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Informist, Friday, Aug 16, 2024

By Siddhi Chauhan

MUMBAI – Government bond prices ended down today taking cues from a rise in US Treasury yields as upbeat data prints on jobless claims and consumer confidence tempered expectations of rate cuts in the world's largest economy, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at 101.59 rupees, or 6.87% yield, against 101.68 rupees, or 6.86% yield, on Wednesday. Indian financial markets were closed Thursday on account of Independence Day.

Yield on the 10-year benchmark US treasury note was 3.88% today compared with 3.85% at close of the Indian market on Wednesday. Following the upbeat US economic data, the odds of the US central bank slashing interest rates by 50 basis points at its September policy meeting fell to 27.5% compared with 42% before the data. Odds of a 25-bps rate cut in September now have a 72.5% probability, as per the CME FedWatch Tool.

Earlier in the day, the yield on the 10-year benchmark US Treasury had risen to 3.93% but eased to the day's low of 3.88%, which helped domestic bonds recover some of their earlier losses, dealers said.

This fall in US yields prompted foreign banks to step up purchases of the 7.10%, 2034 bond, dealers said. A fall in US yields widens the interest rate differential between haven assets and emerging market debt, making the latter more appealing to foreign investors.

"After recovering from the day's low which was followed by US yield fall, foreign banks started to buy. However, that was soon capped by the state-owned banks booking profits," a dealer at a state-owned bank said. "There was no major motive behind it (profit-booking), they just did it to encash gains."

The result of the 340-bln-rupee gilt auction which was held today was largely along expected lines and failed to lend significant cues to the market, dealers said.

"There is no denying that US yields have gone down, which led to some foreign banks buying in the market," a dealer at a private bank said. "Auction was largely on expectations, so it did not trigger any reaction in the market." Apart from foreign banks, mutual funds were also seen buying gilts as they had funds to deploy, dealers said. As per data from Clearing Corp of India, mutual funds were amongst the top net buyers for four consecutive working days. The rise in prices was, however, limited as state-owned banks started to sell bonds at a profit, dealers said.

At the weekly auction today, the government sold 110 bln rupees of the 7.02%, 2031 bond, 120 bln rupees of 7.23%, 2039 gilt, and 110 bn rupees of 7.46%, 2073 bond. The result of the auction was largely along market's expectations, dealers said. Post the result, market participants refrained from placing aggressive bets due to lack of firm cues, dealers said.

"The auction was largely along expected lines, after which had it not been for the fall in US yields the market would not have moved," a dealer at a state-owned bank said. "Dealers were not keen to let go of their bonds because there was no cue for them to trade on."

The seven-year paper saw demand from private banks and state-owned banks for their asset-liability management needs, while mutual funds bought the paper as some of the large hybrid schemes have accumulated large cash piles, which they deployed in buying gilts, dealers said.

The 15-year, 2039 bond and the 50-year, 2073 bond saw aggressive demand from insurers and state-owned banks, dealers said. State-owned banks bid aggressively for the 15-year benchmark as, after the 10-year benchmark, this is the most liquid bond amongst on-the-run gilts, dealers said. Apart from them, little demand from insurers was also seen in this segment as the yield levels on the paper were lucrative, they said.

The likely presence of a large state-owned insurer at the auction of the 2073 bond led to firm demand for the long-term paper, resulting in a higher-than-expected cut-off on the bond, dealers said. The Reserve Bank of India set the cut-off price on the 7.46%, 2073 bond at 105.37 rupees, or 7.07%, as against 105.32 rupees, or 7.07%, estimated by an Informist poll. Moreover, demand for the forward rate agreements and demand for Separate Trading of Registered Interest and Principal Securities, or STRIPS, of the paper from private insurers contributed to a higher cut-off price at the auction of the long-term paper, they said.

According to data on the RBI's Negotiated Dealing System–Order Matching platform, the turnover today was 439.95 bln rupees, lower than 728.55 bln rupees on Wednesday. There were no trades using the wholesale digital rupee pilot today, against two trades worth 100 mln rupees on Tuesday.

OUTLOOK

Gilts are not traded on Saturday. On Monday, gilts may take cues from US state employment and unemployment data which will be released at 1930 IST. Investors will also look forward to University of Michigan Survey of Consumers preliminary data for August which will provide more clarity on the trajectory of rates in the world's largest economy.

If US economic data continues to be robust, it would further dampen hope of significant rate cuts by the Fed, causing a rise in US bond yields and, in turn, Indian bond yields. However, the appetite for domestic bonds is likely to remain strong due to a steady stream of foreign fund inflows due to India's inclusion in JP Morgan's emerging market index suite, a 10-month process that started on Jun 28.

Any uptick in yields may also prompt purchases by domestic banks which will have to maintain larger buffers of liquid assets such as government securities due to an impending tightening of the liquidity coverage ratio guidelines.

In the event of disappointing US economic data, a possible fall in US Treasury yields may drag down domestic bond yields on Monday. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.84-6.88% during the day.

India Gilts: Remain down; auction cut-off fails to lend fresh cues

MUMBAI--1438 IST--Prices of government bonds remained down, moving in a narrow range as the result of the weekly gilt auction was in line with expectations, dealers said. Gilt prices remained down on a rise in US Treasury yields after strong jobs data.

After the auction results, prices fell briefly as traders who bought bonds at the auction at lower prices sold those in the secondary market at a profit, dealers said. "The market is holding at these levels as there is no crucial data lined up, there is nothing substantial to take cue from," a dealer at a primary dealership said. "Auction was very well bid, but traders have become very risk aversive these days they don't want to take a hit if their moves get wrong."

The 15-year, 2039 bond and the 50-year, 2073 bond saw aggressive bidding from insurers and state-owned banks, dealers said. Insurers bought the 15-year bond at the auction as they perceived the yield levels as lucrative, they said. State-owned banks bought the bond as, after the 10-year benchmark, the 15-year bond is one of the most liquid bonds among on-the-run gilts, dealers said. 

The likely presence of a large state-owned insurer company at the auction of the 2073 bond has led to firm demand for the long-term paper, resulting in a higher-than-expected cut-off on the bond, dealers said. The Reserve Bank of India has set the cut-off price on the 7.46% 2073 bond at 105.37 rupees, or 7.07%, as against 105.32 rupees, or 7.07%, estimated by an Informist poll. Moreover, demand for the forward rate agreements and demand for Separate Trading of Registered Interest and Principal Securities, or STRIPS, of the paper from private insurers have contributed to a higher cut-off price at the auction of the long-term paper, they said.

Although the short-term bond, 2031, saw firm demand from state-owned banks, private banks, and mutual funds, it did not translate into aggressive bidding as some are of the view that India's rate-setting panel may not go for a rate cut anytime soon, dealers said. 

Despite high chances of the US Federal Reserve going for a cut in September, some domestic players did not see the RBI following suit, dealers said. Although the market drew comfort from the recently released lower-than-expected domestic headline inflation print for July, traders were of the view that it would take several months for headline inflation to align durably with the RBI's target of 4%.

Private banks and state-owned banks bought the paper for their asset-liability management needs, while mutual funds bought the gilt as some of the large hybrid schemes have accumulated large cash piles, which they deployed in buying gilts, dealers said. 

Owing to an absence of significant triggers on the domestic front, the market is likely to trade in the band of 6.85-6.90% on the 10-year benchmark, 7.10%, 2034 bond, dealers said. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 224.00 bln rupees, against 349.70 bln rupees at 1430 IST on Wednesday. For the rest of the day, yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.92%. 

Markets were shut on Thursday on account of Independence day. (Anupreksha Jain)

India Gilts: Down tracking rise in US yields; mkt eyes gilt auction

MUMBAI--0933 IST--Prices of government bonds were down, tracking a rise in US Treasury yields after stronger-than-expected jobless claims data, dealers said. Traders may refrain from placing aggressive bets ahead of the 340-bln-rupee gilt auction at 1030-1100 IST. 

At the auction, the government will sell 110 bln rupees of the 7.02%, 2031 bond, 120 bln rupees of 7.23%, 2039 gilt, and 110 bn rupees of 7.46%, 2073 bond. The auction is expected to sail through with state-owned banks picking the 2031 and 2039 bonds, dealers said. Primary dealerships were seen placing short-bets ahead of the auction. Typically, primary dealerships place short bets ahead of the weekly gilt auction to make room to buy the gilts at the debt sale. 

"The market opened lower because of the rise in US yields. However, not much of a movement is expected until the auction is done," a dealer at a state-owned bank said. "The auction is expected to see decent demand with state-owned banks picking both 7-year and 15-year bonds at the auction as the levels are attractive."

Apart from state-owned banks, mutual funds may also pick the 2031 bond for their asset liability management purposes, dealers said. Meanwhile, the 2073 bond is expected to see good demand from long-term investors, that is pension funds, and insurance companies, dealers said. 

On the global front, the yield on the 10-year benchmark US Treasury note rose to 3.90% today from 3.85% at the time the Indian market closed Wednesday. Initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted figure of 227,000 for the week ended Saturday.

This was less than the 235,000 claims that economists had forecast in a Reuters poll. It suggested a resilient labour market. Moreover, US retail sales in July rose 1% on month, significantly higher than the expectation of a 0.3% rise in a Reuters poll. It was also in contrast to June's figure of a 0.2% fall in retail sales.

A stronger-than-expected economic data has dented the hopes of a quicker-than-expected cut in the interest rate in the US by September, dealers said. Following the data, the odds of a 50-basis point cut in the interest rate has gone down to 27.5% from 36% a day ago, according to the CME Fedwatch tool.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 49.35 bln rupees, against 41.60 bln rupees at 0930 IST on Wednesday. During the day, yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.92%.  (Siddhi Chauhan)

India Gilts: Seen down as US ylds rise post strong jobless claim data

MUMBAI – Prices of government bonds are seen opening lower today as US Treasury yields fell after stronger-than-expected jobless claims data, dealers said. However, traders may refrain from placing large bets ahead of the 340-bln-rupee gilt auction, scheduled at 1030-1130 IST.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.92%, against 6.86% on Wednesday. Meanwhile, the yield on the 10-year benchmark US Treasury note rose to 3.91% today from 3.85% at the time the Indian market closed Wednesday. 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.

Initial claims for state unemployment benefits fell 7,000 to a seasonally adjusted figure of 227,000 for the week ended Saturday. This was less than the 235,000 claims that economists had forecast in a Reuters poll. It suggested a resilient labour market. Moreover, US retail sales in July rose 1% on month, significantly higher than the expectation of a 0.3% rise in a Reuters poll. It was also in contrast to June's figure of a 0.2% fall in retail sales.

A stronger-than-expected economic data has dented the hopes of a quicker-than-expected cut in the interest rate in the US by September, dealers said. Following the data, the odds of a 50-basis point cut in the interest rate has gone down to 27.5% from 36% a day ago, according to the CME Fedwatch tool.

At the same time, the US CPI data for July failed to lend fresh cues on the likely rate cut trajectory of the world's largest economy, dealers said. The US CPI data was largely in line with expectations. Core CPI inflation rose 0.2% on month and 3.2% on year, again in line with expectations, while the headline inflation was up 2.9% on an annual basis, slightly lower than the expected 3.0%.

Back home, traders await the weekly debt sale, state-owned banks are likely to pick the 2031 bond for their asset-liability management needs and the 15-year paper, while insurers and pension funds are expected to bid aggressively for the long-term bond, dealers said.

The auction may not lead to sharp volatility in the market as bonds up for the auction are mostly off-the-run gilts, except the 15-year paper, dealers said. The demand is seen firm at the auction owing to no negative domestic cues in the market, dealers said.  (Anupreksha Jain)

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

Edited by Ashish Shirke

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