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Informist, Thursday, Oct. 24, 2024

By Srijita Bose

MUMBAI – Government bond prices ended on a mixed note Thursday due to conflicting factors. An intraday fall in US Treasury yields aided bond prices. However, traders made room for gilts at the INR 320-billion auction on Friday, and were not keen on buying bonds noting a rise in crude oil prices, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.92, or 6.82% yield Thursday, against INR 101.93, or 6.82% yield on Wednesday. The new 10-year 6.79%, 2034 bond ended at INR 100.07 or 6.78% yield, against INR 100.14, or 6.77% yield on Wednesday. 

Traders readjusted their portfolios as they wanted to get their hands on the new 10-year bond in only its second auction, and were upbeat on auction demand this week as the Centre is not scheduled to sell gilts next week. The 6.79%, 2034 gilt, issued earlier this month, is likely to become the 10-year benchmark gilt early next month after its outstanding increases to INR 660 billion, dealers said. The government will sell INR 220 billion of the 10-year bond and INR 100 billion of the 7.46%, 2073 bond. Both bonds ended lower Thursday due to likely short sales by primary dealers.

"Tommorrow's (Friday's) auction will be important, people will want to pick up new 10-year (gilt), so some people shorted positions. But other than that as well, you can see that (crude) oil prices are up and traders are also positioning ahead of US data and then the (US Presidential) elections," a dealer at a primary dealership said. 

The uncertainty in the market tempered the impact of the fall in US yields, and most bonds ended little changed from the previous close. The 10-year benchmark Treasury note eased below 4.20%, from 4.23% at the time the bond market opened. 

Dealers were concerned that the fall in US yields would not sustain. Dealers said they avoided large purchases as they wanted a "Trump-premium". Republican candidate Donald Trump's policies are expected to drive up the benchmark US yield if he wins the US Presidential election on Nov. 5. Traders also looked forward to US data after market hours for fresh cues on US interest rates, dealers said.

The sharp day-to-day movement in crude prices during the conflict in West Asia also added to traders' caution, dealers said. Brent crude oil for December delivery rose past the $75 a barrel mark during the day.

"It (the rise in crude oil prices) was an incremental point that mattered, market was not convinced on the US yields falling so sharply today (Thursday), everything else is still the same, also there is still some time till US elections," a dealer at a private bank said. 

During the day, trade volumes were relatively muted due to a lack of direction for gilt prices. Even the minutes of the Monetary Policy Committee's October meeting did not change the market's expectation of a repo rate cut in India only in February, from December earlier, dealers said.

Reserve Bank of India Governor Shaktikanta Das' comments last week on interest rate cuts in India at this stage being "premature" and "very risky" had already set the tone for what to expect from the minutes, dealers said. RBI Executive Director Rajiv Ranjan said that monetary policy had worked well to contain inflation, and the MPC was on the right track. Some traders were surprised that newly appointed external members Ram Singh and Nagesh Kumar had opposing views and concerns on growth and inflation.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 380.80 billion, against INR 492.85 billion Wednesday. Four trades worth INR 200 million were settled using the wholesale digital rupee pilot, the same as Wednesday.

OUTLOOK

On Friday, government bond prices may take cues from the movement in US Treasury yields, after key economic data, dealers said. The impact on gilt prices will be limited ahead of the weekly gilt auction at 1030-1130 IST, they said.

US initial jobless claims for the week ended Saturday rose 227,000, lower than the previous week and below estimates in a Dow Jones poll. The US flash purchasing managers' index for October, to be released at 1915 IST, may also guide US yields.

Meanwhile, the government will sell INR 220 billion of the 6.79%, 2034 bond and INR 100 billion of the 7.46%, 2073 bond through an auction at 1030-1130 IST on Friday. Demand is seen firm at the auction due to a lack of gilt supply next week, and traders want to pick up the 10-year gilt, which is expected to become the new benchmark soon, dealers said.

Gilts may also take cues from further movement in crude oil prices and 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 6.76-6.82% on Friday.

India Gilts: Tad down before auction Fri; limited impact of fall in US ylds

MUMBAI--1605 IST--Prices of government bonds were slightly down as Friday's weekly auction deterred traders from picking up bonds Thursday, dealers said. Some traders trimmed portfolios to make room for fresh supply of the 10-year 6.79%, 2034 bond on offer this week, while others purchased gilts due to a slight intraday fall in US yields. 

Due to lack of any other significant domestic cues for traders, they were focussed on the gilts auction, and were readjusting portfolios accordingly, dealers said. Some dealers trimmed holdings in the secondary market to pick up the 6.79%, 2034 bond. Traders wanted to get their hands on the 10-year bond as soon as possible, with Friday being the second time the bond will be put up for sale, and were upbeat on auction demand this week as the Centre is not scheduled to sell gilts next week. The 6.79%, 2034 gilt, issued earlier this month, is likely to become the 10-year benchmark gilt early next month after its outstanding increases to 660 billion, dealers said.

The erratic fall and rise in US Treasury yields left some domestic dealers ignoring the offshore cue. The yield of the 10-year US Treasury note eased to 4.20%, after 4.23% at 0900 IST. The overnight rise in the yield to a three-month high caused some selling pressure earlier in the day, dealers said.

"US yields are moving sharply in short time periods, but rest of the time its stuck at one level only, so tracking it in domestic markets also has lost meaning," a dealer at a state-owned bank said. The benchmark US yield has traded in a band of 4.20-4.25% during Indian market hours for the last three days.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 315.55 billion, against INR 398.40 billion at 1530 IST on Wednesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.79-6.86%, and that on the 6.79%, 2034 bond is seen at 6.74-6.82%. (Cassandra Carvalho)

India Gilts: Off highs as traders trim bonds ahead of auction Fri

MUMBAI--1342 IST--Government bond prices were off highs as traders trimmed their portfolios to make room for the weekly gilt auction on Friday, dealers said. The government will sell INR 320 billion worth of bonds at auction on Friday, including INR 220 billion of the 10-year 6.79%, 2034 gilt. 

According to Clearing Corp. of India data, primary dealers sold INR 26.10 billion worth of bonds on Wednesday. They likely remained on the selling side Thursday. Private banks also likely picked up bonds in the early hours of the session, and are likely placing short bets ahead of the auction, dealers said. 

Prices were higher earlier as traders speculated a mutual fund had received a large quantum of the five-year overnight indexed swap rates. This had led counterparties to cover their short sales in gilts, dealers said.

"I think the rise in the morning was due to a single investor interest, but mostly there are still so many persisting negative (pressures), so I don't see much of a movement," a dealer at a primary dealership said. 

Bond prices now traded in a thin band as primary dealers' sales were offset by offshore cues. The yield on the US 10-year benchmark Treasury note fell to 4.21%, from 4.23% at 0900 IST. Dealers said they would avoid large purchases until the 10-year US yield fell convincingly below 4.20%, as they wanted a "Trump-premium" ahead of the US presidential election in two weeks. Republican candidate Donald Trump's policies are expected to drive up the benchmark US yield if he wins. The sharp day-to-day movement in crude prices during the conflict in West Asia also added to traders' caution.

However, trade volumes were muted due to a lack of direction for gilt prices. Even the minutes of the Monetary Policy Committee's October meeting did not change the market's expectation of a repo rate cut in India only in February, from December earlier, dealers said.

"The MPC minutes (of October) were not much of a surprise, just a few stunners. Overall, there is still confusion as the market is not ready to break 6.85% (yield on the 7.10%, 2034 bond)," a dealer at a private bank said. Traders were surprised that external members Ram Singh and Nagesh Kumar made directionally opposing comments on growth and inflation.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 218.80 billion, against INR 269.50 billion at 1330 IST on Wednesday. During the day, the yield on the most traded bond 7.10%, 2034 bond is seen at 6.79-6.86%, and that on the 6.79%, 2034 bond is seen at 6.74-6.82%. (Srijita Bose)

India Gilts: Up as 5-year OIS falls, traders cover short bets

MUMBAI-–1015 IST--Prices of government bonds were up after a large mutual fund received the five-year overnight indexed swap rate, leading traders to cover short bets in both the markets, dealers said.

The five-year OIS was unable to break its 200-day moving average, leading to a correction in rates. In early trade, the swap rate fell 1 basis point to 6.22%. The counterparties to the OIS flow, who would have paid fixed rates, bought gilts to neutralise their risk positions, dealers said.

"If you're a market maker hit (receiving in OIS) by around 3,000 crore (INR 30 billion), you have to act on it right," a dealer at a private bank said.

The rise in bond prices comes despite US yields climbing to an almost three-month high overnight. Dealers said that for now, they were discounting the rise in US yields, as it did not translate to OIS rates. However, domestic traders are wary of buying bonds as some sections see a rise in the 10-year US yield to 4.50% over the next few weeks, which could further drive out foreign investors, dealers said.

Traders do not expect the rise in bond prices to sustain throughout the day as they may trim portfolios before the weekly gilts auction on Friday. Dealers said there will be more than usual demand at the auction Friday as there is no gilt supply next week, according to the government's Oct-Mar borrowing calendar. Money markets are also shut on Nov. 1 for Diwali.

There was no significant impact of the minutes of the Monetary Policy Committee's October meeting released post-market hours Wednesday on gilt prices, dealers said. More MPC meetings will be needed to correctly determine the new external members' views on rate cuts, they said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 64.25 billion, against INR 74.80 billion at 1030 IST on Wednesday. During the day, the yield on the most traded bond 7.10%, 2034 bond is seen at 6.79-6.86%, and that on the 6.79%, 2034 bond is seen at 6.74-6.82%. (Cassandra Carvalho)

India Gilts: Seen opening lower on overnight rise in US ylds, Fri bond sale

MUMBAI – Government bond prices are seen opening lower, taking cues from an overnight rise in US bond yields. The fall in prices may be worsened as traders may trim their portfolios ahead of the government's weekly bond auction on Friday, while minutes of the Monetary Policy Committee's latest meeting would have a limited impact, dealers said. The yield on the 10-year US Treasury note rose overnight to a three-month high of 4.26%, before cooling slightly to 4.23% at 0830 IST. 

The yield on the most traded 7.10%, 2034 bond is seen at 6.79-6.86% Thursday, against 6.82% Wednesday. The yield on the 6.79%, 2034 bond is seen at 6.74-6.82% on Thursday, against 6.77% the previous day. 

Bond prices are seen under pressure ahead of the auction on Friday. The Reserve Bank of India will auction INR 100 billion of 7.46%, 2073 gilt and INR 220 billion of the recently-issued 6.79%, 2034 gilt. Low supply of the new 10-year gilt may result in aggressive bidding for the already popular paper, as traders shift their holdings from the current benchmark to the new bond.

Minutes of the Monetary Policy Committee's October meeting, released after market hours on Wednesday, are expected to have limited effect on gilt prices as the statements by members were along expected lines, dealers said. Reserve Bank of India Governor Shaktikanta Das' comments last week on interest rate cuts in India at this stage being "premature" and "very risky" had already set the tone for what to expect from the minutes, dealers said.

The minutes showed RBI Executive Director Rajiv Ranjan saying 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-basis-point rate cut in October, said monetary policy tightening had anchored inflation expectations adequately, and he was concerned about growth.

Traders also await the release of flash US and India Purchasing Managers' Index prints for October. Gilts may also take cues from further geopolitical developments in West Asia, dealers said. (Cassandra Carvalho)   

End

US$1 = INR 84.0775

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

Edited by Tanima Banerjee

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