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Informist, Monday, Sep 23, 2024

By Srijita Bose

MUMBAI – Prices of government bonds ended slightly lower as the yield on the 10-year US Treasury note rose towards the end of trade, dealers said. Gilt prices were static for most of the day, barring some volatility in the first and last hours of trade taking cues from US yields.

The 10-year benchmark gilt ended at 102.30 rupees, or 6.77% today, against 102.34 rupees or 6.76% yield on Friday. 

Dealers said the market tracked movement in US yields due to lack of any other fresh cues both on the domestic and global front. Earlier in the day, prices of gilts had risen due to buying by foreign banks, dealers said. The rise was short-lived as traders began to sell bonds at a profit, especially noting the slight rise in US Treasury yields. Prices remained mostly in a narrow band post the excitement.
 

The yield on the 10-year US Treasury note was at 3.76% at the Indian market close today, as against 3.73% at 1700 IST on Friday. US yields have trended higher despite the Federal Open Market Committee last week cutting interest rates by 50 basis points to begin its rate cut cycle. 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.

"The fundamentals in the US due to its ballooning debt as well as higher interest payout has kept US yield higher even after the jumbo 50 bps cut by Fed, so now, domestic traders have stopped tracking US yields much," a dealer at a private bank said. "Today, traders followed the movement in US yields only because there were no other cues to trade domestically."

Traders are now looking forward to the outcome of Tuesday's state bond auction, which will be the next intraday domestic trigger, in a week with heavy supply, dealers said. The Reserve Bank of India on Friday said 12 states would raise 344 bln rupees through the sale of bonds, against 269.56 bln rupees in the indicative calendar for Jul-Sep. Later this week, the Centre will sell 340 bln rupees worth of three gilts on Friday to round out the supply in Apr-Sep.

During the day, the government offered to switch eight gilts worth 300 bln rupees with four longer-tenure papers. All the bonds were switched, with the total quantum accepted of 293.60 bln rupees. Cutoff prices for the 7.40%, 2035 and 6.67%, 2035 bond issued today were sharply higher than expected, suggesting that traders preferred long-term gilts in their portfolios over short-term ones, dealers said. This was because such bonds offer higher capital gains amid a rate cut cycle, which the market hopes will start in December.

Traders expect the focus to shift to supply-demand dynamics this week rather than cues on interest rates, dealers said. The government is likely to release its gilt borrowing calendar for Oct-Mar along with the Treasury bills and the state bond calendar for the Oct-Dec quarter this week. 

Some dealers expect a cut in the government's gross borrowing target of 14.01 trln rupees, which has already been revised downward by 120 bln rupees in the full Budget for 2024-25 (Apr-Mar). The addition of sovereign green bonds to the calendar is likely to be seen as a positive, on high chances of the bond not going through at auction as the RBI may reject bids, dealers said. There was some speculation of shifting borrowing to long-term securities as well.

"There are some talks in traders' circles that the government might cut the supply of short-term bonds. If that happens, we could see a significant demand led by short-term bonds, especially because there is so much interest from index funds and foreign investors there," a dealer at a private bank said.

Such a cut seems unlikely, as some banks and primary dealerships have asked the Reserve Bank of India for a greater supply of government bonds maturing within five years in meetings ahead of the release of the calendar, dealers said. Others said the Centre could continue borrowing in dated securities, but trim the issuances of T-bills further, as it has done in both Apr-Jun and Jul-Sep. The RBI cancelled T-bill auctions worth 400 bln rupees over the last two weeks of September, and 600 bln rupees over six weeks in the quarter ended June.

For T-bills, any further cut in borrowing is likely to happen only in the 91-day paper, dealers said. Sunidhi Securities had also said in a note earlier this month that the supply of the 91-day T-bill will be cut more than the 182- and 364-day T-bill issuances in the quarterly short-term borrowing calendars for Oct-Dec and Jan-Mar.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 507.00 bln rupees, against 580.75 bln rupees at 1700 IST on Friday. No trades were settled via the wholesale digital rupee pilot today, the same as on Friday.

OUTLOOK

On Tuesday, gilts are seen opening slightly lower ahead of 344-bln-rupee state bond auction. Traders will look forward to the results of the auction for the market's appetite in a week of heavy bond supply, dealers said. 

In data released after market hours, the flash Manufacturing Purchasing Managers' Index printed at 47.0, from 47.9 final in August, and below the forecast of 48.6 by Market News International. The flash Services Purchasing Managers' Index was slightly higher than the forecast of 55.2, but fell to 55.4 in September from a final reading of 55.7 in August. A reading above 50 denotes expansion in activity, while below 50 indicates contraction.

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 6.74-6.80%. 

India Gilts: In thin band on lack of firm cues; triggers later in wk

MUMBAI--1630 IST--Government bond prices continued to move in a thin band on lack of firm cues both on the domestic and global front, dealers said. Traders are awaiting fresh cues from the US purchasing managers' index due today, post market hours, along with several domestic events lined up during the week.

"The market already moved a bit in the morning after US yields rose at the market open. I don't see the market moving much from here since there are no cues as of now," a dealer at a private bank said. 

Earlier in the day, the price of the 7.10%, 2034 bond was volatile as some foreign banks bought bonds, and then state-owned banks sold at a profit as prices rose. Dealers said they have already adjusted their portfolios based on existing cues and are now waiting for further cues on the domestic front. The demand for long-term bonds is robust as traders expect India's monetary policy to ease in the coming months. The government switched 293.60 bln rupees worth of eight short-term gilts with those of longer tenures, evidence of the preference for long-dated securities.

Traders are also looking forward to US PMI data for any further triggers on interest rates, but said the data may not move US yields enough to have an impact on the domestic market. Dealers said cut-offs on the state bond auction on Tuesday will be the next intraday domestic trigger for the market. This will be the last auction in the September quarter. The Reserve Bank of India on Friday said 12 states would raise 344 bln rupees through the sale of bonds, against 269.56 bln rupees in the indicative calendar for Jul-Sep.

Along with the state-bond auction, traders also look forward to the government bond borrowing calendar for Oct-Mar along with the Treasury bills and the state bond calendar for the Oct-Dec quarter to receive further trading cues.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 443.00 bln rupees, against 503.25 bln rupees at 1630 IST on Friday. (Srijita Bose)

India Gilts: In thin band; firm participation seen at switch auction

MUMBAI--1430 IST--Prices of government bonds were in a thin range after volatile movement early in the day. Prices fell due to a rise in US Treasury yields and traders selling bonds at a profit, after an early rise due to investor demand, dealers said.

Despite low volumes earlier, prices of gilts rose as foreign banks stepped up purchases, dealers said. Shortly after, traders began to sell bonds at a profit, especially noting a slight rise in US Treasury yields. At the day's high, the yield on the 10-year US Treasury note rose to 3.76% against 3.73% at 1700 IST on Friday. Bonds recovered losses as the benchmark US yield cooled to 3.74%.

State-owned banks were likely sellers when bond prices were near the day's high, and bought gilts closer to when the yield on the 7.10%, 2034 bond reached 6.77%, dealers said. The market is closely tracking US yields as it awaits fresh cues on the domestic front from the borrowing calendar for gilts, state bonds and Treasury bills, expected this week. Traders have observed the trend of the government cutting down its short-term borrowing in the first two quarters of the financial year, and said gilts of a five-year tenure or less could see gains if the trend continues.

Traders also await the result of the switch auction later in the day. At the auction today, the government offered to switch eight gilts for four longer-tenure bonds. Dealers expect robust participation at the auction, with bonds maturing in 2025 likely to be offered in exchange for the 7.40%, 2035 paper. Meanwhile, bonds maturing in 2027 may be less favourable to sell as banks want to retain the bonds for their liquidity coverage ratio management, with norms likely to tighten in the financial year beginning April.

"Banks want to get rid of the 9-month 5.22%, 2025 paper because by the time the LCR guidelines will be announced, the tenure of the paper will be of no use," a dealer at a state-owned bank said. Long-term bonds are also in favour for investors to maximise capital gains, due to an expected fall in yields in the coming months on expectations of rate cuts in India.

The rise in gilt prices after a 50 bps policy rate cut in the US last week is expected to be limited due to lack of fresh market cues, dealers said. However, as the end of the month nears, dealers expect staggered foreign inflows, as JP Morgan's emerging bond index readjusts to expand Indian gilts' weightage to 4% on Friday. Foreign inflows could lead to an intraday rise in prices, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 372.50 bln rupees, against 336.35 bln rupees at 1430 IST on Friday. (Cassandra Carvalho)

India Gilts: Steady on lack of firm cues; mkt eyes switch auction 

MUMBAI--1000 IST--Prices of government bonds were little changed, after a volatile opening hour of trade. The market lacked firm cues for direction, but traders' activity in limited volumes moved bond prices, dealers said. 

"Within half an hour, we saw the market opening lower, rising again and then trading almost flat," a dealer at a state-owned bank said. "Nobody knows what happened because there was not any trigger for the market to react this way. The fall was maybe because of some primary dealerships, but why the prices rose in the initial 10 minutes is unaccounted for." Primary dealerships sold bonds worth 22.87 bln rupees on Friday, as per data from Clearing Corp of India. 

This week, the focus is on supply dynamics in the bond market, away from interest rate cues, after the US Federal Open Market Committee last week cut policy rates by an aggressive 50 basis points. The borrowing calendar for dated securities in Oct-Mar, as well as the quarterly calendar of Treasury bill issuances and state bonds, are expected to be released this week.
 

Some dealers expect a cut in the government's gross borrowing target of 14.01 trln rupees, which has already been revised downward by 120 bln rupees in the full Budget for 2024-25 (Apr-Mar). The addition of sovereign green bonds in the calendar is likely to be seen as a positive, on high chances of the bond not going through at auction as the Reserve Bank of India may reject bids, dealers said. 

Others said the Centre could continue borrowing in dated securities, but trim the issuances of T-bill further, as it has done in both Apr-Jun and Jul-Sep. The Reserve Bank of India on Thursday cancelled two auctions of Treasury bills scheduled in consultation with the government. This reduced the gross supply of T-bills in Jul-Sep by 400 bln rupees. 

"For T-bills, we saw that they had announced the target and later, towards the end, they decided not to conduct auctions for the last two weeks of this quarter. I think this trend could be followed again," a dealer at a private bank said. "I think that their calendar will be balanced with borrowing equally distributed amongst the tenures."

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 51.90 bln rupees, against 153.90 bln rupees at 1030 IST on Friday. (Siddhi Chauhan)

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

MUMBAI – Government bond prices are seen opening steady today due to lack of firm global and domestic cues, dealers said. However, a higher-than-indicated amount of state government securities due for auction on Tuesday might weigh on the prices of gilts, 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 Friday. Inflows from foreign investors may continue because of the inclusion of Indian bonds in JP Morgan's emerging market bond index, a 10-month process that started on Jun 28.

Traders are keen to get their hands on long-duration bonds at the gilt switch auction today, dealers said. The government will switch eight short-term bonds worth 300 bln rupees with four gilts at 1030-1130 IST. Moreover, the attractiveness of the switch auction is greater as some banks will get a profit by selling to the government, dealers said.

The Reserve Bank of India on Friday said 12 states would raise 344 bln rupees through the sale of bonds on Tuesday. The amount is higher than what states were expected to raise this week. As per the indicative calendar for state borrowing for Jul-Sep, states were supposed to borrow 269.56 bln rupees on Tuesday.

During the day, traders will eye the movement of US Treasury yields for significant cues, dealers said. At 0815 IST, the yield on the 10-year benchmark US Treasury note was little changed from 3.74% at the time the Indian market closed on Friday. (Siddhi Chauhan)

End

Edited by Aditya Sakorkar

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