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Informist, Friday, Sep 27, 2024

By Srijita Bose and Cassandra Carvalho

MUMBAI – Prices of government bonds ended sharply lower after the government did not cut its 2024-25 (Apr-Mar) gross borrowing as the market had expected. Prices fell further after demand at the weekly gilt auction was weak, dealers said. The yield on the 10-year benchmark gilt rose by over 4 basis points, the biggest single-day rise since Jun 4. 

The 10-year benchmark 7.10%, 2034 gilt ended at 102.35 rupees, or 6.76%, today against 102.66 rupees, or 6.72% yield, on Thursday. The gilt had gained for the week till Thursday, but erased nearly all those gains today.

The bidding pattern at the 340-bln-rupee auction showed tepid demand for gilts, with bid-cover ratios weaker than previous auctions, dealers said. The government sold 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 in the last scheduled auction in Apr-Sep. While most of the stock was picked up by investors to hold to maturity, some traders got bargains at the auction as demand was not robust, dealers said.

This caused traders to book profits after the result of the auction. The cut-off of the 2039 bond was set at 104.07 rupees, against the Informist poll estimate of 104.15 rupees. The weighted average price of the bond was 104.13 rupees. Demand for the bond came from private banks and state-owned banks, who did not place aggressive bids, dealers said. They said that state-owned banks, private banks as well as primary dealers trimmed their portfolios after getting stock at the auction.

A gilt switch earlier this week worth nearly 300 bln rupees added to long-term gilt supply, while states raised 344 bln rupees through bonds on Tuesday. However, state-owned banks and mutual funds may have bought the 10-year gilt as its yield topped 6.75%, dealers said. This prevented a further fall in gilt prices by the end of the day, they said. 

"After the borrowing calendar was higher-than-expected, the market waited for the gilts auction results to sell, and now since the results were also poorer, it triggered a strong sell across different investor sections," a dealer at a state-owned bank said. 

At the auction, despite low demand seen in the 2039 bond, the long-term 2054 gilt was mopped up by life insurers and pension funds. Bond forward-rate agreements likely accounted for only about 15 bln rupees of demand, but investor appetite was firm. This was despite an increase in its issuance in the borrowing calendar released on Thursday. Dealers said long-term investors were unperturbed by the increase in 30-50-year bond supply to 38.6% of the Oct-Mar borrowing from 37.33% in Apr-Sep, as they had asked for a higher share of the borrowing to match their increasing corpus in the second half of the year. However, the yield spread between these long-term bonds and 10- to 15-year papers widened due to the details of the calendar, while investors had feared a cut in the supply and run-up prices earlier in the week, dealers said.

The five-year bond's cut-off price was on expected lines, but state-owned banks' bids were weaker than expected at the auction, dealers said. The paper erased gains after the result, but recovered before market close. Other short-term gilts held on to slight gains as their share of Oct-Mar supply did not rise as much as traders had feared before the calendar, dealers said. The fall was limited as the share of supply of bonds in the three to seven year segment was largely unchanged in Oct-Mar from Apr-Sep, dealers said. Traders had expected a higher supply of short-term bonds in the second-half of the fiscal year. 

"For the first time this season, we've seen such low demand at the gilts auction...because of the expectations of a borrowing cut, all traders were overpositioning. So now we're seeing the effect in prices today," a trader at primary dealership said.

The central government maintained its gross borrowing aim of 14.01 trln rupees for 2024-25 in the Oct-Mar borrowing calendar, which was released post market hours on Thursday. Gilt market traders had expected a borrowing cut of 100-300 bln rupees, spurring buying of bonds for a week. By Thursday, the price of the 7.10%, 2034 bond had jumped 32 paise this week to 102.66 rupees.

The government will borrow 6.61 trln rupees in Oct-Mar, after 7.40 trln rupees worth of gilts were absorbed by the market in Apr-Sep, ending at the auction today. Bonds maturing between 3 and 7 years made up nearly the same percentage of the calendar as in Apr-Mar, slightly less than a quarter. The 10-15-year bonds' relative supply slid the most between the first and second half of the fiscal year, down nearly 1.5 percentage points. The concentration of gilt issuances in long-term bonds 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.

Despite the overall negative market sentiment, traders avoided aggressive bets before the auction, dealers said. Moreover, the slight cut in supply of the 10-year bond in the Oct-Mar borrowing calendar remained a slight positive, they said. It was only when signs of flailing demand were spoken of, for the fresh supply, did prices start falling in earnest, particularly on long-term bonds.

Dealers said the market was "correcting itself" after significant gains since the Federal Open Market Committee cut US rates by 50 basis points last week. Traders were also making the most out of the price rise this week, by selling bonds at a profit to aid their balance sheets in Jul-Sep. 

Hopes of 10-year benchmark yield falling below 6.70% in the next week were quashed after approaching that level on Thursday, dealers said. Nonetheless, analysts continue to see a chance of the actual number being lower on account of the government's high cash balances and lower spending. Both Nomura and Nirmal Bang wrote in notes that the Centre could opt for a borrowing cut towards the end of the fiscal year.

Moreover, traders look forward to any sign of a shift in policy outlook by the Monetary Policy Committee. The MPC will meet from Oct 7-9, and traders expect a change of stance from "withdrawal of accomodation" to "neutral", or a cut in the cash reserve ratio, in the outcome. Rate cuts are expected only from December, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 861.75 bln rupees, against 1.14 trln rupees on Thursday. No trades were settled under the wholesale digital rupee pilot today, the same as on Thursday.

OUTLOOK

Gilts are not traded on Saturday. On Monday, gilts may open steady due to mixed cues, dealers said. 

The indicative calendar of state borrowing for Oct-Dec released post market hours today was higher than traders' expectations. States will borrow 3.2 trln rupees for the quarter, while traders expected a number at 2.8-3.1 trln rupees. The figure might weigh on gilt prices, particularly those of long-term gilts, dealers said.

However, the market has somewhat discounted a larger-than-estimated size of borrowing in Oct-Dec, which is likely to balloon further in Jan-Mar. Moreover, states have borrowed only 75% of the indicated amount overall in Apr-Sep, and maintaining that would keep supply at similar levels to Jul-Sep, which would be a positive, dealers said.

Heavy selling of bonds today would leave traders with space for more gilts on their trading books. Since today was the last day to add value to banks' balance sheets for the Jul-Sep quarter, selling bonds at profit will reduce on Monday, dealers said.

The market may also take cues from the movement of US Treasury yields after the release of US Personal Consumption Expenditure data released post-market hours today. The index rose 0.1% in August after an unrevised 0.2% gain in July, in line with economists' forecasts.

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 overnight movement in crude oil prices may also affect gilt prices at the open. 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 6.73-6.79% on Monday. 

India Gilts: Fall more after auction result shows tepid demand

India Gilts: Fall more after auction result shows tepid demand

NEW DELHI--1445 IST--Government bond prices fell further after the result of the 340-bln-rupee weekly gilt auction showed poor incremental demand for gilts in a supply-heavy week, dealers said. Demand for bonds has cooled after the government did not cut its borrowing target for 2024-25 (Apr-Mar), as traders had expected.

A gilt switch earlier this week worth nearly 300 bln rupees added to long-term gilt supply, while states raised 344 bln rupees through bonds on Tuesday. The 10-year benchmark gilt yield rose 3 basis points to 6.75%, the biggest rise in a day since Jun 4, when a surprise in the General Election results had thrown the market topsy-turvy. The government sold 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 at 1030-1130 IST.

"People who wanted to buy long-term bonds bought yesterday (Thursday). Banks who wanted to buy short-term bonds have been buying in the secondary since morning," a dealer at a private bank said. "With such a heavy market, it's no surprise there was no appetite at auction."

The 15-year bond was the worst bid. Demand for the bond came from private banks and state-owned banks, who were seeking higher returns and were not aggressive in their bids, dealers said. Primary dealers also covered short bets in the bond, and the Reserve Bank of India likely had to accept a majority of competitive bids in the paper. The bond traded at 104.02 rupees in the secondary market, below the auction cut-off price of 104.07 rupees.

Meanwhile, the five-year bond's cut-off price was on expected lines, but state-owned banks' bids were weaker than expected at the auction, dealers said. The paper erased gains after the result. Other short-term gilts held onto slight gains as their share of Oct-Mar supply did not rise as much as traders had feared before the calendar, dealers said.

Meanwhile, the long-term 2054 gilt was mopped up by life insurers and pension funds and the cut-off price was slightly better than expected, dealers said. Bond forward-rate agreements likely accounted for only about 15 bln rupees of the demand, but investor appetite was firm. This was despite an increase in its issuance in the borrowing calendar released on Thursday. Dealers said long-term investors were unperturbed by the increase in 30-50-year bond supply to 38.6% of the Oct-Mar borrowing from 37.33% in Apr-Sep, as they had asked for a higher share of the borrowing to match their increasing corpus in the second half of the year.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 589.75 bln rupees, against 886.85 bln rupees at 1430 IST on Thursday. (Aaryan Khanna)

India Gilts: Most down; auction bids not seen firm post H2 calendar

MUMBAI--1255 IST--Prices of most government bonds remained down as the borrowing calendar for the second half of the financial year ending March did not show a cut in gross borrowing for 2024-25 (Apr-Mar), as the market had expected, dealers said. Bids at the 340-bln-rupee auction today were not seen aggressive, with investors likely to demand higher returns on the bonds at the auction.

The government offered to sell 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. Dealers characterised the demand as "luke-warm", due to the lack of the expected 100-300 bln rupees cut in the gross borrowing target of 14.01 trln rupees this year. The 15-year paper saw demand from state-owned banks, while the 30-year paper saw demand from life insurers and pension funds, dealers said. 

"I think the market is seeing a correction after rallying so much in the past week or so, but I don't see (yield on) the 10-year (benchmark 7.10% 2034) bond going above 6.76% levels," a dealer at a state-owned bank said. "The market is now waiting for the (gilt) auction results and the state bond calendar to take cues." The 10-year gilt yield had fallen 4 basis points this week, to 6.72% Thursday.

In contrast, the demand for the five-year benchmark bond was robust at the auction, dealers said. Prices of bonds maturing under seven years rose as the share of supply of bonds in three-seven-year segment was largely unchanged in Oct-Mar from Apr-Sep, at less than a quarter of the total borrowing, dealers said. Traders picked up the bonds because they expect demand for short-term bonds to increase towards the end of the fiscal, with the Reserve Bank of India's proposed liquidity coverage ratio guidelines pushing banks to invest in these gilts. Moreover, the Oct-Dec calendar for Treasury bills was lower than expected.

Traders now await indicative calendar for state bonds for Oct-Dec to make further changes to their portfolios. The calendar is likely to be announced after market hours, and traders expect the RBI to announce state bond supply at around 3 trln rupees, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 430.30 bln rupees, against 279.20 bln rupees at 1230 IST on Thursday. (Srijita Bose)

India Gilts: Fall as govt does not cut FY25 gross borrow as mkt hoped

MUMBAI--1105 IST--Prices of government bonds fell as the government stuck to its 2024-25 (Apr-Mar) gross borrowing target, instead of a cut that the market had expected, dealers said. Losses were, however, limited by aggressive purchases by state-owned banks despite the 340-bln-rupee auction underway, dealers said.

Before the release of the calendar, the market was optimistic of a 100-300 bln rupee cut in the government's gross borrowing target for 2024-25 of 14.01 trln rupees. The government said it would retain the target, and would borrow the remaining 6.61 trln rupees in Oct-Mar, according to the calendar released after market hours on Thursday.

State-owned banks were top net buyers on Thursday and were likely to have been on the buying side in early trade today as well, dealers said.

Some traders said they had already trimmed their bond holdings by the end of trade on Thursday, and were keen to pick up gilts as prices fell. Gilt prices ended off highs on Thursday ahead of the release of the borrowing calendar.

"The market was quite heavy heading into the calendar, but there are other positive factors that are now being priced in, including easier monetary policy," a dealer at a foreign bank. "The foreign inflows are constant, so there's not much scope for yields to go up."

Private banks were likely selling ahead of the quarter-end as the trades executed up to Friday will be added to treasury trading gains for Jul-Sep, dealers said. As per data from Clearing Corp of India, they have sold bonds worth 105.47 bln rupees in the last three days. 

"The market opened slightly down but since then it has recovered because of buying, the levels are also lucrative right now," a dealer at a state-owned bank said. "We are also seeing selling from private banks, but I don't see the market moving much from these levels because we have gilts auction as well."

The government will sell 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 in the last auction in Apr-Sep. With state-owned banks buying in the secondary market, traders feared the cut-off prices for the bonds at auction may fall. This was especially after a gilt switch earlier this week worth nearly 300 bln rupees added long-term gilt supply, while states raised 344 bln rupees through bonds on Tuesday.

The 2029 paper is expected to see firm demand from state-owned banks and private banks at the last auction. Mutual funds may also pick the bond. The 15-year benchmark may see bids mostly from state-owned banks and private banks, especially as its relative supply has been cut in the Oct-Mar calendar, dealers said. The 2054 bond is expected to see demand from the usual long-term investors – insurance companies and pension funds. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 175.05 bln rupees, against 374.80 bln rupees at 1130 IST on Thursday. (Siddhi Chauhan and Aaryan Khanna)

India Gilts: Seen dn as Oct-Mar borrow calendar higher than expected

MUMBAI – Government bond prices are seen opening slightly lower today as the borrowing calendar for dated securities in Oct-Mar was higher than market expectations, dealers said. Traders may also sell their bonds at profit ahead of the quarter-end as the trades executed up to Friday will be added to treasury trading gains for Jul-Sep, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.71-6.77% today, against 6.72% on Thursday. However, purchases by foreign investors towards the end of the month may support gilt prices, dealers said. The weightage of India's fully accessible route gilts on JP Morgan's emerging market bond index suite will rise to 4% today.

Before the release of the calendar, the market was optimistic of a cut in the government's gross borrowing target for 2024-25 (Apr-Mar). The market had expected borrowing in Oct-Mar at 6.3-6.5 trln rupees. However, in a release after market hours on Thursday, the government said it would borrow 6.61 trln rupees on a gross basis in Oct-Mar.

In the borrowing calendar, bonds maturing between three and seven years have nearly the same percentage that was seen in Apr-Mar, slightly less than a quarter. The supply of 10- to 15-year bonds has seen a significant decline between the first and second half of the fiscal year, down nearly 1.5 percentage points.

However, the supply of longer-tenure bonds has seen an increase with bonds maturing in 30 to 50 years comprising 38.6% of the Oct-Mar calendar, against 37.33% in Apr-Sep. On the previous trading day, long-term bonds led the gains as investors were piling on these bonds, fearing a chance of a borrowing cut in these tenures.  As a result, longer-tenure bonds are expected to see a sell-off during the day, dealers said. 

Traders are likely to place short bets ahead of the 340-bln-rupee gilt auction scheduled at 1030-1130 IST. Despite the negative sentiment in the market, the auction is expected to sail through, though investors may demand higher returns, dealers said. However, losses in short-term bonds may be limited as they had not gained as much before the calendar, and due to a lower-than-expected supply of Treasury bills in Oct-Dec.

At the auction today, the last auction in Apr-Sep, the government will sell 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 2029 and 2039 gilts are expected to be picked up by state-owned banks and private banks, and the 2054 bond will see demand from insurance companies and pension funds, dealers said. (Siddhi Chauhan)

End

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

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