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Informist, Tuesday, Aug 6, 2024

By Aaryan Khanna

MUMBAI – Government bond prices ended lower due to an overnight rise in US Treasury yields, as fears of a recession in the world's largest economy ebbed, dealers said. Traders also booked some profit on their bond holdings after a surge in bond prices on Monday, ahead of the outcome of the ongoing monetary policy review.

The 10-year benchmark 7.10%, 2034 bond closed at 101.55 rupees, or 6.88% yield, against 101.66 rupees, or 6.86% yield, on Friday. On Monday, the benchmark yield traded and ended at 28-month lows, and the 10-year bond's price had risen 24 paise.

The yield on the 10-year benchmark US Treasury note rose to 3.86% at the end of Indian market hours today, from 3.72% on Monday. A rise in US yields narrows the interest rate differential between safe-haven assets and emerging market debt, making the latter less appealing to foreign investors.

US yields rose after Chicago Federal Reserve President Austan Goolsbee said that jobs data for July did not indicate a recession, while noting that Fed policymakers must carefully monitor changes in the US economy to avoid being too restrictive with interest rates. The US unemployment rate rose to 4.3% in July from 4.1% in June, and flashed a recessionary indicator.

Moreover, the latest Purchasing Managers' Index data reduced fears of an imminent recession in the world's largest economy, which had spurred bets on large rate cuts in the US. The Institute for Supply Management said on Monday that its Non-manufacturing Purchasing Managers Index increased to 51.4 last month from 48.8 in June. According to the CME FedWatch tool, expectations of a 50-basis-point rate cut at the next US rate decision in September fell to 73.5% in Asian trade today, against near-certainty on Monday.

Foreign banks and private banks were likely to have been sellers early in the day, dealers said. Volumes fell from the previous day as traders did not place aggressive bets ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee, dealers said. The three-day meet began today.

"The US yield movement has been guiding," a trader at a state-owned bank said. "We are picking up stock where we can, but otherwise I think it is easiest to play it with the US momentum and then wait for the MPC outcome." 

Traders wanted to play safe ahead of a "live" policy outcome, with some traders of the view that the MPC would change its stance to "neutral" from "withdrawal of accommodation" after 28 months, dealers said. Others are less convinced, pointing to robust domestic growth and high food inflation as reasons as to why the majority of the rate-setting panel would maintain the status quo.

The Reserve Bank of India's rate-setting panel is expected to keep the repo rate and the policy stance unchanged this week with inflation still running above the central bank's target and growth staying robust, according to an Informist poll of 30 analysts. India's headline CPI inflation in June rose to a four-month high of 5.08% in June, and the consensus from economists is that the central bank will keep its projections for growth and inflation unchanged. In 2024-25 (Apr-Mar), the RBI sees India's GDP growth at 7.2% and CPI inflation at 4.5%.

The back-and-forth trade led to robust market volumes, but traders were not aggressive with their bets, dealers said. In the secondary market, private banks and some state-owned banks were seen on the selling side. State-owned banks likely picked up a large stock of state bonds at the 237-bln-rupee auction at 1030-1130 IST, dealers said. The cut-off yield on 10-year state bonds was set at 7.22-7.23% by the Reserve Bank of India, against an Informist poll median of 7.24-7.25%.

Bonds maturing in over 10 years ended slightly higher, with short-term bonds out of favour owing to policy uncertainty. Foreign investors likely picked up the 7.18%, 2037 bond and the 7.23%, 2039 bonds as their yields rose above 6.95%. Bonds maturing in 30-50 years also ended with gains with limited trade volumes, likely from demand from a large private life insurer, dealers said.

"The 14-15 year segment has done really well today," a dealer at a private bank said. "In fact, longer-term bonds are being propped up by investors including foreigners. It is the short-term bonds which have to dance to the tune of US rate expectations going one way or another."

According to data on the RBI's Negotiated Dealing System–Order Matching platform, the turnover today was 585.60 bln rupees, sharply higher than 1.04 trln rupees on Monday. There were six trades worth 300 mln rupees carried out using the wholesale digital rupee pilot today, against no trades on Friday.

OUTLOOK

On Wednesday, bond prices are likely to open steady as traders are likely to remain cautious ahead of the outcome of the three-day meeting of the Monetary Policy Committee on Thursday, dealers said. Analysts expect the panel to maintain status quo on both the repo rate, at 6.50%, and policy stance at "withdrawal of accommodation."

Traders are expecting the committee to change its stance to "neutral" from "withdrawal of accommodation". However, if the domestic-rate setting panel does not change the stance, it may trigger some selling in the market and the yield on the 10-year benchmark may inch to 6.90%.

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 6.83-6.92% during the day.

India Gilts: Off lows on firm demand for state bonds, foreign bk buys

MUMBAI--1555 IST--Government bonds were off lows on firm demand for state bonds at the 237-bln-rupee auction today. Foreign banks continued to buy gilts in the secondary market despite a rise in US Treasury yields, dealers said.

For the past five trading sessions, foreign banks have been significant net buyers in the secondary market. They likely trimmed their holdings earlier in the day, booking profits, but reinvested after a correction in bond prices, dealers said. 

Gilt prices remained down owing to a rise in US Treasury yields overnight, dealers said. The yield on the 10-year benchmark US Treasury note surged to 3.84% from 3.72% at the end of Indian market hours on Monday. It had touched a high of 3.88% earlier in the day.

Traders wanted to play safe ahead of a "live" policy outcome, with some traders of the view that the Monetary Policy Committee would change its stance to "neutral" from "withdrawal of accommodation" after 28 months, dealers said. Others are less convinced, pointing to robust domestic growth and high food inflation as reasons as to why the majority of the rate-setting panel would maintain the status quo.

"See nobody is going blank at this point of time, they are buying one security and then selling the other. This is the characteristic of a classical bull market," a dealer at a primary dealership said. "... even I want to be in that safe 50-50 zone, so even if MPC does not change its stance, it won't hurt much."

If the MPC keeps its stance unchanged, traders may sell bonds and push the yield on the 10-year benchmark gilt to 6.90%. If the stance change does come through, it would imply that the central bank is more comfortable allowing liquidity surplus in the banking system to continue. This may pull down the benchmark yield to 6.80%.

The back-and-forth trade led to increased market volumes, but traders were not aggressive with their bets, dealers said. In the secondary market, private banks and some state-owned banks were seen on the selling side. State-owned banks likely picked up a large stock of state bonds at the auction, dealers said. The cut-off yield on 10-year state bonds was set at 7.22-7.23% by the Reserve Bank of India, against an Informist poll median of 7.24-7.25%.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 502.45 bln rupees, against 887.65 bln rupees at 1530 IST on Monday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.90%. (Anupreksha Jain)

India Gilts: Remain down on rise in US ylds; MPC outcome Thu awaited

NEW DELHI--1345 IST--Prices of government bonds remained lower due to an overnight rise in US Treasury yields. Traders avoided aggressive bets ahead of the outcome of the monetary policy review on Thursday, dealers said. The three-day meeting began today.

The yield on the 10-year US Treasury note has risen 14 basis points to 3.86% since the close of Indian market hours on Monday. Some traders were keen to book profit after the sharp rise in prices on Monday, but most were churning the duration of their portfolios, dealers said. India's bond market was somewhat insulated from the volatility across global market ahead of the Monetary Policy Committee's outcome.

With Reserve Bank of India officials likely to clarify their stance on the various global events soon, there was not a lot of panic in the market, dealers said. Recession fears in the US have surged since Friday, before fading somewhat overnight. A rise in the yen has led to a reversal of trades funded by the Japanese currency, which had been cheapening against the dollar earlier this year.

While slowing global growth has made the case for easier monetary policy in India, domestic conditions do not favour any such move in this week's rate decision, dealers said. The rate-setting panel is expected to keep the repo rate and the policy stance unchanged this week with inflation still running above the central bank's target and growth staying robust, according to an Informist poll.

Still, traders are betting on RBI Governor Shaktikanta Das to acknowledge the expected slowdown in global growth, and suggest that the inflationary trajectory was moderating, in line with comments from the US Federal Reserve last week. This has limited losses through the day, with such purchases from state-owned banks also aiding, dealers said.

"Across the desk, we are hopeful of commentary being less hawkish because other developed market central banks have also acknowledged a (rate) cut is coming," a dealer at a private bank said. "Heading into an event where we are not convinced of the outcome, we would prefer to reduce duration risk."

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 351.45 bln rupees, against 313.35 bln rupees at 1330 IST on Monday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.90%. (Aaryan Khanna)

India Gilts: Down as traders sell bonds at profit; US yld rise weighs

MUMBAI--1015 IST--Prices of government bonds were down as traders sold their bonds at a profit, dealers said. A rise in US Treasury yields also weighed on the prices of gilts.

The yield on the 10-year benchmark US Treasury note rose to 3.85% from 3.72% at the time the Indian market closed on Monday. US yields rose after Chicago Federal Reserve President Austan Goolsbee said that jobs data for July did not indicate a recession, while noting that Fed policymakers must carefully monitor changes in the US economy to avoid being too restrictive with interest rates. The US unemployment rate rose to 4.3% in July from 4.1% in June, and flashed a recessionary indicator.

"The market is given (lower) today because of the rise in US yields; also many traders are trying to make money by booking profits," a dealer at a state-owned bank said. "MPC (Monetary Policy Committee) meeting is also very predictable for the market. Nothing prominent is expected out of this."

The Reserve Bank of India's Monetary Policy Committee's meeting, the outcome of which is due on Thursday, is not expected to lend significant cues to the market, dealers said. Traders are of the view because the rate-setting panel will keep the rates unchanged due to a higher June CPI inflation print. On Monday, some traders had picked up bonds on the hope that the MPC may change its stance to "neutral" from "withdrawal of accommodation", or that RBI Governor Shaktikanta Das would guide for easier monetary policy conditions going ahead.
 
"This MPC may be a negative one because the policymakers may refrain from cutting rates because of inflation data," another dealer at a state-owned bank said. In June, India's headline CPI inflation rose to a four-month high of 5.08%, well above the RBI's 4% inflation target.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 77.35 bln rupees, against 166.05 bln rupees at 0930 IST on Monday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.90%. (Siddhi Chauhan)

India Gilts: Seen down on rise in US yields; 3-day MPC meet begins
 

MUMBAI – Prices of government bonds are seen opening lower following an overnight rise in US Treasury yields, dealers said. During the day, gilt prices are expected to move in a thin band as traders refrain from placing aggressive bets on caution ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee meeting, due on Thursday.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.90%, against 6.86% on Monday. The benchmark yield fell to its lowest since March 2022 on Monday, helped by a fall in US yields and increasing bets of a softening in the Monetary Policy Committee's stance to "neutral" from "withdrawal of accommodation".

The yield on the 10-year benchmark US Treasury note rose to 3.84% from 3.72% at the time the Indian market closed on Friday. A rise in US yields narrows the interest rate differential between safe-haven assets and emerging market debt, making the latter less appealing to foreign investors.

US yields rose after Chicago Federal Reserve President Austan Goolsbee said that jobs data for July did not indicate a recession, while noting that Fed policymakers must carefully monitor changes in the US economy to avoid being too restrictive with interest rates. The US unemployment rate rose to 4.3% in July from 4.1% in June, and flashed a recessionary indicator.

Moreover, the latest purchasing managers' index data reduced fears of an imminent recession in the world's largest economy, which had spurred bets on large rate cuts in the US. The Institute for Supply Management said on Monday that its non-manufacturing purchasing managers index increased to 51.4 last month from 48.8 in June. According to the CME FedWatch tool, expectations of a 50-basis-point rate cut at the next US rate decision in September fell to 73.5% in Asian trade today, against near-certainty on Monday.

"After a gap-down, the market is likely to remain range-bound as there is a lot of talk about whether the stance will be changed or not," a dealer at a private bank said. "Also, the market rallied too much yesterday (Monday), so some correction has to happen."

Losses are likely to be limited amid profit-booking by state-owned banks and private banks on Monday. State-owned banks are likely to pick up the 10-year gilt if its yield rises to near 6.90% today, dealers said. Enthusiastic bets on a change in stance may still persist through the day, keeping bonds in favour. However, some traders said that owing to a higher June CPI inflation print, the policy committee may retain its stance, but comments from RBI Governor Shaktikanta Das may set the stage for easing monetary policy in the upcoming meetings, dealers said. 

The Reserve Bank of India's rate-setting panel is expected to keep the repo rate and the policy stance unchanged this week with inflation still running above the central bank's target and growth staying robust, according to an Informist poll.  (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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