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Informist, Wednesday, Sep 25, 2024

By Srijita Bose

MUMBAI – Government bond prices ended sharply higher today in anticipation of a cut in the gross borrowing plan for 2024-25 (Apr-Mar), dealers said. An overnight fall in US Treasury yields also aided a rise in prices earlier in the day. 

The 10-year benchmark 7.10%, 2034 bond closed at 102.53 rupees or 6.74% yield, up from 102.36 rupees or 6.76% yield on Tuesday. The 10-year bond's price ended almost at the day's high, as buying momentum picked up in the second half of trade, dealers said. Briefly, the 10-year gilt yield hit its lowest since Feb 21, 2022.

"I think more traders are now aggressively betting on a supply cut as the government is in a comfortable position to do so after a good tax collection," a dealer at a private bank said. The government's direct tax collection, net of refunds, during Apr 1-Sep 17 was 9.96 trln rupees, up 16.1% on year.

Officials from the government and the Reserve Bank of India are likely to decide on the borrowing calendar for Oct-Mar today, Informist reported earlier today, quoting two finance ministry officials aware of the matter. The calendar could be released after market hours today or by Thursday, they said.

The government's gross borrowing target for 2024-25 is 14.01 trln rupees, revised down from 14.13 trln rupees in the Interim Budget. It aimed to raise 7.50 trln rupees through dated securities in Apr-Sep. Of this, it has borrowed 7.06 trln rupees so far, with an auction worth 340 bln rupees scheduled for Friday, running about 100 bln rupees short of the first half aim.

Traders are betting on a 100-300 bln rupee cut in the gross borrowing target in the current fiscal, with the second half borrowing at 6.3-6.5 trln rupees, dealers said. Some sections of the market were not convinced that a borrowing cut of above 100 bln rupees would materialise before the government gained more insight into its finances towards the end of the financial year. They said the government would likely keep its Treasury bill issuances low to trim any cash excesses, while retaining the gross borrowing target.

Dealers said that mutual funds and foreign banks likely bought bonds during the day while state-owned banks sold gilts at a profit. The selling pressure eased towards the end of the day as short sellers covered their bets before the likely release of the calendar, dealers said.

The government could sell more gilts maturing within five years after trimming the supply of Treasury bills in both Apr-Jun and Jul-Sep, dealers said. Earlier in the month, bankers requested the RBI to auction more gilts of five-year tenure or less, which would be ideal for their asset-liability management. The RBI is likely to implement new guidelines for banks' liquidity coverage ratio by April next year, and short-term bonds are the preferred high-quality liquidity asset for this purpose, dealers said. 

To make room for this increase in short-term bond issuances, the government may decrease the relative supply of bonds maturing in 10-15 years, which drew a hefty 37.87% chunk of the Apr-Sep calendar, dealers said.

Curtailing the supply of long-term bonds was seen as unfeasible, especially as the demand from life insurers and pension funds is only seen higher in the second half of the fiscal year, dealers said. Regardless, some investors were jittery and piled onto these gilts as well, they said. In the Apr-Sep calendar, only 15.40% of the government's planned issuance was in bonds of less than five years. In contrast, 37.33% of the borrowing was concentrated in bonds maturing in 30-50 years.

Dealers said that buying from foreign banks and foreign investors continued during the day after an overnight fall in US yields after unexpectedly weak consumer confidence data on Tuesday. Additional inflows from foreign portfolio investors also continued because of the inclusion of Indian bonds in JP Morgan's emerging market bond index, a 10-month process that began on Jun 28. India's weightage on the index would rise to 4% on Friday.

The market now looks forward to the US personal consumption expenditure data scheduled for Friday for further insight on the likely pace of rate cuts by the US Federal Reserve, over the next few months, dealers said. Currently, Fed fund futures according to CME FedWatch show a 58.1% probability of a 50-basis-point rate cut at the Federal Open Market Committee's November meeting, while the remaining bet on a 25 bps cut. This comes after the US rate-setting panel began its rate cut cycle with a 50-bps reduction last week.

"Though we are looking at the incremental data points from the US as well, the (borrowing) calendar is a more crucial indicator domestically that will drive the market before the RBI (Monetary Policy Committee) meets in October," a dealer at a primary dealership said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 718.80 bln rupees, against 536.00 bln rupees at Indian market close on Tuesday. No trades were settled under the wholesale digital rupee pilot today, the same as on Tuesday.

OUTLOOK

On Thursday, gilts may open steady ahead of the expected release of the borrowing calendar for dated securities in Oct-Mar, dealers said. The calendars for the quarterly issuance of state bonds and Treasury bills are also awaited this week.

The market's focus is likely to be on supply, despite some significant data points in the US. US personal consumption expenditure data for August, which includes the Fed's preferred inflation gauge, may lend cues on interest rates, dealers said.

The overnight movement in US Treasury yields, crude oil prices may also affect gilt prices at the open. Any uptick in yields may also prompt purchases by domestic banks, which are gearing up to meet a regulatory requirement to maintain larger buffers of liquid assets, such as government securities from the next financial year starting Apr 1. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.70-6.78% on Thursday. 

India Gilts: Up more; supply cut bets ahead of borrow calendar release

MUMBAI--1630 IST--Government bond prices rose further ahead of the release of the gilt borrowing calendar for Oct-Mar, with traders increasing bets on the government trimming its gross borrowing slightly, dealers said.

A cut in the borrowing calendar by 100 bln rupees or more would be seen as a positive by the market after a cut in the supply between the Interim and full Budget for 2024-25 (Apr-Mar). The government is on track to undershoot its borrowing target of 7.50 trln rupees by about 100 bln rupees in Apr-Sep. Traders are betting on a 100 bln-300 bln rupee cut in the gross borrowing target of 14.01 trln rupees in the current fiscal, with the second half borrowing at 6.3 trln-6.5 trln rupees, dealers said. 

The government could sell more gilts maturing within five years after trimming the supply of Treasury bills in both Apr-Jun and Jul-Sep, dealers said. Earlier in the month, bankers requested the RBI to auction more gilts of 5-year tenure or less, which would be ideal for their asset-liability management. The RBI is likely to implement new guidelines for banks' liquidity coverage ratio by April next year, and short-term bonds are the preferred high-quality liquidity asset for this purpose, dealers said. 

The domestic trigger in the form of the borrowing calendar has become the primary focus of trade due to its impending release, dealers said. Informist reported earlier that The Reserve Bank of India and government officials are likely to take a final call on the calendar today, with a release likely either after market hours or by Thursday.

"Gilts won't track US yields as much until the calendar is out, which has given the market a strong enough reason to maintain a strong support level," a dealer at a state-owned bank said. The yield on the 10-year US Treasury note inched up to 3.76%, from 3.73% earlier in the day.

Traders await a string of US data, such as personal consumption expenditure index and non-farm payrolls data, for further interest rate cues. Earlier, foreign banks were likely to be on the buying side as US Treasury yields fell overnight, dealers said. This was coupled with the end-of-month increase in the weight of Indian gilts in the JP Morgan emerging bond index to 4%, spurring inflows into gilts.

The intraday rise in gilt prices caused some bank dealers to book profits as the end of Jul-Sep nears, when banks close their books of accounts for the quarter, dealers said. A further rise in prices is possible if traders turn from sellers to buyers at levels which are seen at the upper end of the current trading range, in terms of price, dealers said.

"We saw strong support yesterday (Tuesday) at 102.30 rupees (on the 7.10%, 2034 bond), there were buyers all the time," a dealer at a private bank said. "Traders may undertake fresh long positions if the price breaks 102.50 (rupees)."

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 580.50 bln rupees, against 467.85 bln rupees at 1630 IST on Tuesday. (Cassandra Carvalho)

India Gilts: Up on fall in US yields, borrowing cut expectations

MUMBAI--1350 IST-–Government bond prices remained up as traders continued to buy due to an overnight fall in US yields, dealers said. Prices rose further as some traders expected the government's Oct-Mar borrowing calendar release would indicate a cut in gross borrowing for 2024-25 (Apr-Mar).

The government's gross borrowing target for 2024-25 is 14.01 trln rupees, revised down from 14.13 trln rupees in the Interim Budget. The government aimed to raise 7.50 trln rupees through dated securities in Apr-Sep. Of this, it has borrowed 7.06 trln rupees so far, with an auction worth 340 bln rupees scheduled for Friday. Most traders expect the remaining amount, around 6.61 trln rupees, in the Oct-Mar calendar, with some dealers expecting the calendar to show borrowing as low as 6.30 trln rupees.

"At these levels, I think along with foreign investors, domestic traders are also buying as there are talks in the market that the government could cut up to 300 bln rupees in the borrowing calendar," a dealer at a state-owned bank said.

Officials from the government and the Reserve Bank of India are likely to decide on the borrowing calendar for Oct-Mar today, Informist reported earlier today, quoting two finance ministry officials aware of the matter. The calendar could be released after market hours today or by Thursday, they said. Short sellers covered their bets ahead of the release of the calendar, bond market dealers said.

Other traders said the government is unlikely to reduce its borrowing via dated securities further, after its cancellation of Treasury bill auctions in Apr-Jun and Jul-Sep. Any further cut in borrowing may happen only towards the end of the fiscal year once the government has more clarity on its finances, dealers said. In addition to the half-yearly gilt calendar, the T-bill issuance calendar and state bond calendar for Oct-Dec is also awaited by bond traders.

Traders are also considering the possibility of a change in the stance to "neutral" from "withdrawal of accomodation" in the October meeting of the Reserve Bank of India's Monetary Policy Committee, dealers said. The next monetary policy review is scheduled for Oct 7-9. Dealers said that mutual funds and foreign banks likely picked up bonds, while state-owned banks both sold at a profit.

The overnight fall in US yields was attributed to expectations of a further 50 basis point rate cut by the Federal Open Market Committee in its next meeting, after weaker than expected consumers' confidence data. Dealers are now looking forward to the US personal consumption expenditure index to take further bets on the US rate cut trajectory.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 342.85 bln rupees, against 298.40 bln rupees at 1330 IST on Tuesday. The yield on the 10-year benchmark 7.10%, 2034 bond is seen within 6.73-6.77% today.  (Srijita Bose)

India Gilts: Up; profit booking by state-owned banks caps gains

India Gilts: Up; profit booking by state-owned banks caps gains 

MUMBAI--1017 IST--Prices of government bonds were up owing to an overnight fall in US Treasury yields. The gains were limited as state-owned banks sold their bonds at a profit, dealers said.

The yield on the 10-year US Treasury note fell to 3.74% from 3.80% at the time the Indian market closed on Tuesday. US yields fell as consumers' view on the US economy fell in September by the largest level in more than three years as fears grew about jobs and business conditions.
 

"I don't think that any domestic traders are buying this aggressively because of the fall in US yields. Foreign banks are the ones who are buying," a dealer at a state-owned bank said. A fall in US yields widens the interest rate differential between haven assets and emerging market debt, making the latter more appealing to foreign investors.

Apart from a fall in US yields, foreign banks are also buying as we are nearing the end of the month. The readjustment of JP Morgan's emerging market bond index to increase the weight of Indian gilts to 4% by Friday is spurring the inflows, dealers said. 

Despite heavy buys from foreign banks and investors, traders don't expect prices to rise significantly. "The maximum rise in prices that we can see today is 50 levels (the price 102.50 rupees on 7.10%, 2034 bond), then the momentum will subside because the fall in US yields was not that significant," the dealer added. 

The gains were capped as state-owned banks sold their bonds at a profit as they had bought the 10-year benchmark aggressively on Tuesday at lower prices, dealers said. According to Clearing Corp of India, state-owned banks bought gilts worth 14.29 bln rupees on Tuesday. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 133.60 bln rupees, against 100.15 bln rupees at 1030 IST on Tuesday. (Siddhi Chauhan)

India Gilts: Seen up on back of overnight fall in US Treasury yields
 

MUMBAI – Prices of government bonds are seen opening higher on the back of an overnight fall in US Treasury yields. However, the gains may be limited as traders may sell their bonds at a profit, dealers said.   

The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.74-6.80% today, against 6.76% on Tuesday. 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 began on Jun 28. 

The yield on the 10-year US Treasury note fell to 3.74% from 3.80% at the time the Indian market closed on Tuesday. A fall in US yields widens the interest rate differential between haven assets and emerging market debt, making the latter more appealing to foreign investors.

US yields fell as consumers' view on the US economy fell in September by the largest level in more than three years as fears grew about jobs and business conditions. The data was published by The Conference Board on Tuesday. The board's consumer confidence index fell to 98.7, against 105.6 in August. This is the biggest one-month decline since August 2021. A poll by Dow Jones had forecasted the data to be at 104.

The market now looks forward to the US personal consumption expenditure scheduled for Friday for further insight on the likely pace of rate cuts by the US Federal Reserve over the next few months, dealers said. According to a poll conducted by Dow Jones, the core PCE index for August is expected to fall to 2.3% on year against 2.5% in the previous month. Currently, Fed fund futures show a 39.5% probability of a 25-basis point rate cut, and a 60.5% probability of a 50-bps rate in the Fed's November meeting, according to the CME FedWatch tool. 

On the domestic front, the market awaits the government's borrowing calendar for Oct-Mar, the Treasury bill issuance calendar for Oct-Dec and the state bond calendar for Oct-Dec due likely this week, dealers said.  (Siddhi Chauhan)

End

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

Edited by Aditya Sakorkar

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