More Stories

Informist, Wednesday, Oct. 16, 2024

By Srijita Bose

MUMBAI – Prices of most government bonds ended little changed on Wednesday amid diverging domestic and global cues. A fall in US Treasury yields had pushed up bond prices initially, but a dour outlook on domestic interest rates dragged down bond prices and erased all gains, dealers said.

The 10-year benchmark 7.10%, 2034 gilt closed at INR 102.26, or 6.77%, Wednesday against INR 102.29, or 6.77%, Tuesday. After rising to INR 102.40 in opening trades, the bond gave up all gains as traders were of the view that the 10-year gilt yield would stagnate in a narrow band for some time, dealers said.

"We are at a very tricky level right now. Globally, the fall in US (Treasury) yields and crude prices is a boost for the market, but there is no certainty on the domestic front. The December rate cut also looks dicey now, so the market mostly shifted its focus back to India," a dealer at a state-owned bank said.

The yield on the US Treasury fell to the day's low of 4.01% at 1700 IST from 4.04% at 0900 IST, and 4.08% at the end of Indian market hours Tuesday. San Francisco Federal Reserve President Mary Daly said Tuesday there is room for the central bank to cut rates further, with the only question being how quickly it would adjust to that level. The Federal Reserve Bank of New York's Empire State manufacturing survey came in at (-)11.9 in October, against a reading of 3.0 expected by economists in a poll by The Wall Street Journal.

This reduced fears of the US Federal Open Market Committee holding rates at its November meeting. According to the CME FedWatch tool, the odds of interest rates remaining unchanged after the next US rate decision fell to 5.8%, from around 20% a week ago. Fed funds futures showed a 94.2% chance of a 25-bps rate cut in November.

During the day, foreign portfolio investors were likely buyers due to the fall in US yields, dealers said. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors.

Even so, state-owned banks and mutual funds likely sold bonds at a profit. State-owned banks had bought gilts when the 10-year gilt's yield was above 6.78%, and were still in a profit at current levels, dealers said. A large mutual fund likely sold a chunk of bonds maturing above 10 years, which led to a fall in the price of bonds maturing in 2033-2034 and in 2037-2039, they said.

With higher-than-expected CPI inflation in September, and a similar print likely in October, dealers said their hopes of a December rate cut by the Monetary Policy Committee have nearly faded. India's headline inflation in September rose to a nine-month high of 5.49%, higher than 3.65% in August, and 5.1% seen in an Informist poll. If rate cuts are delayed, most traders do not expect the yield on the 10-year benchmark 7.10%, 2034 bond to fall substantially below 6.75% in the near term, dealers said.

Moreover, traders said that while there may be some incremental buys from foreign banks due to the fall in US Treasury yields, there were no sizeable purchases as the 10-year US Treasury yield remained above 4.00%. Sustained investment from foreign portfolio investors in India's bonds may only be possible once US yields fall below that crucial level. Caution has also set in before the US Presidential election in early November. 

That sentiment may change after US retail sales data for September and the initial jobless claims data for the week ended Saturday, both due to be released Thursday post market hours, dealers said. Any signs of stress in either consumption or the labour market may be enough to pull US yields lower after the data. Others were wary that such high-frequency data may not be able to trigger a substantial slide in US yields, especially with both Presidential candidates in the US fiscally expansionary.

"You see, even after a 50-bps cut by the Fed in September, the US yield only went up," a dealer at another state-owned bank said. "So now I think only if a major data point shows slowing down in the economy are US yields going to fall back." The 10-year US yield hit 3.60%, the lowest in 2024, on the eve of the US Federal Open Market Committee's decision to begin its rate-cut cycle with an outsize rate cut in September.

During the day, volumes on the market remained relatively tepid. According to RBI's Negotiated Dealing System-Order Matching platform, volumes were at INR 470.45 billion compared to INR 493.00 billion on Tuesday. Six trades worth INR 300 million were settled under the wholesale digital rupee pilot on Thursday, compared to four trades worth INR 200 million Tuesday.

OUTLOOK

On Thursday, bonds are seen opening steady as traders may be cautious ahead of US retail sales data for September and weekly unemployment claims, due post market hours on Thursday, dealers said. Traders will also look at the overnight movement of US yields and crude oil prices at opening on Thursday.

The INR 250-billion buyback auction at 1030-1130 IST may also lend cues. The government has offered to buy back five securities maturing in 2025-26 (Apr-Mar) at the auction. Dealers expected demand to be firm at the auction, with some replacement demand from successful bidders likely to aid the prices of short-term gilts.

Fully accessible route gilts may see foreign fund inflows due to their ongoing inclusion on J.P. Morgan's emerging market bond index since June. 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 geopolitical developments in West Asia, dealers said. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.74-6.81% on Thursday.

India Gilts: Reverse gains on profit booking; prices seen consolidating

MUMBAI--1630 IST--Prices of government bonds reversed earlier gains as state-owned banks and mutual funds likely sold gilts at a profit, dealers said. With a directional fall in gilt yields unlikely in the next month or two, traders said bond prices are likely to consolidate in a narrow band.

With higher-than-expected CPI inflation in September, and a similar print likely in October, dealers said hopes of a December rate cut by the Monetary Policy Committee have nearly faded. The 10-year gilt yield is not seen falling below 6.75% in the near term due to this, dealers said. Some investors would now prefer spread assets for higher returns, rather than hold onto government bonds, dealers said. Gilts are more sensitive than state and corporate bonds to interest rate changes.

"(A large) mutual fund has sold a chunk of gilts, mostly duration paper," a dealer at a primary dealership said. "That took out the market, at a time when state-owned banks were already selling."

Some dealers saw scope for a fall in yield simply due to demand exceeding supply, while others were pessimistic about the benchmark yield falling below 6.75% until there were firmer cues of a domestic rate cut. Foreign portfolio investor sales over the last two days, a rare sight during India's inclusion in J.P. Morgan's emerging market debt index, may have also spooked the market, dealers said. Foreign investors are cautious of adding to their India gilt holdings as the 10-year US Treasury yield remained above 4%, and the US Presidential election is approaching in early November, they said.

Traders "discounted" the intraday fall in US Treasury yields after the selling pressure hit the market, dealers said. Short-selling activity may have also increased in the most-liquid 7.10%, 2034 gilt. State-owned banks bought gilts when the 10-year gilt's yield was above 6.78%, and were still in a profit at current levels. With the negative momentum in bond prices, some traders shifted to short-term bonds to limit mark-to-market losses, dealers said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 420.65 billion, against INR 424.00 billion at 1630 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.73-6.80%.  (Aaryan Khanna and Cassandra Carvalho)

India Gilts: Give up most gains on profit booking as Dec rate cut hopes ebb

MUMBAI--1350 IST--Prices of government bonds gave up most gains as traders sold bonds at a profit. Traders refrained from placing large bets as they did not expect the 10-year gilt yield to fall below the crucial 6.75%-mark, dealers said.

A higher-than-expected India CPI inflation data for September reduced bets on a rate cut by the Reserve Bank of India's Monetary Policy Committee in December, dealers said. India's CPI inflation rose to 5.49% in September, against 5.1% seen in an Informist poll, according to data released Monday.

This also resulted in rate-sensitive bonds of up to five-year maturity underperforming bonds of longer maturities. Dealers said a delayed steepening in the yield curve can now be expected as rate cut bets are pushed towards the February policy meeting instead of December. On the other hand, with the government buying back another INR 250 billion worth of bonds maturing in 2025-26 (Apr-Mar) on Thursday, demand-supply dynamics in short-term bonds will prevent a sharp fall in prices, dealers said.

"Until the rate cut happens, long-term bonds will be the ones in favour, because the timing of the rate cut doesn't matter as much there," a dealer at another private bank said. "Short-term bonds will perform once the RBI actually starts cutting rates. It could even be a 50-basis-point rate cut in February, because by then, the US will cut rates four or five times." 

Prices of most gilts remained slightly higher due to a further fall in US Treasury yields. The yield on the 10-year US Treasury note fell to a low of 4.01%, down from 4.04% at 0900 IST and 4.08% at the end of Indian market hours Tuesday. Dealers said that foreign portfolio investors were likely buyers due to the increase in the interest rate differential. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors.

"The market is slightly positive and is currently tracking the fall in US yields since there are no domestic cues to track," a dealer at a private bank said. "But the (10-year) US Treasury (yield) is also a little sticky and unless it comes below 4.00%, I don't see momentum in our market build much." With the benchmark US yield above 4.00%, foreign portfolio investors have sold INR 11.65 billion worth of fully accessible route bonds in the last two days, according to data from the Clearing Corp. of India Ltd. 

Traders look ahead to the US retail sales data for September and the initial jobless claims data for the week ended Saturday, both of which are due to be released Thursday post market hours, dealers said. They said that poorer-than-expected retail sales could finally bring the yield of the 10-year US treasury note below 4.00% and result in positive momentum to build in the market.

Volumes remained tepid due to a lack of domestic cues, dealers said. Only two bonds, the 7.10%, 2034 gilt and the new 10-year 6.79%, 2034 bond, saw trade volumes top INR 20 billion. According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 223.85 billion, against INR 235.75 billion at 1330 IST on Tuesday. During the day, the yield on the 10-year benchmark, 7.10%, 2034 bond is seen at 6.73-6.80%. (Srijita Bose and Aaryan Khanna)

India Gilts: Tad up on fall in US yields; selling at profit limits gains

MUMBAI--1000 IST--Prices of government bonds were a tad up due to an overnight fall in US Treasury yields. The gains were limited as some traders sold bonds at a profit, dealers said. 

"Some positivity is there from the US side, but I don't see the movement sustaining here," a dealer at a private bank said. "The people are not convinced that the yield level of 6.75% (on the 7.10%, 2034 bond) will be broken, hence they are selling right now."

The yield on the 10-year US Treasury note fell to 4.04% from 4.08% at the time the Indian market closed on Tuesday. San Francisco Federal Reserve President Mary Daly said Tuesday there is room for the central bank to cut rates further, with the only question being how quickly it would adjust to that level. This reduced fears of the US Federal Open Market Committee holding rates unchanged at its November meeting. 

During the day, the market is expected to stay in a narrow range due to the absence of significant domestic cues. As a result, traders may refrain from placing large bets, dealers said.

In the latter half of the day, buying from foreign banks may aid gilt prices. An overnight fall in US yields may prompt foreign banks to buy bonds, dealers said. Foreign portfolio investors may also buy fully accessible route gilts due to their ongoing inclusion in J.P. Morgan's emerging market bond index since June, dealers said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 51.45 billion, against INR 40.20 billion at 1030 IST on Tuesday. During the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.73-6.80%. (Siddhi Chauhan)

India Gilts: Seen up on fall in US yields; selling at profit may limit gains

MUMBAI – Prices of government bonds are seen opening higher due to an overnight fall in US Treasury yields. The gains are expected to be capped as state-owned banks may sell their bonds at profit, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.73-6.80% Wednesday, against 6.77% on Tuesday. In the absence of any significant domestic triggers, traders may keep a watch on the intraday movement of US yields and crude oil prices, dealers said. 

The yield on the 10-year US Treasury note fell to 4.03% from 4.08% at the time the Indian market closed on Tuesday. 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 fell on Tuesday after data showed the manufacturing sector in New York unexpectedly contracted. The Federal Reserve Bank of New York's Empire State manufacturing survey came in at (-)11.9 in October, as opposed to a positive figure of 3.0 expected by economists in a poll by The Wall Street Journal.

US yields also fell after San Francisco Fed President Mary Daly's comment on Tuesday that there was room for the central bank to lower rates further. After the comment, Fed fund futures showed a rise in the probability of a 25-basis point rate cut at the Fed's November meeting to 94.1% from 83.6% a day before. The rest expect the Fed to hold rates unchanged, according to the CME FedWatch tool. 

The fall in US yields may also encourage foreign banks to buy aggressively, dealers said. They may also buy due to their ongoing inclusion on J.P. Morgan's emerging market bond index since June, dealers said.

Separately, crude oil prices, a key trigger for the rise in bond prices on Tuesday, did not move much overnight. Brent crude for October delivery was little changed at $74.51 a barrel, even as some dealers had expected oil prices to fall further. (Siddhi Chauhan)

End

US$1 = INR 83.9950

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

Edited by Tanima Banerjee

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2024. All rights reserved.