federal Reserve Chair Jerome Powell's speech due later today.  

Traders may avoid large bets ahead of the full Budget for 2024-25 on Jul 23. Any sharp movement in US Treasury yields and crude oil prices may lend cues. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.95-7.02% during the day.

India Gilts: Up; mkt hrs extended till 1745 IST on switch result delay

MUMBAI--1720 IST--Government bond market trading hours have been extended today till 1745 IST due to a delay in the result of the gilt switch auction conducted at 1030-1130 IST. Gilt prices remained up on domestic banks' purchases, dealers said.

The result was released by the Reserve Bank of India just after scheduled market closing time of 1700 IST. At the auction, the government switched 8 gilts worth 144.30 bln rupees today, against 10 gilts worth 250 bln rupees notified.

"This has happened before as well, but at least this time we won't see any more extensions as the results are out now," a dealer at a state-owned bank said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 415.70 bln rupees, against 501.70 bln rupees at 1500 IST on Friday. For the rest of the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.98-7.02%. (M.C. Adhiinthran)

India Gilts: Erase all losses, tad up; short-term bonds lead gains

MUMBAI-–1445 IST--Prices of government bonds were marginally higher after erasing all losses. Bond prices rose on robust purchases from state-owned banks, with short-term bonds leading the gains. The market was divided on what led to the sudden rise, which reflected across tenures, dealers said.

Bond prices had fallen slightly earlier after India's CPI inflation came in at 5.08% in June, above the median estimate of 4.8% in an Informist poll. The data was released after market hours on Friday.

Dealers said that the fall in prices post the CPI print was not as sharp as they had feared, suggesting that investors were not trimming their holdings in a hurry after the adverse print. This was taken as a positive sign by traders, who had also traded cautiously ahead of the print, dealers said.

In an interview with CNBC-TV18 on Thursday, Reserve Bank of India Governor Shaktikanta Das, citing market economists, said that consumer inflation would remain near 5% in June, nowhere close to the RBI's 4% target. He also said it was too early to talk about a change in stance and rate cuts.

"After Das's talk on Thursday, I think most of the market had priced in a higher CPI for June," a dealer at a primary dealership said. "Now that domestic CPI was a little above 5%, some sold early in the day but later bought as it was factored in." 

Domestic traders ignored an intraday rise in US Treasury yields as the reason was seen as more relevant to the US fiscal situation instead of the interest rate view. Moreover, the view of a US rate cut in September was not rattled by a higher-than-expected US producer price inflation for June, which was a positive for domestic gilts, dealers said.

The yield on the benchmark 10-year US Treasury note rose to 4.23% from 4.18% at settlement on Friday. Chances of Republican challenger Donald Trump winning the presidential election rose after an assassination attempt on Saturday left him injured. Globally, investors believe that Trump coming to power would mean lower corporate taxes and stricter trade relations, leading to higher bond yields. Trump's policies are considered inflationary and pro-growth. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 260.15 bln rupees, against 285.30 bln rupees at 1430 IST on Friday. For the rest of the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.98-7.02%. (M.C. Adhiinthran)

India Gilts: Remain down; market awaits US yields trade in Europe

MUMBAI--1130 IST--Prices of government bonds remained lower due to higher-than-anticipated June CPI inflation for India, dealers said. The market now keenly awaits US Treasuries trade in Europe.

At the switch auction today, the government offered to switch 10 gilts worth 250 bln rupees with 11 bonds. Some banks are likely to bid for the 7.40%, 2035 bond and the 7.41%, 2036 bond at Friday's Financial Benchmarks India Ltd yield levels, or 1-2 basis points higher, at the auction, dealers said. "We are participating in the auction, but we are putting at a tail. Long-end (bonds) are facing demand issues due to heavy corporate bond issues," a dealer at a private bank said. Recently, several banks have issued infrastructure bonds to meet their funding needs, which have seen demand from long-term investors. 

Five state-owned banks, two private banks, and two primary dealerships told Informist that they were not participating in the auction. Meanwhile, two private banks expressed interest in the auction.

Meanwhile, the market fears an uptick in US Treasury yields in European trade after the assassination attempt on Donald Trump, former US president and Republican candidate for the upcoming US presidential elections, dealers said. The yield on the benchmark 10-year US Treasury note settled at 4.18% on Friday. US Treasuries were not traded in Asia as Japanese financial markets are shut on account of Marine Day.

Back home, the market digested India's CPI inflation, which was 5.08% in June against 4.80% in May. The latest inflation print was above the market estimate of 4.8%. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 59.20 bln rupees, against 125.25 bln rupees at 1130 IST on Friday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.98-7.02%. (Nishat Anjum)

India Gilts: Fall after higher-than-view India CPI; volumes dull

MUMBAI--0925 IST--Prices of government bonds inched lower due to the higher-than-expected India CPI inflation data for June, dealers said. However, the losses were limited as some traders stepped up purchases of the benchmark 7.10%, 2034 bond around the key 7% yield level.

Trade volumes remained dull and concentrated in the benchmark 7.10%, 2034 bond and 7.18%, 2033 bond. Short-term bonds remained out of favour, despite banking system liquidity being in surplus, due to lack of clarity over the rate trajectory in India, dealers added. On Friday, the liquidity surplus in the banking system was 1.36 trln rupees, the highest since Apr 5.

Dealers said traders would likely wait and watch how events unfold on the global front before placing aggressive bets. "Even if the rise (in yields) is because of our inflation, things are much more sorted back home," a dealer at a state-owned bank said. "US yields will probably shoot up after the attack on Trump." Over the weekend, there was an assassination attempt on Donald Trump, former US president and Republican candidate for the upcoming US presidential elections. 

India's CPI inflation rose to 5.08% in June from 4.80% in May. Traders were slightly relieved as the uptick in inflation was mainly due to a rise in food prices, which is considered transitory in nature, dealers said. This would not imply that there is a trend to this rise, they added. The latest inflation print was above the market estimate of 4.8%. 

Meanwhile, the market took comfort from core inflation remaining unchanged as it was expecting a slight uptick in the print, dealers said. Core inflation, which strips out fuel and food items, remained at 3.1% for the second consecutive month in June.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 24.70 bln rupees, against 54.10 bln rupees at 0930 IST on Friday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.98-7.02%. (Nishat Anjum)

India Gilts: Seen opening lower as India Jun CPI higher than expected

MUMBAI – Prices of government bonds are seen opening lower after the release of higher-than-expected India CPI inflation data for June, dealers said. Traders would also keenly eye the movement of US Treasuries trade in Europe.

The yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.97-7.04%, against 6.99% on Friday. Investors, mainly state-owned banks, may step up purchases of the paper around the 7.03-7.04% yield, a level considered lucrative, which may limit the losses, dealers said.

US Treasuries were not traded in Asia as Japanese financial markets are shut on account of Marine Day. The market fears an uptick in US Treasury yields in European trade after the assassination attempt on Donald Trump, former US president and Republican candidate for the upcoming US presidential elections, dealers said.

US yields may rise as investors believe that Trump coming to power would mean lower corporate taxes and stricter trade relations, leading to higher bond yields. Trump's policies are considered inflationary and pro-growth. Chances of Trump winning the presidential election rose after the assassination attempt on Saturday left him injured, various news reports said.

Back home, data released on Friday showed India's annual inflation rate based on CPI rose to a four-month high of 5.08% in June from a 1-year low of 4.80% in May. The rise in the headline print was mainly because of a surge in food prices during the month. 

The latest inflation print was above the market estimate. According to an Informist poll, the headline inflation rate was seen at 4.8% in June. Additionally, the May CPI print was also revised higher to 4.80% from 4.75% earlier. 

Meanwhile, core inflation, which strips out fuel and food items, remained at 3.1% for the second consecutive month in June. Core inflation remaining unchanged may comfort traders as the market was expecting a slight uptick in the print, dealers said.  (Nishat Anjum)

End

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

Edited by Saji George Titus

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