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Informist, Monday, Sep 2, 2024

By Aaryan Khanna

NEW DELHI – Government bond prices ended lower due to a rise in US Treasury yields. Investors' demand in the secondary market had weakened after absorbing a massive supply of bonds, both from the Centre and states, last week, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at 101.55 rupees, or 6.88% yield, against 101.63 rupees, or 6.86% yield, on Friday. 

The yield on the 10-year benchmark US Treasury note rose to 3.91% today from 3.86% at the time the Indian market closed Friday. The US market is shut today. 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.

Traders expected a muted reaction to the rise in US yields, which played out in the initial hour of trade as the fall in prices was meagre and sellers found pockets of demand in thin trade. The impact of a lower-than-expected India GDP print also spurred demand, on the hope that India's rate-setting panel may move up interest rate cuts. However, as the day went on, the demand for bonds faded despite trade volumes not picking up through the day.

"The demand is robust at the auction," a dealer at a primary dealership said. "Yields are not going anywhere in a hurry, but then incrementally, when appetite is filled and people target the auction, there is bound to be weakness somewhere else."

The market has shifted attention to key US data points, dealers said. US PMI data will be released on Tuesday at 1915 IST, while US non-farm payrolls data will be released on Friday at 1800 IST. Fading expectations of a rate cut of more than 25 basis points at the upcoming US Federal Open Market Committee later this month is likely to drive US yields up further, dealers said. According to the CME FedWatch tool, Fed funds futures show only a 31% chance of a 50-bps US rate cut in September.

On the domestic front, India's Apr-Jun GDP growth slowed to a five-quarter low of 6.7%, against the median of 6.9% in an Informist poll and well below the RBI's projection of 7.1% growth. RBI officials on the Monetary Policy Committee, including Governor Shaktikanta Das, have so far shied away from terming growth anything other than "strong". Media reports quoted Das as saying that the RBI was still confident of India's growth meeting the central bank's forecast of 7.2% in 2024-25 (Apr-Mar) due to a pickup in government spending and a strong monsoon in the rest of the year.

One sluggish dataset on GDP growth would not severely impact the Monetary Policy Committee's decision on interest rates, dealers said. Das has continually stressed the need for headline CPI inflation to align to the RBI's 4% target on a durable basis, before cutting rates, which is not projected until Apr-Jun 2025.
 

The slowdown in GDP may focus the discussion on a growth sacrifice due to tight monetary policy, but has not changed the interest rate view. The one-year overnight indexed swap rate, a proxy for near-term interest rate expectations, rose by 2 basis points to 6.51% today. The five-year OIS rate ended 4 basis points at 6.12%.

Traders said domestic rate cuts would not be priced in into gilt prices more aggressively until RBI officials suggested they were closer to rate cuts. Because of the tone of policymakers, the 10-year gilt was not finding too many buyers under 6.85% yield after dipping below that mark last week. Now, state-owned banks may pick up the bond when the benchmark yield tops 6.89%, dealers said.

"It is not unusual to go from two weeks of not a lot of movement to some buying fatigue from traders," a dealer at a mutual fund said. "US data is going to be very important for gauging how FOMC will go on Sep 18, but otherwise there's nothing to move the market."

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 260.95 bln rupees, lower than 356.65 bln rupees on Friday. Two trades worth 100 mln rupees settled using the wholesale digital rupee pilot today, after seven days of no trades.

OUTLOOK

On Tuesday, gilt prices may open steady ahead of key economic data in the US later this week, amid a lack of domestic cues. The US rate trajectory is closely watched as it may lend direction to domestic interest rates as well, dealers said.

The US Fed's preferred inflation gauge--the core personal consumption expenditures price index--for July rose 0.2% on month, in line with market expectations, and did not have a sizeable impact on the US rate view, 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.

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: Down as GDP effect wears off, traders await US data

India Gilts: Down as GDP effect wears off, traders await US data

MUMBAI--1400 IST--Prices of government bonds were down, tracking a rise in US Treasury yields. The gilt market's positive sentiment post lower-than-expected India Apr-Jun GDP figures led to the price of the 10-year benchmark bond opening steady, but the effect is wearing off, dealers said.

Traders do not expect the price of the 10-year benchmark 7.10%, 2034 bond to fall further as purchases from state-owned banks are expected to pick up if the yield tops 6.88%. Appetite from such institutions was muted in the first half after they picked up the bond at the auction on Friday, dealers said.

One sluggish dataset on GDP growth would not severely impact the Monetary Policy Committee's decision on interest rates, dealers said. India's Apr-Jun GDP number of 6.7% was lower than the Reserve Bank of India's forecast of 7.1% and has helped focus the discussion on a growth sacrifice due to tight monetary policy, but has not changed the interest rate view. Moreover, the one-year overnight indexed swap rate inched up, while the five-year OIS rate was up 4 basis points at 6.12%.

"Currently, domestic markets are seeing (price) movements only because of demand and supply," a dealer at a state-owned bank said. "Demand is high in India because of... insurance companies (securing their inflows) and the (proposed) liquidity coverage ratio guidelines requiring banks to increase the size of their investment portfolios," the dealer said. Domestic banks have to maintain larger buffers of liquid assets such as government securities due to the proposed RBI norms.

The market will now shift its attention to key US data points, traders said. "We only expect US yields to rise because of strong US data (which allayed fears of US recession), which is why we're waiting for US Manufacturing Purchasing Managers' Index, jobs and sales data," a dealer at another state-owned bank said. US PMI data will be released on Tuesday at 1915 IST and US non-farm payrolls data will be released on Friday at 1800 IST.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 144.35 bln rupees, against 133.10 bln rupees at 1330 IST on Friday. (Cassandra Carvalho)

India Gilts: Tad down as US yields rise; upbeat domestic view limits fall

MUMBAI--1024 IST--Prices of government bonds were marginally down, tracking a rise in US Treasury yields. The fall in prices was limited as traders were upbeat on the domestic rate view and demand exceeding bond supply, dealers said.

"The market is down because we are tracking US yields, but this momentum will soon fade away because US markets are shut today," a dealer at a private bank said. "This will also be reflected on the day's trading volume." The yield on the 10-year benchmark US Treasury note rose to 3.91% today from 3.86% at the time the Indian market closed Friday.

US markets are shut today on account of Labor Day. Despite a 5 basis point rise in US yields, the fall in prices was limited, dealers said.

On the domestic front, India's GDP print for the June quarter was less than the consensus 6.9% estimate in the market, but did not increase the bets of rate cuts in India. However, it may shift the Reserve Bank of India's tone on growth, dealers said. Some traders also expect this could bring down the central bank's forecast of 7.2% GDP growth in 2024-25 (Apr-Mar).

India GDP growth slowed to a five-quarter low of 6.7% in Apr-Jun, well short of the Reserve Bank of India's 7.1% forecast. RBI officials on the Monetary Policy Committee, including Governor Shaktikanta Das, have so far shied away from terming growth anything other than "strong".

"Yes, the US yields did rise from the previous close, but the undercurrents back home are also quite positive," a dealer at a state-owned bank said. "India's GDP data was well below the RBI's forecast and also the state auction size was also lower than expected, I don't expect market to move from here."

On Friday, the RBI said 11 states will raise 205.53 bln rupees through bonds on Tuesday, lower than the 275 bln rupees indicated for this week. Last week, states borrowed 362.50 bln rupees through bonds, the most so far in the current financial year.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 56.70 bln rupees, against 40.70 bln rupees at 1030 IST on Friday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.82-6.88%. (Siddhi Chauhan)

India Gilts: Seen down tracking rise in US Treasury yields

MUMBAI – Prices of government bonds are seen opening down tracking a rise in US Treasury yields. The fall in prices is expected to be limited as the domestic GDP data for the June quarter was lower than anticipated, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.82-6.88%, against 6.86% on Friday.

Meanwhile, the yield on the 10-year benchmark US Treasury note rose to 3.91% today from 3.86% at the time the Indian market closed Friday. 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.

US inflation data, particularly the core PCE, which excludes food and energy, showed a 2.6% annual increase, slightly below expectations. This data is critical for the Fed as it assesses long-term inflation trends. The continued strength in consumer spending, despite a drop in the personal savings rate to 2.9%, further supported the case for a modest rate cut.

According to the CME FedWatch tool, the chances of a sharp 50-basis-point cut in US rates this month fell to 31% from 34%. Fed funds futures continued to reflect at least a 25-bps rate cut at the US Federal Open Market Committee meeting.

During the day, the market expects the effect of a rise in US yields to be offset by the positive sentiment around the domestic front, dealers said. India GDP data, which was released on Friday, was lower than expected. 
 

India's GDP slowed to 6.7% in Apr-Jun, lower than the median estimate of 6.9% in an Informist poll, and well short of the RBI's own 7.1% forecast. RBI officials on the Monetary Policy Committee, including Governor Shaktikanta Das, have so far shied away from terming growth anything other than "strong".

Media reports quoted Das as saying that the RBI was still confident of India's growth meeting the central bank's forecast of 7.2% in 2024-25 (Apr-Mar) due to a pickup in government spending and a strong monsoon. (Siddhi Chauhan)

End

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

Edited by Aditya Sakorkar

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