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Informist, Thursday, Oct. 10, 2024

By Srijita Bose

MUMBAI – Prices of government bonds ended lower as some traders shed part of their portfolios to make space for Friday's gilt auction. Traders were also cautious ahead of the US CPI data for September due 1800 IST Thursday, dealers said.

Private banks and primary dealers were likely sellers towards the end of the day, ahead of the auction, dealers said. The government will sell INR 140 billion worth of 7.04%, 2029 gilt and INR 150 billion worth of 7.34%, 2064 gilt at 1030-1130 IST Friday. Dealers said the demand at the auction would be firm after the Reserve Bank of India's Monetary Policy Committee unanimously changed its stance to 'neutral' from 'withdrawal of accommodation' Wednesday.

The 7.10%, 2034 gilt closed at INR 102.23 or 6.78% yield Thursday, compared with INR 102.30 or 6.77% yield Wednesday. Bond prices traded in a narrow range for most of the day as traders remained unsure about when the MPC would cut rates, dealers said.

Traders also remained cautious ahead of the US CPI data, dealers said. The inflation data may be crucial for the US Federal Open Market Committee's next policy rate decision in November. The trajectory of rate cuts in the US is expected to lend cues to domestic monetary policy as well. Currently, the CME Fedwatch tool shows 75.6% possibility of a 25-basis-point rate cut by the FOMC, and 24.4% possibility of no cut in November.

Falling inflation could provide the impetus to bet on further aggressive US rate cuts after labour market data released last week cooled those hopes. US CPI likely rose 0.1% on month in September, against 0.2% in August, according to Dow Jones. Core CPI is expected to have risen 0.2% in September after rising 0.3% in August.

The minutes of the FOMC's September meeting, released Wednesday, did not suggest any urgency in bringing US interest rates lower, despite the panel kicking off its rate-cut cycle with a 50 bps decrease. If the US slows down its pace of cutting policy rates, the MPC may also avoid rate cuts in December, dealers said.

Prices rose in early trade on the view that bonds are lucrative now if the MPC does cut rates in December, but came down as traders started selling bonds at a profit, dealers said. The rate-cut vote by new external MPC member Nagesh Kumar was a pleasant surprise to some. Others said RBI officials seemed less concerned about near-term risks to inflation, which could open the door to rate cuts in the near future.

"I think whenever the RBI votes for a rate cut, it will be a unanimous decision, but when that would happen is still unclear," a dealer at a private bank said. "Today (Thursday), traders were mostly in a wait-and-watch zone."

Dealers said that during the day, state-owned banks sold bonds at a profit, having bought heavily ahead of the MPC outcome. In the week leading up to the outcome Wednesday, state-owned banks had bought INR 219.70 billion worth of bonds in the secondary market, according to data from the Clearing Corp. of India Ltd. As prices jumped after the change of stance, they sold INR 106.59 billion of bonds Wednesday, and are likely to have continued with that pattern Thursday.

On the other hand, foreign investors may have bought Thursday after the FTSE Russell announced Wednesday it would add India's sovereign bonds to its emerging market index starting September, dealers said. J.P. Morgan already has India's bonds on its emerging market index since June, while the inclusion on Bloomberg's local currency emerging market bond index is scheduled to begin in January.

Meanwhile, the newly-issued 6.79%, 2034 bond was catapulted to second place among most-traded bonds this week. The government issued INR 220 billion of the bond Friday, the most in an auction in financial year 2024-25 (Apr-Mar). Its trade volumes now outpace the 7.18%, 2033 bond and the 7.23%, 2039 bond, both of which were the closest in liquidity to the 10-year benchmark 7.10%, 2034 bond before last week. The 2033 bond has an outstanding above INR 2 trillion, while the 2039 bond has an outstanding over INR 1 trillion.

The new bond is likely to take over benchmark status after only its second auction, scheduled for Oct. 25, dealers said. Traders were replacing the 7.10%, 2034 bond with the 6.79%, 2034 bond on their portfolios anticipating this. The new bond has outperformed the old one since its issuance, as bond prices have risen after the change in policy stance.

Another factor helping the liquidity of the 6.79%, 2034 bond was that it was picked up by traders at auction, instead of only state-owned banks, dealers said. This was likely due to its large issuance as well as the market conditions prevailing at the time of its issuance, which came amid an uncertain global outlook.

"The rate at which this (new 10-year) paper has picked up was quicker than what was seen earlier, and I think it shows a lot of promise (of a positive sentiment) in the market," a dealer at a private bank said. "And it will only get better from here."

On Thursday, the government accepted offers worth INR 244.53 billion against a notified amount of INR 250 billion at the bond buyback auction. This was higher than what traders had expected at the time of bidding. The government had offered to buy back the 7.72%, 2025 bond, the 5.22%, 2025 bond, the 8.20%, 2025 bond, the 5.15%, 2025 bond, and the 7.59%, 2026 bond. Of these five bonds maturing in FY26, the 5.22%, 2025 bond and the 6.79%, 2026 bonds saw the most volume bought back, around INR 85 billion each.

Banks likely sold stocks of the bonds from their held-to-maturity portfolios to the government at a profit, dealers said. The cash reserve made from selling the bonds is likely to be used by traders to bid aggressively for the 7.04%, 2029 bond at Friday's gilt auction, they said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 630.40 billion, against INR 1.22 trillion Wednesday. No trades were settled Thursday under the wholesale digital rupee pilot, the same as on Wednesday.

OUTLOOK

On Friday, bonds are seen opening steady ahead of the INR 290 billion gilt auction at 1030-1130 IST, dealers said. Gilts may also take cues from the movement of US Treasury yields after mixed cues from data released after market hours Thursday.

The initial unemployment claims for the week ended Saturday rose to 258,000, higher than 230,000 claims estimated by Dow Jones. On the other hand, inflation data showed US headline CPI rose 0.2% on month in September, while core CPI--which excludes food and energy costs--rose 0.3% on month.

Both figures matched the rise seen in August, but were marginally higher than estimated by Dow Jones. On an annual basis, headline CPI fell to 2.4% in September from 2.5% in August, and was the lowest reading since February 2021.

Traders will also look forward to the India CPI data due to be released Monday as the next domestic cue for bond prices. RBI Governor Shaktikanta Das Wednesday highlighted that the near-term risks to inflation remain higher, and the possibility of a higher print in September due to an adverse base effect. Traders will keep a keen watch on the print, and bond prices may rise if the reading is below 5%. Dealers said the October CPI print will also be important in lending cues for a potential December rate cut by the MPC.

The gilt market may see foreign fund inflows because of the inclusion of Indian bonds in J.P. 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 movement in crude oil prices and 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 Friday.

India Gilts: In thin band ahead of US Sep CPI; PSU banks' likely sales weigh

MUMBAI--1617 IST--Government bond prices were in a thin band on caution ahead of US CPI data for September after market hours, dealers said. State-owned banks' likely bond sales at a profit weighed on bond prices. Replacement demand from banks for gilts after the result of the government's buyback kept prices within a narrow range. 

State-owned banks were likely selling stock they picked up over the past week when the 10-year gilt's yield topped 6.80%, dealers said. Meanwhile, trading activity had cooled ahead of the crucial US CPI print, which is seen providing fresh cues on the US interest rate trajectory. 

"There doesn't seem to be any momentum in the market to go either one way or the other," a dealer at a state-owned bank said. "Unless people would like to position before the US CPI data, additional buying is not likely to come in."

Falling inflation could be the next impetus for betting on further aggressive US rate cuts after labour market data released last week cooled those hopes. US CPI likely rose 0.1% on month in September, against 0.2% in August, according to Dow Jones. Core CPI is expected to have risen 0.2% in September after rising 0.3% in August.

The minutes of the US Federal Open Market Committee's September meeting on Wednesday also did not suggest any urgency in bringing US interest rates lower, despite the panel kicking off its rate-cut cycle with a 50-basis-point decrease. If the US slows down its pace of cutting policy rates, the Reserve Bank of India's Monetary Policy Committee may also avoid rate cuts in December, as is widely expected now, dealers said. The six-member panel unanimously softened its stance to 'neutral' from 'withdrawal of accommodation' Wednesday.

Meanwhile, the government accepted offers worth INR 244.53 billion against a notified amount of INR 250 billion at the bond buyback auction. This was higher than what traders had expected earlier. Banks likely sold stocks of the bonds from their held-to-maturity portfolios to the government at a profit, dealers said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 534.35 billion, against INR 1.08 trillion at 1630 IST on Wednesday. During the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.75-6.79%. (Aaryan Khanna)

India Gilts: In a thin band on lack of direction; US CPI print awaited

MUMBAI--1350 IST--Government bond prices were in a thin band as traders looked for fresh cues, with the Monetary Policy Committee's stance changing to 'neutral' on Wednesday already priced in, dealers said. The impact of the softer stance on rate cuts was not immediately clear to traders, and rate cut bets had not changed significantly, they said.

Traders were still unsure whether the MPC would cut rates in December or later than that, dealers said. The rate cut vote by new external member Nagesh Kumar was a pleasant surprise to some dealers. Others said that Reserve Bank of India officials seemed less concerned about near-term risks to inflation, which could open the door to rate cuts in the near future.

"(Reserve Bank of India) Governor (Shaktikanta) Das opened the window for a rate cut by changing the stance, but when that is going to happen is a little unclear," a dealer at a primary dealership said.

Prices rose in early trade on the view that bonds are lucrative now if the MPC does cut rates in December, dealers said. Foreign investors were also likely buyers after the FTSE Russell announced Wednesday it would add India's sovereign bonds to its emerging market index starting September. J.P. Morgan already has India's bonds on its emerging market index since June, while the inclusion on Bloomberg's local currency emerging market bond index is scheduled to begin in January. State-owned banks likely sold bonds at a profit as prices rose, capping gains, dealers said. 

Dealers expect bond prices to remain within a thin band for the rest of the day on caution ahead of US CPI data, due to be released post market hours. Domestic bond prices are already under pressure from an overnight rise in US Treasury yields after the release of the US Federal Open Market Committee's minutes of its September meeting. The CPI data will provide further cues on rate cuts in the US which could also influence policy decisions in India in the future, dealers said.

The government offered to buy back a total of INR 250 billion worth of five short-term bonds — 7.72%, 2025 bond, the 5.22%, 2025 bond, the 8.20%, 2025 bond, 5.15%, 2025 bond, and 7.59%, 2026 bond. This is the first buyback auction since Jun. 4. The 5.22%, 2025 price cut-off could be a tad higher than indicative levels according to Financial Benchmarks India Ltd. on Wednesday, as it is a former 5-year benchmark bond. The government will likely accept only a total of INR 85 billion worth of gilts, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 385.30 billion, against INR 902.60 billion at 1400 IST on Wednesday. During the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.74-6.80%. (Srijita Bose)

India Gilts: Little changed amid volatile trade; PSU bks likely capping rise

MUMBAI--1035 IST--Prices of government bonds were little changed amid volatile trade. Some traders were keen to pick up gilts noting positive domestic factors, ahead of the government's bond buyback and after the Monetary Policy Committee's change in stance to neutral. Early gains were capped as state-owned banks likely sold bonds at profit, dealers said. 

"Yesterday's momentum is still continuing, it seems, traders are buying because the domestic factors are quite positive. RBI (Reserve Bank of India's MPC) has changed its stance, they are also trying to manage the liquidity by conducting buyback," a dealer at a private bank said. "But the momentum is not expected to last for long." According to Clearing Corp. of India Ltd. data, state-owned banks sold over INR 100 billion worth of gilts in the secondary market on Wednesday.

The buyback auction scheduled at 1030-1130 IST is expected to see tepid demand, dealers said. Traders are not too keen on giving up on shorter-maturity bonds as these are needed to meet liquidity coverage ratio requirements, particularly with the expected tightening of norms by the RBI starting Apr. 1.

The government will buy back INR 250 billion worth of five bonds. The five bonds are the 7.72%, 2025 bond, 5.22%, 2025 bond, 8.20%, 2025 bond, 5.15%, 2025 bond, and 7.59%, 2026 bond. This is the first buyback since June, and the first for bonds outside the same fiscal year since FY18.

India's rate-setting panel on Wednesday changed its stance to 'neutral' from 'withdrawal of accommodation'. With this, the market is once again of the view that the MPC could cut rates as early as December. Current bond prices do not fully reflect a rate cut, and are lucrative to buy bonds if a trader is confident of a December rate cut, dealers said.

The market mostly disregarded the rise in US Treasury yields, with the focus on domestic factors. The yield on the 10-year US Treasury note was at 4.08%, against 4.04% at the end of Indian market close on Wednesday. US yields ticked up after the minutes of the US Federal Open Market Committee's minutes on Wednesday, and ahead of CPI data due after market hours. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 196.05 billion, against INR 565.75 billion at 1100 IST on Wednesday. During the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.74-6.80%. (Siddhi Chauhan)

India Gilts: Seen tad dn on overnight rise in US yield; buyback auction eyed

MUMBAI – Prices of government bonds are seen opening a tad down due to an overnight rise in US Treasury yields. Traders await the government's bond buyback via auction scheduled at 1030-1130 IST, dealers said.
 

The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.74-6.80% Thursday, against 6.77% on Wednesday.  

At 0806 IST, the yield on the 10-year US Treasury note was at 4.08%, against 4.04% at the end of Indian market close 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, inflows from foreign investors are expected to continue due to India's staggered inclusion in J.P. Morgan's emerging market bond index since Jun. 28.

The yield on the benchmark 10-year US Treasury note rose slightly ahead of the release of the US inflation data for September, due Thursday. Investors also took cues from the minutes of the latest Fed meeting. The September meeting minutes indicated a substantial majority supported the 50-basis point rate cut. However, there was broader agreement that the move would not commit the Fed to any particular pace of cuts in the future.

Currently, the Fed funds futures showed expectations of a 50-basis-point rate cut at the next Federal Open Market Committee have been wiped out, compared with 35.2% a week ago, according to the CME FedWatch tool. The chances of no rate cuts have increased to 18.8% against none in the previous week. 

The consumer price index for September is forecast to have risen 0.1% on a monthly basis, after rising 0.2% in August, according to Dow Jones. Core CPI is expected to have risen 0.2% in September after rising 0.3% in August.

Meanwhile, on the domestic front, the buyback auction would also be watched, dealers said. The government will buy back INR 250 billion worth of five bonds. The five bonds are the 7.72%, 2025 bond, 5.22%, 2025 bond, 8.20%, 2025 bond, 5.15%, 2025 bond, and 7.59%, 2026 bond. This is the first buyback since June, and the first for bonds outside the same fiscal year since FY18. (Siddhi Chauhan)

End

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

Edited by Rajeev Pai

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