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Informist, Friday, Jul 26, 2024

By Nishat Anjum

MUMBAI – Prices of government bonds ended off the day's high as traders sold their bond holdings at a profit towards the end of the day, dealers said. The latest draft guidelines on the Basel III framework on liquidity coverage ratio led to robust demand for short-term bonds, which led to a rise in other bond prices as well, they added.

The 10-year benchmark 7.10%, 2034 bond closed at 101.09 rupees, or 6.94% yield, against 101.02 rupees, or 6.95% yield, on Thursday.

In early trade, reacting to the new draft norms, the yield on the five-year benchmark 7.04%, 2029 gilt fell to 6.82%, the lowest since Aug 5, 2022. However, traders sold the bond at a profit, leading to a rise in yields, dealers said.

The draft guidelines released by the RBI proposes that banks should assign an additional 5% run-off factor on retail deposits opened by customers using internet and mobile banking facilities. This will lead to a rise in demand for short-term bonds from banks as they will have to maintain large amounts of government bonds as a percentage of deposits. 

For this requirement, it will be mostly short-term bonds which will be kept aside for the implementation of the new guidelines, dealers said. Bonds maturing between December 2025 and March 2028 will be preferred by banks, as these will correspond to the three-year maturity after the proposed norms kick in on Apr 1, they added.

"The short-term bond rallied because of LCR guidelines," a dealer at a primary dealership said. "Banks will be taking up to 3-year bonds. But I don't think there is much room left now as they performed better post Budget, and then there is no fresh clue about rate cuts."

Government bond prices were also aided by robust demand at the auction for 7.04%, 2029 and 7.23%, 2039 bond, dealers said. At the weekly gilt auction, the government will sell 120 bln rupees worth of the 7.04%, 2029 bond, 120 bln rupees worth of the 7.23%, 2039 bond and 110 bln rupees worth of the 7.34%, 2064 bond. 

Similar to the secondary market, the short-term papers saw good demand at the primary auction as well, dealers said. The benchmark 5-year bond saw good demand from traders across segments, dealers said. Among investors, state-owned banks took the bond for their asset-liability management needs, they said. Foreign investors also added to the demand for the paper.

Meanwhile, banks across sectors bid for the benchmark 2039 paper, while there was demand from some long-term investors as well, dealers said. Investors hurried to lock-in the current yield level on the paper as the gilt yields are expected to fall going forward. This comes against the backdrop of increasing bets on a rate cut in the US, as well as in India in 2024, they added.  

Life insurers placed bids for the 40-year paper at the auction, dealers said. While looking at the weighted average price, some said a large investor might have bid at a higher price. The weighted average price of the bond was 103.66 rupees, while the cut-off price was 103.58 rupees.

While gilt prices remained up throughout the day, traders lightened their portfolios ahead of the key inflation data in the US, due at 1800 IST, dealers said. The data would be crucial ahead of the US Federal Reserve meeting, scheduled Tuesday and Wednesday, they added.

"There is key data from the US, so traders just squared-off their positions towards the end of the day," a dealer at a state-owned bank. "Also, these are good levels to book profits. Heard PSUs (state-owned banks) were selling."

Data released after Indian market hours showed, the Core Personal Consumption Expenditure Price Index for June, which is the US Federal Reserve's preferred gauge for inflation, rose 2.6% on year and 0.2% on month. The headline Personal Consumption Expenditure Price Index rose 2.5% on year and 0.1% on month. The data was in line with the market expectations.

According to data on the RBI's Negotiated Dealing System–Order Matching platform, the turnover today was 966.20 bln rupees, higher than 761.65 bln rupees on Thursday. There were no trades carried out using the wholesale digital rupee pilot today, same as the previous day.

OUTLOOK

Gilts are not traded on Saturday. On Monday, government bond prices may open slightly lower as the Reserve Bank of India sold 27.15-bln-rupee gilts through open market operations in the week ended Jul 19, the RBI data released after market hours showed, dealers said. 

The losses may be limited as the quantum sold was not large, they added. In July, so far, the central bank has sold gilts worth 61.02 bln rupees.

Traders may also take cues from the US data, 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 6.93-7.00% during the day.

India Gilts: Remain up; weekly bond auction fails to lend fresh cues

MUMBAI--1453 IST--Prices of government bonds remained up. The cut-offs at today's bond auction failed to lend fresh cues as they were largely on expected lines, dealers said. The government sold 120 bln rupees worth of the 7.04%, 2029 bond, 120 bln rupees worth of the 7.23%, 2039 bond, and 110 bln rupees worth of the 7.34%, 2064 bond.

"There is no sharp reaction to the cut-offs as the results are largely what the market was expecting," a dealer at a private bank said. "Rather, there is some profit booking happening right now, leaving prices to move further up and be in a range."

At the auction, the 5-year bond saw good demand from traders across segments, dealers said. State-owned banks bought the 7.04%, 2029 bond to fulfil their asset-liability management needs, they said. The short-term bond also saw good demand from foreign investors. Fifty-seven out of 179 bids were accepted at the auction, dealers said. The Reserve Bank of India set a cut-off price of 100.85 rupees or 6.83% yield on the bond.

Meanwhile, foreign banks, state-owned banks, some private banks, and a few insurers bid aggressively for the 7.23%, 2039 bond, dealers said. They preferred the 15-year bond as they found the current levels lucrative to lock in their investments and feared they may not see the current market levels anytime soon, they added. Dealers said traders were not expecting the yield on the 15-year paper to inch higher from current levels.

At the auction, 95 bids out of 247 were accepted for the 2039 bond, dealers said. The RBI set a cut-off price of 102.30 rupees or 6.98% yield on the bond.

Life insurers placed bids for the 40-year paper at the auction, dealers said. While looking at the weighted average price, some said a large investor might have bid at a higher price. The weighted average price of the bond was 103.66 rupees, dealers said. Only 97 bids out of 236 were accepted at the auction today. The RBI set a cut-off price of 103.58 rupees or 7.07% yield on the bond.

The market sentiment remained positive as the latest draft guidelines on liquidity coverage ratio spurred demand for short-term bonds from banks as they will have to maintain large amounts of government bonds as a percentage of deposits, dealers said. This has led to a surge in the trading volume in the secondary market.

Meanwhile, there is some caution in the market ahead of the US personal income and outlays for June due at 1800 IST. According to Dow Jones, the US Core Personal Consumption Expenditures Price Index, the Federal Reserve's preferred inflation gauge, is expected to rise 2.6% on year and 0.2% on month. During the day, the yield on the 10-year benchmark US Treasury note rose to a day's high of 4.27% against 4.23% at the time the Indian market closed on Thursday.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 775.65 bln rupees, against 581.20 bln rupees at 1530 IST Thursday. 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: Remain up; market eyes robust demand at weekly gilt auction

MUMBAI--1147 IST--Prices of government bonds remained up, anticipating firm demand at the 350-bln-rupee gilt auction at 1030-1130 IST, dealers said. At the weekly gilt auction, the government offered 120 bln rupees worth of the 7.04%, 2029 bond, 120 bln rupees worth of the 7.23%, 2039 bond, and 110 bln rupees worth of the 7.34%, 2064 bond.

"Looking at the positive sentiment in the market, there is no doubt that the auction will sail through," a dealer at a private bank said. "It is very likely that the yield on the 10-year(7.10%, 2034 bond) may fall to 6.90% levels very soon. After a long time, the market is able to break the 6.95% level, so it is kind of a breakout."

Foreign investors, state-owned banks, mutual funds, and private banks were seen picking up the short-term bond, 7.04%, 2029 bond, dealers said. Further, state-owned banks, some private banks, and foreign investors were seen bidding aggressively for the 15-year paper as well, dealers said.

Meanwhile, insurers and pension funds were seen bidding at a tail for the 40-year paper, leading to a muted demand for the bond, they added. While for other bonds, the demand is seen as robust at the auction, as the rate cycle may start to ease shortly, demand is likely to be concentrated more in the shorter-end of the curve, dealers said.

Lately, bonds with maturity of 14-year and 15-year have seen a pickup in demand from foreign investors, insurers, and pension funds, in order to fetch higher yields, dealers said. The market saw an uptick in the pace of foreign inflows recently. This comes following the inclusion of government bonds into the JP Morgan's Government Bond Market-Emerging Index last month, and as their weightage will be rebalanced to 2% today.

The market sentiment remained positive as the latest draft guidelines regrading the liquidity coverage ratio spurred demand for short-term bonds from banks as they will have to maintain large amounts of government bonds as a percentage of deposits, dealers said. This has led to a surge in the trading volume in the secondary market. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 552.40 bln rupees, against 399.15 bln rupees at 1230 IST on Thursday. 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: Up; proposed LCR norms spur demand for short-term bonds

MUMBAI--1025 IST--Prices of government bonds rose anticipating firm demand at the 350-bln-rupee gilt auction at 1030-1130 IST, dealers said. The combination of increased rate cut bets both in the US and in India, reduction in the government's net short-term borrowings in the Union Budget, and the latest draft guidelines on the Basel III framework on liquidity coverage ratio, has paved the way for robust demand for short-term bonds, they added.

The draft guidelines released by the RBI proposes that banks should assign an additional 5% run-off factor on retail deposits opened by customers using internet and mobile banking facilities. These guidelines will spur the demand for short-term bonds from banks as they will have to maintain large amounts of government bonds as a percentage of deposits, and mostly it will be short-term bonds that will be kept aside for the implementation of the new guidelines, dealers said. Bonds maturing between December 2025 and March 2028 will be preferred by banks, as these will correspond to the three-year maturity after the proposed norms kick in on Apr 1.

The yield on the five-year benchmark 7.04%, 2029 gilt fell to 6.82%, the lowest since Aug 5, 2022. The 10-year benchmark gilt also rose after the rise in short-term bonds, though state-owned banks sold the 7.10%, 2034 bond at a profit, capping gains, dealers said. 

"There is quite a cheer in the market after the RBI released a circular yesterday (Thursday)," a dealer at a primary dealership said. "Higher HQLA (high quality liquid assets) will mean more demand for short-term bonds."

At the weekly gilt auction, the government will sell 120 bln rupees worth of the 7.04%, 2029 bond, 120 bln rupees worth of the 7.23%, 2039 bond, and 110 bln rupees worth of the 7.34%, 2064 bond. The demand is seen as robust, especially for the 2029 paper, and for the 15-year bond, 2039 paper, dealers said. As the rate cycle may start to ease shortly, demand is likely to be concentrated more in the shorter-end of the curve.

Additionally, short-term gilts have been in demand since traders abroad firmed up their view of an imminent rate cut in the US, with the Fed funds futures rate showing a 25-basis-point rate cut by September fully priced. This has increased hopes of a domestic interest rate cut by December.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 386.35 bln rupees, against 65.45 bln rupees at 0930 IST on Thursday. 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 ahead of 350-bln-rupee gilt auction

MUMBAI – Prices of government bonds are seen opening steady as traders may avoid aggressive bets on caution ahead of the 350-bln-rupee gilt auction at 1030-1130 IST, dealers said. Demand for short-term bonds may increase due to the new norms pertaining to liquidity coverage ratio proposed by the Reserve Bank of India.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.92-6.99%, against 6.95% on Thursday. Traders are expecting the upcoming auction to sail through, dealers said.

At the auction, the government will sell 120 bln rupees of the 7.04%, 2029 bond, 120 bln rupees of the 7.23%, 2039 bond, and 110 bln rupees of the 7.34%, 2064 bond. The five-year benchmark may be swept by banks for their asset-liability management. Traders across the market may pick up the 7.23%, 2039 bond, while the 40-year gilt is likely to be bought by insurers and pension funds, dealers said.

The latest draft guidelines released by the RBI on the Basel III Framework on Liquidity Standards – Liquidity Coverage Ratio is likely to give further push to the demand for short-term bonds, dealers said. The central bank released draft guidelines post market hours on Thursday. It proposes that banks should assign an additional 5% run-off factor on retail deposits opened by customers using internet and mobile banking facilities.

Consequently, banks will have to maintain large amounts of government bonds as a percentage of deposits, and mostly it will be short-term bonds that will be kept aside for the implementation of the new guidelines as compared to government bonds of higher maturities, dealers said. The RBI has asked for comments on the norms by Aug 31, and these are expected to kick in on Apr 1, 2025. Bonds maturing between December 2025 and December 2027 may be favoured, as these would most closely match liabilities that need to be covered, dealers said. Bonds maturing in the next nine months are unlikely to get an immediate boost, as the proposed norms will take some time to kick in.

"I don't think the market will take time to react to this. Anyway, the short-term has been performing better," a dealer ar a private bank said. "Bullish market will react to even the smallest bullish news ... And ignore big negatives. So let the market react."

Short-term gilts have been in demand since traders abroad firmed up their view of an imminent rate cut in the US, with the Fed funds futures rate showing a 25-basis-point rate cut by September fully priced. This has increased hopes of a domestic interest rate cut by December. However, RBI Governor Shaktikanta Das has repeatedly said it was too early to ease either the monetary policy stance, or repo rates.

Furthermore, traders await the personal income and outlays for June due at 1800 IST. According to Dow Jones, the core personal consumption expenditure price index, which is the Fed's preferred gauge, is expected to rise 2.6% on year and 0.2% on month. Meanwhile, the yield on the 10-year benchmark US Treasury note was a tad up at 4.25% against 4.23% at the time the Indian market closed on Thursday. Domestic traders may wait for a reaction to the inflation data before tracking US yields, dealers said. Data released after Indian market hours on Thursday showed US GDP in Apr-Jun grew at an annualised rate of 2.8%, the Commerce Department's Bureau of Economic Analysis said on Thursday. Economists polled by Reuters had expected the GDP to rise 2.0%.  (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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