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Informist, Wednesday, Aug 28, 2024

By Aaryan Khanna

NEW DELHI – Government bond prices ended steady today due to lack of significant domestic cues. Traders looked ahead to key economic data scheduled for release in India and the US later this week, and avoided large bets for the second straight day, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at 101.66 rupees, or 6.86% yield, against 101.65 rupees, or 6.86%, the previous day.

India's GDP data for Apr-Jun is scheduled for release at 1730 IST on Friday. Traders have a mixed view on whether it would be significant for the trajectory of India's interest rates. Bond prices have traded in a narrow band over the past two weeks due to lack of clarity on domestic rate cuts, dealers said. While a print on expected lines is not likely to be conducive for interest rate cuts, a lower-than-expected print could cement hopes of a 25-basis-point repo rate cut to 6.25% in December, dealers said.

India's GDP growth is likely to have moderated to a five-quarter low of 6.9% in Apr-Jun, mainly because of a slowdown in government spending due to the general election, according to the median of estimates of 21 economists polled by Informist. The Reserve Bank of India trimmed its projection for Apr-Jun GDP growth by 10 bps to 7.1%. A reading close to 6.5% may make the central bank rethink its policy stance and begin cutting rates, in a U-turn from its current commentary, dealers said.

"If GDP data starts turning bad, we may be able to finally see some of the RBI members also realise that the policy rate is too high," a dealer at a private bank said. "As long as growth is good, the RBI can continue holding rates, waiting for the CPI (inflation) to drop to 4%, eventually."

US core personal consumption expenditures price index data for July is due for release on Friday. The data, which is the US Federal Reserve's preferred inflation gauge, may be considered slightly outdated, and is likely to show only a gradual decline in inflation, dealers said. US Federal Reserve Chair Jerome Powell had already signalled his confidence in inflation returning to the US central bank's 2% target.

Instead, it would be weekly jobless claims data due Thursday and the non-farm payrolls addition in August that are to be released on Sep 6, that could decide the course on whether the US Federal Open Market Committee would cut rates by 25 bps or 50 bps at its next meeting in September. Last week, Powell said his focus was on not allowing any further labour market weakness. The US unemployment rate rose to a near-three-year-high of 4.3% in July.

According to the CME FedWatch tool, a 25 bps rate cut in September is fully priced in with a 34.5% chance of a 50 bps rate cut. These expectations may get a further boost with the release of US GDP data for Apr-Jun on Thursday. Although, barring a significant surprise from the consensus view of 2.8% annual growth, US Treasury yields may not react much ahead of the jobs and inflation data, dealers said.

"It's all data-based at this point, so we are watching for any sign of more US weakness that could allow the Fed to cut by 50 bps (in September)," a dealer at a foreign bank said.

Amid the wait-and-watch mood in the market, primary dealers and private banks likely placed short bets on the 7.10%, 2034 gilt in the secondary market, hoping to pick up the gilt at a discount at the debt sale. The government will sell 300 bln rupees of two bonds, including 200 bln rupees of the 2034 gilt, on Friday.

Private banks may have trimmed their bond holdings as the overnight indexed swap rates inched up in the five-year segment during the day, but that selling pressure was brief. Mutual funds likely picked up Treasury bills at the auction today but trimmed their holdings of dated securities, dealers said. State-owned banks may have picked up bonds as prices hit the day's low, particularly after the narrow range that bond prices have been over the last two weeks, they said.

"After a point, it gets frustrating to wait, wait, wait for a level to enter," a dealer at another private bank said. "PSU banks are buying both in state bonds and in government securities, and are the best equipped to play this 10-paise price band (on the 7.10%, 2034 bond)."

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 342.10 bln rupees, marginally higher than 330.00 bln rupees on Tuesday. There were no trades settled using the wholesale digital rupee pilot today for the fifth straight day.

OUTLOOK

On Thursday, gilt prices may open steady due to lack of significant triggers, dealers said. Traders may be cautious ahead of US GDP data for Apr-Jun and weekly unemployment claims data, both due after market hours.

India's GDP numbers on Friday may hold significance if they surprise on the downside, making the case for quicker rate cuts, dealers said. RBI officials on the Monetary Policy Committee, including Governor Shaktikanta Das, have so far shied away from terming growth anything other than strong.

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: In thin band, traders await fresh cues from econ data

MUMBAI--1400 IST-–Prices of government bonds moved in a thin band due to lack of firm cues, traders said. Volumes remained low as traders refrained from placing large bets ahead of key economic data, including GDP for India and weekly jobless claims and GDP data for the US later this week.

According to an Informist poll, India's GDP growth likely slowed to a five-quarter low of 6.9% in Apr-Jun from 7.8% the previous quarter. The data is scheduled to be released at 1730 IST on Friday.

"The market is waiting for cues, and I don't think there will be any break in levels today," a dealer at a private bank said. "We are looking forward to India's GDP now. If the print (for Apr-Jun quarter) is lower than 6.5%, there could be some corrections in the market."

On the other hand, some traders considered US jobs and inflation data more important as interest rate cues. Jobs data, including weekly jobless claims on Thursday and the non-farm payrolls data on Sep 6, are seen as key determinants of whether the US Federal Open Market Committee will cut rates by 25 basis points or 50 bps at its next meeting in September.

Last week, US Federal Reserve Chair Jerome Powell said his focus was on not allowing any further labour market weakness. The US unemployment rate rose to a near-three-year-high of 4.3% in July. According to the CME FedWatch tool, a 25 bps rate cut in September is fully priced in with a 36% chance of a 50 bps rate cut.

While gilts were a tad higher in early trade, the 7.10%, 2034 bond fell to the day's low of 101.62 rupees as some foreign banks paid fixed rates, leading to a rise in the five-year overnight indexed swap rate. Primary dealers and private banks also sold the 10-year bond ahead of the weekly gilt auction on Friday as they expect to pick up the bond at a discount at the debt sale, dealers said. The government will sell 300 bln rupees of two bonds, including 200 bln rupees of the 2034 gilt, on Friday.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 152.35 bln rupees, against 132.30 bln rupees at 1330 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.88%. (Srijita Bose)

India Gilts: Steady on lack of prominent cues; volume to remain low 

MUMBAI--1011 IST—-Prices of government bonds were steady on lack of significant cues both on the domestic and global fronts, dealers said. Traders refrained from placing large bets, keeping trading volumes dull, they added. 

"The market is expected to stay at these levels because there are no cues to trade on, volumes will also remain low," a dealer at a state-owned bank said. "If at all prices fall, keeping today's activity in mind, 6.86% (yield on the 7.10%, 2034 bond) will be a decent level for PSUs (state-owned banks) to buy."

Throughout the day, traders are expected to remain on the sidelines due to a data-heavy week, dealers said. The US GDP data is scheduled for release after Indian market hours on Thursday, while the core personal consumption expenditure inflation data, the US Federal Reserve's preferred inflation gauge, for July is scheduled for Friday.

"US GDP data and PCE inflation data is something that will be closely watched," a dealer at another state-owned bank said. "But I don't think it would make much of a difference because the market has already priced in 25-basis-point rate cuts after (Federal Reserve Chair Jerome) Powell's speech, and everything is accounted for." 

According to data from the CME FedWatch Tool, 65.5% of Fed fund futures traders expect a 25-basis-point rate cut at the Federal Open Market Committee's September policy meeting, while the remaining have factored in a 50-bps rate cut.

India's GDP data for Apr-Jun, due Friday, will also be closely watched as it could make the case for rate cuts in India, dealers said. India's GDP growth is likely to have moderated to a five-quarter low of 6.9% in Apr-Jun mainly because of a slowdown in government spending due to the General Election, according to the median of estimates of 21 economists polled by Informist. 

Even if the print falls below the Reserve Bank of India's 7.1% forecast, it may not be significant for rates as the slowdown in growth could be due to muted government spending amid the General Election rather than economic weakness, dealers said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 30.95 bln rupees, against 33.25 bln rupees at 1030 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.88%. (Siddhi Chauhan)

India Gilts:Seen steady on lack of firm global and domestic cues

MUMBAI – Prices of government bonds are seen steady on lack of firm domestic and global cues, dealers said. A slight overnight fall in US Treasury yields may aid gilt prices, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.88%, against 6.86% on Tuesday. 

Traders now look forward to the next domestic cue, which is India's GDP data in Apr-Jun, due Thursday. India's GDP growth is likely to have moderated to a five-quarter low of 6.9% in Apr-Jun, mainly because of a slowdown in government spending due to the general election, according to the median of estimates of 21 economists polled by Informist. A fall in growth numbers, which has been seen as robust by members of the Reserve Bank of India's Monetary Policy Committee, may make the case for quicker rate cuts in India, dealers said.

The Reserve Bank of India earlier this month lowered its GDP growth forecast for Apr-Jun by 10 basis points to 7.1%, citing lower-than-expected general government expenditure and corporate profitability.

In the absence of any significant cues on the domestic front, traders will keep a close watch on the movement in US yields, dealers said. In Asian trade today, the yield on the 10-year US Treasury note fell to 3.83% from 3.85% 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.

On the global front, traders will look forward to the US growth and inflation data for cues on interest rates. The US GDP data is scheduled for release after Indian market hours on Thursday, while core personal consumption expenditure inflation, the US Federal Reserve's preferred inflation gauge, for July is scheduled for Friday. (Siddhi Chauhan)

End

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

Edited by Ashish Shirke

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