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Informist, Tuesday, Sep 3, 2024

By Srijita Bose and Aaryan Khanna

MUMBAI/NEW DELHI – Government bond prices ended slightly higher as some traders covered their short bets placed earlier in the day near the close of trade, dealers said. Traders remained cautious and refrained from placing large bets ahead of US economic data after market hours.

The 10-year benchmark 7.10%, 2034 bond closed at 101.58 rupees, or 6.87% yield, against 101.55 rupees, or 6.88% yield, on Monday. 

Traders are looking forward to fresh economic data in the US ahead of a crucial Federal Open Market Committee rate decision on Sep 18, where the rate-setting panel is unanimously expected to cut interest rates after over a year of holding them, dealers said. US manufacturing purchasing managers' index data is due for release today.

"The market is now building momentum for the upcoming US non-farm payrolls data later in the week," a dealer at a primary dealership said. "Today's PMI data will provide an incremental view on what the Federal Reserve will be looking at while reviewing the policy rate." The US NFP data will be released on Friday at 1800 IST. 

Private banks and primary dealerships likely covered their short bets before the data, dealers said. A slight fall in US Treasury yields also helped keep gilts afloat. The yield on the 10-year benchmark US Treasury note fell to a low of 3.90% intraday from 3.93% earlier.

According to the CME FedWatch tool, Fed funds futures show a 31% chance of a 50-basis-point rate cut at the September FOMC meet, with the majority betting on a 25-basis-point rate cut. A slowdown in the growth momentum or labour market may induce quicker rate cuts, dealers said.

For the majority of the day, bond prices were little changed and traded in a thin band. Volumes were also low as the market lacked fresh triggers on bond prices. State-owned banks had picked up gilts in the first half of the day while traders had placed short bets, and were likely on the selling side by the end of the day, dealers said.

Long-term bonds rose the most today due to firm investor demand, dealers said. The yield on the 7.34%, 2064 bond--due for auction this week--fell over 1 basis point as traders are likely to have covered short bets and life insurers picked up the bond. Some dealers speculated that Life Insurance Corp of India would enter the bond forward-rate agreement market this month, after India's largest life insurer said it would enter the market soon.

Demand for state bonds at the 205.50 bln rupee auction was in line with expectations, and did not have an impact on most on-the-run gilts, dealers said. Some traders said the demand for long-term bonds seemed robust, another reason for gilts maturing in 30-50 years outperforming the rest of the market.

However, positive demand-supply dynamics have been largely factored in. The appetite of life insurers is only going to go up in the second half of the financial year ending March, which is likely to keep demand firm for long-term securities, dealers said. The only way prices would move sharply would be a fresh signal on domestic interest rates, they said. While the impact of demand for long-term bonds percolated to the gilts maturing above 10 years, short-term bonds--those maturing below five years--ended steady amid muted trade volumes.

"All of the good news is priced in, bad news is not really coming, so there's nothing a trader can do," a dealer at a private bank said. "The only thing that will move the market from here is how rate cuts will pan out, in terms of quantum and timing."

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 317.00 bln rupees, higher than 260.95 bln rupees on Monday. Four trades worth 200 mln rupees were settled using the wholesale digital rupee pilot today, against two trades worth 100 mln rupees the previous day.

OUTLOOK

On Wednesday, gilt prices may open higher after PMI data released after market hours suggested the world's largest economy was weakening quicker than anticipated, dealers said. This raised hopes that the US FOMC would cut rates aggressively.

US S&P Manufacturing PMI printed at 47.9 in August, against a flash print of 48.0 and a final reading of 49.6 in July. The Institute of Supply Management's report on business manufacturing PMI printed at 47.2, against 47.9 expected in a Dow Jones poll. A reading above 50 denotes expansion in activity, while a print below 50 indicates contraction.

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: Tad up; investors stock up on long-term bonds

MUMBAI-–1615 IST--Prices of government bonds rose slightly due to a spurt of buying in long-term gilts, likely by insurance firms, dealers said. Bonds maturing in over 10 years rose slightly due to the impact of the purchases, amid lack of other cues.

The yield on the 7.34%, 2064 bond – due for auction this week – fell over 1 basis point as traders are likely to have covered short bets and investors picked the bond. Some dealers speculated that Life Insurance Corp of India would enter the bond forward-rate agreement market this month, after India's largest life insurer said it would enter the market soon.

"Trader stock might have got over, and that pressure has faded," a dealer at a private bank said. "There has been some investor demand for the long-term paper through the day, while there are reported deals for the 10-year bond." In the reported deals segment of the Negotiated Dealing System – Order Matching platform, the 7.10%, 2034 bond saw 14.75 bln rupees worth of trade, which traders speculated were purchases from foreign portfolio investors.

Demand for state bonds at the 205.50 bln rupee auction was in line with expectations, and did not have an impact on most on-the-run gilts, dealers said. Some traders said the demand for long-term bonds seemed robust, another reason for gilts maturing in 30-50 years outperforming the rest of the market. State-owned banks are likely to have bought gilts, while private banks may have been selling or short-selling gilts, dealers said. Some banks considered the current price level on the 7.10%, 2034 gilt lucrative.

Traders were also adjusting their portfolios ahead of the US purchasing managers' index release, due after market hours, though the reading may not have a big impact on US rate cut expectations, dealers said. According to the CME FedWatch tool, 69% of Fed fund futures traders have priced in a 25-basis-point interest rate cut by the US Federal Open Market Committee, while the remaining 31% have priced in a 50-bps cut.

"We could see some of the short-sellers squaring off before the end of trade, because people will not go into data with heavy positions, that too data you don't really have a good understanding of," a dealer at a foreign bank said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 221.95 bln rupees, against 191.40 bln rupees at 1530 IST on Monday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.85-6.89%. (Cassandra Carvalho and Aaryan Khanna)

India Gilts: In thin band, traders await US econ data

MUMBAI--1230 IST-–Prices of government bonds remained in a thin band as the market awaited results of the weekly state bond auction, dealers said. Treaders also looked forward to key data on the US economy, scheduled to be released post Indian market hours, for further cues on trading. 

"The 7.10%, 2034 bond should be mostly range-bound (within 6.84-6.88% yield) today, but after absorbing large chunks in the state bond auction, the market could fall a bit in the later hours," a dealer at the state-owned bank said. 

Eleven states are looking to raise 205.53 bln rupees, which is lower than the 275.00 bln rupees indicated in the state borrowing calendar for Jul-Sep. The cut-off yield on states' 10-year state government securities scheduled for auction today is seen in the range of 7.22-7.23%, according to the median of estimates of 15 bond dealers polled by Informist. The auction would have wide participation from domestic banks and pension funds, dealers said.

Prices are likely to remain in a narrow range and the market was in a wait-and-watch mode ahead of the key US data points during the week, dealers said. This would lend cues to gauge whether the US Federal Open Market Committee will opt for a 25-basis-point rate cut or a 50-basis-point one at its meeting this month, dealers said. 

The US Purchasing Managers' Index readings, from both ISM and S&P Global, are due after market hours. The US will also publish its non-farm payrolls data on Friday, which could provide cues on the US rate-cut view. Currently, the CME Fedwatch tool shows that 69% of Fed fund futures are factoring in a 25-bps rate cut, while the remainder are predicting a 50-bps cut on Sep 18.

An intraday movement in US Treasury yields after the European market opened led to volumes ticking up from the previous day, and private banks and primary dealers were closely tracking the offshore cue, dealers said. Other than that, lack of direction for gilts kept volumes muted. 

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 110.55 bln rupees, against 98.60 bln rupees at 1230 IST on Monday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.86-6.90%. (Srijita Bose)

India Gilts: Little changed on lack of firm global, domestic cues 

MUMBAI--1015 IST--Prices of government bonds were steady due to a dearth of significant cues both on global and domestic fronts, dealers said. Buying from banks at lucrative yield levels aided gilt prices, dealers said. 

"There are no cues in the market, we are seeing some support due to buying from state-owned banks," a dealer at a primary dealership said. "Since the market has become range bound, they are also playing according to it, they buy at 6.88-6.90% (yield at 7.10%, 2034 bond) zone and sell at 6.84-6.85% zone."

As per data from CCIL, state-owned banks bought 41.47 bln rupees on Monday, the top net buyers. They were likely on the buying side in thin early trade today as well, as they considered current price levels lucrative, dealers said. 

Traders refrained from placing aggressive bets ahead of US purchasing managers index readings post market hours, dealers said. These data points are key to gauging whether the US Federal Open Market Committee will cut rates by 25 or 50 basis points at its Sep 18 rate decision.

The ISM report on business manufacturing purchasing managers' index is forecast to come in at 47.9 in August after coming in at 46.8 the month before, as per a Dow Jones estimate. These data points are important as they would lend cues on the path to the interest rate trajectory of the world's largest economy. 
 

US Treasury yields also failed to lend significant cues to the market as they were little changed from the previous close. US markets were shut on Monday on account of Labor Day. A significant intraday movement in yield on the 10-year benchmark US Treasury note may lend cues to the market in the latter half of the day, dealers said. 
 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 30.35 bln rupees, against 57.00 bln rupees at 0930 IST on Monday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.85-6.89%. (Siddhi Chauhan)

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

MUMBAI – Prices of government bonds are seen opening steady on the lack of cues both on the global and domestic fronts. Lack of cues will also keep trading volumes dull, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.85-6.89%, against 6.88% on Monday. 

Inflows from foreign banks and investors 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.

On the global front, there was an absence of global cues as US markets were shut on Monday on account of Labor Day. However, the markets will keep an eye on the intraday movement of US Treasury yields, dealers said. 

With no major cues on the domestic front, traders will turn their focus towards the US rate trajectory as it may lend direction to domestic interest rates as well, dealers said. 

Market participants also await the release of the US manufacturing purchasing managers' index, due later today. Further, the ISM report on business manufacturing purchasing managers' index, also due today, is forecast to come in at 47.9 in August after coming in at 46.8 the month before, as per a Dow Jones estimate. (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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