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Informist, Tuesday, Sep 10, 2024

By Srijita Bose

MUMBAI - Government bond prices ended steady today ahead of the US CPI inflation data due after market hours on Wednesday, which traders said could provide a fresh view on the likely interest rate cut at the Federal Open Market Committee policy decision on Sep 18.

The 10-year benchmark 7.10%, 2034 bond closed at 101.72 rupees, or 6.85% yield, against 101.70 rupees, or 6.85% on Monday. During the day, the bond moved in a thin band, which has been the case for the last two weeks.

"The market was in more of a wait-and-watch mode as the CPI data will be crucial in telling how deep the rate cuts in the US will be," a dealer at a private bank said.

Traders said that incremental data points such as the CPI will be crucial for traders to adjust and bet on the extent of rate cuts in the September review. Currently, CME FedWatch tool shows that Fed fund futures reflect a 73% probability of a 25 basis point rate cut and 27% probability of a 50 bps cut. Dealers said the domestic market currently factors in a 25-bps rate cut in the US next week.

During the day, foreign investors picked up the 10-year benchmark as they bet on a softer-than-expected US CPI data print for August, dealers said. Dealers also said that the spread between the 10-year benchmark gilt and the 10-year US Treasury note is attractive for foreign portfolio investors, as it has widened 20 bps since Aug 1. Foreign investors also bought gilts as part of India's ongoing inclusion in JP Morgan's Government Bond Index – Emerging Market suite, dealers said.

While foreign banks were likely buyers, state-owned banks likely sold gilts at a profit, dealers said. Trade volumes were low and the 7.10%, 2034 bond's price moved in less than a 3-paisa band.

In addition to the US CPI data, traders are also looking forward to the India CPI data due to be released post market hours on Thursday. Traders said that the India CPI data, though not equally important as the US CPI print, could lend cues on rate cuts in India if the print is lower than expected. 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%.

While the traded volume of the 10-year benchmark bond and the longer tenure gilts remained muted, the volume of shorter-tenure bonds such as the 7.06%, 2028 and 7.26%, 2029 picked up. Some traders bet that the Reserve Bank of India's Monetary Policy Committee would soften its policy stance at its next meeting in October, dealers said. Private banks and mutual funds were likely buyers of the short-term gilts. There was also a shift in interest away from long-term gilts, dealers said. This pattern was also evident in the lower-than-expected demand for the 40-year bond at the auction last week along with the lower-than-estimated yield cutoff of the five-year state bond at today's auction, dealers said. 

"As is usual in a rate cut cycle, short-term bonds could be more in favour for traders," a dealer at a primary dealership said.

India's monetary policy softening may be quicker than expected as the economy is likely to suffer from the impact of a global growth slowdown, and is likely to miss the RBI's projection of 7.2% GDP growth in 2024-25 (Apr-Mar), dealers said. India's GDP grew 6.7% in Apr-Jun, lower than the central bank's forecast of 7.1%.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 326.15 bln rupees at 1700 IST, sharply higher than 235.95 bln rupees at close of market on Monday.

OUTLOOK

On Wednesday, gilt prices may open steady due to caution ahead of the US CPI data at 1800 IST, dealers said. Traders also await India CPI data on Thursday. Traders will take cues from the data for signs of the quantum of the likely rate cut in the US, and the possibility of a change in policy stance in India. 

Foreign fund inflows are likely to continue due to the inclusion in the JP Morgan Index, 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 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 6.83-6.87% during the day.

India Gilts: In thin band as mkt awaits US CPI data for Aug on Wed

MUMBAI—1600 IST-–Government bond prices continued to move in a thin band as traders remained cautious ahead of the US CPI data, due after market hours on Wednesday. Trade volume of shorter tenure bonds rose as traders bet that the Reserve Bank of India's Monetary Policy Committee would soften its policy stance at its next meeting in October.

"The market is currently positioning itself on Wednesday's US CPI data," a trader at a primary dealership said. "Though the US jobs data on Friday reduced chances of a 50 basis point rate cut in September, the market is keenly watching these incremental data points to get further cues."

Dealers said that the spread between the 10-year benchmark 7.10%, 2034 gilt and the 10-year US Treasury note was attractive for foreign portfolio investors. The spread, at 314 bps at 1600 IST, has this month risen to levels last seen on Feb 1. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors. In addition to active investors, passive investment was likely to continue as well due to India's ongoing inclusion in JP Morgan's Government Bond Index – Emerging Market suite, dealers said.

Volumes on the 7.06%, 2028 and 7.26%, 2029 gilts rose on the view that the MPC could consider changing its "withdrawal of accommodation" stance at the next policy review, dealers said. Private banks and mutual funds were likely buyers of the short-term gilts. There was also a shift in interest away from long-term gilts, as evidenced by slightly lower-than-expected demand from investors for the 40-year bond at auction last week, dealers said.

India's monetary policy softening may be quicker than expected as the economy is likely to suffer from the impact of a global growth slowdown, and is likely to miss the RBI's projection of 7.2% GDP growth in 2024-25 (Apr-Mar), dealers said. China's CPI print for the month of August was 0.6%, while Japan's GDP growth for Apr-Jun 2024 was 2.9% on year. In Apr-Jun, India's GDP grew 6.7%, lower than the central bank's 7.1% forecast.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 257.75 bln rupees at 1530 IST, sharply higher than 171.85 bln rupees around the same time Monday. 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: In thin band ahead of CPI data releases; volumes rise

MUMBAI--1315 IST--Prices of government bonds were in a thin band as traders await the release of US CPI data due after market hours on Wednesday and India CPI data due after market hours on Thursday, dealers said.

Traders look forward to the US CPI data as it may give some hint about the likely quantum of rate cut by the Federal Open Market Committee at its upcoming meeting on Sep 17-18. Last week, jobs data figures did not offer a clear perspective on the quantum of the rate cut. US CPI data will have to be significantly lower than the forecast for the Fed to opt for a 50-basis-point cut rather than a 25-bps cut that is currently expected. At 1315 IST, the CME FedWatch tool showed that Fed fund futures reflected a 73% probability of a 25 bps rate cut, and 27% probability of a 50 bps cut. 

On the domestic front, traders await India's CPI data for cues on domestic interest rates. "The Reserve Bank of India has already attributed the current inflation rates to higher base effect, so it will only cut interest rates if it sees any sign of weakening," a dealer at a private bank said.

Foreign banks were likely buyers while state-owned banks were likely sellers in the market today, dealers said. Dealers also expect medium-term papers to gain favour as a recent fall in yields on long-term papers has made the latter relatively less attractive. "The yield on the 7.34%, 2064 bond has touched 7%, which makes it expensive for traders," a dealer at another private bank said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 187.70 bln rupees at 1230 IST, sharply higher than 86.85 bln rupees around the same time Monday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.83-6.87%. (Cassandra Carvalho)

India Gilts: Steady on caution ahead of US, India CPI data for Aug

MUMBAI--1041 IST--Prices of government bonds were steady on caution ahead of inflation data releases from the US as well as India, dealers said. Early gains were capped as state-owned banks sold bonds at a profit, dealers said.

Bonds traded on a positive note due to a slight fall in US Treasury yields. The yield on the 10-year benchmark US Treasury note fell to 3.71% today from 3.75% at the time the Indian market closed Monday. 

"The market had opened slightly higher, but soon gains were capped because of profit booking from state-owned banks," a dealer at a private bank said. "I don't see the prices moving from here because we have CPI data both for India and US." 

Traders expect prices to remain in a thin band due to a lack of major triggers in the market. As a result, traders are now looking forward to the release of India CPI data for August due 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%. However, many traders don't expect the domestic inflation print to have a major impact on the market as the fall in inflation for August is attributed to a higher base effect, dealers said.

"If only the domestic CPI print falls below 3.6%, I see it having an impact on the market, otherwise everything has been factored in," a dealer at a state-owned bank said. "We will give more importance to the US CPI data because it gives a better clarity about rate cuts in US."

If the domestic inflation data is lower than the market expectation of 3.6%, the yield on the 7.10%, 2034 bond may fall below the crucial level of 6.85%, dealers said. A softer-than-expected reading would improve the chances of a stance change by the Monetary Policy Committee, dealers said. 

The US CPI data for August is due post-market hours on Wednesday. The headline Consumer Price Index in the US is expected to rise 0.2% on month in August, unchanged from the month before, as per a poll by Reuters. On a yearly basis, inflation is seen rising 2.6% last month, down from a 2.9% increase in July.

However, if the domestic inflation print falls below the consensus, the yield on the domestic 10-year benchmark is expected to fall to 6.82%. If the print is stronger than expected, the yields may rise to 6.88%, dealers said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 83.75 bln rupees, against 40.55 bln rupees at 1030 IST on Monday. 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 today on lack of firm cues, dealers said. However, 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 6.83-6.87%, against 6.85% on Monday. During the day, traders may refrain from placing aggressive bets on caution ahead of the US and India CPI data. The US CPI for August is due post-market hours on Wednesday, while India's CPI data is due post-market hours on Thursday.  

The headline consumer price index in the US is expected to rise 0.2% on month in August, unchanged from the month before, as per a poll by Reuters. On a yearly basis, inflation is seen rising 2.6% last month, down from a 2.9% increase in July.

The data holds significance as it would help investors in understanding the quantum of rate cuts by the Federal Open Market Committee in its meeting outcome on Sep 18. Currently, the odds of a 50-basis-point rate cut at the FOMC's September meeting are 29%, according to the CME FedWatch tool. The majority see a more moderate 25-bps rate cut. 

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 Monetary Policy Committee, 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 fell to 3.71% today from 3.75% at the time the Indian market closed Monday. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors.  (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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