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Informist, Tuesday, Oct. 8, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds surged as traders picked up bonds to compensate for days of selling. Towards the end of the day, traders covered short bets ahead of the Monetary Policy Committee meeting outcome on Wednesday, dealers said.

The 10-year benchmark 7.10%, 2034 gilt ended at INR 102.02 or 6.81% yield, compared with INR 101.72 or 6.85% yield on Monday. Gilts opened higher, and the buying momentum built up through the day as the market got closer to the MPC's decision.

Reserve Bank of India Governor Shaktikanta Das will deliver a statement detailing the rate decision at 1000 IST on Wednesday. After the US Federal Open Market Committee cut the Fed funds rate by 50 basis points in September, the domestic market began taking bets that the MPC would ease monetary policy with a change of stance at its October meeting. Some retained the hope that India's rate-setting panel would change its stance to neutral from 'withdrawal of accomodation' after more than two years.

The RBI has already allowed liquidity conditions in the banking system to be comfortable, which is not in line with the 'withdrawal of accommodation' stance, dealers said. The surplus liquidity in the banking system swelled to INR 2.88 trillion on Thursday, the most since July 2022. This may signal the RBI was ready to soften monetary policy gradually, especially when recent inflation prints were below the RBI's 4% target. 

The MPC may also shift its focus to propping up growth as momentum shows signs of falling, with core sector growth at an over three-year low in August, and September purchasing managers' index prints at multi-month lows, dealers said. In recent comments, RBI Governor Shaktikanta Das has said growth is robust, and it is too early to talk about easing monetary policy before CPI inflation aligns with the 4% aim.

"If not a change of stance, even a neutral tone without any hawkish comments from RBI Governor Das will cause the market to rally tomorrow (Wednesday)," a dealer at a private bank said.

Some economists, in an Informist poll, expect the RBI to lower its 2024-25 (Apr-Mar) growth forecast of 7.2% by 10-20 bps on Wednesday. Traders also bet on a downward revision in GDP forecasts, which may cement hopes of rate cuts in the remainder of the financial year, dealers said.

Expectations of a stance change had died down last week as Iran fired around 180 ballistic missiles into Israel. The US said it would coordinate with Israel to retaliate, sending crude oil prices soaring globally, while it spurred fears of rising inflation domestically. Amid the geopolitical uncertainty, the newly reconstituted MPC might not be comfortable in giving forward guidance on rates, dealers said.

Others were more concerned about the uncertainty caused by the new external members on the panel. On Oct. 1, the government named Delhi School of Economics Director Ram Singh, economist Saugata Bhattacharya, and Institute for Studies in Industrial Development Director and Chief Executive Nagesh Kumar as external members of the RBI's MPC. The market has limited insight into the monetary policy views of the academics. However, Bhattacharya – former chief economist at Axis Bank – may favour a 25-basis-point rate cut, dealers said. In notes last week, economists also said Bhattacharya might dissent on status quo.

Throughout the day, traders covered short bets heading into the outcome of the MPC meeting, dealers said. Private banks bought the 10-year benchmark 7.10%, 2034 gilt for both their investment and trading portfolios. Private banks have been net buyers in the secondary market since Friday, after being net sellers for seven straight days, according to Clearing Corp. of India Ltd. data. Early in the day, banks likely bought gilts for their investment portfolios at levels considered lucrative. Some state-owned banks added gilts after the 10-year benchmark yield rose 10 basis points in the week to Monday. Primary dealers were likely to have been on the selling side.

Traders also await the release of FTSE Russell's review of fixed income classification, expected post market hours. Expectations of an inclusion of Indian gilts in FTSE Russell's emerging market bond index also buoyed gilt prices, despite the 10-year US Treasury yield remaining above the crucial 4% mark, dealers said. The gilt market also tracked a fall in overnight indexed swap rates, after a large state-owned lender received fixed rates in the five-year swap contract, after the rate hit a two-month closing high on Monday.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 710.10 billion, against INR 787.40 billion on Monday. Fourteen trades worth INR 700 million were settled on Tuesday under the wholesale digital rupee pilot, while no trades were settled under this method on Monday.

OUTLOOK

Gilts are seen opening steady on Wednesday ahead of the RBI's MPC meeting outcome, dealers said. While some traders expect the rate-setting panel to change its stance from 'withdrawal of accomodation' to 'neutral', others expect status quo on the stance and rate fronts, dealers said.

Some dealers said the market would open higher, as there are no negative cues from the RBI regarding the onset of rate cuts. "The risk is relatively less, there's only positive signs (about policy easing in India), and already the market has seen a 10 basis point correction recently," a dealer at a state-owned bank said. 

Traders await FTSE Russell's conclusion of its index review, reportedly due on Tuesday. If the index approves India's inclusion into its emerging market bond index, the demand outlook for Indian gilts will improve, and is likely to drive prices higher, dealers said. On the other hand, further delay in the inclusion –- India has been on the watchlist for entry since 2021 -- will not lead to excessive selling as the inflows from the inclusion are not expected to be significant, they said. 

The gilts market may see foreign fund inflows because of the inclusion of Indian bonds in JP Morgan's emerging market bond index after the weightage was increased to 4% in September. 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.

Gilts may also take cues from any further developments in the crisis in West Asia, along with the movement in crude oil prices, dealers said. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.72-6.86% on Wednesday.
 

India Gilts: Up more ahead of MPC outcome; RBI seen cutting FY25 GDP view

MUMBAI-–1650 IST--Prices of government bonds rose further as traders covered short bets heading into the outcome of the Reserve Bank of India's Monetary Policy Committee meeting on Wednesday, dealers said. The surge in prices began early in the day on banks buying gilts for their investment portfolios at levels considered lucrative.

"There is a lot of confusion in the market with varied cues," a dealer at a private bank said. "But after the 10-year's yield went up to 6.85% levels, I think many institutional participants added to their HTM (held-to-maturity) portfolio."

Private banks bought the 10-year benchmark 7.10%, 2034 gilt for both their investment and trading portfolios, dealers said. They also said that some state-owned banks added gilts--after 10 basis points rise over the past week. Primary dealers were likely on the selling side, dealers said. 

Traders were also cautious ahead of the MPC policy outcome, which will be detailed by RBI Governor Shaktikanta Das at 1000 IST on Wednesday. Though most dealers were of the view that a stance change might not happen, they said that there was uncertainty due to the introduction of the three new external members, about whom the market had limited knowledge.

"I don't think that the RBI (Reserve Bank of India) wants the market to run ahead of itself...they would cut rates and change the stance all at one go," a dealer at a state-owned bank said, who expects such an action at the earliest by December. However, there still remained a small section of the market which expected a change in stance at the MPC. 

The primary reason for this could be a downward revision in GDP growth for 2024-25 (Apr-Mar), dealers said. The RBI forecast GDP growth to average 7.2% in FY25, with Jul-Sept growth also seen at 7.2%. Traders said the annual figure could be revised to as low as 6.7%.

Some economists, in an Informist poll, expect the RBI to lower its FY25 growth forecast by 10-20 bps on Wednesday. RBI staff mentioned in their monthly State of the Economy article last month that their internal models show GDP growth rising to 7.0% in Jul-Sept--20 bps lower than the RBI’s official forecast--while the full-year growth figure is seen 10 bps higher than the central bank's forecast of 7.2%. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 680.05 billion, against INR 679.55 billion at 1630 IST on Monday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.81-6.89%.  (Srijita Bose)

India Gilts: Sharply up; pvt banks replenish portfolios at lucrative levels

MUMBAI--1330 IST--Prices of government bonds were sharply up as traders were of the view that gilt prices were lucrative to add to their portfolios, dealers said. The purchases have been particularly aggressive from private banks, who had shed a large quantum of gilts over the past 10 days.

On Monday, the 10-year gilt yield ended at its highest since Sept. 10. Between Sept. 26 and Monday, the 10-year bond's price has fallen over a rupee from its highs. Private banks have been top net sellers on three out of seven trading days, according to Clearing Corp. of India Ltd. data. 

Prices also rose as traders were optimistic of India's inclusion in the FTSE Russell's emerging market bond index, dealers said. The decision is expected after market hours Tuesday. A Bloomberg report on Friday said the index provider had a productive meeting with the Securities and Exchange Board of India on foreign investors' access to India's bond market.

"Despite the yield of the 10-year US Treasury (note) remaining above 4%, we're still seeing some foreign inflows into gilts because of the FTSE (bond inclusion) expectation," a trader at primary dealership said. The yield on the 10-year US Treasury note was at 4.01%, largely unchanged from Monday's close.

Traders remained divided on what the outcome of the ongoing Monetary Policy Committee meeting would be, as geopolitical conflict and the appointment of three new external members to the MPC left expectations of a change of stance to neutral dwindling, dealers said. The MPC has kept its stance 'withdrawal of accomodation' unchanged since June 2022.     

Some traders hope for a stance change by the MPC, or a neutral tone in RBI Governor Shaktikanta Das' speech. The conflict in west Asia, between Israel and Iran-backed militant groups caused oil prices to surge last week, raising fears of imported inflation. Brent crude for December delivery was $79.50 a barrel from $73.90 a barrel a week ago. If the threat of higher fuel inflation becomes persistent, the MPC may delay the onset of its rate cut cycle, dealers said.

As for the split in voting amongst the panel members, traders remain unsure on the approach the newly appointed MPC members would follow. On Oct. 1, the government named Delhi School of Economics Director Ram Singh, economist Saugata Bhattacharya, and Institute for Studies in Industrial Development Director and Chief Executive Nagesh Kumar as external members of the Reserve Bank of India's MPC. Some traders expect the vote for a status quo on rates and stance may be unanimous. Former members Ashima Goyal and Jayanth Varma voted for a 25-basis-point rate cut at the previous policy in August; their terms ended on Friday. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 347.20 billion, against INR 469.45 billion at 1330 IST on Monday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.81-6.89%. (Cassandra Carvalho)

India Gilts: Up; traders trim short bets ahead of RBI's MPC meet outcome Wed

India Gilts: Up; traders trim short bets ahead of RBI's MPC meet outcome Wed

MUMBAI--1041 IST--Prices of government bonds rose sharply due to purchases by traders on the view that the fall in prices in the previous trading session was overdone, dealers said. Some traders also reversed their short bets ahead of the Reserve Bank of India's Monetary Policy Committee's outcome due on Wednesday, dealers said. 

"Markets are slightly positive today, US yields have not moved much from the previous day's level so it is a good time to buy," a dealer at a primary dealership said. "Yesterday (Monday) we saw heavy selling from PDs (primary dealerships) and foreign banks, so now probably they are buying again."

At 1015 IST, the yield on the 10-year US Treasury note was little changed at 4.01% from the time of the Indian market close on Monday. On Monday, the yields on the US Treasury note had risen above the mark of 4%, the level which was last seen on Aug. 8. 

According to data from Clearing Corp of India, foreign banks have been on the selling side for the past three trading sessions. As a result, foreign banks have likely stepped up purchases of gilts, dealers said.

Apart from them, some traders also reversed their short bets ahead of the MPC meeting outcome, dealers said. The rate setting panel is widely expected to keep the rates and the stance unchanged on Wednesday. However, there are some market participants who expect the MPC to change its stance to 'neutral'.

In the previous week, traders sold bonds heavily reversing bets that they had placed on policy easing, due to fears of further escalation in the West Asia conflict. Even though the possibility of further escalation in conflict was limited, it seemed difficult for the rate setting panel to ignore it, dealers said. 

During the day, traders await the result of the INR 187-billion state-government security auction to gauge demand from investors, dealers said. The auction is expected to sail through with moderate demand, dealers said. The 10-year state bonds may see demand from state-owned banks and private banks, while the long-term maturity bonds may see good demand from insurance companies and pension funds, dealers said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 194.53 billion, against INR 152.85 billion at 1030 IST on Monday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.81-6.89%. (Siddhi Chauhan) 

India Gilts: Seen steady on caution ahead of RBI's MPC meet outcome Wed
 

MUMBAI – Prices of government bonds are seen opening steady on caution ahead of the Reserve Bank of India's Monetary Policy Committee meeting outcome, due on Wednesday, dealers said. 
 

The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.81-6.89% Tuesday, against 6.85% on Monday. Traders may refrain from placing large bets on caution ahead of the MPC meet outcome, dealers said.

While most expect the rate-setting panel to leave the repo rate unchanged at 6.50%, the market is divided on the possibility of a change in policy stance. While some traders expect the MPC to change its stance to 'neutral', a majority expects the panel to continue with the 'withdrawal of accommodation' stance.
 

Amongst a few reasons for no change in stance is the appointment of new external members. The new external members of the MPC may not vary from the RBI's opinion given it would be their first meeting, dealers added. 

The government last week selected economist Saugata Bhattacharya, Director of the Delhi School of Economics Ram Singh, and Chief Executive and Director of the Institute for Studies in Industrial Development Nagesh Kumar to the MPC. They took the place of Shashanka Bhide, Jayanth Varma, and Ashima Goyal, two of whom had voted in favour of a rate reduction in August.

During the day, traders may await the result of the INR 187-billion state-government security auction to gauge demand from investors, dealers said. The auction is expected to sail through with moderate demand, dealers said. The 10-year state bonds may see demand from state-owned banks and private banks, while the long-term maturity bonds may see good demand from insurance companies and pension funds, dealers said. 

Traders will also track the intraday movement in US Treasury yields. At 0757 IST, the yield on the 10-year US Treasury note was little changed at 4.01% from the time of Indian market close on Monday.

Traders also await the announcement of the FTSE Russell' bond index review. If Indian bonds are not included in the FTSE Russell indices, the market may not take major cues as the inflows from the same are not expected to be significant in the near term, dealers said.  (Siddhi Chauhan)

End

US$1 = INR 83.96

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

Edited by Avishek Dutta

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