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Informist, Thursday, Aug 8, 2024

By Anupreksha Jain

MUMBAI – Prices of government bonds ended lower as the monetary policy committee's status quo decision lent no fresh direction. By the second half of trade, traders turned their focus back to the 310-bln-rupee weekly bond auction on Friday, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at 101.54 rupees, or 6.88% yield, against 101.64 rupees, or 6.86% yield, on Wednesday.

Typically, primary dealerships place short bets ahead of the weekly gilt auction to make room to pick up the gilts at the debt sale. The sales were concentrated in and around the 10-year tenure as the benchmark bond was up for sale, dealers said. At the auction, the government will sell 200 bln rupees of the 7.10%, 2034 bond, and 110 bln rupees of 7.34%, 2064 gilt.

"PDs (primary dealers) are placing short bets, which is the usual practice before the auction," a dealer at a primary dealership said. "MPC did not lend any significant cues to the market, prices fell because traders were cutting their bond holdings for auction."

India's rate-setting panel kept the policy repo rate unchanged at 6.50% and stuck to its stance of "withdrawal of accommodation" to ensure that inflation progressively aligns to the target, while supporting growth. Some sections of the market, which had bet on a change in stance to "neutral", were left disappointed and trimmed their bond holdings during and after the policy announcement, dealers said.

Although the outcome of the Monetary Policy Committee's meeting was considered a non-event by some, a major positive takeaway was that the RBI did not seem overly concerned with surplus liquidity conditions, and avoided even the mention of open market operation sales. Instead, RBI Deputy Governor Michael Patra said the current liquidity conditions were still consistent with the "withdrawal of accommodation" stance.

Balanced liquidity conditions have helped the central bank keep the call rate in the middle of the liquidity adjustment facility corridor at 6.50%, he said. "So we are middling the call rate, it is in the centre of the corridor, and that's where we would like it to be ordinarily," Patra said at the post-policy press conference. "All our actions are intended to continue maintaining that."

This indicated that the central bank is comfortable with excess liquidity in the banking system, and no open market bond sales through auction were forthcoming, dealers said. Some traders also bet a change in stance to "neutral" may not be relevant to liquidity, and a cut in domestic policy rates by December. This helped bond prices recover most losses after the RBI governor's speech detailing the policy outcome, before the short selling pulled them down again, dealers said.

Liquidity in the banking system was at 1.98 trln rupees on Wednesday, and had been above 1 trln rupees since early July. The central bank sold over 100 bln rupees worth of bonds in the secondary market in July. Dealers said that the central bank is likely to continue selling gilts in the secondary market, but given a large appetite for gilts due to favourable demand and supply dynamics, it may not have any negative impact on the prices.

"Announcement of OMOs (sale calendar) was a real fear in the market. Since there was no mention of it in the outcome, the chances of the RBI conducting it (bond sale auctions) in the future are very much off the table," a dealer at a private bank said. "The MPC was largely on the expected lines, even the inflation and growth projections were the same."

The RBI retained its GDP growth projection at 7.2% in 2024-25 (Apr-Mar), and the CPI inflation view at 4.5%. At the same time, RBI Governor Shaktikanta Das emphasised bringing inflation closer towards the target of 4%. Although the CPI forecast was the same as the previous monetary policy, the RBI hiked the projection for the current quarter ending September by 60 basis points to 4.4%, which may lead to a fall in bond prices if it materialises, dealers said.

"Food inflation pressures cannot be ignored," Das said. According to an Informist Poll, India's CPI inflation data is seen at 3.7% in July. On account of a high statistical base effect, the inflation is expected to fall below the central bank's target of 4% for the first time in nearly five years.

Dealers said the tone of the governor was balanced, although some expected to see more concerns on global growth than Das showed. The RBI governor said that it is too soon to say that the US economy is heading towards recession based on a one-off poor jobs print, and that it is doing pretty well otherwise.

The US unemployment rate climbed to a near-three-year high of 4.3% in July, in data released last week. After the US jobs data, traders were of the view that the US may go for a sharper-than-expected rate cut, which may translate into a possible rate cut in domestic policy rates in December, dealers said. Regardless, considering India's strong growth momentum, the MPC is likely to opt for a shallow rate cut cycle of two 25-basis-point repo rate cuts at most starting December. 

According to data on the RBI's Negotiated Dealing System–Order Matching platform, the turnover today was 672.55 bln rupees, higher than 608.15 bln rupees on Wednesday. There were two trades worth 100 mln rupees carried out using the wholesale digital rupee pilot today, the same as on Tuesday.

OUTLOOK

On Friday, bond prices are likely to open steady as traders may refrain from placing aggressive bets ahead of the 310-bln-rupee gilt auction, scheduled on Friday. At the auction, the government will sell 200 bln rupees of 7.10%, 2034 bond and 110 bln rupees of 7.34%, 2064 bond.

The market may take cues from the US unemployment insurance weekly claims data that showed jobless claims rose to 233,000 for the week ended Aug 3 against an expected 240,000.

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 6.80-6.95% during the day.

India Gilts: Down; traders make room for auction Fri, no cues from MPC

MUMBAI--1550 IST--Prices of government bonds were down as traders placed short bets on the 7.10%, 2034 bond ahead of the 310-bln-rupee gilt auction on Friday, dealers said. The government will sell 200 bln rupees of the 7.10%, 2034 bond and 110 bln rupees of 7.34%, 2064 gilt this week.

Typically, primary dealerships place short bets ahead of the weekly gilt auction, to make room to pick up the gilts at the debt sale. The sales were concentrated in and around the 10-year tenure as the benchmark bond was up for sale, dealers said.

Traders had been less aggressive on placing short bets earlier in the week due to the Monetary Policy Committee meeting's outcome, dealers said. The absence of significant takeaways from the MPC kept bond prices in a thin band after the Reserve Bank of India's Governor Shaktikanta Das completed his speech, outlining the outcome.

"The market is down because traders are placing short-bets on the 10-year bond," a dealer at a primary dealership said. "The positions have no relation to the MPC, it was quite neutral, there was nothing too negative or too positive about it." 

There was a lack of cues from the policy decision, with even the post-policy press conference not lending direction, dealers said. No comments on operations to keep a check on liquidity such as open market operations sales in the primary market momentarily acted as a positive factor, but the enthusiasm soon faded away looking at the upcoming supply, dealers said. 

"MPC was largely a non-event. The only positive was no announcement of OMO sales (calendar)," a dealer at a private bank said. "Even if the RBI continues to sell in the secondary market it will not have any impact on the market as demand-supply still remains favourable." RBI data showed liquidity in the banking system was at 1.98 trln rupees on Wednesday, and had been above 1 trln rupees since early July. The central bank has sold over 100 bln rupees worth of bonds on the secondary market in July.

The recently released estimate of India's neutral interest rate shows that the current level of the policy repo rate at 6.50% is "probably exactly right", RBI Deputy Governor Michael Patra said at the press conference after the policy outcome. He also said that monetary policy conditions, even with the current excess liquidity in the banking system, were still withdrawing accommodation.

"So we are middling the call rate, it is in the centre of the corridor, and that's where we would like it to be ordinarily," Patra said. "All our actions are intended to continue maintaining that."

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 567.60 bln rupees, against 466.30 bln rupees at 1130 IST on Wednesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.86-6.92%. (Siddhi Chauhan)

India Gilts: Recover some losses as RBI OMO sales fear ebbs

MUMBAI--1117 IST--Government bonds recovered some losses as Reserve Bank of India Governor Shaktikanta Das, while detailing the monetary policy outcome today, did not announce adverse measures such as open market operations to drain excess liquidity from the banking system as was feared by some market participants, dealers said.

"Apart from the MPC (Monetary Policy Committee) retaining its stance, there were no negative takeaways from the outcome," a dealer at a primary dealership said. "Also, he said nothing on liquidity, which means he is comfortable with excess liquidity in the banking system, and overnight rates falling eventually."

This indicates that the central bank is comfortable with excess liquidity in the banking system which will eventually lead to a fall in overnight money market rates, dealers said. Following this positive takeaway from the MPC meeting outcome, the market is now factoring in a stance change in October and a cut in domestic policy rates by December, dealers said.

Earlier, gilt prices fell. Traders had placed bets anticipating the domestic rate-setting panel changing its stance to "neutral" from "withdrawal of accommodation". They were left disappointed, leading to selling in the market, dealers said. The MPC also kept the repo rate unchanged at 6.50% for the ninth consecutive meeting. The voting pattern of 4:2 also remained the same.

Dealers said the tone of the governor was balanced. At the same time, he emphasised bringing inflation closer towards the target of 4%. In the secondary market, state-owned banks, private banks and some foreign banks were seen on the buying side, while primary dealers were seen on the selling side, leading to robust trade volumes, dealers said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 289.45 bln rupees, against 157.95 bln rupees at 1130 IST on Wednesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.86-6.92%. (Anupreksha Jain)

India Gilts: Down; MPC retains status quo on stance disappoints mkt

MUMBAI--1032 IST--Prices of government bonds fell as the Reserve Bank of India's Monetary Policy meeting keeping the stance unchanged disappointed a segment of the market, dealers said. The MPC retained its stance with a vote of 4-2 majority. 

Heading into the policy, the market was divided on the MPC's decision regarding its stance. While some market participants had expected the rate setting panel to change its stance to "neutral" from "withdrawal of accommodation", others expected the status quo on both rates and stance. 

"Many traders had expected the MPC to change its stance, but that did not happen," a dealer at a state-owned bank said. "The traders who bought with this view are selling now."

The MPC also kept the repo rates unchanged at 6.50% for the ninth consecutive meeting. The panel had last raised the repo rate in February 2023. The market will further take cues from the tone of the Governor, which will hint at the rate-setting panel's mood, dealers said. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 36.45 bln rupees, against 117.50 bln rupees at 1030 IST on Wednesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.86-6.92%. (Siddhi Chauhan)

India Gilts: Steady ahead of MPC meet outcome; trade volume subdued
 

MUMBAI--0933 IST--Prices of government bonds were largely steady as traders refrained from placing aggressive bets ahead of the Reserve Bank of India's three-day Monetary Policy Committee outcome, dealers said. RBI Governor Shaktikanta Das will detail the policy outcome at 1000 IST. 

"Nothing much, the market is awaiting the result of the MPC," a dealer at a state-owned bank said. "Lot of talks are happening in the market, in any case, there is a quite possibility of sharp volatility in the market today."

From the outcome of the MPC, most traders are expecting the domestic rate-setting panel to change its stance to "neutral" from the current stance of "withdrawal of accomodation", dealers said. If the committee changes its stance to "neutral", then the yield on the 10-year benchmark, 7.105, 2034 gilt, may fall to 6.80%. 

Even if the domestic rate-setting panel does not explicitly change its stance, the market may take cues from the tone of the Governor, dealers said. However, some expect no change in stance owing to inflation still running above the central bank's target and growth staying robust.

According to an Informist poll of 30 analysts, the Reserve Bank of India's rate-setting panel is expected to keep the repo rate unchanged, with inflation still running above the central bank's target and growth staying robust.

Although the bets on a change in stance have increased as the RBI has let the surplus liquidity in the banking system rise to over 2.5 trln rupees due to the huge liquidity surplus in the banking system, the market fears the announcement of open market operations to absorb excess liquidity from the system, dealers said. If the central bank announces the OMO calendar, the yield on the 10-year gilt may rise to 6.95%.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 34.55 bln rupees, against 47.25 bln rupees at 0930 IST on Wednesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.86-6.92%. (Anupreksha Jain)

India Gilts: Seen steady on caution ahead of MPC meet outcome

MUMBAI – Prices of government bonds are seen opening steady on caution ahead of the outcome of the Reserve Bank of India's three-day Monetary Policy meeting today, dealers said. RBI Governor Shaktikanta Das will detail his statement at 1000 IST.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.80-6.95%, against 6.86% on Wednesday.

According to an Informist poll of 30 analysts, the Reserve Bank of India's rate-setting panel is expected to keep the repo rate unchanged with inflation still running above the central bank's target and growth staying robust.

However, the market remains divided in the case of stance. While some dealers expect the RBI to change its stance to "neutral" from "withdrawal of accommodation" after 28 months, others expect the panel to opt for status quo. Bets on a change in stance have increased as the RBI has let the surplus liquidity in the banking system rise to over 2.5 trln rupees.

Other segments of the market expect no change in stance owing to inflation still running above the central bank's target and growth staying robust. India's headline CPI inflation in June rose to a four-month high of 5.08%, and the consensus from economists is that the central bank will keep its projections for growth and inflation unchanged. In the previous meeting, the MPC had held its stance unchanged by a vote of 4-2. 

The market also currently has a fear of the central bank announcing open market operations in order to absorb excess liquidity in the banking system, dealers said. If the RBI comes up with an OMO sale calendar, the yield on the 7.10%, 2034 bond is expected to rise to over 7%. (Siddhi Chauhan)

End

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

Edited by Deepshikha Bhardwaj

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