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Informist, Monday, Aug 26, 2024

MUMBAI – Calculation of purchases and sales of government bonds by institutions as derived from Clearing Corp data is as follows:

* = Calculated according to percentage buy/sell. Minus (-) sign indicates net sell.

@ = For central government securities, including special bonds.

# = Others include Insurance companies, provident funds and the Reserve Bank of India.

Note: The daily net buy/sell amount is calculated by multiplying the total secondary market volume of government bonds by the net buy/sell percentage for each category. (Mansi Patil and Cassandra Carvalho)

India Gilts Review: Up; US ylds fall as Fed Powell signals rate cuts
 

NEW DELHI – Government bond prices ended higher today due to a fall in US Treasury yields following Federal Reserve Chair Jerome Powell's comments that it was time to ease interest rates, dealers said. The rise in gilt prices was capped as investors' purchases of the 10-year benchmark 7.10%, 2034 bond dried up below the key 6.85% mark for the fifth straight day.

The 10-year benchmark 7.10%, 2034 bond closed at 101.72 rupees, or 6.85% yield, against 101.67 rupees, or 6.86% yield, the previous day. The yield on the benchmark paper ended at a 29-month low today, the lowest since Mar 31, 2022.

Speaking at the Jackson Hole Economic Symposium on Friday, Powell signalled the central bank is poised to start cutting interest rates soon, citing that inflation is nearing the US Fed's 2% target. Though he did not detail the timeline and the quantum of rate cuts, he warned that further job market cooling would be unwelcome, suggesting a shift towards monetary policy easing. Since he did not use the word "gradually" when referring to interest rate cuts, traders interpreted this as opening the door for more aggressive rate cuts than the 25 basis points each that has been factored in for the Federal Open Market Committee meetings in September, November and December, dealers said. 

According to the CME FedWatch tool, Fed funds futures showed the odds of a 50-basis-point rate cut rose to 36.5% at the September policy review, from 24.0% a week ago. A rate cut of at least 25 bps in September has been fully priced in since early August.

The yield on the 10-year benchmark US Treasury yield fell to 3.81% at the end of Indian market hours from 3.86% on Friday. 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. Because the 10-year benchmark US yield did not fall below the crucial 3.78% mark, the impact on the domestic market was limited, dealers said.

The 7.10%, 2034 bond traded in a less than 4-paise band today despite moderate volumes. Traders did not get more clarity on India's interest rate trajectory, and were wary of placing fresh bets on the 10-year benchmark gilt under the key 6.85% yield level, dealers said. Since Tuesday, the yield on the 10-year bond has fallen below 6.85% intraday but has not been able to close below that mark as traders remain uncertain of whether India's Monetary Policy Committee would begin cutting the policy repo rate of 6.50% even in December.

"We are now at that level where every day we will be dropping to fresh lows (on the 10-year benchmark yield). It doesn't matter," a dealer at a primary dealership said. "The market still does not have a direction, and buying and selling activity is actually quite spread out because there is a lot of churn."

While the rate-sensitive two-year US Treasury note reacted more positively, gains in domestic gilts maturing in under five years were limited. Comments of Reserve Bank of India members on the Monetary Policy Committee, including Governor Shaktikanta Das, in the minutes of the August monetary policy meeting, suggest interest rate cuts may not come about until CPI inflation durably aligns with the central bank's 4% target.

India's headline CPI inflation will not average 4% or below for any quarter till Apr-Jun, according to the RBI's latest projections. The six-member panel is also due to get three new external members before the next meeting in October, adding to the policy uncertainty on the domestic front, dealers said. Until there is more clarity on rate cuts in India, investor interest in buying the 10-year bond below 6.85% was limited, dealers said. Traders were also booking very limited profit, as they did not want to carry their bets overnight, dealers said.

"It is not a trader's market, everyone is quiet," a dealer at a private bank said. "Where there is 10 paise to be made, a state-owned bank will come and collect it here. There's no profit margin anymore."

Banks preferred the seven-year benchmark 7.02%, 2031 bond over the 10-year gilt on the view that it will be quicker to react to the rate view while also having some capital gains, dealers said. The 2031 bond was the fourth-most traded gilt today, while the old 10-year benchmark 7.18%, 2033 bond was the second-most traded gilt. Dealers said foreign banks picked up the 2033 bond for their own portfolios as well as for demand from offshore clients. The bond had 11 bln rupees worth of trades on the "Reported Deals" segment of the Negotiated Dealing System-Order Matching platform, topping the list by volume.

Meanwhile, the 40-year benchmark 7.34%, 2064 gilt fell a day after its auction on Friday, likely due to sales by long-term investors ahead of a higher-than-expected supply of state bonds this week. An RBI release after market hours on Friday showed 14 states would raise 362.50 bln rupees through bonds on Tuesday, against 294.00 bln rupees scheduled in the indicative calendar for Jul-Sep. This is scheduled to be the largest state bond auction in the current financial year that began April.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 474.55 bln rupees, higher than 358.35 bln rupees on Friday. There were no trades settled using the wholesale digital rupee pilot today for the third straight day. 

OUTLOOK

On Tuesday, gilt prices may open steady after a series of cues on interest rates failed to lend cues on the rate trajectory, dealers said. Demand for long-term bonds may be limited as states are scheduled to raise 362.50 bln rupees through bonds on Tuesday, the largest such sale since March.

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.

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.  (Aaryan Khanna)

India Gilts: Remain up; rate view uncertainty in India caps gains

MUMBAI–-1440 IST--Prices of government bonds remained up after US Federal Reserve Chair Jerome Powell said the time had come to cut interest rates in the world's largest economy, dealers said. Gains were capped as traders were not convinced this would lead to quicker rate cuts in India.

At the Jackson Hole Economic Symposium on Friday, Powell said the upside risks to inflation had diminished while downside risks to employment had increased. Dealers also said Powell's not using the word "gradual" when talking about rate cuts was significant. Powell's comments opened the door for more aggressive rate cuts than the 25 basis points each that has been factored in for the Federal Open Market Committee meetings in September, November and December, dealers said. 

Others said the reaction in US yields was lacklustre. The 10-year benchmark US Treasury note yield was 3.78% against 3.86% at 1700 IST on Friday. According to the CME FedWatch tool, Fed funds futures showed the odds of a 50-basis-point rate cut rose to 36.5% at the September policy review, from 24.0% a week ago.

"US (Treasury) yields didn't give that much reaction (to Powell's speech)," a dealer at a private bank said. "Had the yield (of the 10-year benchmark) touched the 3.70% level, the Indian gilt market would've shown a greater reaction."

While the rate-sensitive two-year US Treasury note reacted more positively, gains in domestic gilts maturing in under five years were also limited. Comments of the Reserve Bank of India members of the Monetary Policy Committee, including Governor Shaktikanta Das, in the minutes of the August monetary policy meeting, suggest interest rate cuts may not come about until CPI inflation durably aligns with the central bank's 4% target, which was not imminent. The six-member panel is also due to get three new external members before the next meeting in October, adding to the policy uncertainty on the domestic front, dealers said.

Private and foreign banks likely bought gilts, while state-owned banks sold their bonds at a profit, dealers said. The 10-year benchmark bond has not fallen convincingly below the 6.85% mark as there was no certainty on the rate cut, even in December, they said. The yield on the 10-year bond has fallen below 6.85% intraday since Tuesday but has not been able to close below that mark.

Foreign portfolio investors' purchases were more routine than robust, and foreign banks were likely buying for their proprietary portfolios, noting the fall in US yields, dealers said. According to Clearing Corp of India data, FPIs have bought only 41.19 bln rupees worth of bonds under the fully accessible route, which has no limits on foreign investment. Indian government bonds gain 1% weightage on the JP Morgan Government Bond Index –Emerging Market suite every month – the weight reached 3% on Friday – and will reach a maximum weight of 10% by March.

"Foreign banks have reduced their buying in the past week, but they continue to buy in small amounts due to the JP Morgan Government Bond Index inclusion," a dealer at another private bank said. 

Traders are now awaiting US data such as the release of the Apr-Jun GDP due on Thursday and the Personal Consumption Expenditures Price Index due on Friday, before the next FOMC meeting. A negative surprise in domestic growth may also bring forward rate cuts in India, dealers said. India's Apr-Jun GDP data is due after market hours on Friday.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 304.60 bln rupees, against 186.35 bln rupees at 1430 IST on Friday.  (Cassandra Carvalho and Aaryan Khanna)

India Gilts: Up; traders selling bonds at profit limits gains

MUMBAI--1011 IST—-Prices of government bonds were up tracking a fall in US Treasury yields after Federal Reserve Chair Jerome Powell's speech cemented bets of rate cuts in the US, dealers said. However, the rise in prices was limited as traders sold their bonds at a profit, dealers said. 

"The market opened higher because of a fall in US yields, but the prices (gains) are capped at this level because there seems to be some profit booking," a dealer at a state-owned bank said. "Buying momentum has balanced this movement and has kept the prices trading in the same range." 

The yield on the 10-year US Treasury note fell to 3.79% from 3.86% at the Indian market close on Friday. US yields fell as Powell signalled the central bank is poised to start cutting interest rates soon, citing that inflation is nearing the Fed's 2% target.

According to data from the CME FedWatch tool, the odds of the Fed cutting rates by 50 basis points at its September meeting have increased to 38.5% from 24% a week ago. Meanwhile, the remaining 61.5% of Fed fund futures traders expect the Fed to cut rates by 25 basis points at its next meeting.

Foreign banks were buying bonds on behalf of their foreign clients, heading towards the end of the month, dealers said.  As per data from Clearing Corp of India, foreign banks were seen on the buying side for seven straight days. 

Indian government bonds gain 1% weightage on the JP Morgan Government Bond Index – Emerging Market suite every month, started 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. 

However, gains in the 7.10%, 2034 bond were capped as state-owned banks likely sold their bonds at a profit, dealers said.  As a result, in initial trading hours, the market expects prices on the 7.10%, 2034 bond to trade in a thin range. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 66.20 bln rupees, against 23.95 bln rupees at 0930 IST on Friday. 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 up tracking US ylds fall post Fed Powell's comments

MUMBAI – Prices of government bonds are seen opening higher, tracking a fall in US Treasury yields after US Federal Reserve Chair Jerome Powell's speech at the Jackson Hole Economic Symposium, which signalled Fed rate cuts.

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

At the Jackson Hole symposium, Powell signalled the central bank is poised to start cutting interest rates soon, citing that inflation is nearing the US Fed's 2% target. Though he did not detail the timeline and the quantum of rate cuts, he warned that further job market cooling would be unwelcome, suggesting a shift towards monetary policy easing.

"The time has come for policy to adjust," Powell said. "The direction of travel is clear, and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

According to data from CME FedWatch tool, 61.5% of Fed fund futures traders expect the Fed to cut rates by 25 basis points in its September meeting, while the remaining 38.5% traders expect them to cut rates by 50 bps.

In Asian trade today, the yield on the 10-year US Treasury note fell to 3.79% from 3.86% at the Indian market close on Friday. 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.

Back home, foreign portfolio investors may continue buying bonds 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, the rise in prices may be limited as state-owned banks may sell bonds at a profit, dealers said. (Siddhi Chauhan)

End

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

Filed by Aaryan Khanna

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