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Informist, Tuesday, Aug 27, 2024

By Aaryan Khanna

NEW DELHI – Government bond prices fell towards the end of trade due to an intraday rise in US Treasury yields, dealers said. For most of the day, bond prices had traded in a narrow band due to lack of significant cues.

The 10-year benchmark 7.10%, 2034 bond closed at 101.65 rupees, or 6.86% yield, against 101.72 rupees, or 6.85%, the previous day. The yield on the benchmark paper ended at the highest level in over a week.

"If you look at the price action, there was no strength in the market at all today," a dealer at a primary dealership said. "Finally, the rise in US yields pushed it into an actual negative, and at the time nobody was buying."

The yield on the 10-year benchmark US Treasury note rose to 3.85% at the end of Indian market hours today, from 3.81% at 0900 IST, ahead of a heavy week of sales of US Treasury debt. Moreover, traders pared bets on a 50-basis-point interest rate cut by the US Federal Open Market Committee in September despite Federal Reserve Chair Jerome Powell saying it was time to cut interest rates. 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.

According to the CME FedWatch tool, Fed funds futures showed only a 28.5% chance of a 50-bps rate cut, with at least a 25-bps rate cut fully priced in. A further impetus to US Treasury yields, and greater rate cut hopes in India, would only happen with a 50-bps rate cut in the US, dealers said. While Powell left the pace of rate cuts to incoming economic data, dealers were of the view that recent US data on labour and inflation does not signal a recession is imminent. Foreign banks likely sold gilts in the domestic market today, dealers said. There were net sellers for the first time in nine sessions on Monday, according to Clearing Corp of India data.

"It is a matter of whether the US cuts by 25 or 50 (basis points)," a dealer at a private bank said. "If Powell goes for a 25-bps rate cut, he can pat himself on the back on getting the economy out with a soft landing. So it looks like a modest pace of rate cuts, which will have an impact on our markets and rate cycle as well."

Meanwhile, the appetite of many sections of the bond market was satisfied by the state bond auction earlier today, which led to limited interest for gilts in the secondary market despite the fall in prices, dealers said.

The Reserve Bank of India auctioned 362.50 bln rupees of bonds for 14 states today, the biggest such sale so far in 2024-25 (Apr-Mar). The central bank set the cut-off yields on 10-year state bonds in the range of 7.20-7.23%. A poll by Informist expected the cut-off yields to be in the range of 7.21-7.23%. With this, the spread on state 10-year bonds over the 10-year benchmark gilt yield has increased to 34-37 basis points from 33 bps in the previous week.

While the state bonds were firmly bid by life insurers, particularly for bonds maturing above 15 years, such large auctions of state bonds may weigh on gilt prices if they become routine before Oct-Mar, dealers said. States typically borrow more in the second half of the financial year. State-owned banks and private banks also likely picked up bonds maturing below 15 years, they said. Primary dealers were likely sellers before and after the auction, dealers said.

The state bond auction did not have a direct impact on gilt prices, as the result was on expected lines, dealers said. It also showed investor appetite for bonds was robust due to a supply-demand mismatch likely in the current financial year, despite lack of clarity on rate cuts. Corporate bond issuances worth at least 155 bln rupees are also scheduled this week.

"We could see some selling from real-money investors like mutual funds or insurers if such supply of spread instruments continues," a dealer at a state-owned bank said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 330.00 bln rupees, lower than 474.55 bln rupees on Monday. There were no trades settled using the wholesale digital rupee pilot today for the fourth straight day.

OUTLOOK

On Wednesday, gilt prices may open steady due to lack of significant triggers, dealers said. Traders look ahead to US growth and inflation data, as well as India's GDP numbers on Friday, for cues on interest rates.

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 6.83-6.89% during the day.

India Gilts: Fall tracking intraday rise in US yields

MUMBAI--1640 IST--Prices of government bonds fell due to an intraday rise in US Treasury yields. The offshore cue pushed up trade volumes in the domestic market, dealers said.

The yield on the 10-year benchmark US Treasury note rose to 3.85%, from 3.81% at 0900 IST. Purchases from private and state-owned banks were dull despite the fall in gilt prices as these participants had fulfilled their appetite at the state bond auction, dealers said. Primary dealers also sold bonds after picking up larger volumes at the state bond auction.

Fourteen states raised 362.50 bln rupees through the auction earlier, which was the largest so far in 2024-25 (Apr-Mar). The longer-tenure bonds saw firm demand from insurers, while banks picked up the bonds maturing in around 10 years.

The volume on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 310.00 bln rupees, against 409.20 bln rupees at 1630 IST on Monday. During the rest of the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.84-6.87%

(Srijita Bose)

India Gilts: In thin band; state bond auction spreads increase

MUMBAI--1415 IST—-Prices of government bonds were in a thin band due to a lack of significant cues. The result of the largest state bond auction so far in 2024-25 (Apr-Mar) also did not lend significant cues to the gilt market, dealers said.

The RBI auctioned 362.50 worth of bonds for 14 states today. The central bank set the cut-off yields on 10-year bonds in a range of 7.20-7.23%, as against 7.21-7.23% seen in an Informist poll. With this, the spread on state 10-year bonds over the 10-year benchmark gilt yield has increased to 34-37 basis points from 33 bps in the previous week.

While the state bonds were firmly bid by life insurers, particularly for bonds maturing above 15 years, such large auctions of state bonds may weigh on gilt prices if they become a routine before Oct-Mar, dealers said. States typically borrow more in the second half of the financial year. State-owned banks and private banks also likely picked up bonds maturing below 15 years, they said.

"If we see auctions as large as today's (auction) more frequently, it will become a cue for the market", a dealer at a state-owned bank said. According to the indicative calendar, states are set to raise between 125.40 bln rupees and 283.36 bln rupees per week in the remaining four weeks of September. The central bank will release the indicative calendar for state borrowing in Oct-Dec at the end of September. 

Foreign banks and primary dealerships were likely short sellers on the 2034 bond before the auction, dealers said. However, the 7.10%, 2034 bond traded in a narrow 4-paisa band, repeating the lack of volatility seen on Monday. Unlike the previous day, volumes were dull due to the lack of cues.

US Treasury yields inched up after the European market opened at 1230 IST, but not enough to weigh significantly on domestic bond prices. Traders are also avoiding large bets ahead of key data such as India and US GDP and US weekly unemployment claims numbers later this week, dealers said. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 170.75 bln rupees, against 298.00 bln rupees at 1430 IST on Monday. During the rest of the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.87%. (Cassandra Carvalho)

India Gilts: Steady on lack of firm cues; mkt awaits state bond sale

MUMBAI--1030 IST—-Prices of government bonds were steady on lack of firm global cues, dealers said. Traders await the result of the state government securities auction for which bidding is scheduled at 1030-1130 IST.

"There are literally no cues in the market right now for us to trade. The US yields have moved hardly by 1 basis point, what should we trade on?" a dealer at a state-owned bank said. "But probably some private banks are selling ahead of the (state bond) auction." 

The yield on the 10-year benchmark US Treasury note was little changed from 3.81% at the time the Indian market closed on Monday. Even though the rise in US yields was marginal, some dealers speculated that foreign banks sold their bonds. Foreign banks were net sellers on Monday after eight trading sessions of being net buyers. State-owned banks were likely on the sidelines as current prices are not lucrative either on the buy or sell side, dealers said.

Some private banks were seen selling their bonds at a profit in order to lighten their positions and make room for the state bond auction, dealers said. They did so as these bonds offered better yields than the 10-year benchmark bond. Spreads of state bonds over gilts are likely to widen as the supply of state bonds at today's auction is the largest so far in the financial year started April.

At the state government security auction today, the government will raise 362.50 bln rupees through bonds, against 294.00 bln rupees scheduled for this week in the indicative calendar for Jul-Sep. Of the total amount raised by states, around 316 bln rupees will be raised by bonds maturing above 10 years. The demand at the auction is seen firm as long-term investors may try to lock in the yields on those bonds, dealers said. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 58.15 bln rupees, against 11.40 bln rupees at 1030 IST on Monday. 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 lack of firm cues; state bond auction eyed

Prices of government bonds are seen steady on lack of firm global cues, dealers said. Traders look forward to the state-government securities auction scheduled for 1030-1130 IST. 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.87%, against 6.85% on Monday. 

At the state government security auction today, the government will raise 362.50 bln rupees through bonds, which is the largest sale of state-government securities since March.

Out of the total amount raised by states, around 316 bln rupees will be raised by bonds maturing above 10 years. As a result, the demand for long-term bonds in the secondary market may be limited as long-term investors may deploy their funds at the auction. 

On the global front, the yields on the 10-year benchmark US Treasury note were little changed from the previous day, thereby lending no cues to the market in the initial hours, dealers said. 

Traders now await key data in the US for a clear picture of rate cuts in the world's largest economy. US personal consumption and core inflation data are due on Friday. According to the CME FedWatch Tool, Fed fund future traders are putting the chance of a 25-basis-point rate cut at 71.5%, and the chance of a 50 bps reduction at 28.5%. (Siddhi Chauhan)

End

Edited by Ashish Shirke

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