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Informist, Thursday, Sep 26, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended higher on hopes of a gross borrowing cut in 2024-25 (Apr-Mar) to be detailed in the Oct-Mar borrowing calendar, dealers said. Bonds gave up some gains by the end of market hours due to some profit booking from state-owned and private banks, as the 10-year benchmark gilt yield neared 6.70% at the day's low.

The 10-year benchmark 7.10%, 2034 gilt ended at 102.66 rupees, or 6.72%, today against 102.53 rupees, or 6.74% yield, on Wednesday. The 10-year bond's yield fell to its lowest since Feb 21, 2022. The expectations caused a flurry of trade in the secondary market today, with volumes topping 1 trln rupees.

In the Union Budget presented in July, the government revised its borrowing amount to 14.01 trln rupees from 14.13 trln rupees in the Interim Budget for 2024-25. The government was largely consistent with its estimates, borrowing 7.06 trln rupees so far against its gauge of 7.50 trln rupees. The auction on Friday is scheduled to add another 340 bln rupees to the figure. For the second half of the current fiscal, dealers expect a cut in borrowing by 100-300 bln rupees from the remaining 6.61 trln rupees. Any cut in borrowing beyond 300 bln rupees amid firm demand for bonds may pull down the 10-year benchmark yield to below 3.70%, dealers said.

Some traders, however, said that the government calendar will either stick to the 6.61 trln rupees remaining or have a token cut of less than 100 bln rupees. The government is unlikely to further trim its dated security issuance before the March quarter, when it has greater clarity on its finances, some dealers said. 

"Whatever pattern the government creates and follows, the market adjusts to it accordingly. We just don't want too much change," a dealer at a private bank said. 

The main cause of the price gains today was speculation of a change in government borrowing patterns. Traders expect the supply of gilts of 5-year tenure or less to be increased, which may result in relatively lower supply of the benchmark 10-year and long-term gilts. In Jul-Sep, the government issued 14.40% of its debt in short-term gilts, while 37.33% was reserved for tenures of 30 years or more.

Long-duration papers witnessed a sharp rise in prices during the day, with gains in the 40-year and 50-year benchmark gilts outpacing even the 10-year bond. Insurance companies and pension funds picked up duration papers due to fears of future supply constraints, dealers said.

Traders said that it was a positive sign that the Centre has a healthy cash balance and was likely to trim its borrowing despite being a coalition government. The Bharatiya Janata Party had lost its outright majority in the Lok Sabha in the General Elections, and has had to rely on coalition partners in the National Democratic Alliance to retain power in India's Lower House.

Even with some scepticism about a potential borrowing cut, bond prices still had "some more juice" heading into the next monetary policy review in early October, dealers said. Most of the market expects the tone of Reserve Bank of India officials on inflation expectations to ease, if not a softening in the Monetary Policy Committee's stance of 'withdrawal of accommodation'.

During the day, foreign banks were likely on the buying side, despite an overnight rise in US Treasury yields, dealers said. The yield on the 10-year US Treasury note rose to 3.79% at today's market open, against 3.76% at 1700 IST on Wednesday, a shift that lowered the interest rate differential between US Treasury bonds and Indian gilts, which should deter foreign investors from buying gilts.

However, foreign banks purchased gilts due to the end-of-month increase of Indian gilts in the JP Morgan emerging market bond index, after being net buyers on Wednesday as well. A fall in Brent crude oil futures for November to $71.36 a barrel from $74.05 at 1700 on Wednesday also aided gilt prices slightly, dealers said.

Today's market-wide turnover was 1.14 trln rupees, against 718.80 bln rupees at Indian market close on Wednesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. The presence of infrequent market participants, such as large corporates, contributed to the huge volumes, dealers said.

No trades were settled under the wholesale digital rupee pilot today, the same as on Wednesday.

OUTLOOK

On Friday, gilts may open lower after the borrowing calendar for dated securities in Oct-Mar was higher than the market had bet on. In a release after market hours today, the government stuck to its borrowing aim and said it would borrow the remaining amount in Oct-Mar.

Traders were anticipating the Oct-Mar calendar to show 6.3-6.5 trln rupees worth of gilt issuances, showing a minimum borrowing cut of 100 bln rupees. The government said it would borrow 6.61 trln rupees on a gross basis in Oct-Mar. This may cause a sharp fall in gilt prices at the open, dealers said.

Any fall in prices may be worsened by the upcoming weekly gilt auction at 1030-1130 IST on Friday, which will likely see aggressive short bets from traders. The RBI will auction 120 bln rupees of the 7.04%, 2029 gilt, 120 bln rupees of the 7.23%, 2039 gilt, and 100 bln rupees of the 7.09%, 2054 gilt.

The impending quarter-end is also likely to drive aggressive bond sales, as banks aim to book profit, dealers said. Only trades up to Friday will be added to the treasury trading gains for Jul-Sep, with the settlement on Monday, the last day of the quarter.

However, short-term bonds may not see a significant fall as they have not risen as much over the past few days, based on anticipating the calendar, dealers said. Moreover, the yield curve may steepen in the coming days after releases today revealed the kind of supply expected. The government's planned Treasury bill issuance for Oct-Dec was 2.47 trln rupees, against traders' views of around 2.8 trln rupees. The government running off its cash balance adds to banking system liquidity, putting more cash in the hands of traders to buy bonds, dealers said.

Bonds maturing between 3 and 7 years make up nearly the same percentage of the calendar as in Apr-Mar, slightly less than a quarter. It is the 10-15-year bonds' relative supply that has slid the most between the first and second half of the fiscal year, down nearly 1.5 percentage points. Meanwhile, the concentration of gilt issuances in long-term bonds has only increased, with 38.6% of the Oct-Mar calendar comprising 30-50 year gilts, against 37.33% in Apr-Sep. This was in line with requests from life insurers and pension funds, dealers said.

The market's focus will also shift to the state bond calendar expected post-market hours on Friday. 

The impact of offshore cues may be limited as traders react to the borrowing numbers. 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. 

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 yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.70-6.77% on Friday. 

India Gilts: Off highs on profit taking as 10-yr yield nears 6.70%

India Gilts: Off highs on profit taking as 10-yr yield nears 6.70%

MUMBAI--1620 IST--Prices of government bonds were off highs because traders from state-owned and private banks likely sold them for a profit as the yield on the 10-year benchmark 7.10%, 2034 gilt approached 6.70%, dealers said. Traders were also keen to take out profits ahead of the closing of Jul-Sep accounts on Friday.

"It looks to be a classic profit booking move at higher levels," a dealer at a primary dealership said. "The euphoria in the market on the borrowing calendar remains."

Bond prices were sharply up earlier, and the 10-year gilt yield hit a fresh 19-month low. Traders remained optimistic of a large gross borrowing cut for the financial year 2024-25 (Apr-Mar) to be outlined in the borrowing calendar for Oct-Mar, expected after market hours, dealers said. Two-way trade has pushed up volumes in the secondary market, with nearly 550 bln rupees of trade in the 10-year gilt alone.

The borrowing calendar for Oct-Mar is likely to be released after market hours today, along with the Oct-Dec calendar for Treasury bills and state bonds, dealers said. Two finance ministry officials had told Informist the final meeting to decide borrowing was held earlier this week, and the calendar would be released by today.

"Everyone who is in the market right now is either churning their portfolios or covering any short positions still left," a dealer at a private bank said. 

The market is pricing in a gross borrowing cut of 100-300 bln rupees in the gross borrowing aim of 14.01 trln rupees this financial year, with the Oct-Mar calendar showing a gross supply of 6.3-6.5 trln rupees. The calendar's tenor-wise weightage may also change slightly, with a higher issuance of short-term bonds and a trimming in the share of bonds maturing above seven years, dealers said.

Dealers said only an overall borrowing cut higher than 300 bln rupees would pull down the 10-year benchmark yield below 6.70%, dealers said. If the borrowing target remains unchanged, the 10-year yield may return to 6.74-6.77% levels, they said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was currently at 1.06 trln rupees, against 394.15 bln rupees at 1530 IST on Wednesday.  (Srijita Bose)

India Gilts: Up more on hope of borrowing cut, less long-term supply

MUMBAI--1405 IST--Government bond prices rose further as expectation of a cut in the government's borrowing aim for 2024-25 (Apr-Mar) led to steady buying, dealers said. Two finance ministry officials told Informist on Wednesday that the borrowing calendar will likely be released post-market hours today.

Traders expect the central government to trim its borrowing through dated securities for the second half of the fiscal year by at least 100 bln rupees. 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.

The yield of the benchmark 10-year 7.10%, 2034 gilt fell to its lowest since Feb 21, 2022, and is expected to fall further during the day as traders will continue to pick up bonds before the release of the borrowing calendar. Foreign banks and private banks are likely buyers, dealers said. Foreign banks were the largest buyers on Wednesday, who continued to pick up bonds even today. Foreign inflows due to the end-of-month increase of Indian gilts' weight in the JP Morgan emerging bond index, along with expectations of a borrowing cut, have spurred a buying spree from foreign banks, dealers said.

Private banks sold bonds at a profit on Wednesday, ahead of the quarterly closing of accounts, and looked to add bonds in their portfolios before the calendar release. The Apr-Sep borrowing calendar allocated a 14.40% share of supply to papers of 5-year tenure or less. Some investors fear an increase in this share would come at the cost of long-term bonds or those of the 10-year gilt, while demand for the latter is not seen decreasing. Insurance companies and pension funds are keen buyers of papers maturing in 30-50 years, which best match their liabilities, dealers said.

"Short-term bonds prices continue to rise despite chances of more supply...there is good demand for short-term bonds because of their spreads between the 10-year, and because of banks' liquidity management," a dealer at a state-owned bank said.

Traders expect the government to continue its trend of reducing short-term borrowing through Treasury bills, with cash balances estimated at 3.8 trln rupees last week, according to a note by Kotak Mahindra Bank. Strong tax collections coupled with the record 2.11 trln rupees of surplus transfer from the Reserve Bank of India have kept cash balances high, resulting in a cut in Treasury bill issuance in both Apr-Jun and Jul-Sep. The government has spent only 2.68 trln rupees on capital expenditure by the end of August, against its Budget aim of 11.11 trln rupees.

Traders said that it's a positive sign that the central government has a healthy cash balance and is trimming its borrowing despite being a coalition government. The Bharatiya Janata Party had lost its outright majority in the Lok Sabha in the General Elections, and has had to rely on coalition partners in the National Democratic Alliance to retain power in India's lower house.

The release of the calendar sidelined global cues. US Treasury yields rose overnight, while crude oil prices fell, but neither had an impact on gilt prices, dealers said. Brent crude for November delivery fell to $71.68 a bbl from $74.05 a bbl at the end of Indian market hours on Wednesday.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 855.45 bln rupees, sharply up from 317.10 bln rupees at 1330 IST on Wednesday. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.70-6.77% today.  (Cassandra Carvalho)

India Gilts: Rise on FY25 borrowing cut hopes; Oct-Mar calendar awaited

NEW DELHI--0950 IST--Government bond prices rose ahead of the expected release of the government's borrowing calendar for dated securities in Oct-Mar, dealers said. While some traders had expected a slight fall at the open due to an overnight rise in US Treasury yields, optimism about a borrowing cut outweighed the impact of the offshore cues.

The borrowing calendar for Oct-Mar is likely to be released after market hours today, along with the Oct-Dec calendar for Treasury bills and state bonds, dealers said. Two finance ministry officials had told Informist the final meeting to decide borrowing was held earlier this week, and the calendar would be released by today. With the announcement, traders expect the government will trim its gross borrowing target of 14.01 trln rupees by 100-300 bln rupees.

Prices of bonds maturing in 13 years and above rose the most as any borrowing cut is expected to curtail supply to these tenures at a time when demand from life insurers is only likely to rise, dealers said. Over 70% of the government's borrowing in Apr-Sep was through bonds maturing in 10 years or above.

Traders initiated fresh bets on bond prices rising after the 7.10%, 2034 gilt ended above 102.50 rupees on Wednesday, seen as a crucial level to break. Trade volumes surged in early trade, after the 10-year bond prices opened little changed before the buying momentum picked up, dealers said.

"I think US yields have been sidelined as a cue since yesterday (Wednesday)," a dealer at a state-owned bank said. "Prices are being pushed up by traders trying to position before the calendar, because there is a lot of buzz about a borrowing cut."

Others said the rise in prices since Tuesday's close has been overdone and the government would not cut its borrowing through dated securities by a material amount until close to the end of the financial year in March, if at all, dealers said. Even with the scepticism, bond prices still had "some more juice" heading into the next monetary policy review in early October, they said. Most of the market expects the tone of Reserve Bank of India officials on inflation expectations to ease, if not a softening in the Monetary Policy Committee's stance of 'withdrawal of accommodation'.

The impact of the rise in US yields was also disregarded as foreign portfolio investor flows are likely to continue, with the US Federal Open Market Committee likely to continue on a rate cut cycle over the next year, dealers said. The yield on the 10-year US Treasury note was at 3.79%, against 3.76% at the end of Indian market hours on Wednesday.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 233.55 bln rupees, against 101.35 bln rupees at 0930 IST on Wednesday.  (Aaryan Khanna)

India Gilts: Seen tad dn on rise in US ylds; borrow calendar awaited

NEW DELHI – Government bond prices are seen opening slightly lower due to an overnight rise in US Treasury yields, dealers said. Losses are likely to be limited due to optimism about a cut in the government's gross borrowing target for 2024-25 (Apr-Mar). The borrowing calendar for Oct-Mar is expected today.

The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.72-6.78% today, against 6.74% on Wednesday. Some traders may not make it to treasury desks due to heavy rain in Mumbai, which has led to severe waterlogging in many parts of the city. Institutions with the ability to work from home are likely to do so, dealers said.

At 0750 IST, the yield on the 10-year US Treasury note was at 3.79%, against 3.76% at the end of Indian market hours on Wednesday. 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. However, foreign investment flows are likely to continue due to India's staggered inclusion in JP Morgan's emerging market bond index since Jun 28, with gilts' weightage on the index rising to 4% on Friday. 

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 cut of 100-300 bln rupees in the gross borrowing target for the current fiscal year, 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 is likely to keep its Treasury bill issuances low to trim any cash excesses, while retaining the gross borrowing target.

The government could raise the share of issuances of bonds maturing in up to five years. To make room for this increase in short-term bond issuances, the government may reduce 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 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 14.40% of the government's planned issuance was in bonds of less than five years. By contrast, 37.33% of the borrowing was concentrated in bonds maturing in 30-50 years.

Meanwhile, the indicative calendar for state borrowing through bonds in Oct-Dec is seen at 2.8-3.1 trln rupees. Any number above 3.2 trln rupees might weigh on gilt prices, dealers said. As for the Treasury bill calendar for Oct-Dec, the gross issuance is seen at 2.8-3.0 trln rupees, with the government likely to completely roll over supply of 182-day and 364-day T-bills worth 1.90 trln rupees in the quarter. Both calendars are also expected to be released this week, with the details of states' issuances likely from the Reserve Bank of India.  (Aaryan Khanna)

End

US$1 = 83.64 rupees

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

Edited by Tanima Banerjee

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