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Informist, Thursday, Aug 29, 2024

By Aaryan Khanna

NEW DELHI – Government bond prices ended steady and trade volumes were dull due to a lack of significant cues. Traders were cautious ahead of the release of US GDP data for Apr-Jun and US weekly unemployment claims, both of which were scheduled after Indian market hours, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at 101.63 rupees, or 6.86% yield, against 101.66 rupees, or 6.86%, the previous day.

There have been no domestic triggers to reduce the uncertainty on when the Reserve Bank of India's Monetary Policy Committee will cut interest rates, dealers said. While major central banks including the US Federal Reserve seemed to be on the cusp of an interest rate cut cycle, central bankers in India did not seem close to rate cuts. Adding to the policy uncertainty was that the terms of the three external panel members are scheduled to come to an end before the next policy, including the two who had voted for rate cuts in August. The RBI's forecasts do not show a single quarter of sub-4% inflation until at least Apr-Jun 2025.

"You have to heed the governor when he's telling you he is not going to cut rates," a dealer at a primary dealership said. "US yields have also stopped rallying, so there's no direction to go. But a sell-off is not happening anytime soon, everyone is long (positive) on bonds."

On the global front, the yield on the 10-year US Treasury note was unchanged at 3.83% from the close of Indian market hours on Wednesday. While Brent crude prices for October delivery have been volatile, dealers said India's inflation dynamics are not likely to change significantly as long as the oil futures contracts stay between $75 and $85 a bbl.

US GDP growth in Apr-Jun was expected at 2.8%, unchanged from the previous quarter, and rose to 3.0% in data released after market hours. Instead of the broader growth, domestic traders were of the view that the weekly unemployment claims data would have a more significant impact on US interest rate expectations. Before the release of the data at 1800 IST, Fed funds futures showed about a 35% chance of a 50-basis-point rate cut at the next US Federal Open Market Committee meeting in September, with the remainder betting on a 25-bps rate cut.

This was the first labour data since US Federal Chair Jerome Powell had said on Friday that he does not welcome further weakening of the labour market, and that it would do everything to support a strong labour market. More unemployment claims would mean stronger chances of a higher rate cut in the US. Dow Jones estimated the initial jobless claims at 230,000 this week, and the final print was 231,000.

With no triggers to lend direction to bond prices, trading activity was also muted. The 10-year gilt traded in a less than 5 paisa range through the day. Investors' portfolios were already heavy with gilts, and incremental demand was poor in the absence of rate cues and with a weekly gilt auction coming up, dealers said. Private banks and primary dealers likely made room for the 10-year benchmark gilt at the debt sale on Friday, they said.

The government will sell 200 bln rupees of the 7.10%, 2034 bond and 100 bln rupees of the 7.09%, 2054 bond at auction on Friday. The large auction of the 10-year bond after a week of heavy supply of state government and corporate debt may not be met with enthusiastic demand, though the auction is likely to sail through, dealers said.

"The auction is going to be fine," a dealer at a private bank said. "But because it's the 10-year, and because it is 200 bln rupees, nobody is going to stick his neck out on a trading call and risk not getting to pick up the bond (on Friday)."

Most traders do not expect gilt prices to move significantly after the release of India's Apr-Jun GDP data, which will be released at 1730 IST on Friday. Dealers estimate the GDP growth print at around 6.5-6.9%, against the RBI's forecast of 7.1%. An Informist poll of 21 economists showed that India's GDP growth fell to a five-quarter low of 6.9% due to restrained government spending in the June quarter. On other hand, some dealers said any sign of economic momentum slowing down would add to the rate cut hopes in India.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 213.55 bln rupees, lower than 342.10 bln rupees on Wednesday. There were no trades settled using the wholesale digital rupee pilot today for the sixth straight day.

OUTLOOK

On Friday, gilt prices may open steady ahead of the 300-bln-rupee weekly gilt auction at 1030-1130 IST, dealers said. US growth and labour market data released after market hours today was on expected lines, and did not move the needle on US rate cut expectations. 

In the June quarter, the US GDP grew 3.0% against a forecast of 2.8% compiled by Dow Jones. Meanwhile, initial unemployment claims for the week ended Saturday were 231,000, against a consensus market expectation of 230,000. The figure was largely unchanged from the previous week as well.

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. The US Fed's preferred inflation gauge--the core personal consumption expenditures price index--for July is also due after market hours. 

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 make room for auction on Friday

MUMBAI–-1430 IST--Government bonds traded in a thin band ahead of key US economic data post market hours, with trade volumes also muted. Traders made room for a 300-bln-rupee weekly gilt auction on Friday, which weighed on gilt prices, dealers said. 

The RBI will auction 200 bln rupees of the benchmark 10-year 7.10%, 2034 bond, along with 100 bln rupees of the 30-year 7.09%, 2054 bond. The large auction of the 10-year bond after a week of heavy supply of state government and corporate debt may not be met with enthusiastic demand, though the auction is likely to sail through, dealers said. Traders placed short bets to buy bonds at the auction on Friday, which could be considered a pre-auction routine, they said.

Traders also kept a watchful eye on US economic data, such as the US unemployment insurance weekly claims and the US GDP print for Apr-June, which will be released at 1800 IST today. "The US Federal Reserve is more concerned about jobs right now, so our focus is more on the jobs data (than the GDP)," a dealer at a state-owned bank said.

Last week, Fed Chair Jerome Powell said the Fed does not welcome further weakening of the labour market, and that it would do everything to support a strong labour market. More unemployment claims would mean stronger chances of a higher rate cut in the US. Dow Jones estimates the initial jobless claims at 230,000 this week, little changed from 232,000 the prior week. Currently, the CME FedWatch tool shows Fed funds futures have priced in a 36.5% chance of a 50-basis point rate cut at the next US policy review in September. The remainder remained confident of only a 25-bps rate cut.

Traders do not expect gilt prices to move significantly after the release of India's Apr-Jun GDP data, which will be released at 1730 IST on Friday. Dealers estimate the GDP growth print at around 6.5-6.9%, against the RBI's forecast of 7.1%. "The market will only rally if GDP falls below market expectations, otherwise we expect the market to remain within the 6.85-6.95% yield range (on the 7.10%, 2034 bond)," a dealer at a private bank said. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 123.05 bln rupees, against 176.40 bln rupees at 1430 IST on Wednesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.85-6.88%. (Cassandra Carvalho)

India Gilts: Steady on lack of firm cues; mkt awaits US data points

MUMBAI--0956 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 aggressive bets on caution ahead of US GDP data for Apr-Jun and weekly unemployment claims data, they added. 

"The market will stay on these lines in the initial hours of trade. In the second half we might see positions keeping in mind tomorrow's (Friday) auction," a dealer at a state-owned bank said. "There is caution because we have US data due after market hours, I think unemployment data will be closely watched by traders". 

Last week, Federal Reserve Chair Jerome Powell said his focus was on not allowing any further labour market weakness. This view was further supported when Federal Reserve Bank of Atlanta President Raphael Bostic on Wednesday said that with inflation down further and the unemployment rate up more than he anticipated, it may be "time to move" on rate cuts, but he wants to be sure before going down that lane.

This caution will keep traders from placing large bets, and will reflect in dull volumes, dealers said. However, in the second half of the day, primary dealerships may place short bets ahead of the 300-bln-rupee gilt auction on Friday. Typically, primary dealerships place short-bets before auction which are later covered by them at the auction.

Private banks may sell their bonds in order to make room for the auction, dealers said. As per data from Clearing Corp of India, private banks have been the net sellers for two trading sessions. At the auction, the government will sell 200 bln rupees of the 7.10%, 2034 bond and 100 bln rupees of the 7.09%, 2054 gilt.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 11.80 bln rupees, against 30.95 bln rupees at 0930 IST on Wednesday. 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 ahead of US GDP, unemployment claims data

MUMBAI – Prices of government bonds are seen steady as traders may refrain from placing fresh bets on caution ahead of the release of US GDP data for Apr-Jun and weekly unemployment claims data, both due after market hours.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.88%, against 6.86% on Wednesday. During the day, primary dealerships may place short-bets ahead of the 300-bln-rupee gilt auction on Friday. At the auction, the government will sell 200 bln rupees of the 7.10%, 2034 bond and 100 bln rupees of the 7.09%, 2054 gilt.

A slight overnight rise in US Treasury yields may also weigh on gilts prices, dealers said. The yield on the 10-year benchmark US Treasury note rose to 3.84% today from 3.82% at the time the Indian market closed Wednesday. 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.

With the remainder of the week being data-heavy, traders may refrain from placing large bets, keeping trading volumes low, dealers said. The US GDP data for Apr-Jun and weekly unemployment claims data which are due today are important as they would indicate the strength of the US economy. 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.

The market participants are now looking ahead to the release of US personal consumption expenditures data, due on Friday, to get a better picture of the health of the world's largest economy. Federal Reserve officials use the PCE measure as their main baseline to gauge inflation.

If the data comes in lower-than-expected, it would make a stronger case for rate cuts in the world's largest economy. The markets have factored in a 25-basis-point rate cut at the Federal Open Market Committee's meeting in September. The CME Group's FedWatch tool currently sees a 65.5% chance of a 25-bps reduction and a 34.5% chance of a 50-bps cut.

On the domestic front, India's GDP data in Apr-Jun, is also due on Friday. 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. (Siddhi Chauhan) End

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

Edited by Akul Nishant Akhoury

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