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Informist, Monday, Jul 22, 2024

By Nishat Anjum

MUMBAI – Government bond prices recovered most losses by the end of trade today as the market was optimistic about the government announcing a borrowing cut in the Union Budget for 2024-25 (Apr-Mar), dealers said. Finance Minister Nirmala Sitharaman will present the Budget in Parliament on Tuesday.  

The 10-year benchmark 7.10%, 2034 bond ended at 100.92 rupees, or 6.97% yield, against 100.93 rupees, or 6.96% yield, on Friday.

From the Budget, the gilt market would be focused on two numbers--the first one being the amount to be borrowed from dated securities and the other would be the fiscal deficit target for the financial year ending March, dealers said. 

The market expects the government to peg its net issuance of dated securities at 11.42 trln rupees, lower than the Interim Budget's aim of 11.75 trln rupees, respondents in an Informist poll said. They also expect the government to lower its fiscal deficit target to 5.0% of the GDP from 5.1% in the Interim Budget, according to another Informist poll. 

Currently, the gilt prices have factored in a cut of 200-300 bln rupees in borrowing via dated securities. However, if the government keeps the target borrowing unchanged from the Interim Budget, presented on Feb 1, the yield on the benchmark 2034 paper may rise to 7.02%, dealers said.

"The market is tilted towards the bullish side right now. Personally, I only see a cut in T-bill (Treasury bill) borrowing, which would be like the one that happened in Apr-Jun, and fiscal deficit target to 5% (of the GDP)," a dealer at a primary dealership said. "If there is no cut announced we may see 2-3 basis points rise in yields. 3 bps in an extreme case." 

During the day, market sentiment was supported by the Economic Survey, which projected India's real GDP growth for the current financial year at 6.5-7.0%, lower than the Reserve Bank of India's forecast of 7.2% and a growth of 8.2% last year, dealers said. The lower GDP growth projection may pave the way for the Monetary Policy Committee to opt for a rate cut sooner, dealers said.

The survey noted that India's growth is inclusive of a fall in unemployment and that the unemployment rate declined to 3.2% in 2022-23, a declining trend since the pandemic.

"The market recovered on hopes of a borrowing cut. The Economic Survey was also positive with respect to the GDP figures," a dealer at a state-owned bank said. "Though some people were selling ahead of the Budget thinking the government would spend more on welfare schemes." In the secondary market, state-owned banks were seen on the buying side, while primary dealerships trimmed their bond holdings ahead of the Budget, dealers said. 

Despite positive cues in the market, gilt prices failed to rise as RBI data on Friday showed the central bank sold 34.05 bln rupees of gilts in the secondary market in the week ended Jul 12, dealers said. These were the first net gilt sales by the RBI in the secondary market since the week ended Nov 3.

The market remained worried that the additional supply arising from open market operations will become a regular feature if the banking liquidity surplus and foreign inflows into debt continues, dealers said. The liquidity surplus in the banking system averaged over 1 trln rupees in the week ended Jul 12, while foreign portfolio investors' government bond purchases totalled 25.82 bln rupees, data from the RBI and Clearing Corp of India showed, respectively.

A section of the market did not pay much heed to the open market operations by the RBI as the quantum is low, while others saw this as a reminder from the RBI that OMOs remain a tool to manage liquidity, dealers said. After the monetary policy meeting held in October, Governor Shaktikanta Das had said the central bank might explore open market operation sales to manage liquidity in the banking system. In a recent interview with CNBC-TV18, he reiterated that it remains a tool to tackle excess liquidity.

According to data on the RBI's NDS–OM, the turnover today was 459.00 bln rupees, as against 424.40 bln rupees on Friday. Today, two trades worth 200 mln rupees were carried out using the wholesale digital rupee pilot, against four trades worth 300 mln rupees on the previous day.

OUTLOOK

On Tuesday, government bond prices are seen opening steady on caution ahead of the Budget, dealers said. A potential borrowing cut in the Budget of around 250-300 bln rupees from the gross borrowing aim of 14.13 trln rupees outlined in the Interim Budget is expected, dealers said. 

A section of the market expects the government to announce a cut in borrowing through Treasury bills, rather than dated securities, dealers said. This is because it would be too early for the centre to be sure of the demand throughout the fiscal year. It would rather wait till the end of the financial year to announce the cuts, or cancel the last few auctions, they added.

In case the government does not announce any cut in borrowing via dated securities, the yield on the benchmark 10-year paper may rise to 7.02%, dealers said. If the reduced borrowing amount is lower than expected, the yield on the benchmark paper may fall to 6.94%.

According to an Informist poll, the respondents expect the government to lower its fiscal deficit target to 5.0% of the GDP from 5.1% in the Interim Budget. In the gilt market, there were a few bets on the fiscal deficit target going as low as 4.9% of the GDP. However, the majority see the target at 5.0% of the GDP for the financial year ending March, dealers said.

Any sharp movement in US Treasury yields and crude oil prices may also lend cues at the opening. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.93-7.02% during the day.

India Gilts: Off lows on optimism over cut in govt borrowing in Budget

MUMBAI--1601 IST--Government bond prices were off the day's lows as traders stepped up purchases on rising hopes of a cut in the government's borrowing in the Budget, dealers said. Bonds also got a boost from the Economic Survey for 2023-24 (Apr-Mar) tabled in Lok Sabha today that said domestic macroeconomic conditions are positive for the current financial year.

"GDP projections are really good (in the survey)," a dealer at a state-owned bank said. "Why shouldn't I buy if conditions are good?"

The Economic Survey has projected India's real GDP growth for the current financial year at 6.5-7.0%, lower than the Reserve Bank of India's forecast of 7.2% and a growth of 8.2% last year. However, the survey said that India's growth is inclusive of a fall in unemployment and that the unemployment rate declined to 3.2% in 2022-23, a declining trend since the pandemic. The lower GDP growth projection has raised hopes of an early rate cut by the central bank, dealers said.

While the takeaways from the survey were largely seen as positives, the market's focus is more on the Union Budget for 2024-25 to be detailed on Tuesday, dealers said. The market expects the government to peg its net issuance of dated securities at 11.42 trln rupees, lower than the Interim Budget's aim of 11.75 trln rupees, respondents of an Informist poll said. They also expect the government to lower its fiscal deficit target to 5.0% of the GDP from 5.1% in the Interim Budget, according to another Informist poll. 

State-owned banks were buying bonds in the secondary market, after having sold for most of last week, dealers said. They were buying ahead of the Budget on hopes of a cut in borrowing or a reduction in the fiscal deficit target.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 384.15 bln rupees, against 314.30 bln rupees at 1530 IST on Friday. For the rest of the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.94-7.00%. (M.C. Adhiinthran)

India Gilts: Remain down after RBI data shows bond sales in Jul 12 wk

MUMBAI--1206 IST--Prices of government bonds remained down after Reserve Bank of India data on Friday showed the central bank sold 34.05 bln rupees of gilts in the secondary market in the week ended Jul 12, dealers said. Traders fear these open market operations will become a regular feature if the banking liquidity surplus and inflows into debt persist.

These were the first net gilt sales by the RBI in the secondary market since the week ended Nov 3. The liquidity surplus in the banking system averaged over 1 trln rupees in the week ended Jul 12, while foreign portfolio investors' government bond purchases totalled 25.82 bln rupees, data from the RBI and Clearing Corp of India showed, respectively.

"The quantum is small, but it is a reminder to the market about (RBI Governor Shaktikanta) Das's comments from October," a dealer at a private bank said. After the monetary policy meeting held in October, Governor Das had said the central bank might explore open market operation sales to manage liquidity in the banking system. In an interview with CNBC-TV18 on Jul 11, he reiterated that it remains a tool to tackle excess liquidity.

Some dealers said the RBI's secondary market trading activity was a routine exercise and nothing to worry about, as the quantum was low and inconsequential to the market. On the other hand, traders said chances that the central bank might conduct open market sales auctions after the Union Budget for 2024-25 (Apr-Mar) on Tuesday were rising. This would enable the RBI to mop up liquidity, while also supplying gilts to the market to reduce a mismatch with demand from the market, dealers said.

An Informist poll suggested the full Budget would cut borrowing through dated securities by around 300 bln rupees from the target in the Interim Budget. A borrowing cut of around this quantum was already priced in, though some traders were trimming their holdings to minimise risk heading into the event, dealers said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 151.45 bln rupees, against 74.15 bln rupees at 1130 IST on Friday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.94-7.00%. (M.C. Adhiinthran)

India Gilts: Down as some traders trim holdings ahead of Budget

MUMBAI--0950 IST--Prices of government bonds fell as some traders trimmed their bond holdings due to uncertainty regarding the borrowing number that will be announced in the Union Budget for 2024 (Apr-Mar) on Tuesday.

The market has been pricing in a small reduction in the government's borrowing for the current financial year following a sharply higher than expected surplus transfer from the Reserve Bank of India. The government may peg its net issuance of dated securities this year at 11.42 trln rupees, lower than the target of 11.75 trln rupees in the Interim Budget, according to respondents in an Informist poll.

However, some traders chose to lower their exposure ahead of the key event, given the possibility that the government could choose to use the fiscal windfall for additional spending, dealers said.  

"Some people are not too sure about borrowing cuts and lower fiscal deficit targets," a dealer at a state-owned bank said. "I think they expect the same targets to continue from the Interim Budget with a lot of spending going to populist schemes." 

Some dealers expect the market to recover later in the day due to participants stepping up purchases ahead of the Budget. Others expect the market to remain in a thin range after the fall, as they see sellers continuing to have a grip over the market today.  

Dealers said they look forward to the Economic Survey, expected to be released at 1300 IST, for more cues on the concentrated segments of spending in the Budget.  

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 60.75 bln rupees, against 24.10 bln rupees at 0930 IST on Friday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.94-7.00%. (M.C. Adhiinthran)

India Gilts: Seen opening steady on lack of firm cues for today

MUMBAI – Government bonds are seen opening steady due to a lack of firm domestic and offshore cues for today, dealers said. However, some traders might buy bonds ahead of the Union Budget 2024-25 (Apr-Mar), which will be detailed on Tuesday. The yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.94-7.01%, against 6.96% on Friday.

Dealers expect the yield on the 10-year benchmark bond to touch 6.95% today on last-minute buys from traders ahead of the Budget, where yields are largely expected to fall. However, the yields will not fall below the 6.95% mark today due to a lack of firm cues. 

Yields are expected to fall on Budget day as the market expects the government to peg its net issuance of dated securities at 11.42 trln rupees, lower than the Interim Budget's aim of 11.75 trln rupees, respondents of an Informist poll said. They also expect the government to lower its fiscal deficit target to 5.0% of the GDP from 5.1% shown in the Interim Budget, participants of another Informist poll showed. 

On the global front, US President Joe Biden's exit from the re-election campaign hardly caused a movement in US Treasury yields in Asian trade. Biden ended his re-election campaign, clearing the way for another Democrat, Vice President Kamala Harris, to face Republican challenger Donald Trump in the elections.

"While it has been my intention to seek re-election, I believe it is in the best interest of my party and the country for me to stand down and to focus solely on fulfilling my duties as President for the remainder of my term," Biden said on Sunday in a letter posted on social media platform X, formerly Twitter.

While US yields may not lend cues for opening, they may lend cues in case of any sharp move in European trade, dealers said. The yield on the 10-year benchmark US Treasury note was at 4.23%, against 4.25% at the time the US market settled on Friday. (M.C. Adhiinthran)

End

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

Edited by Aditya Sakorkar

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