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Informist, Tuesday, Aug 20, 2024

By Aaryan Khanna

NEW DELHI – Government bond prices ended higher today on foreign portfolio investors' purchases of India's bonds due to inclusion on global bond indices, dealers said. However, gains were capped despite two straight days of large offshore purchases as traders onshore booked profits.

The 10-year benchmark 7.10%, 2034 bond closed at 101.69 rupees, or 6.86% yield, against 101.62 rupees, or 6.87% yield on Monday.

Indian government bonds gain 1% weightage on JP Morgan Government Bond Index – Emerging Market suite every month, starting Jun 28, and will reach a maximum weight of 10% by March. The next rebalancing date is Aug 30, when India's gilts will have a cumulative 3% weight. Foreign investors, or offshore branches of foreign banks, have bought gilts ahead of the date when the weights increase to sell to clients, dealers said.

"The amount of purchases by foreign banks and FPIs was almost identical (on Monday)," a dealer at a foreign bank said. "Something similar is happening today. So these are not proprietary positions, these are just flows coming in from offshore before the index weight increases."

On Monday, FPIs had bought 18.30 bln rupees worth of gilts eligible for inclusion on global bond indices, such as those operated by JP Morgan and Bloomberg. These fully accessible route bonds do not have any limits on FPI ownership. 

Clearing Corp of India data also showed foreign banks were top net buyers in the secondary market on Monday, having bought 18.27 bln rupees worth of gilts. The 7.18%, 2033 bond has been a favourite as it still holds the largest individual weight for an Indian bond in the JP Morgan index, due to its 2.01-trln-rupee outstanding, the most among index-eligible bonds.

These trends continued today, with investors favouring bonds maturing in 2033 or above, dealers said. On the Reported Deals segment of the Negotiated Dealing System – Order Matching platform, the 7.18%, 2033 bond had trades worth 10.25 bln rupees, while the 7.26%, 2033 gilt--once a 10-year benchmark government security too--saw trades worth 23 bln rupees. Most of these were likely FPI purchases, dealers said.

Data from Clearing Corp of India at 1946 IST showed that foreign portfolio investors bought gilts worth 6.75 bln rupees today. The data is updated with a lag, and the final figure is likely to change. In addition to foreign investors, some domestic traders also picked up bonds, noting a fall in crude oil prices. A fall in crude oil prices reduces pressure of imported inflation on India, the world's third-largest oil importer.

Brent crude for October delivery fell to $77.91 a bbl at the end of Indian market hours today from $79.06 a bbl on Monday. Futures fell by more than $2 a bbl on Monday on the likelihood of successful West Asia peace talks, which may reduce supply risks. Meanwhile, leading oil importer China's economic weakness threatened to curb demand.

Short-term bonds remained out of favour due to a lack of clarity on when the Reserve Bank of India's Monetary Policy Committee would begin to cut the policy repo rate from the current 6.50%. Already, short-term bond yields had fallen sharply in July as liquidity conditions eased, and overnight money market rates were anchored near the repo rate instead of higher than that, dealers said. 

Moreover, banking system liquidity, which has been in a surplus of around 1 trln rupees or more since early July, is likely to fall to neutral or even a slight deficit due to outflows on account of goods and services tax payments this week. On Monday, the liquidity surplus fell to a one-week low of 1.17 trln rupees, and GST outflows are likely to total 1.50-1.60 trln rupees, according to call market dealers.

Meanwhile, long-term bonds rose more than those of other tenures. Bonds maturing in 30-50 years were sharply up in thin trade due to purchases by life insurers in the secondary market, dealers said. Even traders' interest in the segment has increased after Life Insurance Corp of India said it was in talks with banks to conduct bond forward-rate agreements soon. The entry of India's largest life insurer to this derivative market is likely to sharply boost appetite for these bonds, dealers said.

Traders from state-owned banks booked profit, particularly on the 10-year benchmark 7.10%, 2034 bond. Mutual funds were also said to be selling the gilt, while picking up the 7.23%, 2039 gilt, dealers said. The 15-year benchmark bond's spread over the 10-year gilt halved from earlier this month to 5 basis points today. The 7.10%, 2034 bond has closed between 101.50 rupees and 101.70 rupees since Aug 5.

"Mutual funds are somehow trying to play the spread between the 10- and 15-year bonds," a dealer at a private bank said. "Somehow, I'm not convinced of the strategy, but they are real money investors expecting a breakout (sharp fall in yields) and want to capture capital gains."

Investors 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 US central bank's stance on interest rates and the broader economic outlook. Investors also look forward to the meeting minutes of the Federal Open Market Committee for July, due on Wednesday.

On the domestic front, traders also look forward to minutes of the Reserve Bank of India's Monetary Policy Committee meeting from Aug 6-8, dealers said. In India, a change in the six-member Monetary Policy Committee, scheduled before its next meeting in October, may 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.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 606.00 bln rupees, higher than 500.15 bln rupees on Monday. There were no trades settled using the wholesale digital rupee pilot today, against four trades worth 200 mln rupees the previous day.

OUTLOOK

On Wednesday, 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: Remain up on FPI buys; gains capped as traders take profit

MUMBAI--1542 IST--Prices of government bonds remained higher due to purchases from foreign portfolio investors ahead of the monthly increase in India's weight on the JP Morgan emerging market index suits, dealers said. Gains on the 7.10%, 2034 bond were limited as state-owned banks sold the bond at a profit, dealers said. 

Data from Clearing Corp of India at 1510 IST showed that foreign portfolio investors bought gilts worth 3.39 bln rupees so far. The data is updated with a lag. On Monday, FPIs had bought 18.29 bln rupees worth of gilts. These have been mostly concentrated in bonds maturing after 2033, and the offshore purchases were being facilitated by foreign banks, dealers said.

The 7.18%, 2033 bond has been a favourite as it still holds the largest individual weight for an Indian bond in the JP Morgan index, due to its 2.01-trln-rupee outstanding. Indian government bonds gain 1% weightage on JP Morgan Government Bond Index – Emerging Market suite every month, started Jun 28, and is expected to reach a maximum weight of 10%. The next rebalancing date is Aug 30.

"Lots of buying happened from foreign banks in the morning, now it (prices on 7.10%, 2034 bond) has somewhat settled and are hovering around similar levels," a dealer at a state-owned bank said. "There is some profit booking from PSUs (state-owned banks) as well." The 10-year benchmark gilt has closed between 101.50 rupees and 101.70 rupees since Aug 5.

Amongst on-the-run gilts, the 7.23%, 2039 bond led the gains on buying from investors, likely due to a small quantum for the state-government securities auction today, dealers said. States sold only 137.90 bln rupees at the auction, nearly 100 bln rupees lower than the indicated amount this week in the Jul-Sep calendar. Traders look forward to the comments of Reserve Bank of India Governor Shaktikanta Das, who is scheduled to speak to NDTV Profit at 1600 IST. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 483.95 bln rupees, against 380.95 bln rupees at 1530 IST on Monday. During the day, yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.84-6.89%. (Siddhi Chauhan)

India Gilts: Up on expectation of rate cuts in US; key events awaited

MUMBAI--1040 IST--Prices of government bonds rose as traders stepped up purchases on expectation that rate cuts are imminent in the US, dealers said. Traders look forward to Federal Reserve Chair Jerome Powell's comments at the Jackson Hole Economic Symposium on Friday. 

His comments hold significance as they may indicate the trajectory of rate cuts in the US, dealers said. According to data from CME FedWatch tool, 76% of Fed Fund future traders expect the Federal Reserve to lower interest rates at its September policy meeting by 25 basis points. Meanwhile, the remaining expect a 50 bps cut.

"It seems foreign banks are the ones buying because the market is quite convinced of seeing at least 25 bps cut," a dealer at a private bank said. "The comments from Powell will be closely watched by the market now."

The meeting minutes of the Federal Open Market Committee for July are due on Wednesday. The commentary may be dated as the Jul 30-31 meeting came before the US jobs data for July, which showed a spike in the unemployment rate to a near-three-year high of 4.3%. Thus, fresh comments from the Jackson Hole summit were likely to be the more significant triggers, dealers said.

Foreign banks were top net buyers on Monday as well, according to Clearing Corp of India data. Their purchases have been concentrated in bonds maturing in 2033 and later, dealers said. On the other hand, some traders were looking ahead to the commentary on growth and inflation from the minutes of the Reserve Bank of India's Monetary Policy Committee. The minutes of the Aug 6-8 meeting will be released Thursday.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 60.00 bln rupees, against 74.70 bln rupees at 1030 IST on Monday. During the day, yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.84-6.89%. (Siddhi Chauhan)

India Gilts: Seen steady on lack of firm cues; oil prices fall may aid

MUMBAI – Prices of government bonds are seen opening steady as traders may stay cautious in a week packed with important events, dealers said. However, a fall in crude oil prices may aid gilt prices at the open, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.84-6.89%, against 6.87% on Monday. 

Brent crude for October delivery fell to $77.32 a bbl in Asian trade today from $79.06 a bbl at the end of Indian market hours on Monday. Futures fell by more than $2 a barrel on Monday on the likelihood of successful West Asia peace talks, which may reduce supply risks. Meanwhile, leading oil importer China's economic weakness threatened to curb demand. Geopolitical tension in West Asia also remains in focus with US Secretary of State Antony Blinken in Israel. Ceasefire talks are scheduled to continue this week in Cairo, Egypt.

Investors 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. Investors also look forward to the meeting minutes of the Federal Open Market Committee for July, due on Wednesday.

On the domestic front, traders also look forward to minutes of the Reserve Bank of India's Monetary Policy Committee meeting from Aug 6-8, which will be released Thursday. Traders expect a continuation of Monday's movement, which is bonds maturing over 15-year to see demand from various segments from the market, dealers said. (Siddhi Chauhan)

End

US$1 = 83.79 rupees

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

Edited by Aditya Sakorkar

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