More Stories

Informist, Thursday, Aug 22, 2024

By Aaryan Khanna

NEW DELHI – Government bond prices ended off highs as US Treasury yields inched up in the second half of the day, after Purchasing Managers' Index readings in Europe were higher than expected. Traders were also cautious before the release of the minutes of the Aug 6-8 meeting of the Reserve Bank of India's Monetary Policy Committee, dealers said. 

The 10-year benchmark 7.10%, 2034 bond closed at 101.72 rupees, or 6.85% yield, against 101.68 rupees, or 6.86% yield on Wednesday. The benchmark yield ended at its lowest level since Mar 31, 2022.

The eurozone composite and services purchasing managers' indices were all over 50, suggesting an expansion in economic activity. The UK PMI readings on manufacturing and services were higher than expected. The data softened hopes of rate cuts by the Bank of England and the European Central Bank, which were expected to cut interest rates more sharply than the US Federal Reserve due to a quicker deterioration in growth.

"There's not any demand from investors, or state-owned banks, as the (7.10%, 2034) bond rose beyond 101.76 (rupees)," a dealer at a primary dealership said. "So that is a bit difficult to break, and people are happy to trade the range just looking at the global movement."

The yield on the 10-year US Treasury note rose to 3.83% by the end of Indian market hours today from 3.81% at 0900 IST. 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.

Closer home, traders were not comfortable placing large bets ahead of the minutes of the MPC, which were released after market hours today. The minutes are not likely to lend the market a direction on when the RBI's rate-setting panel would begin to cut rates. A trigger on short-term interest rates is only likely to come only if and when there is more surety on the US rate trajectory, dealers said. Short-term bonds remained out of favour with traders for the fourth straight day, amid thin trade.

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. Earlier this week, RBI Governor Shaktikanta Das re-iterated his Arjuna's eye on inflation, which suggested that the rate-setting panel would not cut rates until at least December, dealers said.

Bond prices had risen earlier as traders purchased bonds as the Federal Open Market Committee's minutes did not dampen rate cut expectations. Some private banks had trimmed their holdings at the end of trade on Tuesday ahead of the release, and picked up bonds aggressively in the first half of the day after the market opened largely steady, dealers said. 

Minutes of the FOMC's Jul 30-31 meeting showed several members were ready to cut rates in September, even before July jobs data showed unemployment spiking to a near three-year high. This was seen as a positive signal by domestic traders that the US market's pricing in fully of a September rate cut was not running ahead of US Fed officials, dealers said.

Foreign banks are likely to have continued their buying spree this week due to the interest rate differential between US Treasury yields and Indian government bond yields that had opened up in August. Foreign investors have also routed their gilt purchases during India's inclusion on JP Morgan's emerging market bond index, largely through foreign banks. The spread between the two 10-year benchmark bonds has risen about 15 basis points in August alone. Traders also bought gilts ahead of US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium and weekly unemployment claims data in the US, dealers said.

Historically, the meeting in Wyoming has signalled major pivots in US monetary policy, dealers said. Traders await Powell's words on a possible rate cut at the Fed's upcoming meeting in September. Dealers are hoping for a 50-bps rate cut, against past expectation of 25 bps, especially after revised US non-farm payroll data on Wednesday showed a further fall in employment. The CME FedWatch tool shows 28.5% of Fed fund futures traders expecting a 50-bps rate cut in September, 

"We are going to be much more influenced by Powell's speech than any of the other interest rate commentary this week," a dealer at a state-owned said. "That is going to be the most forward-looking speech, so we are not really going to be doing much trading activity before that."

After rising to a high of 101.79 rupees from a spurt in private banks' purchases early in the day, some dealers said the market activity today should be considered a recovery from the previous day's late downward move in prices. Bond prices were in the green throughout Wednesday before turning slightly negative in the last five minutes of trade, prompted by private bank sales and short sales by primary dealerships. Those short sales continued ahead of the 230-bln-rupee weekly bond auction on Friday, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 644.25 bln rupees, lower than 524.65 bln rupees on Wednesday. There were no trades settled using the wholesale digital rupee pilot today, against six trades worth 300 mln rupees the previous day.

OUTLOOK

On Friday, gilt prices may open steady ahead of the 230-bln-rupee weekly gilt auction, dealers said. At the auction, the government will sell 120 bln rupees of the 7.04%, 2029 bond and 110 bln rupees of the 7.34%, 2064 gilt at 1030-1130 IST on Friday. The auction is likely to sail through, dealers said.

Minutes of the MPC's Aug 6-8 meeting were on expected lines and were a repeat of the policy tone's focus on bringing inflation down to the central bank's 4% target, dealers said. RBI members of the panel, including Deputy Governor Michael Patra, said that growth remained robust. External members including Ashima Goyal and Jayanth Varma said that India was not meeting its potential growth due to overtight monetary policy. The market's reactions to the external members' comments would be limited as all three members are at the end of their terms, dealers said.

Foreign fund inflows are likely to continue 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.

Traders also look forward to US Fed Chair Powell's speech at the Jackson Hole Economic Symposium, scheduled at 1900 IST on Friday. 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: Off highs as US yields rise after Europe PMI beats view

MUMBAI--1630 IST--Government bond prices were off their highs as US Treasury yields inched up following stronger-than-expected Purchasing Managers' Index data in Europe. The reaction was felt most in bond yields across the continent, which then impacted bond yields globally, dealers said.

The eurozone composite and services purchasing managers' indices were in expansionary territory and beat estimates, while the UK readings on manufacturing and services were higher than expected. Both readings pushed back rate-cut expectations in the respective economies. The impact on India's fixed income market came as offshore traders paid fixed rates in the overnight indexed swaps market, dealers said.

"There is a bit of a risk-off in the global environment that is translating to gilts," a dealer at a private bank said. "It may be short-lived, but people are still quite fearful of this soft rate narrative turning on the global front."

The yield on the 10-year US Treasury note rose to 3.83% from 3.81% at 0900 IST. Domestic gilt prices remained higher, which some dealers termed as simply a recovery from a sell-off in the closing minutes of Wednesday's trade. Private banks had trimmed their bond holdings before the minutes of the US Federal Open Market Committee, while primary dealers had been placing short bets, leading bonds to give up all the gains they had maintained for a majority of Wednesday's trade.

"I don't think markets are up today, they have just recovered from the sharp fall we saw yesterday at closing," a dealer at a primary dealership said.

Foreign banks were also keen to buy due to the interest rate differential between US Treasury yields and Indian government bond yields that had opened up over the past month. The spread between the two 10-year benchmark bonds has risen about 15 basis points in August alone. Traders also bought gilts ahead of US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole symposium and weekly unemployment claims data in the US, dealers said.

Historically, the meeting in Wyoming has signalled major pivots in US monetary policy, dealers said. Traders await Powell's words on a possible rate cut at the Fed's upcoming meeting in September. Dealers are hoping for a 50 bps rate cut against the past expectation of 25 bps, especially after revised US non-farm payroll data on Wednesday showed a further fall in employment. The CME FedWatch tool shows 30.5% of Fed fund futures expecting a 50 bps cut in September. The minutes of the FOMC meeting, released Wednesday, also raised anticipation of a Fed rate cut.

"After the flat opening at 101.70 rupees, (the 10-year benchmark 7.10%, 2034 bond) has been rising since the FOMC minutes did not have any unexpected hawkish surprises, and lends a positive approach to rate cuts," a dealer at a state-owned bank said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover at 1635 IST was 589.25 bln rupees, against 419.50 bln rupees on Wednesday.  (Srijita Bose and Cassandra Carvalho)

India Gilts: In thin band; market cautious ahead of RBI MPC meet minutes

MUMBAI--1120 IST—-Prices of government bonds traded in a narrow band as traders avoided placing aggressive bets ahead of minutes of the Reserve Bank of India's Monetary Policy Committee's meeting held from Aug 6-8, due at 1700 IST, dealers said. 

"Even though nothing new is expected out of the MPC minutes, traders will still remain on the sidelines," a dealer at a private bank said. "Also there are not much cues in the market to trade on. US yields are also on the same levels, traders are now waiting for Powell's comments." In its recent meeting, the MPC held the repo rate unchanged at 6.50% the policy stance at "withdrawal of accommodation" with a 4-2 vote.

While bonds are expected to trade in a thin band today, some buying from foreign banks on behalf of their foreign clients may lift gilt prices in the later half of the day, dealers said. However, a sharp rise in prices is unlikely, given that some state-owned banks may seize the opportunity to sell at a profit, dealers said. 

Primary dealerships may place short bets ahead of the 230-bln-rupees gilt auction on Friday to manage their exposure. At the auction, the government will sell 7.04%, 2029 bond worth 120 bln rupees, and 7.34%, 2064 bond worth 110 bln rupees. 

After the release of Federal Open Market Committee's minutes and revision of US non-farm payroll data, traders have turned their focus towards Federal Reserve Chair Jerome Powell's comments at the Jackson Hole conference on Friday. His comments hold importance as they may give some indication about the pace of rate cuts in the world's largest economy in coming months.

Powell may take into account revised labour market data released on Wednesday wherein the US non-farm payroll growth was revised downward. 

The Federal Open Market Committee's minutes which were released on Wednesday failed to lend significant cues. The FOMC minutes showed several members were ready to cut rates in September, even before July jobs data showed unemployment spiking to a near-three-year high. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 123.75 bln rupees, against 127.30 bln rupees at 09300 IST on Wednesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.87%.  (Siddhi Chauhan)

India Gilts: Seen steady on caution ahead of RBI's MPC meet minutes

MUMBAI – Prices of government bonds are seen opening steady on caution ahead of the minutes of the Reserve Bank of India's Monetary Policy Committee meeting which was held on Aug 6-8, due at 1700 IST. However, buying from foreign banks may aid gilt prices at the opening, dealers said, 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.87%, against 6.86% on Wednesday. 

On the domestic front, traders look forward to the minutes of the Monetary Policy Committee's Aug 6-8 meeting. The MPC held the repo rate unchanged at 6.50% and held the policy stance at "withdrawal of accommodation" with a 4-2 vote. Focus will be on the three external members--Ashima Goyal, Jayanth Varma and Shashanka Bhide--whose terms end before the next MPC meet in October, dealers said.

The Federal Open Market Committee's minutes held on Jul 30-31 and which were released on Wednesday failed to lend significant cues. The FOMC minutes showed several members were ready to cut rates in September, even before July jobs data showed unemployment spiking to a near three-year high.

Federal Reserve Chair Jerome Powell at the Jackson Hole conference in Wyoming is expected to further cement the view that US may see rate cuts in the coming meeting. Powell may take into account revised labour market data released on Wednesday wherein the US non-farn payroll growth was revised downward

The US Labor Department on Wednesday released its preliminary data, which showed US non-farm payroll growth being revised down by 818,000 jobs per year or 68,000 jobs per month for the period from April 2023 to March 2024. This revision was the steepest preliminary downward revision since the global financial crisis. This suggests that the expected softening in the labour market could be greater than assumed. 

Following this, the odds of a rate cut in September in the world's largest economy is factored in. The question that prevails is by how much. According to data from CME FedWatch tool, 65.5% Fed fund future traders expect a 25-basis-point rate cut while 34.5% fed fund traders expect the Fed to cut rates by 50 bps in September meeting. 

During the day, 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. Meanwhile, primary dealership may continue placing short bets ahead of the 230-bln rupees gilt auction on Friday.  (Siddhi Chauhan)

End

Edited by Saji George Titus and Avishek Dutta

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.