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Informist, Wednesday, Nov. 6, 2024

By Srijita Bose

MUMBAI – Prices of government bonds ended steady after a volatile trading session amid a victory for Donald Trump in the US presidential election. Gilt prices gave up both losses and gains accrued through the day. Traders in the latter half of the day covered short bets taken in the run-up to the US election as a hedge on their government bond portfolios, dealers said.

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.83, or 6.83% yield Wednesday, against INR 101.84, or 6.83% yield Tuesday. The bond's yield wildly fluctuated in a 6 basis point band. The newer 6.79%, 2034 bond ended at INR 99.96, or 6.79% yield, against INR 99.97, or 6.79% yield on Tuesday.

Gilt prices had fallen sharply at the open as the 10-year US Treasury yield rose to a four-month high of 4.47% early in Indian market hours. The fall, however, was not sustained as traders had already priced in a sharper rise in US yields for a Trump-win scenario. In addition to the victory in the presidential election, the Associated Press reported that the Republican party is set to sweep elections for the US Congress, a scenario that was expected to push up the 10-year gilt yield north of 6.90%.

"Intraday, US yields have mostly tended downwards, so the fear that it (US 10-year Treasury yield) could go more than 4.50% subsided despite Trump sweeping the elections. Our market also reacted to this confidence, and some short covering also kept prices up," a dealer at a state-owned bank said.  

Trump is poised to become the second US President to secure a second term non-consecutively. With Republicans gaining control of the US legislature as well, Trump's policies are seen expanding the fiscal deficit and causing higher inflation, both factors likely to push up US yields. A Republican sweep was expected, by some traders, to push up the 10-year US Treasury yield to as high as 4.70% because of expansionary fiscal policies proposed by Trump.

With the US benchmark yield retreating to under 4.40%, traders picked up gilts at levels seen as lucrative. In any case, the impact of Trump's new policies were some time away with the swearing-in only in January, dealers said.

Foreign portfolio investors dumped bonds as Trump's proposed policies are seen as protectionist, likely to cause risk aversion and drive away inflows from emerging markets such as India. At 1845 IST, data from Clearing Corp. of India showed that FPIs sold INR 24.02 billion worth of fully accessible route bonds. These were absorbed by domestic traders, some of whom wanted to add to their portfolios after trimming them before the US election.

Even before the election was called for Trump, traders looked ahead to the US Federal Open Market Committee meeting later this week. Traders covered short bets and said they preferred to go well invested into the US monetary policy decision, with the panel widely expected to cut interest rates by 25 basis points. Dealers said that future rate cuts in the US were not guaranteed, following the Trump win, as his proposed policies are seen as inflationary. The FOMC may decide on a higher terminal interest rate, which may also delay or dissuade the domestic Monetary Policy Committee from cutting rates in the medium-term, dealers said.

"The next trigger is now the FOMC decision, but overall domestically, supply demand pressures have been positive, so I don't think a major shift (in the trading range) could happen even if they were to keep the terminal rates higher," a dealer at a private bank said. 

Separately, traders assessed comments by Reserve Bank of India Governor Shaktikanta Das at an event in Mumbai. Das said growth signals had become mixed, though it still had more positives than negatives. This was seen as a positive signal by some traders of an acknowledgement of a growth slowdown. Most dealers said they would wait till the India Jul-Sept GDP is published at the end of the month to completely rule out a rate cut by the MPC in December.

However, Das' other comments were seen as pushing back rate cut hopes. Das said a policy stance change, like the one in October, does not necessarily mean a rate cut would follow. Moreover, the RBI governor said that he was not under any pressure from the market to go for a rate cut and reiterated that CPI inflation in October could be higher than September's nine-month high of 5.49%. Traders have already discounted a reading of around 6%, dealers said.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 592.15 billion, against INR 221.55 billion on Tuesday. Two trades worth INR 100 million were settled using the wholesale digital rupee pilot on Wednesday, the same as Tuesday.

OUTLOOK

On Thursday, prices of government bonds will take cues from the movement of US Treasury yields following the Republican party sweep in an election that was expected to go down to the wire, dealers said.

Traders will also be watchful ahead of the FOMC outcome at 0030 IST on Friday. The panel is widely expected to cut interest rates by 25 bps, but any commentary from US Federal Reserve Chair Jerome Powell may lend cues. Since a rate cut was discounted, there may be limited caution ahead of the outcome, dealers said.

Geopolitical developments in West Asia will also be watched. The yield on the 10-year benchmark, 7.10%, 2034, bond is seen at 6.80-6.88%, while that on the 6.79%, 2034 bond is seen at 6.76-6.83% on Thursday.

India Gilts: Little changed in volatile trade after Trump wins US election

MUMBAI--1635 IST--Prices of government bonds were little changed from Tuesday's close in volatile trade after the Associated Press called the US presidential election in favour of Republican candidate Donald Trump, even as US Treasury yields rose. Gilts rebounded from lows but could not hold on to the gains as traders prepared for upcoming events after the US election uncertainty had passed, dealers said.

Foreign portfolio investors sold INR 18.45 billion worth of fully accessible route bonds as Trump's victory is seen leading to outflows from emerging markets, including India. These were absorbed by domestic traders seeking to mop up gilts at prices considered lucrative, dealers said. Gilt prices had fallen sharply at the open as the 10-year US Treasury yield rose to a four-month high of 4.47%, but a reversal from those levels eased fears that the benchmark US yield would top the psychologically crucial 4.50% mark after the Republicans won back the US Senate and the White House.

"Trading positions were light before the election, and with Trump coming to power, that uncertainty has gone away," a dealer at a private bank said. "Traders don't want to go into the US FOMC (Federal Open Market Committee meeting) with a negative position."

The FOMC outcome is due to be announced at 0030 IST Friday, and the committee is widely expected to cut interest rates by 25 basis points, leading to traders covering short bets taken on caution before the US election outcome, dealers said. Earlier comments by Reserve Bank of India Governor Shaktikanta Das at an event in Mumbai were seen pushing back rate-cut hopes in India, dealers said. Some dealers, however, said they would wait till the India Jul-Sept GDP is published at the end of the month to completely rule out a December cut by the RBI's Monetary Policy Committee. They also remained positive on a February rate cut.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 549.70 billion, against INR 174.75 billion at 1630 IST Tuesday. 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 6.74-6.85%. (Srijita Bose)

India Gilts: Reverse losses as US yields ease despite likely Trump win

NEW DELHI--1340 IST--Government bonds reversed all losses and rose in volatile trade, closely tracking a fall in US Treasury yields from intraday highs despite growing odds of a Republican sweep in the US elections, with Donald Trump leading in the vote for president. Gilt prices had fallen sharply earlier as the 10-year US Treasury yield rose to a four-month high.

Trump leads Democrat Kamala Harris 267-224 in the presidential vote, just three electoral votes short of a majority, according to the Associated Press. FOX News has already called the election for Trump, while the Republican party has secured a majority in the US Senate. A Republican sweep was expected by some traders to push up the 10-year US Treasury yield to as high as 4.70% because of expansionary fiscal policies proposed by Trump. With the US benchmark yield retreating to under 4.40% from a high of 4.47%, traders picked up gilts at levels seen lucrative, dealers said.

"People have been light and on the sidelines before the election. There is a relief rally expected once the event is over, because US yields seem to have made a top," a dealer at a private bank said. 

Gilt prices rose as traders covered short bets taken in the run-up to the US election as a hedge on their government bond portfolios. However, no stop-losses were hit even in early trade since the 10-year gilt yield did not rise above 6.86%, dealers said. Even though a 25-basis-point rate cut by the US Federal Open Market Committee early Friday is priced in, some traders were also betting on US policymakers signalling monetary policy support for the economy going ahead.

Foreign banks were likely sellers as inflows into India's debt may be hit in the near term, with higher US yields likely to draw back emerging market investment, dealers said. With the US election likely close to being decided, investors who had feared protracted uncertainty were keen to pick up gilts as the impact of Trump's policies on inflation would only play out several months from now, they said. Moreover, traders were of the view that a negative poll outcome in the US and high inflation in India were already priced into gilts.

"I think there is further weakness possible, but only when you will look at the medium-term perspective of Trump's policies. That will only come in post January, after he is sworn in," a dealer at a primary dealership said. "The negatives have already played their part – let's see how the domestic data pans out."

Separately, RBI Governor Shakikanta Das' comments at an event in Mumbai were seen pushing back rate cut hopes in India, dealers said. Das, who chairs the Monetary Policy Committee, said that it should not be assumed that the panel's next step is a rate cut after the change of stance at the previous policy meeting. The MPC in October softened its stance to 'neutral' from 'withdrawal of accommodation'. While most traders expect a repo rate cut in India only in February, some traders had held out hope of lower Jul-Sept GDP growth prompting a rate cut by the MPC at its next meeting in December. Das said he was not under any pressure from the market to go for a rate cut, and reiterated that CPI inflation in October could top September's nine-month high of 5.49%.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 380.35 billion, against INR 96.30 billion at 1330 IST Tuesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.78-6.93%, and that on the 6.79%, 2034 bond is seen at 6.74-6.88%. (Aaryan Khanna)

India Gilts: Slump as early US poll trends show Trump in lead, US ylds surge

NEW DELHI--0930 IST--Government bond prices fell sharply as early US election trends showed Republican candidate Donald Trump in the lead to become the US president, according to the Associated Press. The trends also showed a Republican sweep in the US Congress, which led to US Treasury yields surging, dealers said.

Trump's policies are seen as inflationary for the US economy, which may lead to persistently higher yields on the 10-year US Treasury note despite the US Federal Open Market Committee cutting rates, dealers said. Moreover, the FOMC may decide on a higher terminal interest rate due to the fiscally expansionary policies of the Republican candidate, which may also delay or dissuade the domestic Monetary Policy Committee from cutting rates in the medium-term. The 10-year US Treasury yield was at 4.47%, its highest since Jul. 1, up 16 basis points from the end of Indian market hours on Tuesday.

"On a technical level, the yield (on the 7.10%, 2034 bond) can go up to 6.90-6.93%," a dealer at a primary dealership said. "The market has been supported at 6.85% levels before, so I don't think any further buying or selling will come in immediately after the gap down."

The Associated Press may call the US election during Indian market hours, and more certainty of a Trump victory is likely to pull down gilt prices further, dealers said. However, investors bought the 7.10%, 2034 bond as its yield topped 6.85%, limiting losses. Stop-losses have not been hit so far, but there may be a sharp fall in gilt prices after the 10-year benchmark yield tops 6.88%, dealers said.

On the other hand, if Democratic candidate Kamala Harris manages to pull out a surprise win, bond prices may recover all losses and swing higher, dealers said. Key battleground states are yet to be called, along with Harris' home state of California. Going into the vote count, the two candidates were seen neck-and-neck, with a clear binary for bond prices. Any gains would be limited as the US Congress seemed to be heading to the Republicans, with large seats across several seats, according to the Associated Press, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 59.10 billion, against INR 9.00 billion at 0930 IST Tuesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.78-6.93%, and that on the 6.79%, 2034 bond is seen at 6.74-6.88%. (Aaryan Khanna)

India Gilts: Seen down on rise in US ylds; US election uncertainty to weigh

MUMBAI – Prices of government bonds are likely to open lower due to an overnight rise in US Treasury yields, dealers said. The media may call the winning candidate of the US presidential election during Indian market hours, as states have begun the counting of votes. 

The yield on the most-traded 7.10%, 2034 bond is seen at 6.78-6.93% Wednesday, against 6.83% Tuesday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.74-6.88%, against 6.79% on Tuesday.

The yield on the 10-year US Treasury note rose to 4.43% at 0815 IST from 4.31% at 1700 IST on Tuesday. Counting of votes in the US presidential election is underway, with Republican candidate Donald Trump having a 178-99 lead over Democrat candidate Kamala Harris at 0815 IST. A candidate requires a majority of 270 electoral votes to win the presidency.

A Trump presidency is likely to see inflationary pressures in the US economy, which may drive up global bond yields immediately and in the medium term, dealers said. The election for the US Congress was closely split between the two major US parties.

"Opening would be impacted by US yields definitely, but during the day we'll have to see how it goes...right now, we're only seeing the results from their (Harris and Trump's) own safe territories, the other states are still left," a dealer at a private bank said. 

Dealers will also track Reserve Bank of India Governor Shaktikanta Das' comments at 1030 IST, for any insight on when an interest rate cut by the Monetary Policy Committee would be likely. Most traders only expect the rate-setting panel to cut the policy repo rate in February, instead of at the next policy review in December. (Cassandra Carvalho)

End

US$1 = INR 84.28

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

Edited by Saji George Titus

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