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Informist, Monday, Sept. 30, 2024

By Srijita Bose

MUMBAI – Prices of government bonds ended higher Monday as traders picked up bonds on view that selling on Friday was overdone, dealers said. Some traders also placed bets on easing monetary policy in October.

The 10-year benchmark 7.10%, 2034 gilt closed at INR 102.43 or 6.75% on Monday, against INR 102.35 or 6.76% Friday.

Private and foreign banks bought the 10-year gilt above 6.75% yield, which was seen attractive, dealers said. Traders also covered short bets from Friday, taken when gilt prices had slumped as the Centre retained its gross borrowing target of INR 14.01 trillion for 2024-25 (Apr-Sep), against an expected cut in borrowing by up to INR 300 billion.

After the sharp fall in gilt prices on Friday, traders are keen to buy gilts ahead of the Reserve Bank of India's Monetary Policy Committee meeting, scheduled next week. Traders are betting on a change in policy stance to "neutral" from "withdrawal of accommodation" in the upcoming monetary policy review. The buying momentum led to some traders covering prior short bets.

"I think there's still room for buying as the market is still bullish...and this is the sentiment which is giving traders confidence to buy," a dealer at a private bank said.

News channel NDTV Profit reported earlier in the day that the government had finalised the names of the new external members of the MPC and is likely to announce the new members by Tuesday, citing finance ministry sources. Two external members of the six-member panel--Ashima Goyal and Jayanth Varma--had voted in favour of a 25-basis-point repo rate cut in August, dissenting on the majority status quo view.

In 2020, the RBI had to shift the dates of the meeting due to a delay in the confirmation of the external members. With the members reportedly finalised, dealers had more certainty that the meeting would not be delayed, as some had feared. The government had appointed Goyal, Varma, and Shashanka Bhide as external members of the MPC in October 2020 for a period of four years, with their terms expiring on Friday.

Looking at recent macroeconomic data, traders expect the new MPC external members to also favour a looser policy stance, dealers said. Moreover, the domestic rate-setting panel may be more comfortable easing policy after the US Federal Open Market Committee cut rates by a higher than expected 50 bps earlier this month, they said.

India's headline CPI has fallen below the RBI's 4% target for two months in July and August, albeit due to the statistical effect of a high base that will reverse in September. In data released at 1700 IST, India's eight core industries growth fell to (-)1.8% on year in August, the lowest since February 2021.

Dealers said that demand-supply dynamics are still seen favourable despite the disappointment over the Centre's borrowing, as well as states' indicative borrowing being slightly higher than expected. In a release after market hours on Friday, the RBI had said states were likely to borrow INR 3.2 trillion in Oct-Dec, against INR 2.8-3.2 trillion expected by the market.

The calendar itself did not weigh too much on gilt prices. Moreover, states have borrowed only 75% of the indicated amount overall in Apr-Sept, and maintaining that would keep supply at similar levels to Jul-Sept, which would be a positive, dealers said. Instead, traders geared up for outsize bond supply this week, which curtailed gains especially with three auctions in the remaining three trading days. India's financial markets are shut on Wednesday on the occasion of Gandhi Jayanti.

Twelve states are scheduled to borrow INR 199.42 billion through bonds on Tuesday. The government will sell INR 390 billion through dated securities on Friday, including INR 220 billion of a new 10-year, 2034 gilt. Bonds had fallen off highs in the middle of the day, and recovered only in the latter half of trade, dealers said.

"Towards the end of the (trading) session there was some value buying by traders, along with some foreign inflows through index funds which recovered prices," a dealer at a state-owned bank said. "Going further, I think short-term bonds could see some rally ahead of MPC."

During the day, foreign banks stepped up purchases because of the inclusion of Indian bonds into J.P. Morgan's emerging market bond index. On Friday, the weightage of India's fully accessible route gilts on J.P. Morgan's emerging market bond index suite rose to 4%. Foreign portfolio investors have also been consistent gilt buyers because of the inclusion. According to Clearing Corp of India data at 1930 IST, FPIs bought bonds worth INR 20.38 billion under the fully accessible route on Monday.

During the day's trade, dealers looked ahead to Federal Reserve Chair Jerome Powell's speech at the National Association for Business Economics annual meeting at 2325 IST today. They also await India's manufacturing Purchasing Managers' Index reading for September, to be released by S&P Global on Tuesday at 1030 IST. US economic data scheduled this week, such as the September employment report which includes non-farm payrolls data, and US PMI readings are also awaited, dealers said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 502.95 billion, against INR 856.45 billion at 1700 IST on Friday. Two trades worth INR 100 million were settled under the wholesale digital rupee pilot Monday compared with no trade on Friday.

OUTLOOK

On Tuesday, gilts may open higher. A fall in core sector activity, released after market hours Monday, may spur further bets on domestic monetary policy easing next week, dealers said.

Traders may take cues from the auction cut-offs at the state bond auction at 1030-1130 IST. Twelve states plan to raise INR 199.42 billion through the auction.

The market may also take cues from the movement of US Treasury yields. Foreign fund inflows are likely to continue because of the inclusion of Indian bonds in JP Morgan's emerging market bond index after the weightage was increased to 4% this month. The subsequent fall in US yields due to change may also 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 gilt 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 Tuesday. 

India Gilts: Recover from day's lows; bets on monetary policy easing rise

MUMBAI--1620 IST--Prices of government bonds recovered from the day's lows due to likely purchases by private and foreign banks at levels seen as lucrative, dealers said. Bets on an easing of domestic monetary policy also aided gilts.

Private and foreign banks were both net sellers in the secondary market Friday, according to data from the Clearing Corp of India. They preferred picking up the 7.10%, 2034 gilt as its yield was above 6.75%, dealers said.

These bets took place despite a rise in US Treasury yields through the day, dealers said. The yield on the 10-year US Treasury note erased an overnight fall to climb to 3.78%, from 3.75% earlier. 

Expectations of a change in stance to "neutral" from "withdrawal of accomodation" by the Reserve Bank of India's Monetary Policy Committee at its meeting next week contributed to gains in gilts, while traders were negatively impacted by the "flood" of bond supply this week, dealers said. This also limited gains.

Gains have not been robust in a holiday-shortened week with three auctions, particularly after the indicative state bond issuances for Oct-Dec were also higher than expected, dealers said. Financial markets are shut Wednesday for Gandhi Jayanti. The state bond calendar, released Friday, showed an indicative borrowing of INR 3.2 trillion, against expectations of INR 2.8 trillion to INR 3.1 trillion. On Tuesday, 12 states aim to raise INR 199.42 billion.

"I think the US and India bond yield connection is broken, the market is finding its own domestic cues, (such as) the borrowing calendar, MPC, the increased supply of gilts and state bonds," a dealer at a state-owned bank said.

On Friday, traders dumped gilts after the Centre belied their expectations and failed to cut its borrowing aim for 2024-25 (Apr-Mar) at the release of the Oct-Mar borrowing calendar, dealers said. Further selling pressure came from primary dealers ahead of the first gilt auction in the new calendar. The government is scheduled to sell INR 390 billion worth of gilts Friday, including INR 220 billion of the 10-year bond, both the most so far in FY25.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 452.75 billion, against INR 741.95 billion at 1630 IST on Friday. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.73-6.79% for the rest of the day.  (Cassandra Carvalho)

India Gilts: Erase most gains as traders book profits, US yields inch up

MUMBAI--1315 IST--Government bonds gave up most gains as traders booked profits after prices rose earlier in the day, dealers said. Bonds kept some gains as foreign banks are likely to have covered short bets taken on Friday, while state-owned banks were buyers of the 7.10%, 2034 gilt above 6.75% yield.

Traders sold bonds tracking a slight rise in US Treasury yields intraday. The 10-year US Treasury yield inched up to 3.77% from 3.75%, almost erasing an overnight fall. Primary dealerships were also likely to have been sellers, to trim stock from Friday's 340-bln-rupee gilt auction, dealers said.

On Thursday, the central government announced its borrowing calendar for Oct-Mar, aiming to borrow INR 6.61 trillion through gilts for the second half of the fiscal year. This was a major blow to market sentiment as traders expected a borrowing cut of INR 100-300 billion. The selling pressure caused the yield on the 7.10%, 2034 benchmark to rise by nearly 4 basis points on Friday, the most since Jun 4, and the auction saw its lowest bid-cover ratio in several weeks, dealers said.

"At the end of Friday, the 6.76% yield level of the 10-year was a good level to buy, so traders have used it to their advantage today (Monday) morning, to stock up after so much selling," a dealer at a state-owned bank said.

Supply-demand dynamics are still seen favourable despite the disappointment over the Centre's borrowing, as well as states' indicative borrowing being slightly higher than expected, dealers said. Moreover, traders were optimistic that monetary policy would ease soon. At next week's scheduled Monetary Policy Committee meeting, traders are hoping the panel changes the policy stance to 'neutral' from the current 'withdrawal of accommodation'.

News channel NDTV Profit reported earlier in the day that the government had finalised the names of the new external members of the MPC and is likely to announce the new members by Tuesday, citing finance ministry sources. Two external members of the six-member panel - Ashima Goyal and Jayanth Varma - had voted in favour of a 25-basis-point repo rate cut in August, dissenting on the majority status quo view. The government had appointed Goyal, Varma, and Shashanka Bhide as external members of the MPC in October 2020 for a period of four years, with their terms expiring on Friday. Some dealers also expect a cut in the cash reserve ratio from 4.50% to 4.00%. 

Dealers also await India's manufacturing Purchasing Managers' Index reading for September, to be released by S&P Global on Tuesday at 1030 IST. US economic data scheduled this week, such as the September employment report which includes non-farm payrolls data, and September ISM report on business services Purchasing Managers' Index is also awaited, dealers said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 285.25 billion, against INR 448.35 billion at 1330 IST on Friday. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.73-6.79% for the rest of the day. (Cassandra Carvalho)

India Gilts: Up on likely buys from state-owned banks; fall in US yields aid

MUMBAI--0957 IST--Prices of government bonds rose due to purchases by traders on the view that the fall in gilt prices on Friday was overdone, dealers said. A fall in US Treasury yields also aided the rise in price of Indian bonds today.

"On Friday, we saw an excess selling pressure for various reasons, so people are buying right now," a dealer at a primary dealership said. "The levels of 6.75% (yield on the 7.10%, 2034 bond) is lucrative for everyone to buy. The market is positive, it has also factored in the borrowing calendar now," the dealer added. 

On Friday, the 10-year benchmark yield rose 4 basis points, the most in nearly four months, after the Centre did not cut its gross borrowing as the market had expected. The government said on Thursday it will borrow INR 6.61 trillion through bonds, on a gross basis, in Oct-Mar, rounding out the remainder of its INR 14.01 trillion aim for 2024-25 (Apr-Mar).

State-owned banks likely stepped up purchases of the 7.10%, 2034 bond as the 10-year benchmark yield was above 6.75%, dealers said. On Friday, state-owned banks net bought gilts worth INR 106.42 billion in the secondary market, according to data from Clearing Corp of India. 

Foreign banks stepped up purchases because of the inclusion of Indian bonds into J.P. Morgan's emerging market bond index. On Friday, the weightage of India's fully accessible route gilts on J.P. Morgan's emerging market bond index suite rose to 4%.

Foreign portfolio investors have been consistent gilt buyers because of the inclusion. Until Friday, FPIs had bought bonds worth INR 159.05 billion through fully accessible route in September, according to CCIL data.

They also stepped up purchases due to a fall in US yields. The yield on the 10-year US Treasury note fell to 3.75% from 3.78% at the time the Indian market closed on Friday, after US inflation in August came in slightly lower than expected.
 

However, the impact of a higher-than-expected borrowing of state government security indicative calendar was not significant, dealers said. This happened as the market had already factored in the borrowing amount.

"The borrowing does not seem to be quite a problem right now," a dealer at a private bank said. "This is because many times it has happened that the government cuts their borrowing target towards the end of the quarter, which can happen this time as well." 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 84.30 billion, against INR 175.50 billion at 1030 IST on Friday. (Siddhi Chauhan)

India Gilts: Seen steady; higher-than-expected state borrowing may weigh
 

MUMBAI – Government bond prices are seen opening steady as the impact of states' higher-than-expected borrowing announcement may be offset by a slight fall in US Treasury yields, dealers said.

The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.72-6.80% today, against 6.76% on Friday. The 10-year benchmark yield rose 4 basis points on Friday, the most in nearly four months, after the Centre did not cut its gross borrowing as the market had expected. The weightage of India's fully accessible route gilts on J.P. Morgan's emerging market bond index suite rose to 4% on Friday.
 

States said they will borrow INR 3.2 trillion in Oct-Dec, according to the indicative calendar released after market hours on Friday. Traders were expecting states' borrowing in the range of INR 2.8-3.1 trillion, dealers said.

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

Meanwhile, on the global front, a fall in US yields may aid gilt prices, dealers said. The yield on the 10-year US Treasury note fell to 3.75% from 3.78% at the time the Indian market closed on Friday. 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.

The yield on the benchmark 10-year US Treasury note ended lower on Friday after data showed inflation in the US was easing, making the case stronger for a large rate cut by the US Federal Reserve at its next meeting in November. The US personal consumption expenditure price index rose 2.2% on year in August, lower than estimates of a 2.3% rise by Dow Jones, as well as July's 2.5% rise. (Siddhi Chauhan)

End

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

Edited by Akul Nishant Akhoury

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