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Informist, Wednesday, Jul 31, 2024

By Aaryan Khanna

NEW DELHI – Government bond prices ended marginally higher today as US Treasury yields fell ahead of the US Federal Open Market Committee's meeting outcome at 2330 IST, dealers said. Traders avoided aggressive bets ahead of the rate decision, and the day was characterised by profit booking by state-owned and foreign banks.

The 10-year benchmark 7.10%, 2034 bond closed at 101.20 rupees, or 6.93% yield, against 101.15 rupees, or 6.93% yield on Tuesday.

The yield on the 10-year US Treasury note fell to 4.14% by the end of Indian market hours today, from 4.18% on Thursday. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors.

The US rate-setting panel is likely to keep policy rates unchanged but may indicate a softer monetary policy outcome. This could set the stage for a rate cut at the next policy meeting in September, dealers said. Currently, the CME FedWatch Tool shows that Fed Fund Futures traders are certain that interest rates in the US would be cut by at least 25 basis points by September.

While private banks may have bought gilts, betting on easier monetary conditions in the US translating to India, state-owned banks likely sold bonds maturing in 10 years and above, dealers said. Bond sales from foreign banks may have slowed after aggressive selling earlier this week, though they continued to stay away from bonds maturing in 14 years and above, they said.

"There is a lot of churn in the market, that has allowed a lot of profit booking at these levels," a dealer at a state-owned bank said. "We had taken up positions after the Budget, and have managed to get some good exits."

According to Clearing Corp of India data, state-owned banks have sold 65.02 bln rupees in the secondary market this week, while foreign banks have sold 43.82 bln rupees.

Bond prices rose early in the trade based on the overnight fall in US Treasury yields, but gave up all the gains by 1500 IST as traders chose to trim their long-term bond holdings. Foreign banks continued to trim their bond holdings following the Reserve Bank of India's notification on Monday that future issuances of the 14-year and 30-year papers will be excluded from the fully accessible route, dealers said.

Traders expect the yield between the 10-year and 30-year bond to rise to around 20 basis points, the same levels as a year ago. Meanwhile, the 7.18%, 2037 bond's yield should fall 10 bps below the yield on the 7.23%, 2039 as foreign investments will be concentrated in that bond, some dealers said. The 2037 bond fell sharply today, but recovered all losses by the end of the day.

Bonds maturing in 30 to 50 years ticked up slightly after falling sharply on Friday due to demand from domestic investors such as pension funds and life insurers. After falling towards the 7.05% mark, the yields on 40- and 50-year bonds had risen to 7.10% and above, allowing for lucrative purchases by investors holding the bonds to maturity, dealers said.

"Everyone is still gauging the impact of the RBI measures over the last week," a dealer at a life insurance firm said. "But it offers us an opportunity to invest since yields are ticking up."

Private banks have stepped up their purchases after the RBI's proposal to tweak norms pertaining to Basel-III liquidity coverage ratio norms. This has limited the loss in gilts, they added. If these norms are implemented, banks will have to maintain large amounts of government bonds as a percentage of deposits, with estimates of additional demand in the range of 2-5 trln rupees.

According to data on the RBI's Negotiated Dealing System–Order Matching platform, the turnover today was 713.95 bln rupees, slightly lower than 750.35 bln rupees on Tuesday. There were four trades worth 200 mln rupees carried out using the wholesale digital rupee pilot today, against no trades in the previous session.

OUTLOOK

On Thursday, government bond prices may take cues from the US FOMC outcome, dealers said. The committee is likely to keep policy rates unchanged but may make note of falling inflation and employment in recent months. This could set the stage for a rate cut at the next policy meeting in September, dealers said.

Any signal of an imminent rate cut may also help pull down domestic bond yields. Some traders are already betting on the RBI's Monetary Policy Committee to begin cutting rates by December, dealers said.

Traders may also avoid large bets after recent volatility caused by the RBI circular on FPI investment in long-term bonds and the draft norms on liquidity coverage ratio. Short-term bonds remain in favour, while long-term bond prices are expected to continue falling, dealers said. Traders look ahead to the 220-bln-rupee bond auction 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 6.88-6.96% during the day.

India Gilts: Erase all gains as traders sell gilts at profit

MUMBAI--1458 IST--Government bonds erased all gains as foreign and state-owned banks continued with their selling spree, dealers said. Foreign investors are more cautious while investing in longer-tenure bonds, dealers said. Moreover, the market would want the yield spread between the benchmark 10- and 15-year bonds to widen, as the 15-year is unlikely to be a part of the fully accessible route, they added.

"Foreign banks are exiting from the bonds after the notification as they have clarity that the 2039 bond (7.23%, 2039 bond) will not be included in FAR (fully accessible route)," a dealer at a state-owned bank said. "Also, they want the spread between 2037 bond and 2039 bond to widen to at least 10 basis points." Currently, the spread between the 7.18%, 2037 bond and the 7.23%, 2039 bond is 1 basis point.

Foreign banks continued to trim their bond holdings following the Reserve Bank of India's notification that future issuances of the 14-year and 30-year papers will be excluded from the fully accessible route, dealers said.

Meanwhile, private banks have stepped up their purchases after the Reserve Bank of India's proposal to tweak norms pertaining to Basel-III liquidity coverage ratio norms. This has limited the loss in gilts, they added. If these norms are implemented, banks will have to maintain large amounts of government bonds as a percentage of deposits.

Traders have discounted that the US Federal Open Market Committee is likely to adopt a softer monetary policy outlook, though there is still some caution in the market regarding the same, dealers said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 492.40 bln rupees, against 496.50 bln rupees at 1230 IST on Tuesday. For the rest of the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.90-6.94%. (Anupreksha Jain)

India Gilts: Remain up; benchmark 5-10 year bonds see firm demand

MUMBAI--1219 IST--Prices of government bonds remained up as traders continued to buy gilts ahead of the outcome of the US Federal Open Market Committee's meeting, due at 2330 IST, dealers said. However, the gains were limited as state-owned banks and foreign banks sold gilts at a profit.

In the secondary market, traders were seen buying gilts maturing between five and 10 years, dealers said. "Flows are concentrated in the belly of the curve," a dealer at a private bank said. "PSUs (state-owned banks) are deep in money, so they are booking profit." Foreign investors and some fund managers were seen buying longer-term bonds with maturity between 10 and 14 years to generate higher capital gains, dealers said. 

This follows a notification by the Reserve Bank of India that future issuances of 14-year and 30-year papers would be excluded from the fully accessible route, which has no limit on foreign investments. Foreign portfolio investors will now have to adhere to general limits for the new bonds, which would be 6% of the bond's outstanding. 

Moreover, lower demand from foreign investors for bonds maturing above 10 years has led to steepening of the yield curve, dealers said. Currently, the spread between the 10-year benchmark 7.10%, 2034 bond and the 7.34%, 2064 bond is around 7 basis points.

Traders await the US Federal Reserve's policy outcome, dealers said. The market widely expects the central bank to keep the interest rate unchanged at 5.25-5.50%, dealers said. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 300.60 bln rupees, against 357.65 bln rupees at 1230 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.90-6.94%. (Anupreksha Jain)

India Gilts: Rise as traders bet on softer policy outlook by US Fed

MUMBAI--0931 IST--Prices of government bonds rose as traders stepped up purchases ahead of the US Federal Open Market Committee's meeting outcome, due later today, anticipating that the rate-setting panel will indicate a softer monetary policy outlook, dealers said. Further, a fall in US Treasury yields also aided gilt prices.

The market disregarded the Bank of Japan's policy outcome as the Federal Open Market Committee has taken centre stage, dealers said. Japan’s central bank raised its benchmark interest rate to around 0.25% from its previous range of 0-0.1% and outlined its plan to taper its bond-buying programme.

The US Federal Reserve will detail its policy outcome at 2330 IST. The market widely expects it to keep the interest rate unchanged at 5.25-5.50%, dealers said. The recent slew of economic data in the US has hinted towards a slowing down in inflation and employment, and has paved the way for the US Fed to cut interest rates as early as September, dealers said. Therefore, traders expect the Federal Open Market Committee to provide clear guidance on its rate cut trajectory, dealers said. 

"There is just positioning ahead of the FOMC outcome, nothing much," a dealer at a primary dealership said. "Today, the market will move in a narrow range. Also, there will be no impact of the RBI's (Reserve Bank of India) notification today, whatever had to happen, happened."  On Monday, the RBI notified that future issuances of 14-year and 30-year papers will be excluded from the fully accessible route, which has no limit on foreign investments. This has led foreign banks to sell non-fully accessible route government securities, dealers added.

In the secondary market, private banks continued with their buying spree, dealers said. Some said that the buying from private banks was purely a trading call. In addition to this, insurers and pension funds bought longer government bonds, they added. 

State-owned banks continued to sell gilts at a profit, dealers said. According to the Clearing Corp of India Ltd data, state-owned banks were the top net sellers on Tuesday. 

Meanwhile, the yield on the 10-year benchmark US Treasury note fell to 4.15% against 4.18% from the time the Indian market closed on Tuesday. US yields fell ahead of the FOMC meeting outcome.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 109.90 bln rupees, against 130.75 bln rupees at 0930 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.90-6.94%. (Anupreksha Jain)

India Gilts: Seen steady on caution ahead of FOMC, BoJ meet outcome

MUMBAI – Prices of government bonds are seen opening steady as traders may refrain from placing aggressive bets on a caution ahead of the US Federal Open Market Committee meeting outcome, due at 2330 IST, dealers said. Further, the market is awaiting the Bank of Japan's policy outcome, scheduled for release during market hours.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.90-6.96%, against 6.93% on Tuesday. On the global front, a fall in US Treasury yields ahead of the US Federal Reserve's policy outcome is likely to aid gilt prices, dealers said.

The yield on the 10-year benchmark US Treasury note fell to 4.15% against 4.18% from the time the Indian market closed on Tuesday. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors.

The US rate-setting panel is likely to keep policy rates unchanged but may indicate a softer monetary policy outcome. This could set the stage for a rate cut in the US at the next policy meeting in September, dealers said. Currently, the CME FedWatch Tool shows that Fed Fund Futures traders are certain that interest rates in the US would be cut by at least 25 basis points by September.

Additionally, the monetary policy review by the Bank of Japan may also provide a fresh cue on the interest rate front, dealers said. Japan's central bank is likely to raise its policy rate by 10 bps to 0.1%, according to a Reuters poll.

In the secondary market, foreign banks may continue to sell non fully accessible route government securities to buy more government securities which are a part of the fully accessible route, dealers said.  

After the Reserve Bank of India's notification which stated that future issuances of the 14-year and 30-year paper will be excluded from the fully accessible route, foreign banks trimmed the bond holdings of non-fully accessible route government securities in the secondary market, dealers said. They are likely to continue with the same trend during the day as well. 

Meanwhile, private banks may continue to buy gilts in the secondary market, however, the momentum may not be enough to push prices upwards, dealers said. (Anupreksha Jain)

End

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

Edited by Ashish Shirke

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