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Informist, Monday, Oct. 21, 2024

 

By Srijita Bose

 

MUMBAI – Government bond prices ended lower after US Treasury yields rose to the highest in almost three months, dealers said. Traders were also trimming their portfolios on waning hopes of a rate cut in December by the Monetary Policy Committee after Reserve Bank of India Governor Shaktikanta Das's comments Friday, they said.

 

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.86, or 6.83% yield, Monday, against INR 101.93, or 6.82% yield, Friday. The new 10-year 6.79%, 2034 bond ended at INR 100.08, or 6.77% yield, against INR 100.12, or 6.78% yield, Friday. Das said Friday rate cuts at this stage would be "premature" and "very, very risky".

 

"US yields were a driving factor today, prices of gold and crude (oil) are also up, so there was definitely some panic in the market," a dealer at a private bank said. "Plus, after Das's comments on Friday, the market is already a little jittery."

 

The yield on the 10-year benchmark US Treasury note rose to 4.13%, the highest since Jul. 31, from 4.09% at 0900 IST, on fears of higher government spending if Republican candidate Donald Trump wins the presidential election on Nov. 5. The odds of such an outcome have increased in recent days. Traders preferred to place short bets on the most-traded paper while picking up other bonds, dealers said.

 

Foreign banks and primary dealerships likely trimmed their portfolios as rate-cut hopes soured both domestically and in the US, dealers said. For foreign portfolio investors, a rise in US yields narrows the interest rate differential between Indian gilts and safe haven assets, making the former less appealing. Dealers also said some foreign investors probably sold gilts after the Indian rupee Monday matched the record low of 84.0775 a dollar it hit on Friday. 

 

With both domestic and offshore cues sending negative signals and causing a flutter among institutions that had invested heavily in bonds, short sales surged to hedge the exposure, dealers said. Traders also made room ahead of the gilt auction Friday, where the government will sell INR 220 billion worth of the 10-year 6.79%, 2034 bond. Norms do not allow heavy short sales in the new paper, which was first issued earlier this month, leading to short sales being concentrated in the 7.10%, 2034 bond, dealers said. This has led to an increase in the spread between the two papers to 5 basis points Monday, against 4 bps when the new bond was issued on Oct. 4.

 

A proxy for tracking the quantum of short bets is the volume of interbank repo trades in a given paper, as overnight short sellers must borrow the securities. The 7.10%, 2034 bond saw trades worth 133.02 bln rupees on Clearcorp's Repo Order Matching System Monday. State-owned banks were not aggressive with their purchases, until the 7.10%, 2034 bond's yield topped 6.84%, dealers said.

 

"Demand is not there in the market--it is a traders' market so we are seeing so much volatility despite no major data," a dealer at a private bank said. "Only if there is a significant cue from the minutes or PMI (Purchasing Managers' Index) data can we expect some reversal."

 

The minutes of the MPC's October meeting are due after market hours Wednesday, and will offer the first insight into new members Ram Singh, Saugata Bhattacharya, and Nagesh Kumar's interest rate views, dealers said. Kumar voted for a 25-bps rate cut at his first meeting as an external member of the panel. Flash October purchasing managers' data for the US and India are also due to be released during the week.

 

Meanwhile, the government switched seven bonds worth INR 198.45 billion, against INR 300 billion notified, at auction Monday. Banks probably sold off bonds at a profit from their held-to-maturity portfolios, dealers said. Bids were aggressive as bond prices had opened higher ahead of a small state bond auction Tuesday, they said.

 

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 474.80 billion, against INR 605.15 billion Friday. Six sales worth INR 300 million were settled under the wholesale digital rupee pilot Monday, against none Friday.

 

OUTLOOK

On Tuesday, gilts may take cues from the movement of US yields and crude oil prices at the open, dealers said. The result of the INR 81-billion state bond auction may also lend direction.

 

The indicative calendar for state borrowing showed a borrowing of INR 296 billion this week. The Centre devolved double the typical amount to states in October, which is why they borrowed less, dealers said. This may aid appetite for bonds maturing in 10-20 years, they said.

 

Gilts under the fully accessible route may see passive inflows from foreign investors due to their ongoing inclusion in J.P. Morgan's emerging market bond index since June, while active FPIs may exit holdings in gilts due to a continued rise in US yields. 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 further geopolitical developments in West Asia, dealers said. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.79-6.86% on Tuesday, while the 6.79%, 2034 bond is seen at 6.74-6.82%.

 

	MONDAY		FRIDAY
	PRICE	YIELD	PRICE	YIELD
7.10%, 2034	101.8600	6.8293%	101.9300	6.8193%
6.79%, 2034	100.0800	6.7782%	100.1200	6.7727%
7.23%, 2039	103.3100	6.6471%	103.2700	6.8698%
7.04%, 2029	101.1900	6.7330%	101.2300	6.7230%
7.32%, 2030	102.6300	6.7821	102.7000	6.7682%

 

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India Gilts: Down on intraday rise in US yields, waning India rate cut hope

 

	1606 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
7.10%, 2034
PRICE (INR)	101.80	102.05	101.79	101.95	101.93
YTM (%)	6.8379	6.8020	6.8389	6.8163	6.8193

 

	1606 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	100.02	100.25	100.02	100.23	100.12
YTM (%)	6.7866	6.7545	6.7866	6.7573	6.7727

 

MUMBAI--1606 IST--Prices of government bonds were down tracking an intraday rise in US Treasury yields. This worsened the prevailing negative sentiment on bonds, as domestic rate cuts were seen delayed after Reserve Bank of India Governor Shaktikanta Das' comments on Friday, dealers said.

 

"Unless there's some positive (weak) data from the US (to indicate a larger rate cut this year), there are no positive cues for the market right now," a dealer at a state-owned bank said.

 

The yield on the benchmark 10-year US Treasury note rose to 4.13%, the highest since Jul. 31, from 4.09% at 0900 IST, on fears of higher government spending if Republican candidate Donald Trump wins the US Presidential election on Nov. 5. The odds of such an outcome have increased in recent days. Traders preferred to place short bets in the most-traded paper while picking up other bonds, dealers said.

 

The spread between the benchmark 10-year 7.10%, 2034 bond and the newly issued 10-year 6.79%, 2034 gilt widened to 5 basis points, against 4 bps when the latter was issued on Oct. 4. Similar widening of the spread between the 15-year 7.23%, 2039 bond also indicated that traders were selling the benchmark to pick up the 2039 gilt, dealers said.

    

State-owned banks refrained from trading in high volumes during the day as they were in "wait-and-watch" mode, dealers said. They would pick up bonds closer to 6.85% yield on the 7.10%, 2034 bond, dealers said. The RBI governor's comments on a rate cut being "premature" on Friday had dashed most hopes of an interest rate cut by the Monetary Policy Committee in December.

 

Foreign banks and primary dealerships were likely trimming portfolios, dealers said. For foreign portfolio investors, a rise in US yields narrows the interest rate differential between Indian gilts and safe haven assets, making the former less appealing.  

  

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 394.05 billion, against INR 404.50 billion at 1530 IST on Friday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.79-6.85%, while that on the 6.79%, 2034 bond is seen at 6.74-6.80%. (Cassandra Carvalho)

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India Gilts: Off highs as Dec rate cut hopes fade, traders book profit

 

	1320 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
7.10%, 2034
PRICE (INR)	101.88	102.05	101.88	101.95	101.93
YTM (%)	6.8264	6.8020	6.8264	6.8163	6.8193

 

	1320 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	100.08	100.25	100.08	100.23	100.12
YTM (%)	6.7782	6.7545	6.7782	6.7573	6.7727

 

MUMBAI--1320 IST--Prices of government bonds were off highs as traders' rate cut hopes for December were dashed by Reserve Bank of India Governor Shaktikanta Das' comments on Friday, dealers said. Some traders also took profit on bets placed earlier in the day as US Treasury yields inched up. 

 

Traders covered short bets early Monday after "panic selling" near the end of market hours on Friday, following Das' comments that rate cuts in India were premature and "very, very risky" at this stage. State-owned banks were likely buyers as the yield on the 7.10%, 2034 bond neared 6.82%, after selling the bond at 6.70-6.73% yield.

 

The Monetary Policy Committee's decision to change its stance to 'neutral' earlier this month had led to expectations of the first rate cut in four-and-a-half years in December. However, the sharply higher than expected September CPI inflation print of 5.49% as well as Das' comments are leading to a re-evaluation of India's interest rate trajectory.

 

"The market sentiment is not good, the rally is getting sold into...you see the market (bond prices) is trading at the same levels before the MPC's stance change (to neutral)," a trader at a primary dealership said.

 

The minutes of the MPC's October meeting on Wednesday would be the next interest rate cue, with the comments from the panel's other members important, dealers said. Ram Kumar, Saugata Bhattacharya and Nagesh Kumar attended their first policy meeting earlier this month, with the latter voting for a 25-basis-point rate cut. Bond prices are likely to fall further if rate cut hopes in December are erased, dealers said. 

 

Foreign inflows into gilts evaporated due to a lack of positive cues on interest rate cuts both in India and the US. Foreign banks and primary dealerships were likely sellers, capping early gains and then weighing on prices, dealers said. Foreign portfolio investors sold INR 8.07 billion worth of gilts under the fully accessible route last week. Some incremental purchases may come in this week nearer to the increase in India's weightage in the Government Bond Index – Emerging Markets suite at the end of the month, dealers said.

 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 225.85 billion, against INR 197.95 billion at 1230 IST on Friday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.79-6.85%, while that on the 6.79%, 2034 bond is seen at 6.74-6.80%. (Cassandra Carvalho)

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India Gilts: Up on small state bond auction this wk; fall in US yields aids

 

	1008 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
7.10%, 2034
PRICE (INR)	102.01	102.05	101.95	101.95	101.93
YTM (%)	6.8074	6.8020	6.8163	6.8163	6.8193

 

	1008 IST	PRICE HIGH	PRICE LOW	OPEN	PREVIOUS
6.79%, 2034
PRICE (INR)	100.20	100.25	100.19	100.23	100.12
YTM (%)	6.7615	6.7545	6.7636	6.7573	6.7727

 

MUMBAI--1008 IST--Government bond prices rose Monday because of a lower than expected borrowing by the states this week, dealers said. However, the gains were limited as traders trimmed their holdings after Reserve Bank of India Governor Shaktikanta Das doused expectations of a December rate cut, dealers said.

 

"Surely, the market is positive around the state borrowing for this week being lower, US yields are also in our favour," a dealer at a private bank said. "But I don't see the prices rising significantly because of Das' comments on Friday. People who were betting on a December rate cut are now selling because of that."

 

On Friday, the RBI said only five states would borrow INR 81 billion on Tuesday, against INR 296 billion scheduled in the Oct-Dec indicative calendar for this week. The lower borrowing by states is probably on account of the Centre devolving INR 1.78 trillion to states as their share in taxes for October, double the normal monthly devolvement, dealers said.

 

A favourable demand-supply dynamic resulted in traders stepping up purchases, dealers said. Some state-owned banks also picked up bonds as the yield of 6.82% on the 7.10%, 2034 bond was seen lucrative, dealers said.

 

A fall in US yields also aided gilt prices, dealers said. The yield on the 10-year US Treasury note fell to 4.08% from 4.11% at the end of Indian market hours Friday.

 

The gains were limited likely due to primary dealerships selling gilts after RBI Governor Das' comments on Friday. Das said a rate cut at this stage would be very premature and could be very, very risky. India's CPI inflation rose to a nine-month high of 5.49% in September, and is expected to be above 5% in October, the RBI governor said. He has previously said he would only consider rate cuts when CPI inflation aligns with the RBI's 4% target on a durable basis.

 

Traders await the switch auction 1030-1130 IST Monday, dealers said. The government will switch eight short term gilts worth INR 300 billion with six bonds of longer maturities. Banks may participate in the switch, and short-term bond prices may see a rise before the auction, dealers said.

 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 49.30 billion, against INR 36.55 billion at 0930 IST on Friday. During the day, the yield on the most traded bond 7.10%, 2034 bond is seen at 6.79-6.84%, while that on the 6.79%, 2034 bond is seen at 6.74-6.80%. (Siddhi Chauhan)

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India Gilts: Seen up as US yld dn; lower-than-view state borrowing may aid

 

MUMBAI – Prices of government bonds may rise slightly Monday due to an overnight fall in US Treasury yields. States borrowing a lower-than-expected amount via bonds this week may also aid, dealers said. The yield on the most traded bond 7.10%, 2034 gilt is seen at 6.79-6.84% Monday, against 6.82% on Friday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.74-6.80% Monday, against 6.77% the previous day. 

 

On Friday, Atlanta Federal Reserve President said he would not vote for aggressive policy easing by the US Federal Reserve. The yield on the 10-year US Treasury note fell to 4.08% at 0834 IST from 4.11% at the end of Indian market hours Friday. 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.

 

Global cues may have an impact initially, but the market may focus on domestic triggers, dealers said. The Reserve Bank of India said Friday only five states would borrow INR 81 billion on Tuesday, against INR 296 billion scheduled in the Oct-Dec indicative calendar for this week. The lower borrowing by states is probably on account of the Centre devolving INR 1.78 trillion to states as their share in taxes for October, double the normal monthly devolvement.

 

While demand-supply dynamics were favourable, bets on domestic rate cuts starting in December have faded after RBI Governor Shaktikanta Das' comments Friday, dealers said. "A rate cut at this stage will be very premature and can be very, very risky," Das said at the Bloomberg India Credit Forum on Friday. "When your inflation is 5.5%, and the next print is also expected to be high, you can't be cutting rates at that point, more so if your growth is also doing well." India's CPI inflation in September rose to a nine-month high of 5.49% from 3.65% in August.

 

Dealers said the market is now betting on rate cuts beginning only in February. The repricing had largely happened Friday when prices slid near the end of trade after the governor's comments. Traders may pick up the 7.10%, 2034 gilt as its yield nears 6.85%, dealers said.

 

Some traders said the governor's mention of the focus on the forward inflation trajectory have kept rate cut hopes in December alive. Until the Monetary Policy Committee's meeting on Dec. 4-6, CPI inflation prints are expected to be high, before turning a corner, starting the November CPI print, that is likely to be released soon after the policy review, they said.

 

Meanwhile, the RBI will conduct a gilt switch auction at 1030-1130 IST Monday. The government will switch eight gilts worth INR 300 billion with six bonds of longer maturities. Banks may participate in the switch, and short-term bond prices may see a rise before the auction, dealers said. (Siddhi Chauhan)

 

End

US$1 = INR 84.07

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

 

Edited by Rajeev Pai

 

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