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By Nishat Anjum

MUMBAI – Government bond prices closed little changed as demand from investors fizzled out towards the end of the day, dealers said. The market now awaits key data from the US, which may lend prominent cues to the market. 

The 10-year benchmark 7.10%, 2034 bond closed at 100.94 rupees, or 6.96% yield, against 100.90 rupees, or 6.97% yield, on Tuesday.

Even as the market lacked fresh domestic cues post Union Budget 2024-25 (Apr-Mar), positive sentiment lingered in the market as the government lowered its fiscal deficit target for this fiscal year, dealers said. This also led to decent trade volume in the secondary market, despite the fact that gilt prices were not much volatile during the day. The government revised the fiscal deficit target to 4.9% of GDP for 2024-25, lower than the expected 5.0%, and 5.1% announced in the Interim Budget.

The buying momentum in the market today was led by long-term investors, such as insurers and pension funds who bought longer-term bonds for their asset-liability management needs, dealers said. Meanwhile, amongst on-the-run gilts, foreign investors were buying the 7.18%, 2037 bond, which classifies under the fully accessible route and is eligible for JP Morgan government bond index-emerging markets.

With the gilt market outlook positive and chances of gilt yields falling going forward, investors see the current yields on the longer-term papers as lucrative, dealers said.  "I am not saying that current spreads are too good to miss, but if yields are going to fall in future, I better lock in what I am getting," a dealer at a private bank said. "With foreign flows coming, the market is not much bothered now."

Meanwhile, primary dealerships were seen on the selling side as they lighten their books ahead of the 350-bln-rupee bond auction on Friday, dealers said. Data from Clearing Corporation of India Ltd showed that primary dealerships have been net sellers for the last four trading days, while being top net sellers for three.

Moreover, a cut in short-term borrowings announced in the Budget aided short-term gilts, dealers said. In the Budget there was a reduction of 1 trln rupees in net short-term borrowings compared to the Interim Budget. The net short-term borrowing aim was lowered to (-)500 bln rupees from 500 bln rupees in the Interim Budget.

Short-term bonds are also in favour as traders were confident of a rate cut in the US sooner than later, dealers said. The market widely expects the US Federal Open Market Committee to opt for a rate cut by September, while they see the panel maintaining interest rates at 5.25-5.50% in the meeting scheduled at the end of the month.

Traders have now turned their focus to key economic data such as the US advance estimate for Apr-Jun GDP on Thursday, and the US personal consumption expenditures data for June for fresh guidance to see if these two data points are able to affirm investors' expectations of a rate cut in the US by September, dealers said. "If both the data points are positive, they will cut rates by September. Which means we(Monetary Policy Committee) can cut by October or December," a dealer at a primary dealership said.

According to data on the RBI's Negotiated Dealing System–Order Matching platform, the turnover today was 635.85 bln rupees, lower than 865.35 bln rupees on Tuesday. There were no trades carried out using the wholesale digital rupee pilot today, against two trades worth 200 mln rupees on Tuesday.

OUTLOOK

On Thursday, government bond prices are seen opening steady as the market may lack significant cues on the domestic front, dealers said. During the day traders are likely to trim bond holdings ahead of the weekly auction on Friday, which has a huge fresh supply, dealers said, with the government selling three dated securities worth 350 bln rupees.

Traders will now turn their focus to data from the US, due this week. The market may also take cues from the comments of various US Federal Reserve officials who are lined up to speak in the week, dealers said. On Thursday, US Apr-Jun GDP is scheduled to be released, while personal income and outlays for June are due on Friday.

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 6.93-7.00% during the day.

India Gilts: Remain up; market looks offshore for prominent cues

MUMBAI--1533 IST--Prices of government bonds remained up, however the 10-year benchmark, 7.10%, 2034 bond saw some selling pressure from a few traders who bought gilts heavily anticipating a deep cut in the government's market borrowings, capping gains on the bond, dealers said.

In the secondary market, mutual funds were seen buying short-term bonds, while private banks were on both sides of the market, dealers said. Additionally, foreign investors were also seen buying gilts. Meanwhile, state-owned banks sold government bonds at a profit, dealers said.

Now that the Budget has been presented, the market has started looking for offshore cues to get some direction, especially on the rate cut front, dealers said. Traders have now turned their focus to key economic data such as the US advance estimate for Apr-Jun GDP on Thursday, and the US personal consumption expenditures data for June for fresh guidance to see if these two data points are able to affirm investors' expectations of a rate cut in the US by September, dealers said. Fed Fund Futures see a 96% chance of a 25-basis-point cut in the interest rate by September, against around 100% chance a week ago.

"These two weeks have crucial events lined up which will certainly guide the market," a dealer at a private bank said. "First is key economic data from the US is pending, then the key FOMC meeting is there, and in the first week of August, the MPC (Monetary Policy Committee) meeting is there. So, the coming days are full of guidance for the market."

The Federal Open Market Committee meeting, which is scheduled towards the end of the month, may lend some cues regarding rate cuts in the US. This may give some clarity over rate cuts back home, dealers said. Even if the US rate-setting panel keeps rates unchanged at 5.25-5.50% in the upcoming meeting, cuts would happen in September, dealers said. In such a scenario, rate cuts in India would begin in December, they added.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 530.05 bln rupees, against 761.95 bln rupees at 1530 IST on Tuesday. For the rest of the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.94-7.01%. (Anupreksha Jain)

India Gilts: Rise; demand from investors lifts long-term bonds

MUMBAI--1225 IST--Prices of government bonds rose as a downward revision in the fiscal deficit target reaffirmed confidence among traders that the central government is keen on staying on the path of fiscal consolidation, dealers said. 

In the secondary market, longer-tenure government securities saw an uptick in demand as foreign investors, insurers, and pension funds were keen on buying long-term bonds to fetch higher yield levels, dealers said. Foreign investors were buying the 7.18%, 2037 bond, as this security is classified under the fully accessible route. State-owned banks and foreign investors were seen on the buying side, while primary dealers were seen on the selling side in the secondary market, dealers said. According to data by Clearing Corp of India Ltd, primary dealers were the top net-sellers on Tuesday.

Moreover, as the recent issuance of infrastructure bonds slowed down, longer-term gilts saw demand from insurers and pension funds, dealers said.

"Both the shorter-end and longer-end bonds are performing better. But there is still some selling pressure in the 10-year paper (7.10%, 2034 bond)," a dealer at a state-owned bank said. "Books of PSUs (state-owned banks) are empty, so they are buying the 10-year paper but in smaller quantities."

A reduction of 1 trln rupees in net short-term borrowings compared to the Interim Budget has aided demand for shorter-tenure bonds, dealers said. The net short-term borrowing aim was lowered to (-)500 bln rupees from 500 bln rupees in the Interim Budget.

Along with the reduction, traders were confident that the US Federal Reserve is likely to go for a cut in the interest rate by September, which may translate into a cut in domestic policy rates by December. This also lifted demand for short-term bonds, dealers said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 287.10 bln rupees, against 223.60 bln rupees at 1030 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.94-7.01%. (Anupreksha Jain)

India Gilts: Steady; short-term bonds emerge favourites post Budget

MUMBAI--1007 IST--Prices of government bonds were steady as traders waited for fresh cues, because the cut in bond supply for 2024-25 (Apr-Mar) was a token amount that did not lend direction to bond prices, dealers said. Instead, demand for bonds maturing up to three years rose after net short-term borrowing for 2024-25 was revised down by 1 trln rupees from the Interim Budget in the Union Budget on Tuesday.

The net short-term borrowing aim was lowered to (-)500 bln rupees from 500 bln rupees in the interim Budget. The current financial year's gross borrowing target was revised down by only 120 bln rupees to 14.01 trln rupees in the full Budget, disappointing some traders, dealers said. Half of this cut has already happened – the Reserve Bank of India rejected all bids for a new 10-year green bond on May 31. Another 60-bln-rupee auction in the bond is coming up on Aug 2.

Further, owing to the huge supply of gilts at the coming gilt auction, traders and primary dealers were trimming their bond holdings, they added. At the auction, the government will sell three dated securities worth 350 bln rupees. On the other hand, traders took comfort that fiscal consolidation was taking place, dealers said. The fiscal deficit for 2024-25 was revised down to 4.9% of GDP from a 5.1% of GDP interim aim. After the action on Tuesday, most traders kept to the sidelines today.

"See, whatever selling needs to be done is done, everyone has cleared their trading books and taken new positions," a dealer at a state-owned bank said. "There is no point of touching banking books as there is no major cue lined up on the domestic front."

In the secondary market, state-owned banks and primary dealers were seen selling gilts in smaller quantities, while private banks were seen buying gilts. Bonds maturing in 2027, such as the erstwhile five-year benchmark 7.38%, 2027 bond, gained the most as demand-supply favoured that segment and banking system liquidity remained in surplus, dealers said. Liquidity surplus in the banking system was 423.74 bln rupees on Tuesday, according to the Reserve Bank of India data. 

Traders have now turned their focus to key economic data such as US advance estimate for Apr-Jun GDP on Thursday, and the US personal consumption expenditures data for June for fresh guidance to see if these two data points are able to increase the odds of a rate cut in the US by September, dealers said. Fed Fund Futures see a 96% chance of a 25-basis-point cut in the interest rate by September, after fully pricing in a cut a week ago.

The market is likely to track the movement in US Treasury yields after the release of these two data points, though on a much smaller scale, dealers said. The yield on the 10-year benchmark US Treasury note was a tad up to 4.26% from 4.24% from the time the Indian market closed on Tuesday.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 87.70 bln rupees, against 27.50 bln rupees at 0930 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.94-7.01%. (Anupreksha Jain)

India Gilts: Seen steady; mkt seeks fresh cues post Budget

MUMBAI – Prices of government bonds are seen opening steady as the market seeks fresh cues, after the Union Budget for 2024-25 (Apr-Mar) did not have much impact on bond prices, dealers said. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.94-7.01%, against 6.97% on Tuesday.

"It looks like the post Budget the market will trade in this range for a while," a dealer at a private bank said. "The market was a little disappointed, but the picture looks good on the fiscal front. Now only global cues can spoil the market sentiment."

Primary dealers are likely to continue selling government bonds ahead of the 350-bln-rupee gilt auction this Friday, dealers said. Usually, primary dealers trim their bond holdings ahead of the weekly gilt auction in order to make room for fresh supply.

The market has taken comfort from the downward revision in the fiscal deficit target to 4.9% of GDP for 2024-25, lower than expectations of 5.0%, dealers said. This is down from 5.1% of GDP in the Interim Budget. The government's gross borrowings for the year are pegged at 14.01 trln rupees against the market expectations of 13.81 trln rupees.

On a net basis, the government pegged borrowing at 11.63 trln rupees against the market expectations of 11.42 trln rupees. The market saw a reduction in borrowings as a token cut, which will only result in bids for 120 bln rupees of green bonds being rejected in Apr-Sep, dealers said.

The market is now looking at offshore cues for further direction, dealers said. Some key economic data from the US is likely to give fresh cues to the market on the rate cut trajectory of the US Federal Reserve, dealers said. On Thursday, US Apr-Jun GDP is scheduled to be released, while personal income and outlays for June are due on Friday.  (Anupreksha Jain)

End

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

Edited by Deepshikha Bhardwaj

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