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Informist, Wednesday, Aug 21, 2024

By Aaryan Khanna

NEW DELHI – Government bonds erased all gains and ended little change ahead of key labour data in the US, as well as the Federal Open Market Committee's meeting's minutes. The market was keen to consolidate after two days of gains without significant fundamental triggers, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at 101.68 rupees, or 6.86% yield, against 101.69 rupees, or 6.87% yield on Tuesday.

Short sales by primary dealers, particularly in the 10-year benchmark gilt, likely led to the selling pressure right at the close, dealers said. Bond prices were in the green throughout the day before turning slightly negative in the last five minutes of trade.

"The FPI flows were not as strong as the last couple of days," a dealer at a private bank said. "I think the theme for the next few days will be consolidation, but any rise in yields will be completely bought into due to the supply-demand mismatch."

Foreign portfolio investors had bought 25.04 bln rupees worth of bonds under the fully accessible route on Mon-Tue, according to Clearing Corp of India data. These were likely tied to inflows due to India's inclusion on JP Morgan's Emerging Market Index Suite, that started Jun 28, with a 1% increase in weightage every month till March. However, active buyers such as foreign and private banks likely picked up gilts today owing to a fall in US Treasury yields, dealers said.

In Asian trade today, the yield on the 10-year benchmark US Treasury note fell to 3.81% from 3.87% at the Indian market close on Tuesday, and inched up to 3.82% by the end of Indian market hours. 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.

US yields fell as expectations of a sharp interest rate cut in the country, starting September, increased, ahead of Federal Reserve Chair Jerome Powell's speech at the US central bank's Jackson Hole Economic Symposium on Friday. Further, the US Labor Department will release benchmark revisions to its employment data for the 12 months to March today. A significant downward revision, which is expected, could potentially accelerate the US rate cut timeline, dealers said.

Traders are looking forward to the Federal Open Market Committee's meeting minutes, due at 2330 IST. However, the minutes may not have a significant impact on the market as the comments would be dated. This is because the review was held before the July jobs data report was released by the US and stoked fears of a recession, dealers said. Some dealers were wary that comments from policymakers would disappoint the market, and nothing that Powell will say can accelerate the already-steep 100 basis points of rate cuts in 2024 priced in by the US rate markets.

The early momentum was stopped in its tracks by aggressive bond sales from domestic banks, dealers said. This prevented the 10-year benchmark yield from falling well below the crucial 6.85% mark during the day. Moreover, demand for the bond below the yield level has been limited as overnight money market rates – the cost of funding for these entities – are expected to remain near or above 6.50% until December.

The market is likely to look through the minutes of the FOMC's July meeting at 2330 IST, and as well as those of the MPC's August policy review on Thursday, dealers said. Both the minutes will not significantly impact the market as the FOMC minutes will not account for the significant data points on inflation and labour that came after the meeting's outcome on Jul 31, they said.

Meanwhile, August was the last scheduled meeting of the three external members of the MPC. External members Jayanth Varma and Ashima 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.

Unlike the past few days, where investors' purchases of long-term bonds had led to some outperformance against the 10-year bond, those trades fell flat as the spread became unattractive, dealers said. This led to lacklustre volume in segments other than the most traded 10-year gilt. Private banks and mutual funds, too, are likely to have sold gilts towards the close, dealers said. According to Clearing Corp of India data, mutual funds have bought over 150 bln rupees worth of government bonds this month in the secondary market. 

"The euphoria in long-tenure gilts is a bit played out now," a dealer at a foreign bank said. "There is still quite a decent demand from offshore clients, but I think domestic players have turned very negative today."

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 524.65 bln rupees, lower than 606.00 bln rupees on Monday. There were six trades worth 300 mln rupees settled using the wholesale digital rupee pilot today, against no trades the previous day.

OUTLOOK

On Thursday, gilts may take cues from the revision to US labour data until March and the minutes of the FOMC's latest meeting, dealers said. Comments from the minutes of India's August MPC meeting, as well as US Fed Chair Jerome Powell at the Jackson Hole Economic Symposium on Friday are also watched for interest rate cues.

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 6.82-6.90% during the day.

India Gilts: In thin band as mkt awaits fresh cues; PDs trim holdings

MUMBAI--1620 IST-–Government bond prices moved in a thin band due to a lack of fresh cues, dealers said. The 10-year benchmark 7.10%, 2034 bond has moved in a 5-paisa band through the day. Primary dealers are also placing short bets ahead of the gilts auction on Friday, dealers said.

The government will sell 230 bln of bonds at the weekly gilt auction on Friday, including 120 bln rupees of the 7.04%, 2029 gilt and 110 bln rupees of the 7.34%, 2064 bond. On Tuesday, primary dealers sold gilts worth 10.42 bln rupees, according to data from Clearing Corp of India. The sales from primary dealers were limited so far and are likely to ramp up later in the week, dealers said. State-owned banks also sold gilts at a profit, they said.

Traders said both bond prices and volumes had stagnated after a strong opening from a fall in US Treasury yields overnight. The divergent rate views in the two economies had held back a sizeable reaction in domestic gilts, especially ahead of key events for the interest rate view in the US and India, dealers said.

The market is also eyeing the minutes of both the US Federal Open Market Committee meeting and India's Monetary Policy Committee meeting this week, dealers said. On Friday, US Federal Reserve Chair Jerome Powell is scheduled to speak at the Jackson Hole symposium which could lend fresh cues to the market, dealers said. 

Traders have factored in a 25 bps rate cut in the upcoming US FOMC meeting, but Powell's speech could either reduce or increase the possibility of a 50 bps rate cut, dealers said. According to the CME FedWatch tool, Fed funds futures show 30.5% chance of a 50 bps rate cut in the US by the FOMC in its upcoming meeting on Sep 18.

"I think FOMC minutes could be dovish, but MPC might not change its stance and continue to keep a watch on the inflation target," a dealer at a state-owned bank said. "So right now, we're looking forward to Powell's speech."

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 417.90 bln rupees, against 545.95 bln rupees at 1630 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.82-6.87%.  (Cassandra Carvalho and Srijita Bose)

India Gilts: Remain up; divergent rate view in US, India limits gains

NEW DELHI--1300 IST--Government bond prices remained up due to a fall in US Treasury yields and inflows related to India's global bond index inclusion, dealers said. The gains were limited as traders highlighted the difference in the rate view between the US and India, dealers said.

While a 25-basis-point rate cut by the US Federal Open Market Committee is fully priced in for September, India's Monetary Policy Committee still seems at least four months away, dealers said. Most analysts and market participants expect a shallow rate cut cycle of 50 basis points in India starting December. RBI Governor Shaktikanta Das has said that the central bank will look through the sub-4% CPI prints in Jul-Sep, as inflation is expected to rise again later in the year. The RBI projects inflation to rise to 4.7% in Oct-Dec from 4.4% in Jul-Sep. 

"We cannot mirror the fall in US yields because our rate cuts are both much further and more uncertain," a dealer at a private bank said. "Right now, only the expectations from the Fed have changed – the policymakers have not said they are going to cut rates aggressively."

The 7.10%, 2034 gilt has moved in a narrow price band of 4 paisa during the day. Aggressive bond sales by domestic banks are preventing the 10-year benchmark yield from falling well below the crucial 6.85% mark, dealers said. Moreover, demand from traders below the yield level has been limited as overnight money market rates – the cost of funding for these entities – are expected to remain near or above 6.50% until December.

The market is likely to look through the minutes of the FOMC's July meeting at 2330 IST, and the MPC's August policy review on Wednesday, dealers said. Both the minutes will not significantly impact the market as the FOMC minutes will not account for the significant data points on inflation and labour that came after the meeting's outcome on Jul 31. Meanwhile, August was the last scheduled meeting of the three external members of the MPC, so only the RBI members' views will be looked at, dealers said.

"The minutes are just noise, they are not relevant to how interest rates will play out," a dealer at a primary dealership said. "It is only (US Federal Reserve Chair Jerome) Powell's comments which will actually be something new for the market to look at." The annual Jackson Hole Economic Symposium, organised by the US Federal Reserve system, is scheduled to begin on Thursday. Powell is scheduled to speak at 1930 IST on Friday.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 252.50 bln rupees, against 287.70 bln rupees at 1245 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.82-6.87%. (Aaryan Khanna)

India Gilts: In thin band; early gains capped as traders book profits

MUMBAI--1014 IST--Gains in government bonds were capped as state-owned banks sold bonds at a profit, dealers said. Gilt prices were up earlier, tracking an overnight fall in US Treasury yields. 

Foreign banks started stepping up purchases on behalf of their foreign clients due to India's inclusion in JP Morgan's emerging market index suite, a 10-month process that started on Jun 28. As per data from Clearing Corp of India, they have been on the buying side for three consecutive trading days.

An overnight fall in US Treasury yields also supported gilt prices. The yield on the 10-year benchmark US Treasury note fell to 3.82% from 3.87% at the time the Indian market closed on Tuesday.

US yields fell due to increased expectations of a sharp interest rate cut in the US in September, ahead of Federal Reserve Chair Jerome Powell's speech at the US central bank's Jackson Hole Economic Symposium on Friday. The US Labor Department will release benchmark revisions to its employment data for the 12 months to March today. A significant downward revision, which is expected, could potentially accelerate the US rate cut timeline, dealers said.

"I don't think that any domestic traders will be buying at these levels. Foreign banks are buying as we are nearing towards the end of the month," a dealer at a state-owned bank said. "The (yield on 7.10%, 2034 bond) levels of 6.84%-6.85% are levels for PSUs (state-owned banks) to book profit, so it is a heavy resistance level."

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.

As a result, foreign clients are buying gilts ahead of the date when the weights increase, to sell to clients, dealers said. However, gains in the paper were soon capped as state-owned banks started selling their bonds at a profit, dealers said. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 76.25 bln rupees, against 60 bln rupees at 09300 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.82-6.87%. (Siddhi Chauhan)

India Gilts:Seen up on overnight fall in US yields; FOMC minutes eyed

MUMBAI – Prices of government bonds are seen opening higher tracking an overnight fall in US Treasury yields, dealers said. Traders will look forward to the release of the minutes of the US Federal Open Market Committee's July meeting, which are due after market hours, dealers said.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.82-6.87%, against 6.86% on Tuesday. In Asian trade today, the yield on the 10-year benchmark US Treasury note fell to 3.81% from 3.87% at the Indian market close on Tuesday. 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.

US yields fell as expectations of a sharp interest rate cut in the country, starting September, increased, ahead of Federal Reserve Chair Jerome Powell's speech at the US central bank's Jackson Hole Economic Symposium on Friday. Further, the US Labor Department will release benchmark revisions to its employment data for the 12 months to March today. A significant downward revision, which is expected, could potentially accelerate the US rate cut timeline, dealers said.

According to the CME FedWatch tool, Fed funds futures show a 34.5% chance of a 50-basis-point rate cut at the next Federal Open Market Committee's meet in September, against 24% the previous day. A 25-basis-point rate cut has been fully priced in since earlier this month. 

Traders are looking forward to the Federal Open Market Committee's meeting minutes, due at 2330 IST. However, it may not have a significant impact on the market as the comments would be dated. This is because the review was held before the July jobs data report was released by the US and stoked fears of a recession, dealers said. Some dealers were wary that comments from policymakers would disappoint the market, and nothing that Powell will say can accelerate the already steep 100 basis points of rate cuts in 2024 priced in by the US rate markets.

On the domestic front, traders look forward to the minutes of the Monetary Policy Committee's Aug 6-8 meeting, which will be released Thursday. Traders expect the demand for gilts from foreign banks to remain intact due to India's inclusion in the JP Morgan's emerging market index suite, a 10-month process that started on Jun 28. As per data from Clearing Corp of India, foreign banks have been on the buying side for three consecutive trading days. However, traders selling their bonds at a profit may limit gains, dealers said. (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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