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Informist, Tuesday, Oct. 29, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds rose but ended off highs as the yield of the 10-year US Treasury note hit a near-four-month high of 4.32% intraday. Traders were able to absorb the impact as overnight indexed swap rates fell, and covered short bets ahead of a data-heavy week, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.68, or 6.86% yield, Tuesday against INR 101.60, or 6.87% yield, on Monday. The new 10-year 6.79%, 2034 bond ended at INR 99.78, or 6.82% yield, against INR 99.73, or 6.83% yield on Monday. 

"I feel in the US, the entire narrative is just about elections, and they're ignoring the data. That's why US yields are still up, but there are chances of the data coming soft, so domestic traders are looking at that and positioning accordingly," a dealer at a state-owned bank said.

Some domestic traders bet on US yields softening after labour market data this week may point to softer conditions, leading to hopes of continued rate cuts by the US Federal Open Market Committee, dealers said. The lucrative levels were another incentive that pushed traders to pick up bonds Tuesday – state-owned banks built up their portfolios when the 10-year gilt yield was above 6.85%.

Foreign banks and investors were likely on the selling side, as the interest rate differential between the 10-year Indian gilts and the 10-year US treasury notes narrowed further to 255 bps. After selling gilts in large quantums in early October, private banks had space in their portfolios to pick up gilts, dealers said.

Meanwhile, the rise in the price of the benchmark gilt was not proportionately reflected in the 6.79%, 2034 10-year paper. Dealers attributed this to the small outstanding amount of the newly issued gilt, and another sign that the rise in prices Tuesday was driven by short covering in the 7.10%, 2034 and 7.23%, 2039 bonds.

"There's a limit in placing short bets on the new 10-year paper (6.79%, 2034 bond) since there's only two auctions (INR 440 billion) worth of the gilt in the market, so there are more short bets placed on the current benchmark (7.10%, 2034 bond)," a dealer at another state-owned bank said.

According to data from the Clearcorp Repo Order Matching System, total short bets on the benchmark bond in the secondary market amounted to INR 105.71 billion on Tuesday, while short bets worth INR 8.45 billion were placed on the 6.79%, 2034 gilt. The newer bond has not been designated as a liquid paper by the Fixed Income Money Market And Derivatives Association Of India, and only 1% of its outstanding can be short-sold by market participants.

The divergent views, volatile bond prices and intraday movement in US yields led to higher trade volume than expected. Traders had expected volumes to be tepid this week ahead of Diwali, with several dealers on leave in the festival season. The volatility was higher in early trade, and gilt prices rose sharply, amid lower trade volumes in the first half that showed an outsize impact of even small purchases, dealers said.

With losses limited Monday and crude oil prices lower, some traders considered bonds oversold reacting only to offshore cues. Supply-demand dynamics in the domestic market would be favourable until at least the end of the current financial year in March, especially with three gilts worth INR 1.54 trillion maturing in November, dealers said. However, primary dealerships were likely on the selling side Tuesday due to delivery of Separate Trading of Registered Interest and Principal of Securities after the gilts auction on Friday, they said.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 422.15 billion, against INR 399.85 billion Monday. No trades were settled using the wholesale digital rupee pilot Tuesday, whereas four trades worth INR 200 million were settled under this method on Monday. 

OUTLOOK

Wednesday, government bond prices may take cues from the US Sept. job openings and labor turnover survey due at 1930 IST, along with the overnight movement in US Treasury yields and crude oil prices, dealers said. Further geopolitical developments in West Asia will also be keenly tracked.

Trade volume may be muted through the week, with Diwali scheduled on Nov. 1, as some traders are on leave during the festival season. Traders await US data such as the advance Jul-Sept GDP growth numbers, the October employment report and Purchasing Managers' Indices for cues on the Federal Open Market COmmittee's decision on interest rates next week.

Until the US Presidential election on Nov. 5, traders are not expected to pick up gilts in sizeable quantum, and will look at any indication of the election result for cues, dealers said. On the domestic front, the government's accounts for Apr-Sept and core sector data is due on Wednesday.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.89%, while that on the 6.79%, 2034 bond is seen at 6.79-6.86% on Tuesday.

India Gilts: Off highs as 10-yr US yields rise to near 4-month high

MUMBAI--1540 IST--Prices of government bonds were off highs as the yield on the 10-year US Treasury note rose to its highest in nearly four months, dealers said. Prices remained up as traders covered their short bets ahead of US economic data due this week, they said.

Intraday, the yield on the 10-year US Treasury note rose to a high of 4.32% from 4.27% at 0900 IST. The rise in US yields after European markets opened triggered some primary dealers to sell gilts, weighing on prices. Foreign portfolio investors and foreign banks have been on the selling side for most of the past two weeks.

The sharp rise earlier in the day was likely due to investors covering short bets on the view that gilt prices would not fall further, dealers said. Traders found the 6.85% yield level on the 10-year benchmark to be lucrative and some picked up bonds to hold to maturity with interest rate cuts likely in the next few months. 

Most dealers now expect the Monetary Policy Committee to cut rates only in February after RBI Governor Shaktikanta Das' comments earlier this month dashed expectations of a December rate cut. Moreover, uncertainty persisted ahead of several US and domestic data points, as well as the upcoming US election and Federal Open Market Committee meeting next week, dealers said.

"Investors are just looking to square off their positions going into the data-heavy week after they oversold yesterday (Monday)," a dealer at a state-owned bank said. Gilt prices had fallen on Monday despite an intraday fall in US yields.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 331.55 billion, against INR 327.50 billion at 1530 IST on Monday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.84-6.90%, and on the 6.79%, 2034 bond is seen at 6.80-6.86%.  (Srijita Bose)

India Gilts: Sharply up in thin trade, likely on PSU bank buys, fall in OIS

MUMBAI--1238 IST--Prices of government bonds remained high in thin trade. Purchases from state-owned banks and traders covering short bets in small amounts were enough to move bond prices sharply due to tepid trade volume in the market, dealers said.

The fall in overnight indexed swap rates also aided bond prices, they said. Offshore hedge funds paid fixed rates in OIS Monday, but Tuesday, swap rates reversed the rise, which translated into a rise in gilt prices, dealers said. Offshore flows had cooled Tuesday as both crude oil prices and US Treasury yields were largely unchanged overnight, dealers said. 

Some traders said expectations of the 10-year US yield touching 4.50% were waning, as US data due this week is expected to make the case for continued rate cuts by the US Federal Open Market Committee. Those who were waiting for 4.50% on the 10-year US yield to buy at low prices were now entering the market to make do with the current levels, which were still considered lucrative, dealers said.

"Private banks were selling (when the yield of the benchmark 10-year gilt was) at 6.75-6.76% right, so they're making up for that now," a dealer at a state-owned bank said.

Money markets are shut on Nov. 1 on account of Diwali. Since there is no gilts auction scheduled this week, primary investors were expected to pick up bonds at the state bond auction Tuesday. Pension funds may pick up longer-tenure bonds, while domestic banks will dominate the bidding on the short- and medium-term papers.

Some traders were on leave due to the festive season, leaving trade volume low earlier in the day, magnifying the impact of trades on gilt prices, dealers said. "Volumes are low, so can't judge whether there's buying or trading in the market," a dealer at a private bank said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 185.20 billion, against INR 176.40 billion at 1230 IST on Monday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.84-6.90%, and that on the 6.79%, 2034 bond is seen at 6.80-6.86%.  (Cassandra Carvalho)

India Gilts: Up as traders consider levels lucrative, pick bonds

MUMBAI--0945 IST--Prices of government bonds were up as traders picked up bonds at levels considered lucrative, dealers said. Volumes were tepid in a holiday-shortened week.

"It seems that PSUs (state-owned banks) are the ones who are buying because the current levels are not bad to buy. They were buying yesterday (Monday) as well," a dealer at a state-owned bank said. "The volumes will be slightly muted because it is a short week, and we have a lot of data points in this week." According to data from Clearing Corp of India, state-owned banks bought around INR 51.56 billion in three consecutive trading sessions.  

Traders were not placing aggressive bets ahead of US GDP and inflation data due this week, dealers said. Investors, including foreign investors, were on the sidelines due to the US presidential election next week. Traders also await key data points on the global front with the US Jul-Sept advance estimate of GDP due on Wednesday and US personal consumption expenditures data due on Thursday.

Traders will use the state bond auction at 1030-1130 IST to gauge the market's appetite for bonds, dealers said. There is no gilt auction scheduled in the Diwali week. Other cues on the domestic front are only due later, including the government's finances for Apr-Sept on Wednesday.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 56.35 billion, against INR 81.25 billion at 1030 IST on Monday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.84-6.90%, and that on the 6.79%, 2034 bond is seen at 6.80-6.86%.  (Siddhi Chauhan)

India Gilts: Seen steady on caution in run-up to US economic data

MUMBAI – Prices of government bonds are seen opening steady on caution ahead of US economic data, scheduled during the week, dealers said. Trade volumes could be lower as investors might remain on the sidelines in a holiday-shortened week with some traders on leave during the festival season. 

The yield on the most-traded 7.10%, 2034 bond is seen at 6.84-6.90% Tuesday, against 6.87% Monday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.80-6.86% Tuesday, against 6.83% the previous day. 

After covering short bets on Monday, traders may avoid large bets ahead of the US GDP data for Jul-Sept and the release of the US Federal Reserve's preferred inflation gauge this week, dealers said. Foreign banks are likely to continue being on the selling side on caution ahead of the data, and the US presidential election next week. State-owned banks may continue to buy gilts if India's 10-year benchmark yield rises and approaches 6.88%, dealers said. 

The 10-year US Treasury yield was little changed overnight at 4.27%. Brent crude for December delivery was also little changed at $71.64 a barrel at 0830 IST. Both these indicators could lend cues through the day, but not at the open, dealers said.

On the domestic front, the state bond auction at 1030-1130 IST may lend cues on supply-demand dynamics after a poorly-bid auction for the 10-year gilt on Friday. This is the only sale of dated securities this week. The Centre does not have a gilt auction schedule this week due to Diwali. Despite this, investors may not be aggressive due to uncertainties on the global front and the absence of traders, which could result in higher cut-off yields, dealers said.  (Srijita Bose)

End

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

Edited by Deepshikha Bhardwaj

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