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Informist, Wednesday, Oct. 30, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended sharply higher, tracking a fall in US Treasury yields. Trade volumes remained low throughout the day as some traders were on leave in the festival week ahead of Diwali. Likely foreign inflows into gilts also boosted prices, but gains were capped due to caution on upcoming data and events in the US, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.87, or 6.83% yield, Wednesday against INR 101.68, or 6.86% yield, on Tuesday. The new 10-year 6.79%, 2034 bond ended at INR 99.96, or 6.80% yield, against INR 99.78, or 6.82% yield on Monday. 

After data Tuesday showed US job openings were lower than expected in September, the yield on the 10-year US Treasury note fell to 4.24% at Indian market close, from 4.31% at 1700 IST Tuesday. 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.

"Now because of the jobs data, January rate cut hopes (in the US) are alive. There are three rate cuts in the US ahead of us, so market is taking the fall in (US) yields as a positive," a trader at a primary dealership said. Traders had earlier feared the US Federal Open Market Committee would slow down its pace of cutting rates after three rate cuts in 2024 – the September rate cut of 50 bps it already enacted, and a 25 bps rate cut each expected in November and December.

Foreign inflows were also likely in the last days of October, since the J.P. Morgan emerging market bond index would increase the weightage of Indian gilts to 5% on Thursday from 4% earlier, dealers said. On Tuesday, FPIs bought index-eligible gilts worth INR 14.14 billion.

Government fiscal deficit data for Apr-Sept, released around 1600 IST, was a positive cue for the market, dealers said. However, a direct impact on prices was not seen, and traders were yet to interpret the data completely, dealers said. The government said its fiscal deficit in Apr-Sept was 29.4% of its INR 16.33-trillion target for the fiscal year ending March.

Some traders interpreted the government fiscal data as a "lagging indicator" since it gave no forward guidance on the government's borrowing plan. However, with expenditure down on year and fiscal deficit also low so far, traders were hoping the government would have room to reduce its market borrowing against the estimate of INR 14.01 trillion for 2024-25 (Apr-Mar), dealers said. Informist exclusively reported last week, quoting two finance ministry officials, that the government may cut its market borrowing if expenditure continues to lag and geopolitical tensions do not hurt its finances.

Domestic bond prices have risen this week after traders picked up bonds, on the view that the caution over a Donald Trump presidency in the US was overdone, dealers said. This led to a sharp fall in prices, and heavy selling from foreign and private banks, last week. Some banks have delayed their purchases to November, after the events in the US are behind the market and liquidity conditions are easier, considering that INR 1.54 trillion of gilts are maturing next month. Dealers said this has also contributed to low volumes Wednesday.

Meanwhile, the cut-off yield on the 182-day Treasury bill at Wednesday's auction was 6.64%, against an Informist poll estimate of 6.59%, marking its highest level since Sept. 11. Some traders said that it was a sign that no rate cuts were expected by the Reserve Bank of India's Monetary Policy Committee till early next calendar year.

However, others said the high cut-off yield was merely due to the absence of purchases by mutual funds, who preferred picking up gilts. Traders also covered short bets ahead of the events and release of data lined up in the US, dealers said. 

"Some fence-sitters and short-coverers placed their bets today (Wednesday)...I think there were large purchases by mutual funds, they were also sellers yesterday (Tuesday) so they would've picked up bonds today," a trader at another primary dealership said. 

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 327.25 billion, against INR 422.15 billion Tuesday. No trades were settled using the wholesale digital rupee pilot Wednesday, same as on Tuesday. 

OUTLOOK

On Thursday, prices of government bonds may take cues from the US jobs and advance Jul-Sept GDP data due after market hours, along with the overnight movement in US Treasury yields and crude oil prices, dealers said.

US data released after market hours presented mixed cues on the pace of US rate cuts. ADP private sector jobs report for October showed that jobs grew by 233,000, over double the estimate. However, US GDP grew 2.8% in Jul-Sept, according to the government's advance estimate, below the consensus 3.1% view compiled by Dow Jones.

Trade volume may remain muted on Thursday. While money markets are shut on Friday for Diwali, the celebration in many parts of the country is on Thursday and several traders were on leave during the festival season. Traders await US data such as the October employment report due Friday and the Personal Consumption Expenditures Price Index, the US Federal Reserve's preferred inflation gauge, on Thursday 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 quantities, and will look at any indication of the election result for cues, dealers said. 

Further geopolitical developments in West Asia will also be watched. 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 6.76-6.83% on Thursday.

India Gilts: Remain up; gains capped on caution before US elections, data

India Gilts: Remain up but on caution ahead of US GDP data 

MUMBAI--1525 IST--Prices of government bonds were up on a fall in US yields, but gains were limited on caution ahead of the US election on Tuesday, dealers said. Volumes were thin owing to a lesser headcount in trading rooms ahead of Diwali. 

"The view on US elections is still on a swing, so no one is willing to place huge positions in the market," a dealer at a private bank said. "No one wants to go long ahead of the long holiday." Indian financial markets are shut on Friday for Diwali. 

Thin volumes led to some volatility in gilt prices, with the 7.10%, 2034 bond moving in a 12 paise range, despite lack of fresh triggers. Investors kept to the sidelines ahead of US GDP data after market hours, as well as inflation and jobs data in the world's largest economy later this week, which comes just ahead of the US Federal Open Market Committee's next meeting on Nov. 6-7, dealers said. Traders took up only intraday bets, picking up bonds early and selling them when prices rose, they said.

The fall in US yields may also have attracted some interest from foreign portfolio investors, dealers said. Foreign banks turned net buyers Tuesday after selling heavily for most of the past two weeks, after FPIs bought around INR 14.14 billion of fully accessible route bonds Tuesday. After traders covered short bets early in the day, the upward momentum in prices stagnated, which led to the 7.10%, 2034 gilt briefly falling off highs, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 232.95 billion, against INR 318.65 billion at 1530 IST on Tuesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.80-6.88%, and that on the 6.79%, 2034 bond is seen at 6.78-6.85%. (Srijita Bose)

India Gilts: Remain up as US yields continue to soften; volumes muted

MUMBAI--1248 IST--Prices of government bonds remained up as the yield of the 10-year US Treasury note softened to 4.24%, after crossing 4.30% on Tuesday. Volumes were muted as some traders are on leave for Diwali, dealers said.

Some short-covering in gilts aided prices, but dealers largely expected gains to be capped around the day's current highs, dealers said. Traders were "not aggressive" in purchases as uncertainty over events lined up in the next week, dealers said. The US presidential election result and the outcome of the Federal Open Market Committee are being closely watched for cues on inflation and rate cuts, dealers said.

Over the past week, domestic bond prices have readjusted after heavy selling ahead of the US election, and have risen since Tuesday. Traders said the caution over a Donald Trump presidency was overdone. They are waiting for policies of the candidate who will win the US presidency. Some banks have delayed their purchases to November, after the events in the US are factored and liquidity conditions are easier, considering that INR 1.54 trillion of gilts are maturing next month. Dealers said this has also contributed to low volumes Wednesday.

Dealers expect foreign inflows during the day, as the interest rate differential between US yields and Indian gilts has widened slightly, after falling to 255 basis points on Tuesday. This month, the interest rate differential is down 40 basis points. The intraday movement made Indian gilts more appealing to foreign investors, especially as they readjusted portfolios ahead of US advance GDP data for Jul-Sept that will be released after market hours.

"The sellers have changed their mood, yesterday (Tuesday) foreign banks were on the buying side after selling for so many days. The jobs data, NFP (non-farm payrolls) data is there, GDP also, and (US) yields have softened, so they'll buy gilts," a trader at a primary dealership said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 128.80 billion, against INR 160.50 billion at 1230 IST on Tuesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.80-6.88%, and that on the 6.79%, 2034 bond is seen at 6.78-6.85%.  (Cassandra Carvalho)

India Gilts: Up as US ylds fall from multi-month high on soft US labour data

MUMBAI--1007 IST--Prices of government bonds were up as the 10-year US Treasury yield retreated after hitting its highest level in nearly four months on Tuesday. With the fall in US yields, traders covered their short bets on gilts as well, dealers said.

The yield on the 10-year benchmark US Treasury fell to 4.25% from 4.31% at the end of Indian market hours on Tuesday. US yields fell after data showed US job openings in September fell to their lowest in over three and a half years, to 7.44 million, missing estimates. 

"No doubt that the movement is because of fall in US yields, but domestically also, if you see some short covering has happened," a dealer at a state-owned bank said. "In previous trading sessions, traders had placed short bets because of elections, but that US yields have fallen we are seeing some short covering." Traders may hit stop-losses on their short bets if the yield on the 7.10%, 2034 bond falls below 6.82%, leading to a sharp rise in prices, dealers said.

During the day, a fall in US yields could attract some buying by foreign banks and foreign portfolio investors. According to data from Clearing Corp of India, foreign banks bought INR 19.65 billion on Tuesday after being net sellers in the secondary market since Oct. 17. Later in the day, traders may take cues from India's fiscal data for Apr-Sept, due around 1600 IST, and be cautious before the release of core sector data at 1700 IST.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 57.65 billion, against INR 67.55 billion at 1030 IST on Tuesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.80-6.88%, and that on the 6.79%, 2034 bond is seen at 6.78-6.85%.  (Siddhi Chauhan)

India Gilts: Seen opening higher as US 10-yr yield eases from near 4-mo high

MUMBAI – Government bond prices are seen opening higher after the yield on the 10-year US Treasury note eased from near-four-month highs hit on Tuesday, dealers said. The gains could, however, be limited due to caution ahead of US GDP data after market hours.

The yield on the most-traded 7.10%, 2034 bond is seen at 6.80-6.88% Wednesday, against 6.86% Tuesday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.78-6.85%, against 6.82% the previous day.

US yields fell after data on Tuesday indicated a cooling labour market. US job openings in September fell to their lowest in over three and a half years, to 7.44 million, missing estimates. US Federal Reserve Chair Jerome Powell had said monetary policy would take action to protect strength in the labour market, before the Fed cut rates by 50 basis points in September.

The fall in US yields could attract foreign banks and foreign portfolio investors to invest in gilts, which could lead to a rise in prices during the day, dealers said. On Tuesday, foreign banks bought INR 19.65 billion after being net sellers since Oct. 17. FPIs tracking the J.P. Morgan emerging market bond index suite could add to their gilt holdings ahead of the increase in their weightage to 5% on Thursday.

However, any gains may be limited before the release of further US data points on growth and the labour market this week. Moreover, foreign investors may remain cautious ahead of the US elections on Tuesday, dealers said. Volumes may not be robust as some gilt traders are on leave during the festival season, with money markets shut for Diwali on Friday. (Srijita Bose)

End

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

Edited by Vidhi Verma

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