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Informist, Thursday, Oct. 17, 2024

By Srijita Bose

MUMBAI – Government bonds ended down Thursday as traders sold bonds to make room for the INR 330-billion gilts auction Friday, dealers said. Foreign banks also likely sold bonds on caution ahead of US economic data after market hours, dragging down gilt prices towards the end of the day.

The 10-year benchmark 7.10%, 2034 gilt ended at INR 102.20, or 6.78% yield, Thursday against INR 102.26, or 6.77% yield, Wednesday. Bond prices were under pressure through the day due to a rise in US yields, but traded in a thin band before falling in earnest in the last 90 minutes of trade.

"The market was mostly range-bound today (Thursday), the fall I think was mostly before the (gilts) auction," a dealer at a private bank said. "Also, US yields were high only before the (US economic) data, so maybe some foreign banks sold."

Primary dealers were likely to have been sellers ahead of the weekly auction, dealers said. The government will sell INR 100 billion of the 7.02%, 2031 bond, INR 130 billion of the 7.23%, 2039 bond, and INR 100 billion of the 7.09%, 2054 gilt through the auction at 1030-1130 IST Friday. Some mutual funds also likely sold bonds, while private banks bought bonds, dealers said.

Primary dealers also likely placed short bets in the 7.10%, 2034 gilt as the gilt switch auction scheduled on Monday may potentially lead to issuance of INR 280 billion worth of bonds maturing in 2033-2035, in lieu of short-term papers. Some of the fall was likely recovered, as some state-owned banks may have bought the 10-year benchmark paper after the yield touched 6.78%, dealers said.

Traders were also cautious ahead of the US economic data points as they await fresh cues on the US rate trajectory, dealers said. The US initial weekly unemployment insurance claims report for the week ended Saturday and US retail sales for September were scheduled at 1800 IST.

Only a move in the 10-year Treasury yield below 4.00% would buoy gilt prices, dealers said. At the same time, incremental demand from foreign portfolio investors may be poor after the rupee weakened past 84 a dollar again Thursday, they said. The rupee ended at 84.07 per dollar on Thursday.

Bond prices ticked up briefly after the government accepted nearly the entire notified amount at the gilt buyback auction Thursday, for the second week in a row. The government accepted INR 249.34 billion at the buyback auction, against the notified amount of INR 250 billion. The government bought back five bonds maturing in 2025-26 (Apr-Mar)–-7.72%, 2025 gilt, 5.22%, 2025 gilt, 8.20%, 2025 gilt, 5.15%, 2025 gilt and 7.59%, 2026 gilt–-at the auction.

During the day, volumes remained tepid, as investors stayed on the sidelines as rate cuts in India were seen delayed, and there were no fresh triggers to buy bonds before the auction, dealers said. With the data coming up, the movement in bond prices was largely due to intraday bets which traders covered before the market shut. Prices have been falling in the last hour of trade over the past few days, after data released Monday showed India's CPI inflation rose to a nine-month high of 5.49%, higher than the market had expected, and dashing hopes of a rate cut in India in December.

"I don't see the market move much before we get some clarity on what the RBI has in mind for December rate cuts. If the festival season remains lukewarm and then the GDP comes lower, I think bets on December rate cuts will again go up," a dealer at a state-owned bank said. India's GDP data for Jul-Sept is scheduled for release on Nov. 29, just before the Monetary Policy Committee meets to decide rates on Dec. 4-6.

According to RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 417.55 billion, down from INR 462.05 billion on Wednesday. Six trades worth INR 300 million were settled under the wholesale digital rupee pilot, same as Wednesday.

OUTLOOK

On Friday, bonds are seen opening lower after economic data from the US led to a rise in US yields. Prices may not fall sharply before the weekly gilt auction at 1030-1130 IST, they said.

US retail sales for September grew 0.4% on month, against 0.3% estimated by Dow Jones. Initial jobless claims in the US for the week ended Saturday were at 241,000, lower than 259,000 expected. Both the data points indicated that the US economy remained resilient, weakening the case for steep rate cuts. After the data, the probability of a status quo on rates doubled to nearly 15%, with the majority still expecting a 25-bps rate cut by the US FOMC in November.

This may sour demand from foreign investors at the weekly gilt auction, dealers said. The government will sell INR 100 billion of the 7.02%, 2031 bond, INR 130 billion of the 7.23%, 2039 bond, and INR 100 billion of the 7.09%, 2054 gilt. Overall demand at the auction is seen firm, with mutual funds and private banks keen to pick up the seven-year paper, dealers said. 

Fully accessible route gilts may not see large sales by foreign investors 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 and movement in crude oil prices, dealers said. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.76-6.83% on Friday.

India Gilts: Fall ahead of gilt auction Fri, US econ data post market hours

India Gilts: Fall ahead of gilt auction Fri, US econ data post market hours

MUMBAI--1620 IST--Prices of government bonds fell as traders made room ahead of the INR 330-billion gilt auction on Friday. Traders were also cautious of adding to their portfolios ahead of US data on retail sales and unemployment post market hours, dealers said. 

Primary dealers were likely to have been sellers ahead of the auction, dealers said. The government will sell INR 100 billion of the 7.02%, 2031 bond, INR 130 billion of the 7.23%, 2039 bond, and INR 100 billion of the 7.09%, 2054 gilt through the auction at 1030-1130 IST. Some mutual funds also likely sold, while private banks bought bonds, dealers said. 

"We are just seeing trading interest in the market right now, and that is quite visible from the lack of volume you see in the market," a dealer at a primary dealership said. "Some selling is coming ahead of the (gilts) auction tomorrow (Friday), but other than that (bonds are) mostly range-ish (in a narrow band)."

Investors stayed on the sidelines as rate cuts in India were seen delayed, and there were no fresh triggers to buy bonds before the auction, dealers said. Prices have fallen in the last hour of trade over the past few days, after data released on Monday showed India's CPI inflation rose to a nine-month high of 5.49%, higher than the market had expected.

Bond prices recovered slightly after the government accepted nearly the entire notified amount at the gilt buyback auction Thursday, for the second week in a row. The government accepted INR 249.34 billion at the buyback auction, against the notified amount of INR 250 billion. The government bought back five short-term gilts –- 7.72%, 2025 gilt, 5.22%, 2025 gilt, 8.20%, 2025 gilt, 5.15%, 2025 gilt and 7.59%, 2026 gilt –- through the auction. Incremental demand for short-term bonds was not robust, even as losses were limited in bonds maturing in up to five years, amid thin trade volumes, dealers said.

Traders are cautious ahead of the US economic data points as they await fresh cues on the US rate trajectory, dealers said. The US initial weekly unemployment insurance claims report will be released at 1800 IST on Thursday. Advance monthly sales data for retail and food services in the US will also be released at the same time. Currently, the CME FedWatch tool shows that Fed fund futures reflect a 92.1% probability of a 25-basis-point rate cut in November, while the rest bet on a status quo on rates.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 370.00 billion, against INR 409.20 billion at 1630 IST on Wednesday. For the rest of the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.75-6.80%.  (Srijita Bose)

India Gilts: In thin band on lack of domestic cues, recover early losses

MUMBAI--1400 IST--Prices of government bonds moved in a thin range due to lack of firm domestic cues, and traders avoided aggressive bets ahead of key US economic data, due after market hours, dealers said. Bonds recovered from earlier losses on a slight overnight rise in US Treasury yields.

Lack of domestic data points and no indication of when India's Monetary Policy Committee will cut the repo rate have deterred traders from placing aggressive bets or realigning portfolios, dealers said. Bond prices have moved out of step with US Treasury yields since Tuesday, as foreign portfolio investors have been net sellers every day this week. Their activity, and the movement in US yields, may be more closely eyed near the end of trade, with US weekly unemployment data and September retail sales data scheduled at 1800 IST, dealers said.

"Unless the (10-year) US (Treasury) yield falls below 4%, the market will be range-bound. Some selling pressure before auctions may be there, but I don't see any other movement," a dealer at a state-owned bank said. The benchmark US Treasury yield rose to 4.04% from 4.01% at 1700 IST on Wednesday.

Primary dealerships were likely to have sold gilts to make room for the weekly gilt auction on Friday, dealers said. At the auction, the government will sell INR 100 billion of the 7.02%, 2031 bond, INR 130 billion of the 7.23%, 2039 bond, and INR 100 billion of the 7.09%, 2054 gilt. Primary dealers are also likely to place short bets in the 7.10%, 2034 gilt as the gilt switch auction scheduled on Monday may potentially lead to issuance of INR 280 billion worth of bonds maturing in 2033-2035, in lieu of short-term paper.

Mutual funds were also likely to have been sellers in the secondary market, with a large mutual fund dumping gilts to raise its equity investment, dealers said. Mutual funds were the top net sellers on Wednesday, according to data from Clearing Corp. of India Ltd. The sales were absorbed by state-owned banks, which considered the 6.78% yield level on the 7.10%, 2034 bond lucrative, keeping the fall in prices limited. 

Meanwhile, traders await the result of the buyback auction of five gilts, worth INR 250 billion. The government 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 for the second week in a row. Traders expect traders to tender between INR 200 billion and INR 250 billion at the auction, with cut-off prices in line with indicative prices on Financial Benchmarks India Ltd. on Wednesday. At the previous week's auction, the Reserve Bank of India had set cut-off prices near the indicative levels, despite getting offers worth INR 619.14 billion, against the notified INR 250 billion. 

"The buyback is a win-win for both banks and the government. Now, since the (yield) curve is steep, banks can book some profit by selling gilts instead of holding to maturity, and the government benefits because of reduced borrowing," a dealer at a private bank said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 215.30 billion, against INR 210.15 billion at 1330 IST on Wednesday. During the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.74-6.82%. (Cassandra Carvalho)

India Gilts: Tad dn as US ylds rise; buyback auction due 1030-1130 IST eyed

MUMBAI--0946 IST--Prices of government bonds were a tad down due to an overnight rise in US yields. Traders now await the result of the INR 250-billion government bond buyback through an auction, due 1030-1130 IST, dealers said. 

The yield on the 10-year US Treasury note was at 4.04%, against 4.01% at the end of Indian market hours on Wednesday. The yield on the benchmark 10-year US Treasury note rose slightly ahead of the release of US retail sales data for September and initial jobless claims data for the week ended Saturday, due post-market hours.

Traders refrained from placing large bets due to the lack of significant domestic cues, dealers said. "The market is trading in a thin band due to a lack of triggers. Today's buyback auction may bring fresh triggers to the market," a dealer at a state-owned bank said. "The market is keen to participate in the buyback auction because there are high chances of traders being in the money."

The trader was referring to buybacks for FY25 bonds conducted by the government in May-Jun. Only INR 302.48 billion of offers were accepted by the government, against INR 2.3 trillion notified over five weeks.

At the INR 250-billion buyback auction, the government has offered to buy back five securities maturing in 2025-26 (Apr-Mar). 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. The 5.22%, 2025 bond and the 7.59%, 2026 gilt may be tendered in the largest size as they are primarily in held-to-maturity portfolios, dealers said. 

Banks can only sell 5% stock out of their held-to-maturity portfolio in a financial year, except for auctions conducted by the Reserve Bank of India. Successful bidders at the buyback may buy bonds maturing in up to five years in the secondary market, as the buybacks are set to provide nearly INR 500 billion in cash to the market over two weeks, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 40.80 billion, against INR 40.35 billion at 0930 IST on Wednesday. During the day, the yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.74-6.82%. (Siddhi Chauhan)

India Gilts: Seen steady on caution ahead of INR 250-bln buyback auction

MUMBAI – Prices of government bonds are seen opening steady ahead of the government's bond buyback through an auction, dealers said. An overnight rise in US Treasury yields may weigh on gilt prices. The yield on the 10-year benchmark 7.10%, 2034 gilt is seen at 6.74-6.82% Thursday, against 6.77% on Wednesday. Bond prices may remain in a narrow band before the buyback at 1030-1130 IST.

At the INR 250-billion buyback auction, the government has offered to buy back five securities maturing in 2025-26 (Apr-Mar). The 5.22%, 2025 bond and the 7.59%, 2026 gilt may be tendered in the largest size as they are primarily in held-to-maturity portfolios, dealers said. 

Banks can only sell 5% stock out of their held-to-maturity portfolio in a financial year, except for auctions conducted by the Reserve Bank of India. Successful bidders at the buyback may buy bonds maturing in up to five years, as the buybacks are set to provide nearly INR 500 billion in cash to the market over two weeks, dealers said.

In the previous week, the government bought back INR 244.53 billion of the same bonds. At that time, traders had tendered INR 619.14 billion in total offers at the auction. Traders may be keen to bid aggressively for the 5.22%, 2025 bond and the 7.59%, 2026 bond if the levels are lucrative as these bonds are held by most of the traders in their held-to-maturity portfolio, dealers said. 

On the global front, the yield on the 10-year US Treasury note was at 4.04%, against 4.01% at the end of Indian market hours 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. 

The yield on the benchmark 10-year US Treasury note rose slightly ahead of the release of US retail sales data for September and initial jobless claims data for the week ended Saturday, due post market hours. (Siddhi Chauhan)

End

US$1 = INR 84.07

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

Edited by Tanima Banerjee

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