More Stories

Informist, Tuesday, Sep 17, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended down today as traders trimmed their holdings at a profit after prices rose for five straight days. Traders wanted to reduce some risk in their portfolios, even as they were optimistic the US Federal Open Market Committee's decision on interest rate cuts would push gilt prices higher, dealers said. 

The 10-year benchmark 7.10%, 2034 gilt ended at 102.21 rupees or 6.78% yield against 102.35 rupees or 6.76% on Monday. At the day's low, the 10-year benchmark yield had fallen to near 6.75%, the lowest since Feb 28, 2022.

Mutual funds and private banks were likely sellers during the day, dealers said. State-owned banks sold bonds earlier in the day, but likely stepped up purchases of the 10-year benchmark gilt at the 6.78% yield level. They also picked up stock of state bonds at the 135-bln-rupee auction today, at spreads considered attractive, as gilts of even 50-year maturity offer a return of less than 7%, dealers said.

Money markets are shut on Wednesday after a shift in holiday for Id-e-Milad, which concentrated trade on Monday and today. The difference of opinion on the quantum of a rate cut by the FOMC has also led to higher-than-usual trading activity before such an important event, dealers said.

"Whoever believes in a 50-basis-point cut is holding onto their positions, but whoever believes in a 25 bps cut is exiting their positions," a dealer at a private bank said.

Fed fund futures are pricing in a 63% chance of a 50 bps cut in the federal funds rate, as of 1800 IST, according to the CME FedWatch tool. Domestic traders are also optimistic of a 50 bps cut, and a quarter point rate cut announcement by the US rate-setting panel may trigger bond sales in the domestic market, with US Treasury yields also likely to rise.

However, some dealers said the focus is not only on the current rate cut itself, but on the subsequent economic trajectory the Fed will set out for the year ahead.

Some amount of portfolio readjustment was also done to make room for the gilts auction on Friday, wherein 200 bln rupees worth of the benchmark 10-year gilt will be auctioned along with 110 bln rupees worth of the 7.34%, 2064 gilt. Primary dealers were likely on the selling side today, dealers said.

Bond prices were up earlier in the day as foreign banks picked up bonds due to continued inflows from foreign portfolio investors, dealers said. A 50-bps rate cut by the Fed would widen the interest rate differential between Indian gilts and the safe-haven asset, making the former appealing to foreign investors.

They were also keen to pick up short-term bonds, such as the 7.06%, 2028 gilt. Domestic dealers were of the view this was for margin requirements related to inflows into India's equity markets, which have swelled to over $3.5 bln in September, according to data from the National Securities Depository Ltd till Monday.

"In the long run, in a rate cut cycle I see a steepening of the yield curve, (yield of) short-term bonds will fall very sharply," a trader at a primary dealership said.

Some traders were keen to lighten their portfolios due to the fear of a 25-bps cut instead of the expected 50-bps rate cut that the domestic bond market is now pricing in, dealers said.

Traders will also be wary of the dissonance between the monetary policy outlook of the FOMC and Reserve Bank of India's Monetary Policy Committee. Even if the Fed cuts rates this week, dealers do not expect a rate cut by the MPC before December at the earliest. This view was strengthened after RBI Governor Shaktikanta Das' comments last week that domestic monetary policy will not be impacted by the timing and quantum of Fed rate cuts. 

The market-wide turnover today was 538.15 bln rupees, against 622.60 bln rupees on Monday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. No trades were settled via the wholesale digital rupee pilot today, similar to Monday.

OUTLOOK

Money markets are shut for Id-e-Milad on Wednesday. On Thursday, government bond prices will take cues from the outcome of the FOMC meeting, due at 2330 IST on Wednesday.

A fall in yield of the 10-year benchmark gilt to the 6.75% level is expected if the Fed decides on a 50 bps cut, after which foreign and private banks may sell their bonds at a profit, dealers said. A 25 bps cut may result in a mixed reaction, and US Fed officials' guidance on the quantum and pace of rate cuts is seen as crucial. The 10-year gilt yield is not seen rising above 6.82% unless the FOMC foregoes a rate cut entirely, dealers said. 

Foreign fund inflows are likely to continue because of the inclusion of Indian bonds in the JP Morgan Index, a 10-month process that started on Jun 28. Inflows may increase significantly because of a sharper rate cut by the Fed due to a wider interest rate differential.

The movement in US Treasury yields and crude oil prices may also affect gilt prices. 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.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.74-6.82%.

India Gilts: Remain dn; traders readjust portfolio before FOMC outcome

MUMBAI--1600 IST--Prices of government bonds were down today after traders sold heavily at a profit. Traders were re-adjusting their portfolios as today is the last trading day before the US Federal Open Market Committee announces its interest rate cut decision, dealers said. Money markets are shut on Wednesday for Id-e-Milad. 

Bond prices opened higher due to purchases from foreign banks, but were down as the day progressed as traders sold bonds at a profit, dealers said. Private banks, mutual funds and primary dealerships were likely sellers. State-owned banks picked up bonds later in the day, when the yield of the benchmark 7.10%, 2034 bond rose to the 6.78% level, after being likely sellers in the first half when the benchmark yield fell to near 6.75%, they said.

Some traders were keen to lighten their portfolios due to the fear of a 25-basis-point cut instead of the expected 50-bps rate cut that the domestic bond market is pricing in, dealers said. They had bought bonds over the past five days, particularly of longer durations, and were of the view that profits were adequate after five days of gains without holding their bets on the US rate decision. At the day's high, the price of the 7.23%, 2039 bond had gained 99 paise from Sep 6, against 72 paise for the 7.10%, 2034 bond. The 15-year benchmark gilt has so far today fallen more than the 10-year bond.

Demand at the auction of state government securities was in line with expectations, dealers said. "State-owned banks bought large amounts at the auction to replenish their portfolios after selling earlier in the day," a trader at a primary dealership said. Pension and provident funds bought longer-term state bonds, dealers said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 437.75 bln rupees, against 514.35 bln rupees at 1530 IST on Monday. The yield on the 10-year bond is expected to remain within the range of 6.75-6.80%. (Cassandra Carvalho)

India Gilts: Down as domestic bks sell at profit ahead of FOMC meet

MUMBAI--1400 IST-–Prices of government bonds remained down as traders sold bonds at a profit after five consecutive days of gains, dealers said. Volumes were higher than usual ahead of the Federal Open Market Committee's two-day meeting that starts today, as traders were confident the panel would cut rates, and the quantum was heavily debated. 

Dealers said that while foreign portfolio investors and foreign banks continued to buy bonds, domestic banks and primary dealers were selling bonds at a profit. Some of the selling was also attributed to the upcoming gilts auction on Friday where the government will sell 200 bln worth of the 7.10%, 2034 gilt. Foreign investors continued to stock up their portfolio ahead of the FOMC meeting as the CME FedWatch tool showed 67% Fed fund futures factoring in a 50-basis-point rate cut at the outcome on Wednesday, while the remaining still expected a 25 bps cut.

"We are not actually seeing much of a sell-off today, it's just that yesterday's (Monday's) price of the 10-year benchmark 7.10%, 2034 shot up by more than 20 paisa, so today some domestic banks are paring off some of their portfolios at a profit," a dealer at a private bank said. At the day's low, the 10-year gilt yield had hit an over 30-month low.

A shift in market holiday to Wednesday from Monday has prompted some traders to trim their portfolios and remain cautious, with the day's trade being the last before the FOMC outcome. Most sections of the market had already stocked up on bonds, and were only making last-minute adjustments to their portfolios, dealers said. Dealers will not just look towards the interest rate cut but also keep a keen eye on the path of future rate cuts. Along with the policy outcome, US Federal Reserve officials will give out a summary of their economic projects on interest rates, growth and inflation. Fed funds futures have priced in over 100 bps of rate cuts in the US in 2024, according to the FedWatch tool. 

During the day, volumes on the 7.06%, 2028 gilt picked up because of interest from foreign investors, dealers said. The fall in short-term bonds was limited as they had not risen as much as gilts of longer maturities. The impact of tighter banking system liquidity has turned some banks into sellers of bonds maturing in less than five years. However, others picked up the bonds to replace stock after the Reserve Bank of India last week cancelled the auctions of Treasury bills in the remainder of September. Banking system liquidity fell to 221.53 bln rupees on Monday, the lowest since Jun 27. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 402.55 bln rupees, against 367.65 bln rupees at 1430 IST on Monday. The yield on the 10-year bond is expected to remain within the range of 6.75-80%. (Srijita Bose)

India Gilts: Fall ahead of US FOMC outcome Wed on profit booking

MUMBAI--1105 IST--Government bond prices fell due to caution ahead of the US Federal Open Market Committee's decision on interest rates Wednesday, dealers said. Traders sold their bonds at a profit and were keen to bid aggressively at the state-government security auction, they said.

"It seems that mutual funds and state-owned banks are lightening their portfolios ahead of the state bond auction," a dealer at a primary dealership said. "Now that we don't have T-bill auctions, the demand for this auction is said to be good." At the auction at 1030-1130 IST, eight states have offered to sell 135 bln rupees, which is less than half the amount for this week in the indicative calendar for Jul-Sep.

Bond prices have risen for five straight days till Monday, and earlier in the day, the 10-year gilt yield hit its lowest level since Feb 28, 2022. State-owned banks had bought the 10-year gilt over the past few days and were keen to sell it at 6.75% yield, dealers said.

Prices were up earlier as traders bet on a sharp rate-cut at the US Federal Open Market Committee's two-day meeting outcome, due Wednesday. Demand for bonds has increased after the Reserve Bank of India said the government would forego issuing 400 bln rupees worth of Treasury bills in the last two scheduled auctions for Jul-Sep, dealers said.

"The chances of the Fed (Federal Reserve) cutting rates by 50 basis points are very high, so why should one miss this opportunity?" a dealer at a private bank said. "This is why private banks and probably foreign banks building positions ahead of the FOMC."

Bond prices may fall sharply if the US rate-setting panel cuts rates by only 25 basis points, instead of 50 bps, dealers said. Prices are expected to be volatile during the day as India's money markets are shut on Wednesday for Id-e-Milad, depriving traders of the opportunity to trade ahead of the print.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 211.05 bln rupees, against 84.40 bln rupees at 1130 IST on Monday. (Siddhi Chauhan)

India Gilts: Seen steady on caution ahead of US FOMC meet outcome Wed

MUMBAI – Government bond prices are seen opening steady due to caution ahead of the US Federal Open Market Committee's decision on interest rates on Wednesday, dealers said.  Gilt prices may continue rising due to optimism over sharp rate cuts in the US, they said.

The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.74-6.79% today, against 6.76% on Monday. Money markets will be shut on Wednesday for Id-e Milad, which may increase the volatility in prices today, dealers said.

Investors, including foreigners, have continued to pile into India's gilts to take advantage of an expected rise in prices after the US cuts rates. Ahead of the FOMC's two-day meeting starting today, the CME FedWatch tool shows Fed fund futures' expectations of a 50-bps rate cut at 67%, against only 30% a week ago, while the remaining priced in a 25-bps rate cut. 

Heading into the US policy decision, traders are likely to bid aggressively to get their hands on state bonds at the auction at 1030-1130 IST. Eight states will raise 135 bln rupees, less than half the amount for this week in the indicative calendar for Jul-Sep. Demand at the state government securities auction is seen firm after the cancellation of two Treasury-bill auctions in September. Some traders may sell the 10-year gilt around 6.75% yield and opt for state bonds, which are likely to yield above 7%, dealers said. (Siddhi Chauhan)

End

US$1 = 83.75 rupees

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

Edited by Aditya Sakorkar

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.