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Informist, Monday, Sep 9, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended steady as the keenly awaited US non-farm payrolls data for August failed to provide direction on the quantum and pace of rate cuts in the US. Traders also await fresh cues that could influence India's rate cut trajectory, including changing the policy stance of the domestic Monetary Policy Committee, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at 101.70 rupees, or 6.85% yield, flat against Friday's close. During the day, the 10-year bond moved in a thin band, which has been the case for the last two weeks.

Traders have fully priced in a 25-basis-point rate cut by the US Federal Open Market Committee at its policy review next week, with outlier 25% odds of a 50 bps rate cut, according to the CME FedWatch tool. Domestic market participants have relatively conservative bets on the US rate trajectory in gilts, dealers said. Jobs data released Friday showed that while the labour market was certainly slowing down, there didn't seem to be reason to panic for the US rate-setting panel. 

US non-farm payrolls increased by 142,000 in August, lower than the forecast of 160,000 additions by economists in a Reuters poll. However, the unemployment rate came down to 4.2% in August from 4.3% a month before, and average hourly earnings rose 0.4%, more than expected. The mixed data had little impact on US Treasury yields, and gilt dealers disregarded it as they lacked cues on domestic interest rates.

The biggest trigger that would cause significant movement in the gilts market would be if rate cut expectations in India were to be brought forward, dealers said. Currently, the most optimistic view is of a 25 bps rate cut in Oct-Dec, with traders split on whether the domestic rate-setting panel would soften its "withdrawal of accommodation" stance in October.

"People want some surprise", a trader at a primary dealership said. "Only if the MPC shows some change of stance, will we see the yield of the benchmark 10-year bond going below the 6.85% level." Since June 2022, the MPC has kept its stance unchanged at "withdrawal of accommodation".

With the US jobs data out of the way, inflation readings for August scheduled this week are closely watched as the next interest rate trigger, dealers said. The US CPI is due post-market hours on Wednesday, while India's CPI data is due post-market hours on Thursday. According to an Informist poll, India's CPI inflation is seen at 3.6% in August, the second consecutive month it would have stayed below the Reserve Bank of India's target of 4%. A softer-than-expected reading would improve the chances of a stance change by the MPC, dealers said. 

Foreign portfolio investors have been consistent with their investment in India's gilts ahead of the imminent rate cut in the US, dealers said. They consider risk assets such as India's bonds a favourite destination due to positive demand-supply dynamics amid India's inclusion on the global bond indices of JP Morgan and Bloomberg. 

"For foreign investors, it is the US monetary policy and supply and demand in the Indian gilt market which directs their purchasing decisions," a dealer at a private bank said. The impact of these purchases has been significant amid dull trade volumes, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 239.25 bln rupees, against 443.20 bln rupees on Friday. Two trades worth 100 mln rupees were settled using the wholesale digital rupee pilot today, against six trades worth 300 mln rupees settled via this method the previous day.

OUTLOOK

On Tuesday, gilt prices may open steady due to caution ahead of the US and India CPI readings later this week, dealers said. Traders will take cues from the data for signs of the quantum of the rate cut in the US, and the possibility of a policy stance change in India.

Foreign fund inflows are likely to continue due to the inclusion in the JP Morgan index. There is also firm demand expected from domestic banks, which will have to maintain larger buffers of liquid assets, such as government securities, due to an impending tightening of the guidelines on liquidity coverage ratio.

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; no certainty on US Sep rate cut size

MUMBAI--1350 IST–-Government bond prices remained in a thin band with muted volumes. The impact of US non-farm payroll data on the US rate view was not conclusive, and traders did not feel the need to drastically change their bets after the data, dealers said.

Until further developments on the interest rate front, gilt prices are unlikely to be volatile, dealers said. Foreign banks likely bought gilts, while state-owned banks were on the selling side, they said.

US non-farm payrolls data, released post-market on Friday, was keenly awaited by domestic and international investors through last week. US job growth in August was slower than anticipated, but the unemployment rate eased to 4.2% from 4.3% in July. While it brought down expectations of a 50-basis-point US rate cut in September, those expectations still stood at 31%, according to the CME FedWatch tool. Now, the focus shifts to the US CPI inflation print, considered the last major data point ahead of the US Federal Open Market Committee meet next week.

"The labour data was seen as more important than inflation, but it was not conclusive," a dealer at a foreign bank said. "Now, we'll have to look towards US CPI data on whether we can get a better gauge of 25- or 50-bps rate cut. Otherwise, the market is not going anywhere."

US CPI data for August is due after Indian market hours on Wednesday, while India's CPI data release is scheduled for Thursday. Domestic traders have largely expected the FOMC to cut rates by only 25 bps this month, and they were not aggressive in their bets ahead of either the US jobs or inflation data, dealers said.

India's headline CPI inflation is expected to remain below the Reserve Bank of India's 4% medium-term target in August, dealers said. Analysts and traders largely expect a 25-bps rate cut by the central bank's Monetary Policy Committee in Oct-Dec, a view that hinges on inflation remaining in line with the target.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 119.00 bln rupees, against 198.00 bln rupees at 1330 IST on Friday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.87%. (Srijita Bose)

India Gilts: Steady on lack of firm domestic cues; US yld rise weighs

MUMBAI--1025 IST--Prices of government bonds were steady due to a lack of significant domestic cues, dealers said. A rise in US Treasury yields weighed on gilt prices, they added. 

The yield on the 10-year benchmark US Treasury note rose to 3.74% today from 3.70% at the time the Indian market closed Friday. US yields rose after August's non-farm payrolls data was seen not making the case for a deep interest rate cut in September. 

Fed funds futures showed a 31% chance of a 50-basis-point rate cut at the US monetary policy review next week, down from a peak of nearly half on Friday, according to the CME FedWatch tool.

Traders who had bet on an aggressive US rate cut may be trimming their holdings. Offshore cues have been the main driver of domestic gilt prices due to a lack of triggers back home, dealers said.

Clearing Corp of India showed foreign banks were top net buyers in the secondary market over the last three sessions. They were likely buying today as well, dealers said.

"Now that the data is out, many traders who had placed positions with respect to the data are buying now," a dealer at a state-owned bank said. "However, these purchases won't be enough to move the market as we would see some profit booking."

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 40.55 bln rupees, against 40.65 bln rupees at 1030 IST on Friday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.87%. (Siddhi Chauhan)

India Gilts: Seen steady on lack of significant domestic triggers

MUMBAI – Prices of government bonds are seen opening steady on lack of firm cues, dealers said. However, a rise in US Treasury yields may weigh on gilts prices, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.87%, against 6.85% on Friday. Traders may refrain from placing large bets on the absence of significant cues on the domestic front, dealers said. 

In the absence of any significant triggers, traders may eye the movement of US yields throughout the day, dealers said. Yield on the 10-year benchmark US Treasury note rose to 3.74% today from 3.70% 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 yields rose after the release of highly anticipated non-farm payrolls data for August. Non-farm payrolls increased 142,000 in August, lower than the forecast of 160,000 additions by economists in a Reuters poll. The unemployment rate, however, came down to 4.2% last month from 4.3% a month before, as expected. Data for July was also revised lower to show the number of jobs rose 89,000 against the previously reported figure of 114,000 jobs. June's figure was also revised lower by 61,000 to 118,000 jobs.

After the release of the key jobs data, the odds of a 50 basis point rate cut at the Federal Open Market Committee's September meeting was 31%, according to the CME FedWatch tool. The majority saw a more moderate 25-bps rate cut.  (Siddhi Chauhan)

End

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

Edited by Saji George Titus

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