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Informist, Wednesday, Oct. 9, 2024

By Srijita Bose

MUMBAI – Government bond prices ended sharply higher after the Monetary Policy Committee softened its stance to neutral, ending an over two-year spell of 'withdrawal of accomodation' which began with the onset of rate hikes. The change in policy stance signalled that the bond market's long wait for rate cuts could be over soon, dealers said.

At its monetary policy meeting that concluded Wednesday, the MPC voted 5-1 in favour of holding the repo rate steady at 6.50%.

The 10-year benchmark 7.10%, 2034 gilt ended at INR 102.30 or 6.77% yield. Trading hours on Wednesday were extended by 30 minutes till 1730 IST due to a delay in allotment of treasury bills after the auction. During most of the day, the bond traded within a narrow range after jumping by almost 50 paise from the previous day's close following the policy statement. 

With the MPC changing stance, traders were once again of the view that the Reserve Bank of India could cut rates as early as December. Although this was the expectation until two weeks ago as well, the recent flare-up in geopolitical tensions in the West Asia had led to concern that the uncertainty could prompt a seemingly cautious MPC to put off rate cuts further. Traders had limited their bets on a stance change by the newly reconstituted MPC due to rising tensions in West Asia and limited knowledge of the external members appointed to the panel. Nagesh Kumar, director and chief executive of the Institute for Studies in Industrial Development, was the dissenting vote, advocating for a 25 basis-point rate cut. By changing its stance, the MPC seemed to be on course towards lowering rates, dealers said.

However, traders were still not confident about the likely timing and extent of rate cuts, which capped gains in bond prices, dealers said. 

"I think it's still a big boost for the market as most people were of the opinion that the RBI will be status quo on policy, but the path to a rate cut is still a little foggy," a dealer at a state-owned bank said. 

Prices were unable to rise further also because some traders, particularly state-owned banks, sold to book profits. Public sector banks found lucrative levels to shed some of their portfolios after the yield on the 10-year gilt touched 6.73%, the lowest since Sept. 27, dealers said.  

While some traders had expected a similar outcome in the policy review meeting, a section of the market had hoped for stronger signs of policy easing. There was also disappointment among some traders that Das continued to underscore risks to the central bank's inflation target of 4%. 

A segment of the market had expected a downward revision in the growth forecast for 2024-25 (Apr-Mar), dealers said. The RBI revised the GDP forecast for Jul-Sept to 7.0%, down from 7.2%. It also revised estimates for Oct-Dec to 7.4% from 7.3% and for Jan-Mar to 7.4% from 7.2%. It kept the forecast for 2024-25 (Apr-Mar) unchanged at 7.2%. According to a poll by Informist, some economists had expected the rate-setting panel to lower the growth forecast of 7.2% by 10-20 bps. Traders remain divided on whether the RBI will cut rates at the next MPC meeting in December.  

"I always felt that the RBI would only cut rates in February. Even today, though there has been a stance change, Das' speech was mostly hawkish," a dealer at a private bank said, who kept his view on rate cuts unchanged. "The only change now to look for is if the US (Federal Open Market Committee) cut rates by 50 basis points in November."

The uptick in US treasury yields also likely resulted in some selling by foreign banks as the interest rate differential between the US 10-year Treasury note and the 10-year gilt narrowed. The geopolitical crisis in West Asia also weighed in on gilt prices, but the focus remained on the MPC, dealers said. The FOMC's meeting in November could be the next potential trigger to drag the yield on the benchmark 10-year gilt below the 6.72% level. While a 25 bps cut by the Fed next month will not result in much change to domestic traders, a 50-bp cut could spur a sharp fall in bond yields. Traders will also remain cautious on the chances of the Fed maintaining a status quo in the meeting, which will also impact rate cut expectations in India, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 1.23 trillion, against INR 707.250 billion on Tuesday. No trades were settled today under the wholesale digital rupee pilot, compared with fourteen trades worth INR 700 million settled on Tuesday.

OUTLOOK

On Thursday, bonds are seen opening steady after a day of heavy buying by traders on stance change on Wednesday, dealers said. Prices are likely to take cues from the overnight movement in US Treasury yields and crude oil prices. 

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. Market sentiment is expected to remain positive on the news of the FTSE Russell adding India's government bonds under the fully accessible route to its Emerging Markets Government Bond index and regional indices from September 2025, dealers said. This inclusion is expected to bring in around $4.5 billion worth of passive flows. 

Gilts may also take cues from any further developments in the crisis in West Asia, dealers said. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.74-6.80% on Thursday.

India Gilts: Mkt hours extended to 1730 IST Wed on delay in T-bill allotment

MUMBAI – Market trading hours for government bonds were extended to 1730 IST Wednesday due to delay in the allotment of Treasury bills at the auction conducted at 1230-1330 IST, dealers said. Bond prices remained sharply up after the Monetary Policy Committee changed its stance to 'neutral' from 'withdrawal of accommodation'.

"People are having trouble getting their allotment in T-bills on e-Kuber," a dealer at a private bank said. "This has been an issue over the past week, and had led to the extension." Further extensions are possible in case the allotment is delayed further, the dealer said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 1.01 trillion, sharply up from INR 710.10 billion at 1700 IST on Tuesday. For the rest of the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.75-6.79%.  (Aaryan Khanna)

India Gilts: Sharply up; profit booking, rate cut uncertainty cap rise

MUMBAI--1530 IST--Prices of government bonds remained sharply higher, but the gains were capped as traders took the opportunity to sell at a profit. When a change of stance in monetary policy was announced, bonds recovered to levels last seen two weeks ago, but settled into a narrow range as traders refrained from pricing in a more aggressive pace of policy easing in the coming months, dealers said. 

State-owned banks were said to be booking profits when the yield on the 10-year benchmark gilt touched 6.74%, dealers said. State-owned banks were net buyers between Thursday and Monday, according to Clearing Corp. of India Ltd. data, as the 10-year bond yield approached the 6.85% level. Dealers said state-owned banks also bought gilts in the first half of Tuesday, before booking profits when prices surged in the second half.

Sentiment remained upbeat after the Reserve Bank of India's six-member Monetary Policy Committee voted unanimously to change the MPC's stance to neutral, after leaving it unchanged at 'withdrawal of accomodation' for over two years. While some traders had expected this, others had hoped for stronger signs of policy easing. Consequently, some traders were disappointed that RBI Governor Shaktikanta Das continued to underscore risks to the central bank's inflation target of 4%.

Traders remain divided on whether a rate cut at the MPC's next meeting in December is imminent. "The tone was neither here nor there, so interpreting what comes next is a tough one," a dealer at a state-owned bank said.

The geopolitical crisis in West Asia will continue to weigh on gilt prices, unless the market completely discounts the situation, dealers said. The Federal Open Market Committee's meeting in November could be the next potential trigger to drag the yield on the benchmark 10-year gilt below the 6.72% level. While a 25-basis-point cut by the Fed next month will be of little consequence to domestic traders, a 50-bp cut could spur a sharp fall in bond yields.

Dealers said that the market has largely discounted the news of FTSE Russell including Indian bonds in its indices, since the amount of inflows, estimated to be $2 billion-$5 billion by MUFG, is modest.  

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 1.01 trillion, sharply up from INR 447.35 billion at 1530 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.70-6.86%.

India Gilts: Surges on MPC stance change; likely profit-booking limits gains

MUMBAI--1130 IST--Prices of government bonds remained sharply higher while gains were only slightly erased as state-owned banks likely sold bonds at a profit, dealers said. Prices had risen sharply after Reserve Bank of India Governor Shaktikanta Das announced a change in stance on monetary policy to neutral.

"There was so much movement in the market after Das' statement and, I think, some people had already priced in a change in stance, so now, they are booking profit," a dealer at a private bank said. 

Some traders had expected the rate-setting panel to change its stance to 'neutral' from 'withdrawal of accomodation', while the majority had expected a status quo on the stance and rate fronts, dealers said. A segment of the market also expected a revision in the growth forecast for 2024-25 (Apr-Mar), dealers said. The RBI revised the GDP forecast for Jul-Sept to 7.0%, down from 7.2%. It also revised estimates for Oct-Dec to 7.4% from 7.3% and for Jan-Mar to 7.4% from 7.2%. It kept the forecast for 2024-25 (Apr-Mar) unchanged at 7.2%. According to a poll by Informist, some economists had expected the rate-setting panel to lower the growth forecast of 7.2% by 10-20 basis points.

Dealers are now looking forward to the press conference, due at 1200 IST, to take cues on the pathway that the RBI could follow through the rest of the year. Traders rejoiced the change in stance while remaining cautious about any forward views that Das may offer at the conference amid geopolitical tensions and crude oil prices. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 667.00 billion, against INR 229.35 billion at 1130 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.70-6.86%.  (Srijita Bose)

India Gilts: Surges as MPC voted unanimously to change stance to 'neutral'

MUMBAI--1040 IST--Prices of government bonds surged as the Reserve Bank of India Governor Shaktikanta Das announced the Monetary Policy Committee's unanimous decision to change the policy stance to 'neutral' from 'withdrawal of accomodation'. The MPC had kept the 'withdrawal of accomodation' stance unchanged since June 2022.

Traders see the MPC's decision to change its stance to 'neutral' as a sign of the onset of India's interest rate cut cycle. In September, the US Federal Open Market Committee cut the Fed funds rate by 50 basis points and domestic traders expected that the RBI's MPC would have to begin its own rate cut cycle soon after. 

"The change in stance provides flexibility to the MPC, while enabling it to monitor the progress on disinflation which is still incomplete," MPC said in its statement.

Five members of the six-member MPC voted to keep the repo rate unchanged at 6.50%, with one dissenter. The government last week appointed 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. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 427.90 billion, sharply up from INR 172.00 billion at 1030 IST on Tuesday. During the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.70-6.86%. (Cassandra Carvalho) 

India Gilts: Up as FTSE index inclusion boosts sentiment; MPC outcome awaited

India Gilts: Up as FTSE index inclusion boosts sentiment; MPC outcome awaited

MUMBAI--0930 IST--Prices of government bonds were up Wednesday as the global index provider FTSE Russell's decision to include Indian government bonds in its emerging market bond index lent positive sentiment to the market, dealers said. Expectations of the Monetary Policy Committee easing monetary policy also aided gilt prices at open.

"I don't see much down (price decrease) today. Even if MPC doesn't offer any dovish cues, the market will maximum go up to 6.82% (yield of the 10-year benchmark 7.10%, 2034 bond), since the market has already seen some adjustment," a dealer at a private bank said.

Early Wednesday, FTSE Russell said in a release that Indian government bonds under the fully accessible route, including securities with an original tenor of 14 years and 30 years issued prior to Jul. 29, will be included in the FTSE Emerging Markets Government Bond index and regional indices starting September 2025. The inclusion will be phased over six months in equal tranches, the release said.

FTSE Russell is the latest major global index provider to include India's fully accessible route government bonds, which have no restrictions on foreign ownership. As of October, 32 fully accessible route bonds are eligible for entry into the emerging market index, the release said, with $473.8 billion in par-value outstanding. India's market-value weightage on the 17-country index will be 9.35%, the second-highest behind China, FTSE Russell said.

At 1000 IST, Reserve Bank of India Governor Shaktikanta Das will present the monetary policy statement, which will outline the six-member MPC panel's decision on interest rates, policy stance, and forecasts on inflation and GDP. Some traders expect a stance change to neutral from 'withdrawal of accommodation', and downward revision to GDP growth. Any cut in the Cash Reserve Ratio would lend positive cues to the market, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 93.70 billion, against INR 57.90 billion at 0930 IST on Tuesday. During the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.72-6.86%. (Cassandra Carvalho) 

India Gilts: Seen steady before MPC outcome; FTSE index inclusion may aid

MUMBAI – Prices of government bonds are seen opening steady due to caution ahead of the Reserve Bank of India's Governor Shaktikanta Das' statement detailing the rate decision at 1000 IST, dealers said. The announcement of FTSE Russell adding India's government bonds under the fully accessible route to its Emerging Markets Government Bond index and regional indices from September 2025 may aid gilt prices, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.77-6.86% Wednesday, against 6.81% on Tuesday. 

Heading towards the speech, the market was abuzz with discussions. 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. There is also a segment of the market which expects a revision in the growth forecast for 2024-25 (Apr-Mar), dealers said. 

According to a poll by Informist, some economists expect the rate setting panel to lower the growth forecast to 7.2% by 10-20 bps. 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.

Traders who expect the rate setting panel to change its stance say that the RBI has 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 market sentiment is expected to remain positive on the news of the FTSE Russell adding India's government bonds under the fully accessible route to its Emerging Markets Government Bond index and regional indices from September 2025, dealers said. This inclusion is expected to bring in around $4.5 billion worth of passive flows. 

FTSE Russell is the latest major global index provider to include India's fully accessible route government bonds, which have no restrictions on foreign ownership. As of October, 32 fully accessible route bonds are eligible for entry into the emerging market index, the release said, with $473.8 billion in par-value outstanding. India's market-value weightage on the 17-country index will be 9.35%, the second-highest behind China, FTSE Russell said.

India's accessibility to FPIs has improved since FTSE Russell's last review in March, it said. India's regulators are addressing issues related to FPI registration, easing the onboarding process, the release said. Accessibility has also improved with the increased entry of FPIs due to other bond index inclusions, and custodian banks broadly offer same-day funding to address margin requirements, the lack of which was a concern for the index provider in March. (Siddhi Chauhan)

End

US$1 = INR 83.96 

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

Edited by Akul Nishant Akhoury

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