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Informist, Wednesday, Oct. 23, 2024

By Srijita Bose

MUMBAI – Most government bonds ended little changed Wednesday as the impact of a persistent rise in US Treasury yields was offset by domestic traders driving down overnight indexed swap rates, dealers said. The minutes of the October meeting of the Reserve Bank of India's Monetary Policy Committee were released after market hours. Traders were cautious about placing large bets ahead of the minutes of the MPC meet. However, some bonds ended higher taking cues for OIS rates. 

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.93, or 6.82% yield, Wednesday, against INR 101.91, or 6.82% yield, Tuesday. The new 10-year 6.79%, 2034 bond ended at INR 100.14, or 6.77% yield, against INR 100.05, or 6.78% yield, Tuesday. 

The five-year OIS rate fell 4 basis points from the day's high to 6.23% on Wednesday as traders speculated mutual funds received fixed rates in large quantities. The swap rate fell as it was unable to cross the crucial 6.28%-mark on both Tuesday and Wednesday, which was its 200-day moving average. This led to a disconnect between swap rates and US yields, which typically move in the same direction. The 10-year US Treasury yield hit a three-month high of 4.24% intraday, and was at 4.22% by the end of Indian market hours.

"The rise in the last mile was due to the fall in OIS rates, and intraday there was a slight fall in the (10-year) US (Treasury) yields," a dealer at a primary dealership said. "But overall there is what I call fear positioning in the market, which is why investors have still remained on the edge."

Dealers said foreign portfolio investors were likely sellers again on Wednesday, after dumping over INR 25 billion worth of fully accessible route gilts earlier in the week, according to Clearing Corp. of India data. Foreigners are preferring to trim their exposure to risk assets such as India's bonds in the run-up to the US presidential election on Nov. 5, dealers said. The odds of Republican candidate Donald Trump winning the election have increased, and his proposed policies are inflationary and likely to push up the 10-year US yield, making it more attractive for foreign investors.

State-owned banks likely bought gilts early in the day, and sold when prices rose. Mutual funds were likely buyers, while some traders covered short bets taken earlier, that were concentrated in the 7.10%, 2034 and 7.23%, 2039 gilts, dealers said. Bonds maturing in five years underperformed long-term gilts as rate cut hopes in India have shifted to February from December, after CPI inflation for September surprised to the upside, and RBI Governor Shaktikanta Das last week said rate cuts at this stage were "very premature" and "very, very risky".

Newsflow on the domestic front did not have a large impact on the market, dealers said. Informist had exclusively reported Tuesday the Centre may cut borrowing if spending continues to lag estimates and geopolitics do not hurt finances, quoting senior finance ministry sources. On Wednesday, Informist exclusively reported the government's Department of Financial Services has written to the Reserve Bank of India and pitched for staggered implementation of the proposed Liquidity Coverage Ratio norms, quoting a senior finance ministry official.

"The overall market is still pretty pessimistic despite some incremental positive news coming on the domestic front, whatever rise we are seeing in like a bubble, and traders are driving this rise mostly, but US is the focus still," a dealer at a private bank said.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 495.00 billion, against INR 597.40 billion Tuesday. Four trades worth INR 200 million were settled using the wholesale digital rupee pilot, against four trades worth INR 200 billion settled under this route Tuesday.

OUTLOOK

On Thursday, gilts may take cues from the movement of US yields and crude oil prices at the open, dealers said. The market's takeaways from the minutes of the MPC meeting of Oct. 7-9 could lend cues to gilt prices.

RBI Executive Director Rajiv Ranjan said in his minutes that monetary policy had worked well to contain inflation, showing the MPC was on the right track to change the policy stance to neutral. The minutes showed that two of the three new external members, Ram Singh and Saugata Bhattacharya, said CPI inflation was a concern in the near term. Nagesh Kumar, who had voted for a 25 bps rate cut in October, said monetary policy tightening had anchored inflation expectations adequately, and was concerned about growth.

Traders also look forward to the release of flash US and India Purchasing Managers' Index prints for October after market hours Thursday. 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% on Thursday.

India Gilts:Remain tad up on fall in OIS; caution sets in before MPC minutes

MUMBAI--1620 IST--Prices of government bonds were slightly up as overnight indexed swap rates remained down despite a rise in US Treasury yields. Traders were cautious ahead of the release of the minutes of the Monetary Policy Committee's October meeting, due after market hours, dealers said.

The minutes are awaited for incremental cues on interest rates, dealers said. Traders await the growth and inflation views of the panel's new external members - Ram Singh, Saugata Bhattacharya and Nagesh Kumar – after their first policy meeting. Reserve Bank of India Governor Shaktikanta Das is expected to be cautious on inflation, after his comments that rate cuts would be premature and risky at this stage at an event on Friday. Some expect a divergence from RBI Deputy Governor Michael Patra, who may signal that rates are going to align with the central bank's 4% aim in 2025, as he had said in recent speeches.

Fears of the 10-year US Treasury yield rising further, after hitting a three-month high earlier Wednesday, also kept traders on the edge. During the day, foreign portfolio investors and foreign banks continued to sell while some traders covered short bets, dealers said. Bonds maturing in five years underperformed long-term gilts as MPC rate cut hopes are now seen concentrated in February instead of December earlier.

Newsflow on the domestic front did not have a large impact on the market, dealers said. Informist had exclusively reported Tuesday the Centre may cut borrowing if spending continues to lag estimates and geopolitics do not hurt finances, quoting senior finance ministry sources. On Wednesday, Informist exclusively reported the government's Department of Financial Services has written to the Reserve Bank of India and pitched for staggered implementation of the proposed Liquidity Coverage Ratio norms, quoting a senior finance ministry official.

"Despite positives on possible borrowing cut and the news on LCR (liquidity coverage ratio) coming out, the global factors are killing the demand in the market," 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 451.40 billion, against INR 525.40 billion at 1530 IST on Tuesday. During the day, the yield on the most traded 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%.  (Aaryan Khanna and Srijita Bose)

India Gilts: Reverse losses, tad up as 5-year OIS slumps; FPIs still sellers

MUMBAI--1350 IST--Prices of government bonds were up as the five-year overnight indexed swap rate fell sharply, likely due to domestic traders receiving fixed rates in large quantum, dealers said. The five-year OIS rate fell to 6.24% from a high of 6.27% earlier.

"The 5-year OIS was unable to break the 200-day moving average of 6.28% yesterday (Tuesday), and it has been correcting from there," a dealer at a primary dealership said. "When such a move happens, typically there is breakdown in the relationship between OIS and US yields, and the move can follow through (on the downside in swaps)."

The fall in OIS rates was also because a large institutional investor is likely to have received fixed rates at the day's high. This led to traders covering short bets in both swap rates and gilts, dealers said.

Gains in gilt prices were limited as the narrowing interest rate differential between US yields and yields on Indian gilts triggered outflows, and foreign banks sold bonds on behalf of offshore clients, dealers said. The yield on the 10-year US Treasury note hit a three-month high of 4.24% earlier, before easing to 4.22%. 

"The market moved after there was receiving in OIS (overnight indexed swap rates), US yields have also come down a bit, but I don't think that it could go up further unless (10-year) US yields fall below 4.20%," a dealer at a private bank said. 

The 10-year benchmark US Treasury note has risen consecutively ever since it crossed the 4% level on Oct. 7, due to uncertainty over the outcome of the US presidential election on Nov. 5. While the economic policies of both Democrat candidate Kamala Harris and Republican candidate Donald Trump are seen increasing government expenditure, Trump's planned spend is larger and may be inflationary over the medium term, dealers said.  

As US yields have become more lucrative, foreign portfolio investors sold gilts worth INR 28.24 billion through the fully accessible route this week, according to data from Clearing Corp. of India at 1350 IST. 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. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 319.95 billion, against INR 302.40 billion at 1330 IST on Tuesday. During the day, the yield on the most traded 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%. (Cassandra Carvalho and Aaryan Khanna)

India Gilts:Down as US ylds rise; losses limited on likely buys from PSU bks

India Gilts: Down as US ylds rise; losses limited on likely buys from PSU bks

MUMBAI--1004 IST--Prices of government bonds were down due to an overnight rise in US Treasury yields. The losses were limited as traders stepped up purchases at levels considered lucrative, dealers said.

The yield on the 10-year US Treasury note rose to a three-month high of 4.23% from 4.20% at the end of Indian market hours Tuesday, as hopes of steep rate cuts in the US faded. US yields are also going up due to caution ahead of the US presidential election on Nov. 5, with both candidates likely to up fiscal deficits and increase market borrowing.

"Yes, there is some buying from PSUs (state-owned banks) because of the yield levels, which are lucrative both for trading and investing, but this won't be able to completely overpower the impact of US yields," a dealer at a state-owned bank said. "This is because they have been buying for a lot of days so their buying won't be that aggressive."

State-owned banks prefer rebuilding their portfolios when the yield on the 7.10%, 2034 gilt rises to near 6.85%, dealers said. According to data from Clearing Corp of India, state-owned banks have been net buyers in the secondary market for four consecutive trading sessions. 

Traders also looked ahead to the release of the Reserve Bank of India's October monetary policy meeting minutes post market hours, keeping trade volumes relatively muted. Even though the comments of RBI Governor Shaktikanta Das had erased hopes of a rate cut in December, traders still look forward to insights from the panel's new external members--Ram Singh, Saugata Bhattacharya and Nagesh Kumar--on interest rate views after their first policy meeting, dealers said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 63.90 billion, against INR 162.15 billion at 1030 IST on Tuesday. During the day, the yield on the most traded bond 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%. (Siddhi Chauhan)

India Gilts: Seen tad down on rise in US ylds, caution ahead of MPC minutes

MUMBAI – Government bond prices are seen opening lower as US Treasury yields ticked up overnight, dealers said. Trade volumes could be relatively muted due to caution ahead of minutes of the Monetary Policy Committee's October meeting, due after market hours.

The yield on the most-traded 7.10%, 2034 bond is seen at 6.79-6.86% Wednesday, against 6.82% Tuesday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.74-6.82% Wednesday, against 6.78% the previous day. 

Gilt prices were very sensitive to US yields towards the close of trade on Tuesday. Foreign portfolio investors have sold over INR 30 billion in bonds under the fully accessible route just this week, due to high US yields, dealers said.

The yield on the 10-year US Treasury note rose to a three-month high of 4.23% from 4.20% at the end of Indian market hours Tuesday, as hopes of steep rate cuts in the US faded. US yields are also going up due to caution ahead of the US presidential election on Nov. 5, with both candidates potentially upping fiscal deficits and increasing market borrowing.

The impact of offshore cues may be limited ahead of the minutes, dealers said. Traders await insight from the panel's new external members - Ram Singh, Saugata Bhattacharya, Nagesh Kumar - on their interest rate views after their first policy meeting. Kumar voted for a 25-basis points rate cut at his first meeting as an external member of the panel. Comments by Reserve Bank of India officials, including Governor Shaktikanta Das, were largely discounted after Das said rate cuts would be premature and risky at this stage at an event on Friday, dealers said.  (Srijita Bose)

End

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

Edited by Manisha Baxla

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