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Informist, Friday, Aug 9, 2024

By Aaryan Khanna

MUMBAI – Government bond prices ended off lows after the result of the 310-bln-rupee weekly gilt auction was on expected lines. Some traders had pulled down prices after bidding ended at 1130 IST, fearing poor appetite for gilts, but bonds recouped most losses after the result of the auction, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at 101.51 rupees, or 6.88% yield, against 101.54 rupees, or 6.88% yield, on Thursday.

At the auction, the government sold 200 bln rupees worth of the 7.10%, 2034 bond and 110 bln rupees worth of the 7.34%, 2064 bond. The 10-year benchmark saw demand from state-owned banks and private banks, dealers said. While private banks bought the bond for their asset-liability management needs, state-owned banks were said to have picked up the bond for trading purposes, dealers said.

The RBI set a cut-off price of 100.44 rupees, or 6.89% yield, for the 10-year benchmark gilt at auction, exactly in line with an Informist poll. Some traders had expected the cut-off prices to be lower than that. However, primary dealers covered short bets placed in the run-up to the auction, and demand from investors across the market was robust. Some banks have even taken to buying the 10-year gilt to add to their high-quality liquid assets, despite these securities attracting a larger haircut for liquidity coverage ratio, as they foresee the need for bonds will only increase once proposed Reserve Bank of India norms kick in, dealers said.

Some traders who had missed out on the 2034 bond at auction bought the gilt in the secondary market, pulling up prices after the result, dealers said. With demand robust for dated securities at current level, traders awaited a fresh trigger to lend direction to bond prices, dealers said.

"The auction went off pretty smoothly, all things considered. There is demand at every level," a dealer at a private bank said. "We have to figure out a way to trade the market, because this range looks like it is here to stay."

Bond prices had fallen during the day due to concern about the auction, not in terms of investor appetite but in terms of prices; but the fall in prices on Thursday was enough to satisfy even traders hunting for a bargain, dealers said. An overnight rise in US Treasury yields weighed on bond prices during the day, they said.

The yield on the 10-year benchmark US Treasury note was at 3.96% at the time of the Indian market close against 3.92% on Thursday. US Treasury yields rose after data released on Thursday showed the jobs market was better than expected.

Initial unemployment claims fell 17,000 on week to a seasonally adjusted 233,000 for the week ended Saturday, compared with 240,000 claims seen in a Reuters poll. This eased concern that the US economy was heading towards a recession, an expectation caused by data last week that showed the unemployment rate had climbed to a near-three-year high in July.

Trade volumes fell from the previous day due to lack of domestic cues. The market's takeaways from the RBI's Monetary Policy Committee were limited in terms of immediate impact on prices. While the RBI seemed to signal comfort with the prevailing banking liquidity surplus, the MPC seemed far from a consensus on rate cuts, particularly from three central bank members, dealers said.

"The market is comfortable here, you can't take it either higher or lower," a dealer at a state-owned bank said. "There are planned buys from foreign banks, so the impact of US yields going higher is also limited. As long as the (foreign portfolio investors) flows continue coming, we won't fall."  

According to data on the RBI's Negotiated Dealing System–Order Matching platform, the turnover today was 399.70 bln rupees, higher than 672.55 bln rupees on Thursday. There were two trades worth 100 mln rupees carried out using the wholesale digital rupee pilot today, the same as the last two days.

OUTLOOK

Gilts are not traded on Saturdays. On Monday, bond prices may open steady on caution ahead of the domestic CPI inflation print at 1730 IST, dealers said.

Headline CPI inflation is seen falling to 3.7% from 5.08% in June, according to an Informist poll. This would be the first time headline inflation is below the RBI's medium-term 4% target since November 2019. Traders are prepared for a higher CPI inflation print after the central bank raised its headline CPI projection by 60 bps to 4.4% at the monetary policy review on Thursday.

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: Recoup losses; gilt auction result along expected lines

MUMBAI-—1500 IST--Government bonds recouped losses as state-owned banks stepped up purchases of the 10-year benchmark 7.10% 2034 bond, which was seen as a lucrative buy near the 6.88% yield level, dealers said. However, selling from private banks and primary dealerships maintained a downward pressure on prices, dealers said. The result of the 310-bln-rupee weekly gilt auction was along market expectations, they said.

"The market has recovered because the levels are lucrative for us to buy," a dealer at a state-owned bank said. "But because of selling it is stuck at the same level and has to budge from there."

Some dealers attributed the recovery in bond prices to some banks missing out on the bonds they bid for at the auction today. "Those who were expecting lower cut-offs at the auction were seen buying in the secondary market, which made the market recover," a dealer at a private bank said. 

At the auction, the government sold 200 bln rupees worth of the 7.10%, 2034 bond and 110 bln rupees worth of the 7.34%, 2064 bond. The 10-year benchmark saw demand from state-owned banks and private banks, dealers said. While private banks bought the bond for their asset-liability management needs, state-owned banks were said to have picked the bond for trading purposes, dealers said.

The longer tenure bond saw demand from the usual participants, which is, insurers and pension funds. The 2064 bond also saw demand from a state-owned life insurance company, dealers said. Around 20 bln rupees of the bond was picked up at the auction for Separate Trading of Registered Interest and Principal Securities, or STRIPS, and forward-rate agreements against the paper, dealers said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 253.40 bln rupees, against 442.35 bln rupees at 1430 IST on Thursday. For the remaining day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.86-6.92%. (Siddhi Chauhan)

India Gilts: Remain down; mixed views on demand at auction

MUMBAI—1134 IST--Prices of government bonds remained down as traders anticipated weak demand at the 310-bln-rupee gilt auction, held at 1030-1130 IST, dealers said. 

Market participants said demand for the 10-year benchmark 7.10%, 2034 bond was broad-based but not aggressive, and may lead to a lower cut-off price at auction than that prevailing in the secondary market. Moreover, an overnight rise in US Treasury yields also weighed on gilt prices.

"Positive cues are there, but they are not significant to trigger a sustainable rally in prices, and I don't think that PSUs (state-owned banks) will bid aggressively today," a dealer at a private bank said. "The MPC (Monetary Policy Committee) is over, and even the latest US jobs data has weakened expectations of deep cuts in the US interest rate. The only cue now is our (India) CPI data."

At the weekly gilt auction, the government offered 200 bln rupees worth of the 7.10%, 2034 bond and 110 bln rupees worth of the 7.34%, 2064 bond. Some private banks and state-owned banks were seen bidding for the 10-year gilt, dealers said. Private banks were seen bidding aggressively for the benchmark owing to increased demand for government bonds after the proposal of the RBI to tweak norms pertaining to the Basel-III-liquidity coverage ratio, dealers said. Meanwhile, state-owned banks may have bid at a higher yield level of 6.90% on the 10-year gilt. 

At the same time, some were seeing firm demand for the 7.34%, 2064 bond from insurers and pension funds, dealers said. The likely presence of a large state-owned insurance company at the auction may lead to higher cut-off prices for the long-term bond. Others said that since the new issuances of the 30-year paper are not included in fully accessible route government securities, investors may not bid at higher prices, dealers said. Since the notification, traders who were active in this segment were seen missing, dealers said. 

Further, there was some demand from private life insurers for Separate Trading of Registered Interest and Principal Securities, or STRIPS. On the contrary, some said that primary dealers would cover their short bets at the auction, leading to higher cut-off prices, dealers said.

On the global front, the yield on the 10-year benchmark US Treasury note rose to 3.97% from 3.92% at the time the Indian market closed Thursday. US yields rose after better-than-expected jobs data that was released on Thursday.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 111.50 bln rupees, against 311.10 bln rupees at 1130 IST on Thursday. 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 as traders place short bets ahead of debt auction

MUMBAI--0950 IST--Prices of government bonds were down as some traders placed short bets ahead of the 310-bln-rupee gilt auction at 1000-1130 IST. Moreover, an overnight rise in US treasury yields also weighed on gilt prices.

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. Typically, primary dealerships place short bets ahead of the weekly gilt auction to make room to buy 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.

"PDs (primary dealers) are placing short bets, which is the usual practice before the auction. Robust demand will be there at the auction," a dealer at a primary dealership said. "These levels (6.88-6.90 on the 10-year gilt) are lucrative levels to buy. The market is waiting for it to fall further so that strong buying can come."

Since there are no shorter-duration bonds that are up for auction, the 10-year benchmark gilt will be sought by investors across the board. State-owned banks, foreign investors, and private banks are expected to bid aggressively at the auction, dealers said. 

Primary dealers are also expected to cover their short bets at the auction, dealers said. Additionally, owing to favourable demand and supply dynamics, the auction is expected to sail through, dealers said.

The market was divided on demand for the long-term bond. Some dealers said it might see strong demand from insurers and pension funds, while others said that since the new issuances of the 30-year paper are not included in fully accessible route government securities, investors may bid on lower prices, dealers said. Since the notification, traders who were active in this segment were seen missing, dealers said.

On the global front, US Treasury yields rose on Thursday after data showed the jobs market was better than expected. The yield on the 10-year benchmark US Treasury note rose to 3.98% from 3.92% at the time the Indian market closed Thursday. Following the data, the odds of a 50 basis point cut in the interest rate in September was 57%, down from 69% before the data.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 34.45 bln rupees, against 36.45 bln rupees at 0930 IST on Thursday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.86-6.92%. (Anupreksha Jain)

India Gilts: Seen dn tracking overnight rise in US ylds post jobs data

MUMBAI – Prices of government bonds are seen opening lower today, tracking an overnight rise in US Treasury yields after better-than-expected jobless claims data, dealers said. However, traders may avoid placing large bets ahead of the 310-bln-rupee gilts weekly auction held at 1030-1130 IST, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.86-6.93%, against 6.88% on Thursday. Meanwhile, the yield on the 10-year benchmark US Treasury note rose to 3.98% today from 3.92% at the time the Indian market closed Thursday. 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 Treasury yields rose on Thursday after data showed the jobs market was better than expected. Initial unemployment claims fell 17,000 on week to a seasonally adjusted 233,000 for the week ended Saturday, as compared to 240,000 claims seen in a Reuters poll. This eased concerns that the US economy was heading towards a recession, an expectation caused by data last week that showed the unemployment rate had climbed to a near-three-year high in July.

Back home, traders may remain cautious ahead of the weekly gilt auction, 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 this week. The auction is expected to see good demand with the 10-year benchmark seeing aggressive bidding from state-owned banks, private banks and foreign investors, dealers said. Primary dealerships, who had placed short bets on Thursday may cover it at the auction today, giving it an additional boost, dealers said. 

Meanwhile, the 2064 bond is expected to see demand from the usual long-term investors, namely, pension funds and insurance companies, dealers said. (Siddhi Chauhan)

End

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

Edited by Akul Nishant Akhoury
 

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