India Gilts Review
Up as US yields fall; focus on US election Tue
This story was originally published at 19:15 IST on 4 November 2024
Register to read our real-time news.Informist, Monday, Nov. 4, 2024
By Aaryan Khanna
NEW DELHI – Government bond prices ended higher Monday as traders covered short bets due to a sharp fall in US Treasury yields in European market hours. Fears of Republican candidate Donald Trump winning the US presidential election on Tuesday faded over the weekend, leading to lower risk premiums being demanded in emerging market assets including India's gilts, dealers said.
The 10-year benchmark 7.10%, 2034 bond closed at INR 101.84, or 6.83% yield, against INR 101.73, or 6.85% yield on Thursday. The newer 6.79%, 2034 bond ended at INR 99.94, or 6.80% yield, against INR 99.84, or 6.81% yield on Thursday. Indian money markets were shut on Friday for Diwali.
A Trump presidency is likely to include higher spending by the world's largest economy, and his trade and immigration policies are seen inflationary. This could lead to higher US Treasury yields in the medium-term which India's gilts would not be able to ignore despite favourable supply-demand dynamics in the domestic market, dealers said.
The 10-year US yield had shot up Friday to 4.40%, a four-month high, despite soft employment data for October, as odds of a Trump victory in US betting markets were above 60%. At close of the Indian market Monday, the 10-year US yield fell to 4.29%. Some traders had expected the fall after 1230 IST as Japanese markets were shut, leading to tepid trading volumes in the first half of trade.
Polls released over the weekend showed the race between former US president Donald Trump and Democratic Party nominee Kamala Harris was neck and neck, with some momentum for the latter. The policies of Harris, the sitting US vice president, are seen causing much less fiscal strain to the US than Trump. Consequently, fears of a global sell-off in bonds are limited if Harris wins the US election, dealers said.
"The US yields are see-sawing based on whether Trump wins or not," a dealer at a primary dealership said. "We are not looking at any domestic factors at all this week, and are not interested in trading heavily. Let the US take the lead." The US Federal Open Market Committee's rate decision is scheduled at 0030 IST Friday.
Foreign portfolio investors were likely on the sidelines ahead of the election, though some traders said they were buying bonds in small quantities as US yields eased. Traders likely covered short bets ahead of the US election result, and were keen to keep their portfolios light heading into the event. Some banks and mutual funds picked up the 7.10%, 2034 bond when its yield was above the crucial 6.85% mark early in the day. Volumes were thin at the time and the purchases helped bonds immediately recover from losses at the open, dealers said.
In an unusual twist, the 6.89%, 2025 gilt was the second-most traded paper after the 7.10%, 2034 bond at 1430 IST. Typically, it is papers maturing in 2030 or longer which dominate market volumes. Investors were deploying cash received from the government on the redemption and coupon payment of the 6.18%, 2024 gilt Monday, totalling around INR 800 billion, dealers said.
The 2025 paper, set to mature in January, was being used as a proxy for Treasury bills as it offered a better return than other papers in the market, dealers said. Government bonds worth another INR 765 billion are due to mature in the next 10 days, which will lead to demand from investors to replenish their portfolios, they said. Short-term papers are likely to be in favour in November as traders avoid large bets in long-term bonds, which could lead to a sharp marked-to-market loss in case global cues pressure bond prices.
"It's a two-month paper that gives you a better yield than the 91-day T-bill," a dealer at a private bank said. "It just allows you to reinvest for a short period at the best possible yield. Though mostly I feel it is asset-liability management desks which are bidding for that paper rather than traders." The 91-day T-bill cut-off at the auction last week was 6.51%, while the January 2025 paper ended at 6.52%.
According to the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market turnover was INR 277.65 billion, against INR 204.90 billion on Thursday, which was the lowest in 10 months. No trades were settled using the wholesale digital rupee pilot Monday, the same as the previous two days.
OUTLOOK
On Tuesday, prices of government bonds may open steady on caution ahead of the US election outcome. Cues from the movement in US Treasury yields and crude oil prices may also lend cues, dealers said.
Until the US presidential election, which will likely be called in the early hours of Wednesday in India, 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. Focus will then turn to the US FOMC rate decision later this week.
Geopolitical developments in West Asia will also be watched. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.78-6.88%, while that on the 6.79%, 2034 bond is seen at 6.76-6.84% on Tuesday.
MONDAY | THURSDAY | |||
PRICE | YIELD | PRICE | YIELD | |
7.10%, 2034 | 101.8400 | 6.8309% | 101.7300 | 6.8469% |
| 6.79%, 2034 | 99.9425 | 6.7970% | 99.8400 | 6.8114% |
7.23%, 2039 | 103.2800 | 6.8677% | 103.2300 | 6.8732% |
| 7.04%, 2029 | 101.0425 | 6.7694% | 100.9950 | 6.8067% |
| 7.32%, 2030 | 102.5400 | 6.7984% | 101.2000 | 6.7901% |
India Gilts: Up as traders cover short bets on intraday softening of US yields
| 1602 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 7.10%, 2034 | |||||
| PRICE (INR) | 101.86 | 101.87 | 101.65 | 101.65 | 101.73 |
| YTM (%) | 6.8280 | 6.8266 | 6.8579 | 6.8579 | 6.8469 |
| 1602 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.79%, 2034 | |||||
| PRICE (INR) | 99.93 | 99.97 | 99.78 | 99.89 | 99.84 |
| YTM (%) | 6.7984 | 6.7935 | 6.8195 | 6.8047 | 6.8114 |
MUMBAI--1602 IST--Prices of government bonds were up as the 10-year US Treasury yield softened to 4.30% from 4.40% at settlement on Friday. Traders covered their short bets as fears of Republican candidate Donald Trump winning the US presidential election receded, dealers said.
Both candidates - Republican Donald Trump and Democrat Kamala Harris - are neck and neck on the eve of the election. The odds of a victory for Trump had soared last week, but have since cooled to show a relatively even race. Harris had drawn ahead in key swing states just before the result, though within the margin of error, according to the latest poll conducted by the New York Times.
"The risk premium is more for a Trump win rather than, and the latest polls over the weekend have moved it to more of a tie race, so let's see," a dealer at a state-owned bank said. "The gap down in European trade was a little bit expected, which is why you didn't have a sharp movement in the first half of the day."
"While the market may have priced in a lot, there is no doubt going to be a lot of volatility as and when the result comes in," the dealers said.
Traders avoided adding bonds in large amounts to their portfolios, though some traders picked up the 7.10%, 2034 bond above 6.85% yield, after bond prices fell at the open. Volumes remained low because of caution ahead of the election, and as some traders are on leave following Diwali on Friday. This magnified the impact of trades on the price movement, dealers said.
Some traders expect the US poll outcome to lead to the yield of the 10-year benchmark US Treasury note touching 4.50%, incrementally putting pressure on India's bond prices. The US benchmark yield has risen by nearly 70 basis points since the Federal Open Market Committee cut interest rates by 50 basis points in September. This rise has come largely on fears of Trump's policies stoking inflation in the world's largest economy, halting rate cuts by the US FOMC before the market currently expects.
According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 226.45 billion, against INR 180.45 billion at 1530 IST on Thursday. For the rest of the day, the yield on the most-traded 7.10%, 2034 bond is seen at 6.82-6.90%, and that on the 6.79%, 2034 bond is seen at 6.79-6.86%. (Cassandra Carvalho and Aaryan Khanna)
India Gilts: Steady; recover opening losses as traders buy in light volumes
| 1034 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 7.10%, 2034 | |||||
| PRICE (INR) | 101.70 | 101.77 | 101.65 | 101.65 | 101.73 |
| YTM (%) | 6.8515 | 6.8417 | 6.8579 | 6.8579 | 6.8469 |
| 1034 IST | PRICE HIGH | PRICE LOW | OPEN | PREVIOUS | |
| 6.79%, 2034 | |||||
| PRICE (INR) | 99.78 | 99.89 | 99.78 | 99.89 | 99.84 |
| YTM (%) | 6.8195 | 6.8047 | 6.8195 | 6.8047 | 6.8114 |
MUMBAI--1034 IST--Government bond prices were steady amid tepid trade due to caution before the US presidential election on Tuesday. A sharp rise in US Treasury yields over the weekend led to prices opening lower, but portfolio buying may have led to a recovery, dealers said.
"I think the volumes are so less that any slight buy also will be reflected in the price," a dealer at a state-owned bank.
Traders had lightened their portfolios amid uncertainty around the next US president, with both candidates - Republican Donald Trump and Democrat Kamala Harris - neck and neck in the race. Domestic traders largely ignored the rise in the 10-year US Treasury yield as it was tied to the election uncertainty, dealers said. Gilt prices may have a downward bias during the day due to the rise in US yields, especially if trade volumes pick up.
Foreign portfolio investors and foreign banks may stay on the sidelines ahead of the key event. Domestic investors were keen to pick up the 7.10%, 2034 gilt as its yield topped 6.85%. Except for small portfolio purchases at levels considered lucrative, traders also avoided large bets, dealers said.
According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 39.50 billion, against INR 44.45 billion at 1030 IST on Thursday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.82-6.90%, and that on the 6.79%, 2034 bond is seen at 6.79-6.86%. (Cassandra Carvalho)
India Gilts: Seen lower on surge in US yields before US election outcome
MUMBAI – Prices of government bonds may open lower due to a sharp rise in the 10-year US Treasury yield since Thursday, dealers said. Bond prices may be volatile Monday as traders readjust their portfolios, taking into account several cues over the long weekend, and heading into an event-filled week.
The yield on the most-traded 7.10%, 2034 bond is seen at 6.82-6.90% Monday, against 6.85% Thursday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.79-6.86%, against 6.81% Thursday. India's money markets were shut on Friday for Diwali.
The yield on the 10-year benchmark US Treasury note jumped to 4.40% at 0830 IST, the highest since July, from 4.30% at the end of Indian market hours Thursday. The upcoming US presidential election on Tuesday pushed up US yields as a closely-fought race between Democratic candidate Kamala Harris and Republican candidate Donald Trump left traders uncertain of the winning candidate's economic outlook. On the domestic front, protectionist policy in the US could bring in imported inflation, which could see the Reserve Bank of India's Monetary Policy Committee retaining interest rates at current levels, instead of opting for rate cuts soon.
A series of economic data from the US released over the long weekend will also lend cues to bond prices, traders said. US non-farm payrolls rose by 12,000, sharply down from the estimate of 100,000. While the low figure is considered a one-time instance, attributed to worker strikes and hurricanes' aftermath, it cemented hopes of the Federal Open Market Committee cutting interest rates by 25 basis points on Thursday.
US personal consumption expenditure, the Federal Reserve's preferred inflation gauge, rose 0.2% on month and 2.1% on year in September, in line with estimates. US initial unemployment claims for the week ended Saturday were lower than expected.
As traders on leave during the Diwali week return to their desks, volumes may pick up and there may be a delayed impact of domestic cues from last week such as fiscal data and core sector growth, dealers said. The rise in Brent crude futures for January to $74.18 a barrel at 0810 IST from $73.00 at 1700 IST on Thursday may also weigh on bond prices. (Cassandra Carvalho)
End
US$1 = INR 84.12
IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT
Edited by Ashish Shirke
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