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Informist, Tuesday, Oct. 22, 2024

By Cassandra Carvalho and Aaryan Khanna

MUMBAI – Prices of government bonds recovered towards the close of trade and ended marginally higher after a volatile day as the 10-year US Treasury yield eased from highs. The rise in US yields had largely offset the market's upbeat sentiment after remarks from government sources on a possible cut in borrowing, dealers said.

The 10-year benchmark 7.10%, 2034 bond Tuesday closed at INR 101.91, or 6.82% yield, against INR 101.86, or 6.83% yield Monday. The new 10-year 6.79%, 2034 bond ended at INR 100.05, or 6.78% yield, against INR 100.08, or 6.77% yield Monday. A tug of war between offshore and domestic cues kept changing the market sentiment, leading to a wide swing in prices through the day, dealers said.

Early in the day, Informist exclusively reported quoting two finance ministry officials that the government may consider cutting its market borrowing for 2024-25 (Apr-Mar) provided its expenditure continues to lag and geopolitical tensions do not hurt its finances. If there is an increased skew in favour of demand over supply, bond prices would go up sharply, particularly by the end of the financial year, dealers said.

During the day, the 10-year US Treasury yield rose to 4.22%, its highest level since Jul. 26, which led offshore traders to pay fixed rates in the five-year overnight indexed swap. As the day progressed, traders focussed more on the intraday movement in US yields and said the news about the borrowing cut was speculative and discounted it. By the end of market hours, the benchmark US yield eased to 4.20%, and the five-year OIS rate was also off its high.

"The market is very heavy on short positioning. Some of these got covered towards the end," a dealer at a private bank said. "Ultimately, offshore pressure on OIS was the one that was hitting gilts, and it also eased off because of US yields."

Some traders who were short on bonds likely covered those bets when the news of a possible cut in government borrowing broke, dealers said. If the government does cut borrowing, market participants may not offer short sellers cover for their bets near market prices, essentially squeezing them. The fear of such a squeeze remained at bay as any borrowing cut may only be announced after December, dealers said.

"Every good data gets sucked in because yields are high, (but) just one strong buyer is needed for the market to rally again," a dealer at another private bank said.

The build-up in short sales has occurred largely as US yields have risen, and foreign portfolio investors have turned net sellers, dealers said. They have been being consistent daily buyers since India's inclusion in J.P. Morgan's emerging market bond index suite in June. On the Clearcorp Repo Order Matching System, the repo turnover for the 7.10%, 2034 bond was INR 112.58 billion, down from around INR 130 billion on Monday.

Foreign and private banks likely placed fresh short bets Tuesday as well, dealers said. Foreign portfolio investors have sold gilts worth INR 20.87 billion through the fully accessible route this week, according to data from Clearing Corp. of India at 1650 IST. Both the rise in US yields, and caution before the US presidential election on Nov. 5, drove FPIs away from emerging market assets, dealers said.

State-owned banks were likely buyers as the 10-year benchmark gilt hit 6.85%, a level seen lucrative to build up portfolios. They likely picked up bonds to hold to maturity after selling gilts and booking profit through Jul-Sept.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 600.25 billion, against INR 474.80 billion Monday. Four sales worth INR 200 billion were settled using the wholesale digital rupee pilot Tuesday, against six trades worth INR 300 million settled under this route Monday.

OUTLOOK

On Wednesday, gilts may take cues from the movement of US yields and crude oil prices at the open, dealers said. Traders may be cautious in placing bets ahead of the minutes of the Monetary Policy Committee's October meeting, due post-market hours.

RBI Governor Shaktikanta Das' comments on Friday, about rate cuts being premature and risky, have set the tone for traders' expectations from the RBI members. However, the minutes 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 this week.

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%, while that on the 6.79%, 2034 bond is seen at 6.74-6.82%.

India Gilts: Tad down, volatile tracking movement in US yields, 5-year OIS

MUMBAI--1630 IST--Prices of government bonds were slightly lower and volatile, closely tracking the movement in US Treasury yields and overnight indexed swap rates, dealers said. Offshore traders paid fixed rates in the five-year swap rate, which weighed more on gilt prices than the direct impact of US yields rising.

Informist exclusively reported earlier Tuesday, quoting government sources, that the government may cut borrowing if there is a continued lag in spending. This had helped prices recover earlier in the day, but the impact of persistent outflows dragged gilt prices down, dealers said. The 10-year US Treasury yield was at 4.21%, after hitting a near-three-month high of 4.22% earlier.

"I think the fall was mostly expected, people have now discounted news of the borrowing cut, it is speculative also, plus there is paying in OIS as US yields are up, there could be some TRS (total return swap) unwinding also," a dealer at a primary dealership said. "So now the market is again shifting towards this since the overall view is still negative." The five-year OIS rate rose to 6.28% earlier, the highest level since Jul. 24.

Private banks covered their earlier placed short bets on the 10-year benchmark. State-owned banks also are likely to have bought gilts as the 7.10%, 2034 bond's yield rose to near 6.85%, limiting losses, dealers said. Dealers said though the news provided an incremental boost to the market, the near-term view remained that bond prices would fall.

In addition to the external factors, traders were of the view that the Monetary Policy Committee could keep the status quo at its next meeting. The uncertainty before the minutes of the October meeting, due Wednesday, also kept investors on the sidelines.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 538.70 billion, against INR 411.95 billion at 1630 IST Monday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.81-6.88%, while that on the 6.79%, 2034 bond is seen at 6.76-6.83%.  (Srijita Bose)

India Gilts: In thin band; news of possible cut in FY25 govt borrow aids 

MUMBAI--1340 IST--Prices of government bonds were in a thin band as news of a possible cut in supply offset the impact of a sharp rise in US Treasury yields, dealers said. Informist reported earlier Tuesday, quoting two finance ministry officials, that the central government might cut its market borrowing if its expenditure continued to lag, and geopolitical tensions globally did not affect its finances.

Bond prices fell at open as the 10-year US Treasury yield hit a near-three-month high. However, the Informist report led to a sharp rise in bond prices as any cut in supply would skew market dynamics in favour of demand, pulling up prices. This also led to short sellers covering bets taken earlier, due to fading hopes of interest rate cuts in India in 2024, dealers said.

"The fence-sitters, the ones who were short (on bonds), they would've taken advantage of the rise in prices when the news broke," a trader at a primary dealership said, referring to traders covering short bets.

State-owned banks likely bought gilts earlier as the yield on the 7.10%, 2034 bond rose to 6.85%, preventing further losses. They were keen to add bonds to their held-to-maturity portfolios at the psychologically crucial level, after aggressively selling gilts over the past few months, dealers said.

They were unlikely to have been aggressive buyers after the recovery. Foreign banks and investors were also likely to have been on the selling side due to the rise in US yields, dealers said. Foreign banks have been net sellers in the secondary market since Thursday, according to data from Clearing Corp. of India.

Meanwhile, five states raised INR 81 billion at an auction today, with the cut-off yields on expected lines. Domestic banks likely picked up Tamil Nadu's five-year paper due to its valuable tenure for asset and liability management purposes, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 321.35 billion, against INR 217.80 billion at 1330 IST on Monday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.81-6.88%, while that on the 6.79%, 2034 bond is seen at 6.76-6.83%.  (Cassandra Carvalho)

India Gilts: Recover losses after sources say govt mulling FY25 borrow cut

MUMBAI--1028 IST--Prices of government bonds recovered losses after Informist reported the government was mulling cutting gross market borrowing in 2024-25 (Apr-Mar), dealers said. Gilts fell sharply earlier as US Treasury yields rose to multi-month highs. 

The Centre's fiscal position is "too comfortable" to warrant bond issuances of INR 6.61 trillion in Oct-Mar, according to one of the officials quoted by Informist. The government has bought back INR 493.87 billion worth of gilts in October alone.

"It seems that there is a possibility of a borrowing cut because the government has already reduced around INR 500 billion by conducting buyback auction this month," a dealer at a state-owned bank said. 

The US 10-year Treasury yield surged to 4.21%, its highest level since Jul. 26, up by almost 7 basis points since 1700 IST Monday after comments from officials of the US Federal Reserve. Some Fed officials guided for a slower pace of rate cuts and hinted at a higher terminal policy rate.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 146.85 billion, against INR 81.05 billion at 1030 IST on Monday. During the day, the yield on the most traded bond 7.10%, 2034 bond is seen at 6.81-6.88%, while that on the 6.79%, 2034 bond is seen at 6.76-6.83%.  (Siddhi Chauhan)

India Gilts: Seen down as 10-year US yield surges to near 3-month highs

MUMBAI – Government bond prices may fall sharply at the open due to an overnight rise in US Treasury yields. The rise adds to the negatives piling up for domestic bonds recently, dealers said.

The yield on the most-traded 7.10%, 2034 bond is seen at 6.81-6.88% Tuesday, against 6.83% Monday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.76-6.83% Tuesday, against 6.78% the previous day. 

The US 10-year Treasury yields surged to 4.20%, its highest level since Jul. 26, up by almost 7 basis points since 1700 IST Monday after comments from officials of the US Federal Reserve. Four Fed policymakers on Monday supported the idea of further rate cuts but differed on the speed and depth of any adjustments. Minneapolis Fed President Neel Kashkari cited the resilient US economy and signalled higher long-term rates, while Dallas Fed President Lorie Logan favoured a more cautious approach to lowering rates. The increasing odds of Republican candidate Donald Trump winning the US Presidential election on Nov. 5 have also led to fears of higher government spending, pushing up US yields.

Dealers expect foreign portfolio investors to sell gilts due to the rise in US yields. 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. State-owned banks are expected to remain on the buying side, somewhat limiting losses, dealers said. 

While gilts are expected to slide, the state bond auction at 1030-1130 IST will sail through due to its small size, dealers said. Five states plan to borrow INR 81 billion through bonds, against INR 296 billion indicated in the Oct-Dec calendar for this week.  (Srijita Bose)

End

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

Edited by Ashish Shirke

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