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Informist, Monday, Aug 19, 2024

By Aaryan Khanna

NEW DELHI – Government bond prices ended on a mixed note today. Long-term bonds surged, led by short covering by traders and demand by investors such as life insurers, dealers said. Bonds maturing in under 10 years ended little changed.

The 10-year benchmark 7.10%, 2034 bond closed at 101.62 rupees, or 6.87% yield, against 101.59 rupees, or 6.87% yield, on Friday.

The 15-year benchmark 7.23%, 2039 bond exemplified the rise of bonds maturing in 13 years or more, and was the second most traded paper. Traders speculated that a state-owned life insurer and another large financial institution were seeking to add the 15-year bond to their books. Investors who had missed out on the bond at its auction on Friday also bought the gilt in the secondary market, dealers said.

Short sellers of the 2039 bond covered their bets anticipating higher demand, though the upward momentum in prices flagged by the end of the day, dealers said. Traders who had picked up the gilt at auction on Friday sold the 15-year paper at a sizeable profit, dealers said. At the day's high, the 7.23%, 2039 bond had risen 37 paise over the auction cut-off price of 102.47 rupees on Friday.

"We were active in the long bonds, above 30 years," a dealer at a life insurance firm said. "Below that, it was mostly trader activity creating the momentum. Some large players were heard to be interested in 15+ year bonds (bonds with maturity of over 15 years)." 

Foreign portfolio investors were speculated to be trading substantially on both the buying and selling sides in benchmark bonds maturing between 2033 and 2039, dealers said. This spurred volumes in bonds maturing in over 10 years, while trade in bonds maturing in 2030 or earlier was limited.

Long-term investors were also disappointed with the thin supply of state bonds this week, and invested cash in gilts instead, dealers said. After market hours Friday, the RBI said seven states will raise 137.90 bln rupees through the sale of bonds on Tuesday. The indicative calendar for Jul-Sep showed a weekly issuance at 234 bln rupees this week.

Investors, including mutual funds, have also been keen on long-term bonds after Life Insurance Corp of India said it would enter into bond forward-rate agreement contracts with banks. This spurred demand for securities that the life insurer uses to match its liabilities, such as gilts maturing in 30-50 years, dealers said. Speculation in the market was that India's largest life insurer, with over 53 trln rupees in assets under management as of Jun 30, would tap that derivatives market in September.

Traders largely ignored a rise in US Treasury yields early in the day, and the 10-year benchmark US Treasury yield returned to 3.87% by the end of Indian market hours today, the same as on Friday. While the market has been closely tracking offshore cues over the last few days, the lack of movement in the 10-year benchmark bond's price has dissuaded several traders from taking aggressive bets on the 7.10%, 2034 paper, dealers said.

Moreover, traders are waiting for interest rate cues to play out during the week, keeping volumes in bonds maturing in up to 10 years limited, dealers said. Investors keenly await insights from several US Federal Reserve officials, including Fed Chair Jerome Powell, at the Jackson Hole Economic Symposium later this week to gauge the central bank's stance on interest rates and the broader economic outlook.

According to the CME FedWatch tool, Fed funds futures show only a 26.5% expectation of the US Federal Open Market Committee cutting rates by 50 basis points at its September meeting. The probability had risen to as high as 85% two weeks ago after a surge in the unemployment rate in the July jobs report triggered fears of a recession in the world's largest economy, needing aggressive rate cuts to counteract it. A 25-bp rate reduction at the next meeting in September is fully priced in, the tool showed.

Investors also look forward to the minutes of the previous FOMC meeting, due 2330 IST on Wednesday. The minutes may have lower signalling power this time around as the policy review was held before the crucial jobs data print, dealers said.

In India, a change in the six-member Monetary Policy Committee, scheduled before its next meeting in October, may also limit the impact of the minutes due Thursday. External members Jayanth Varma, Ashima Goyal, and Shashanka Bhide are due to be replaced. Varma and Goyal have been the only members of the rate-setting panel to vote for cuts during the panel's current extended rate pause that has stretched to nine consecutive policy meetings.

The comments from the three RBI members of the panel, who are scheduled to participate in the October meeting, will be watched to see if they acknowledge risks to growth that may move rate cuts forward, dealers said.

"There is no point taking a position when the market is going from 6.86-6.88% (on the 10-year gilt yield)," a dealer at a private bank said. "Let's see if the US yields show some fireworks this week, otherwise I don't think anything will be able to break this range until the next FOMC."

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 500.15 bln rupees, higher than 439.95 bln rupees on Friday. There were four trades worth 200 mln rupees using the wholesale digital rupee pilot today, against no trades the previous day.

OUTLOOK

On Tuesday, gilts may open steady as traders remain cautious during a busy week full of triggers on the interest rate view, dealers said. These include minutes from the latest US and India monetary policy reviews as well as the Jackson Hole Economic Symposium in the US that starts Thursday.

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.

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 6.84-6.88% during the day.

India Gilts: 15-yr benchmark paper surges as traders cover short bets

NEW DELHI--1630 IST--Prices of government bonds maturing in 13 years and more rose, highlighted by the surge in the price of the 7.23%, 2039 bond. Traders covered their short bets in the 15-year benchmark gilt on speculation that large investors would step up their purchases of the bond, dealers said.

Traders speculated that a state-owned life insurer and another large financial institution were seeking to add the 15-year bond to their books. Investors who had missed out on the bond at its auction on Friday also bought the gilt in the secondary market, dealers said. The 2039 bond also saw some demand from foreign portfolio investors earlier in the day, while some FPIs sold the gilt at a profit. Banks were also taking profits after picking up the 2039 gilt at the auction on Friday at a cut-off price of 102.47 rupees, dealers said.

"The 7.23%, 2039 bond had been a big target for short sales in the recent past, and those traders are covering now hearing about the investor demand," a dealer at a primary dealership said. "After the short covering ends, the spread between the two papers does not make sense to go long on." The yield spread between the 15-year gilt over the 10-year bond was 6 basis points.

Most other bonds traded in a thin band ahead of a week that has significant triggers for the US and India interest rates, dealers said. The Federal Open Market Committee's minutes for its latest meeting are due on Wednesday, while India's Monetary Policy Committee minutes for its August meeting are due on Thursday. In addition, several US policymakers, including US Federal Reserve Chair Jerome Powell, are scheduled to speak at the Jackson Hole summit this week.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 460.30 bln rupees, against 394.35 bln rupees at 1630 IST on Friday. For the rest of the day, yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.92%.  (Aaryan Khanna)

India Gilts: Remain up; gilt switch tenders seen at FBIL prices

MUMBAI--1230 IST--Prices of government bonds remained up as traders anticipated further softening in US Treasury yields owing to a higher chance of deep cuts in the interest rate in the US in September, dealers said. Traders across the segments were seen buying gilts in smaller quantities. 

At the switch auction today, the government offered to switch six gilts worth a total of 350 bln rupees with eight bonds. Banks are likely to bid for the 7.40%, 2035 bond, 6.68%, 2031 bond, and the 6.64%, 2035 bond at Friday's Financial Benchmarks India Ltd yield levels at the auction, dealers said. Two private banks and state-owned banks each expressed interest in the auction, with two banks and one primary dealer saying bids were at or near the benchmark levels from Friday. Meanwhile, five state-owned banks and two private banks told Informist that they were not participating in the auction.

"The recent auctions have all been well bid, but only went through at FBIL levels," a dealer at a private bank said. "The RBI (Reserve Bank of India) ascertains the demand, typically from the larger banks, and gives the paper to them at market prices. That is not likely to change today." 

Bond prices stayed higher as traders bet on a sharp easing in US interest rates starting September. Speculation of foreign portfolio investors' purchases of bonds maturing in 2033-2039 also pulled up prices, dealers said. The 15-year benchmark 7.23%, 2039 bond was the only bond other than the 10-year benchmark with over 20-bln-rupee trade in the secondary market.

In the 'Reported Deals' segment of the RBI's trade platform, the 10-year benchmark 7.10%, 2034 bond had 17.30 bln rupees worth of trades across 24 deals struck. The 7.18%, 2033 bond, which has an outstanding of 2.01 trln rupees, saw trades worth 11.00 bln rupees, while the 15-year benchmark bond had 8.50-bln-rupee trades. Most of these were likely FPI buys, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 73.50 bln rupees, against 115.60 bln rupees at 1130 IST on Friday. During the day, yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.92%.  (Anupreksha Jain)

India Gilts: Up; market looks forward to key events lined up this week

MUMBAI--1010 IST--Prices of government bonds were a tad up as traders bet on the view that the US Federal Open Market Committee meeting's minutes and comments from speakers at the Jackson Hole symposium later this week are likely to indicate a 50-basis point cut in the interest rate by September, dealers said. They ignored a small rise in US Treasury yields since Friday.

"... FOMC minutes are crucial because the meeting was held before the jobs data, which showed that the US economy was heading towards recession," a dealer at a state-owned bank said. "So, the market through the minutes will see if the US Fed is open for deep cuts in the interest rate." According to the CME FedWatch tool, only 26.5% of Fed fund traders expect the Federal Reserve to cut rates by 50 basis points in its September meeting against 50% in the previous week. 

The yield on the 10-year benchmark US Treasury note rose to 3.89% from 3.87% at the time the Indian market closed on Friday.

Meanwhile, long-term bonds rose in thin trade after Life Insurance Corp of India said it would enter into bond forward-rate agreement contracts with banks. This would spur demand for securities that the life insurer uses to match its liabilities, such as gilts maturing in 30-50 years. 

Trade volumes are expected to be muted as the market enters into an event-packed week, causing traders to refrain from placing large bets, dealers said. Minutes of India's Monetary Policy Committee's July meeting are scheduled for Thursday. 

The market is likely to assess the comments of the dissenting members of the MPC, Ashima Goyal and Jayanth Varma, dealers said. The comments from the three members of the Reserve Bank of India, who are scheduled to participate in the October meeting, will be watched to see if they acknowledge risks to growth that may bring forward rate cuts, dealers said.

Traders await insights from several Federal Reserve officials, including US Fed Chair Jerome Powell, at the Jackson Hole symposium later this week, dealers said. FOMC minutes are scheduled to be released on Wednesday. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 73.50 bln rupees, against 49.35 bln rupees at 0930 IST on Friday. During the day, yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.92%.  (Anupreksha Jain)

India Gilts: Seen down tracking rise in US Treasury yields

MUMBAI – Prices of government bonds are seen opening lower tracking a rise in US Treasury yields. However, traders may refrain from placing aggressive bets on caution ahead of an event-packed week, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.85-6.89%, against 6.87% on Friday. The yield on the 10-year benchmark US Treasury note rose to 3.90% today from 3.87% at the time the Indian market closed 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. Despite the rise in US yields, traders are not likely to sell before potentially significant triggers for the US interest rate view this week, dealers said.

Traders await insights from several Federal Reserve officials, including US Fed chair Jerome Powell at the Jackson Hole symposium later this week. Investors also look forward to the minutes of the meeting of the US Federal Open Market Committee for July, due on Wednesday. 

Their comments will hold significance as it would help gauge the central bank's stance on interest rates and the broader economic outlook. According to the CME FedWatch tool, only 26.5% of Fed fund traders expect the Federal Reserve to cut 50 basis points in its September meeting against 50% a week ago.

On the domestic front, traders look forward to the minutes of the Reserve Bank of India's Monetary Policy Committee meeting from Aug 6-8, which will be released Thursday. These are unlikely to lend cues as this was the last scheduled meeting for the three external members of the panel--Jayanth Vama, Ashima Goyal, and Shashanka Bhide. The MPC had held status quo on the repo rate at 6.50% and the policy stance at "withdrawal of accommodation" at its most recent meeting.  (Siddhi Chauhan)

End

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

Edited by Rajeev Pai

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