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Informist, Tuesday, Nov. 5, 2024

By Srijita Bose

MUMBAI – Government bond prices ended steady as traders remained cautious ahead of the US presidential election, with vote counting likely to suggest a winner before the Indian market opens Wednesday, dealers said. During the day, volumes remained thin amid some banks placing short bets to hedge their investment risk.

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.84, or 6.83% yield, flat against Monday. The newer 6.79%, 2034 bond ended at INR 99.97, or 6.79% yield, against INR 99.94, or 6.80% yield on Monday. 

"The overall sentiment in the domestic markets is positive, but people are waiting for the uncertainty to shed off to take some firm cues on what happens next," a dealer at a private bank said. 

Traders expect volatility to kick in starting Wednesday, with prices likely to fall sharply if Republican candidate Donald Trump is seen winning the election. A win for Democratic candidate Kamala Harris could lead to prices rising as foreign portfolio investors may re-enter emerging markets, dealers said. 

During the day, traders continued to stay on the sidelines and kept their portfolios light before the event, dealers said. State-owned banks likely remained on the buying side. Though volumes have been thin, their purchases have prevented gilt prices from falling before the election outcome, dealers said. On the other hand, primary dealers and foreign banks likely remained on the selling side, they said.

Some dealers said that if Republican candidate Donald Trump becomes the president, fiscally expansionary policies could result in the yield on the 10-year US Treasury note rising by up to another 40 basis points from the current 4.30%. Dealers said the yield on the 10-year benchmark 7.10%, 2034 bond could move up to 6.95% tracking a rise in US yields in the event of a Trump win. Moreover, the Reserve Bank of India's Monetary Policy Committee could also delay or opt out of rate cuts in the medium-term if the US Federal Open Market Committee maintains a higher terminal interest rate due to expansionary fiscal policy.

"Inflation is a crucial gauge that the RBI is watchful about, so whatever happens in the US, we could certainly feel some ripples, but broadly, I think most people have already priced in any shocks," a dealer at a primary dealership said. 

Dealers said even with a Kamala Harris win, the fiscal deficit in the US is likely to go up, but less than what it would have been under Trump. If Harris wins, the yield on the 7.10%, 2034 gilt could fall to 6.75%. Traders were also watchful ahead of the FOMC's policy review meeting on Thursday to place fresh bets, dealers said.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 224.40 billion, against INR 275.95 billion on Monday. Two trades worth INR 100 million were settled using the wholesale digital rupee pilot Tuesday, as against no trades settled on Monday.

OUTLOOK

On Wednesday, prices of government bonds will take cues on the movement of US treasury yields, dealers said. Traders will likely trade using the vote counting trends in the US as they unfold. The movement in crude oil prices may also lend cues, dealers said.

Traders will also look at races for the US Congress 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.

India Gilts: Steady; traders keep hawk eye on US polls, see volatility Wed

MUMBAI--1612 IST--Prices of government bonds moved in a thin band ahead of the US presidential elections. Traders placed short bets to hedge the value of their gilt investments ahead of an event-heavy week, dealers said.

Some dealers said that if Republican candidate Donald Trump became President, his fiscally expansionary policies could result in the yield on the 10-year US Treasury note rising by up to another 40 basis points from the current 4.30%. Dealers said the yield on the 10-year benchmark 7.10%, 2034 bond could move up to 6.95% tracking a rise in US yields in the event of a Trump win. Moreover, India's Monetary Policy Committee could also delay or opt out of rate cuts in the medium-term if the US Federal Open Market Committee maintains a higher terminal interest rate.

"Right now, everyone's waiting to see who comes out on top (in the US election), because that could also in turn impact India's rate cut view for traders in the medium term," a dealer at a private bank said.

On other hand, if Democrat candidate Kamala Harris wins, the yield on the benchmark gilt could fall to 6.75%, dealers said. Most traders have, however, already priced in that both the candidates will bring about fiscal expansionary policies, with no joy for India's bond market in the medium-term. During the day, primary dealers and foreign banks likely remained on the selling side, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 171.55 billion, against INR 237.85 billion at 1630 IST on Monday. 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%.  (Srijita Bose)

India Gilts: In thin band, volumes light; awaiting cues from US election

MUMBAI--1343 IST--Prices of government bonds have traded in a thin band so far through the day on caution before polling day in the US for the next president and Congress, dealers said. Traders kept their trading portfolios light as they awaited cues from either US Treasury yields or reports on vote counting, which will start getting published early Wednesday India time.

"It's a tricky day, some confirmation of what's ahead is needed. You see the (market-wide) volumes today are the same as the amount being raised at (state bond) auction, so everyone is cautious," a dealer at a private bank said, referring to the muted volumes. States raised INR 94.67 billion through bonds at auction Tuesday.

A new US president would mean fresh policy views on economics, business, and trade, which would affect countries all over the world, especially an emerging market like India, dealers said. US yields zoomed up on fears of a fiscal stimulus leading to inflation and higher deficits, particularly under Republican candidate Donald Trump. Foreign portfolio investors bought only INR 3.74 billion worth of fully accessible route gilts in October, the lowest level since being net sellers in April.

While traders continue to stay on the sidelines, some banks have placed short bets in the most-traded 7.10%, 2034 bond to offset the risk from their holdings of other illiquid securities, dealers said. State-owned banks have probably remained on the buying side. Though volumes have been thin, their purchases have prevented gilt prices from falling before the election outcome, dealers said.

Traders expect volatility to kick in starting Wednesday, with prices likely to fall sharply if Trump is seen winning the election, while a win for Democratic candidate Kamala Harris could lead to prices rising as FPIs may re-enter emerging markets, dealers said. For the rest of the day, the movement of US Treasury yields in European market hours may lend cues, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 107.20 billion, against INR 92.40 billion at 1330 IST Monday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.78-6.88%, and that on the 6.79%, 2034 bond is seen at 6.79-6.84%. (Cassandra Carvalho)

India Gilts: Steady as traders cautious on US presidential election day

MUMBAI--1024 IST--Prices of government bonds were steady as traders looked ahead to the result of the US presidential election for cues, dealers said. There were no other significant domestic or offshore cues to move prices.

As has been the case since Monday, the market-wide turnover was low ahead of the US polls. According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 11.85 billion, against INR 9.00 billion at 0930 IST on Monday. 

While trends in counting will be known early Wednesday India time, the close race between Republican nominee Donald Trump and Democrat Kamala Harris may take a couple of days to be called by media. Regardless of the outcome, traders fear the fiscal profligacy of both candidates may drive the 10-year US Treasury yield higher - more in the case of Trump than Harris. This would drive down domestic gilt prices as well, though the magnitude may be lower, dealers said.
 

If the media takes a longer time to call the US election, caution and volatility may continue in the gilt market until later this week, dealers said. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1015 IST showed trades worth INR 117.24 billion in the 7.10%, 2034 gilt.

"If the election result takes two days, and it looks like it will, we'll see this caution in the market until then...traders will only cover short bets until they know who's won," a dealer at a private bank said. 

Eight states will raise INR 94.67 billion via bonds at an auction during 1030-1130 IST. Traders may avoid adding duration paper to their portfolios ahead of the key event, leading to moderate demand, dealers said.

During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.78-6.88%, and that on the 6.79%, 2034 bond is seen at 6.79-6.84%. (Cassandra Carvalho)

India Gilts: Seen steady ahead of US election, intraday volatility likely

MUMBAI – Prices of government bonds may open steady as traders will be cautious in placing any bets before the US presidential election. Depending on how the poll process progresses, the movement of US Treasury yields may likely cause prices to see-saw intraday, dealers said.

The yield on the most-traded 7.10%, 2034 bond is seen at 6.78-6.88% Tuesday, against 6.83% Monday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.79-6.84%, against 6.80% Monday. 

On Tuesday, the US electorate will vote for its next president. Media polls have shown a tight race between Republican candidate Donald Trump and Democratic candidate Kamala Harris. A poll by local media showed Harris pulling ahead in the key swing state of Iowa. As fears of Trump winning receded, the 10-year US Treasury note remained little changed from the close of Indian market hours on Monday, at 4.30%.

Bond dealers fear that if Trump becomes US president there will be higher inflationary pressure in the global economy due to his stance on taxes, tariffs and immigration. While the media may start calling the election in the early hours of Wednesday India time, traders on Tuesday will be closely tracking the movement in US yields and news about the polls. Most traders have already realigned their portfolios to limit any risk, as the result of the election remains uncertain.  

The slight rise in crude oil prices may also lend cues to bond prices at opening. Further, traders will prepare for the Federal Open Market Committee's meeting, scheduled for Wednesday and Thursday. The committee is expected to cut interest rates by 25 basis points this week, after a 50-bps cut at its previous meeting in September.  (Cassandra Carvalho) End

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

Edited by Saji George Titus

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