More Stories

Informist, Friday, Sep 20, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended marginally lower as dealers sold stock after heavy buying at the auction, dealers said. The weekly auction saw firm demand for both bonds on offer--the 7.10%, 2034 and 7.34%, 2064 gilts.

The 10-year benchmark 7.10%, 2034 bond settled at 102.34 rupees, or 6.76%, against 102.38 rupees, or 6.76%, on Thursday.

"Everyone is in the money... an auction is the only place traders can buy large amounts of gilts without disrupting the market, so everyone flocks to the auction to buy large amounts," a dealer at a private bank said.

The government sold 200 bln rupees of the benchmark 10-year gilt and 110 bln rupees of the 40-year gilt. According to the Reserve Bank of India, 98 of the 292 competitive bids submitted were accepted at the auction. The 10-year gilt saw bids from all segments of the market, dealers said. Prices in the secondary market were up before the auction as dealers expected robust demand for the 10-year gilt.

Bids for the longer-term bond from the insurance segment were subdued, especially as a large state-owned insurer did not place bids as aggressively as the market had expected, dealers said. Stock bought for forward-rate agreements and Separate Trading of Registered Interest and Principal of Securities were limited to around 10 bln rupees each, they said. Demand for such derivatives has shrunk after the entirety of the government bond yield curve, including yields on bonds maturing in 40 and 50 years, fell below 7%.

After the auction result, bonds erased all gains and fell into the red as traders probably sold their stock to balance out their auction purchases, dealers said. Primary dealerships also sold bonds in the secondary market after picking them up at the auction, a post-auction routine. Some traders also attributed the post-auction fall in prices to a rise in overnight indexed swap rates. State-owned banks may have stepped up purchases of the 7.10%, 2034 gilt as its yield approached 6.77%, dealers said.

Traders were eager to sell excess stock at a profit to generate liquidity as goods and services payments scheduled for Saturday and Monday would curtail the liquidity available to banks. Trading limits may also be hampered by the increase in maturity profile of their portfolios following the 300-bln-rupee gilt switch scheduled for Monday, dealers said.

After opening steady, prices of government bonds rose due to bets placed by foreign portfolio investors, dealers said. After the US Federal Reserve cut interest rates by 50 basis points on Wednesday, foreign inflows are expected to increase as traders weigh the interest rate differential between the US and India's borrowing rates to direct funds, irrespective of the movement of US Treasury yields. Additionally, the increase in weightage of Indian gilts in the JP Morgan Government Bond Index – Emerging Markets over 10 months since Jun 28 will sustain foreign inflows, dealers said.

"Foreign investors buy large sums suddenly, which causes prices to rise intraday, but otherwise they buy very consistently, spacing out their purchases over the month," a trader at a primary dealership said. Foreign investors have bought 48.21 bln rupees worth of gilts under the fully accessible route this week, according to Clearing Corp of India data at 1940 IST.

Active fund managers will also direct inflows into gilts as appreciation of the rupee against the dollar also gives incentive to foreign buyers, dealers said. Today, the rupee ended at 83.56 per dollar, an over-two-month high.

Since the effect of a major market cue-–the Fed rate cut-–is wearing off, the question now is what cues would trigger a movement in yield direction, with most expecting a fall in the 10-year gilt's yield to 6.70%. Moreover, some sections of the market see a change in the RBI's Monetary Policy Committee stance from "withdrawal of accomodation" to "neutral" at its meeting next month. As rate-cut cycles have kicked in globally, traders said India's central bank will fall behind unless the panel cuts rates soon.

Market participants also await the government borrowing calendar for Oct-Mar, along with the state bond and Treasury bill calendars for Oct-Dec, likely to be released next week. While some banks are optimistic of an increased supply of short-term bonds after requesting the RBI for the same, other dealers expect the ratios of tenures to be similar to the Apr-Sep calendar. Domestic banks have to maintain larger buffers of liquid assets, such as government securities, due to an impending tightening of the guidelines on liquidity coverage ratio, and prefer gilts maturing in up to five years.

There are also some expectations of a further cut in the government's gross borrowing aim of 14.01 trln rupees through dated securities for 2024-25 (Apr-Mar), after a downward revision by 120 bln rupees in the budgeted amount in July. Any cut in borrowing would spur bond prices to rise as supply would decrease, while demand is seen to be robust in the second half, dealers said.

The state bond calendar is seen at around 3 trln rupees in Oct-Dec, as states increase spending in the last two quarters of the fiscal year, dealers said. After a net reduction in Treasury bill supply in Apr-Sep, the Oct-Dec T-bill calendar may hold a positive supply, dealers said.

The market-wide turnover today was 580.75 bln rupees, against 1.06 trln rupees on Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. No trades were settled via the wholesale digital rupee pilot today, the same as on Thursday.

OUTLOOK

Gilts are not traded on Saturday. On Monday, government bond prices may open steady. Demand for bonds maturing in over 10 years may take a hit ahead of the monthly gilt switch auction, dealers said. The government will switch eight short-term gilts worth 300 bln rupees with four bonds at 1030-1130 IST.

Foreign fund inflows are likely to continue because of the inclusion of Indian bonds in JP Morgan's emerging market bond index. The subsequent fall in US yields after the Fed's 50 bps cut may increase foreign inflows due to an appealing interest rate differential between the yields of US Treasury notes and Indian gilts.

The movement of 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: Reverse gains as traders sell bonds post auction result

MUMBAI--1505 IST--Prices of government bonds fell after the result of the weekly gilt auction as traders likely sold bonds in the secondary market, dealers said. Auction cut-off prices at the auction were on expected lines.

The government sold 200 bln rupees of the 10-year benchmark 7.10%, 2034 gilt and 110 bln rupees of the 7.34%, 2064 bond. Demand for the 10-year benchmark was widespread across market segments and plenty of market participants got their hands on the gilt at the auction, dealers said. According to dealers, 98 bids out of the 292 competitive bids submitted were accepted by the Reserve Bank of India at the auction. Gilt prices were up earlier as some dealers expected aggressive bids for the 10-year gilt at the auction.

"The cut-off at the auction was good, but there's some selling pressure (in the secondary market) for the 10-year bond which is keeping its yield from falling below 6.75% today," a dealer at a state-owned bank said.

Successful bidders likely shed stock of other bonds in their portfolios after getting the 10-year gilt at auction. Primary dealers were also likely sellers in the market, while state-owned banks may have stepped up purchases of the 7.10%, 2034 gilt as its yield approached 6.77%, dealers said.

While demand was also firm for the 40-year benchmark 7.34%, 2064 bond from pension funds and life insurance companies, demand from a state-owned insurer was relatively low, dealers said. Stock bought for forward-rate agreements and Separate Trading of Registered Interest and Principal of Securities were limited to around 10 bln rupees each, dealers said.

Traders now look ahead to the next week, when key announcements on the borrowing calendars for gilts in Oct-Mar, as well as state bonds and Treasury bills for Oct-Dec are expected, dealers said. There are some expectations of a further cut in the government's gross borrowing aim of 14.01 trln rupees through dated securities for 2024-25 (Apr-Mar).

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 420.15 bln rupees, down from 887.70 bln rupees at 1530 IST on Thursday. For the rest of the day, the yield of the 10-year benchmark bond is expected to move between 6.72% and 6.78%.  (Cassandra Carvalho)

India Gilts: Up ahead of auction result; traders say bids aggressive

MUMBAI--1240 IST--Prices of government bonds remained higher as demand at the 310-bln-rupee auction was seen robust, with cut-off prices seen only slightly lower than levels in the secondary market, dealers said. The 10-year benchmark 7.10%, 2034 bond is likely to get bids from across the market, particularly from state-owned banks. 

"The state-owned banks have been pulling this for a long time: sell in the secondary (market) and then try to pick up the auction stock. They will not be able to corner it, the amount is too large, but they have gone quite aggressive," a dealer at a primary dealership said.

Public sector banks have sold 305.61 bln rupees in the secondary market so far in September, according to Clearing Corp of India data till Thursday. The government offered to sell 200 bln rupees of the 7.10%, 2034 gilt and 110 bln rupees of the 40-year benchmark 7.34%, 2064 bond at 1030-1130 IST. While investors wanted to stock up on the former, traders are also looking to cover their short sales at the auction, after building up those bets since Thursday, dealers said. 

Domestic banks are looking to play into the momentum created from robust foreign portfolio investors, which were also buying gilts after the US Federal Open Market Committee cut its policy rate by 50 basis points on Wednesday. This raised the actual interest rate differential between the two countries, even as US Treasury yields still offer value to FPIs as they have only risen after the US rate decision, dealers said. 

Meanwhile, the 40-year benchmark gilt is likely to be picked up by life insurers and pension funds, as is usual, dealers said. A state-owned life insurer was also seen picking up around 10 bln rupees of the bond. Discretionary demand for mutual funds may be missing due to the slate of long-term corporate bond issuances lined up, dealers said. Demand from bond-forward rate agreements totalled about 15 bln rupees, while for the Separate Trading of Registered Interest and Principal of Securities, traders may pick up around 10 bln rupees of the 2064 bond.

"The demand for derivative instruments has declined ever since the yield on long-term papers has also fallen below 7%," a dealer at a life insurer said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 218.35 bln rupees, against 267.95 bln rupees at 1230 IST on Thursday. During the day, the yield of the 10-year benchmark bond is expected to move between 6.72-6.78%.  (Aaryan Khanna and Srijita Bose)

India Gilts: Tad up as demand for 10-year gilt at auction seen firm

MUMBAI--1025 IST--Prices of government bonds were a tad up as private banks stepped up purchases with the expectation of strong demand for fresh supply of the 7.10%, 2034 bond, dealers said. The gilts auction, worth 310 bln rupees, is scheduled at 1030-1130 IST.

"A momentum has already been built in the market; the market now thinks that the cut-off price at the auction on the 10-year will be higher than the market, so some private banks are buying," a dealer at a private bank said.

The auction is expected to sail through with firm demand, with the most preferred bonds being up for auction, dealers said. At the auction, the government will sell 200 bln rupees of the 7.10%, 2034 gilt, and 110 bln rupees of the 7.34%, 2064 bond. 

"We are seeing good demand at the auction. It appears that the cut-off might come even better than the market levels," a dealer at a state-owned bank said. "The 10-year bond will be picked by everyone because the level (yield on 7.10%, 2034 bond) of 6.76% is good, especially when we are expecting a softening in yield in the coming days."

Domestic gilt yields are expected to fall further as domestic monetary policy is seen easing quicker, following the US Federal Open Market Committee's rate cut of 50 basis points rather than 25 bps. Expectation of the government trimming its borrowing through dated securities in the Oct-Mar calendar may also result in a fall in yields in the coming days, dealers said.

The benchmark 10-year paper is also expected to see demand from every segment of the market as this is the last scheduled auction of the 10-year bond in Apr-Sep, dealers said. Many traders who placed short bets on Thursday are likely to cover them at the auction. 

On the other hand, demand for the 2064 paper is not seen as robust, dealers said. The usual long-term investors – insurance companies and pension funds – would pick the bond at the auction along with mutual funds. Mutual funds may prefer the 10-year bond to the long-term gilt at the auction, dealers said. A state-owned life insurer may also pick the bond. However, the amount of their buying would be less, dealers said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 133.30 bln rupees, against 325.70 bln rupees at 1030 IST on Thursday.  (Siddhi Chauhan)

India Gilts: Seen steady on caution ahead of 310-bln-rupee auction

MUMBAI – Government bond prices are seen opening steady on caution ahead of the 310-bln-rupee gilt auction scheduled at 1030-1130 IST, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.73-6.79% today, against 6.76% on Thursday. Inflows from foreign investors are expected to continue on account of the inclusion of Indian bonds in the JP Morgan Index, a 10-month process that started on Jun 28.

The government will sell 200 bln rupees of the 7.10%, 2034 gilt, and 110 bln rupees of the 7.34%, 2064 bond through an auction. The demand at the auction is seen firm with the 10-year benchmark paper likely being picked by all segments of the market, dealers said. 

On Thursday, many private banks and primary dealerships had placed short bets ahead of the auction with the intention of covering it today. Apart from them, state-owned banks and mutual funds are also expected to buy aggressively at the auction as this is the last scheduled auction of the 10-year bond, dealers said. Some traders also expect the government to trim its borrowing through dated securities when it comes out with the borrowing calendar for Oct-Mar, dealers said.

Meanwhile, the 2064 bond is expected to see demand from usual long-term investors, which are insurance companies and pension funds, dealers said. Some traders also expect mutual funds to step up purchase of this paper as they would want to deploy cash, dealers said.  

On the global front, traders may eye the movement of US yields during the day. At 0820 IST, the 10-year benchmark US Treasury note was little changed from 3.71% at the time the Indian market closed on Thursday.  (Siddhi Chauhan)

End

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

Edited by Rajeev Pai

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.