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Informist, Thursday, Nov. 7, 2024

By Srijita Bose

MUMBAI – Prices of most government bonds ended steady as traders awaited the US Federal Open Market Committee's meeting outcome at 0030 IST, dealers said. Lack of fresh triggers after Republican candidate Donald Trump won on Wednesday kept prices in a thin band through most of the day. However, traders may have covered short bets in the 7.10%, 2034 bond near the end of trade, pushing up the bond's price.

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.89, or 6.82% yield Thursday, against 101.83, or 6.83% yield on Wednesday. The newer 6.79%, 2034 bond ended at INR 99.97, or 6.79% yield, against INR 99.96, or 6.79% yield on Wednesday.

Instead of the FOMC outcome, where a 25-basis-point rate cut was already factored in, Federal Reserve Chair Jerome Powell's comments after the rate decision would be key to gauge the trajectory of US interest rates, dealers said. Trump's proposed policies are seen as inflationary and may potentially put the US central bank on a slower and shallower path for interest rate cuts, which may translate to a slower pace of rate cuts in India as well, they said. 

"I think they (the FOMC) will have to revise the terminal rate in December, but right now the comments will be more important, especially because it will give us an idea on what Powell is thinking of the economy after Trump's win," a dealer at a private bank said.

Meanwhile, domestic banks covered short bets made before the US presidential election, having prepared for uncertainty for a few days, dealers said. With Trump winning the White House and the Republican party sweeping the elections for US Congress, traders picked up gilt on the view that the negative impact of his policies on prices may only take effect after he assumes office in January, dealers said. 

On other hand, some foreign portfolio investors likely placed short bets on the 7.10%, 2034 paper, after the bond rose in early trade. 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 most-traded 7.10%, 2034 bond had trades worth nearly INR 161 billion on Thursday, against INR 128 billion on Wednesday. 

During the day, FPIs likely remained on the selling side as the spread between the 10-year gilt yield over the 10-year benchmark US Treasury yield declined to less than 240 basis points, which is the lowest in at least 15 years. A rise in US yields narrows the interest rate differential between safe-haven assets and emerging market debt, making the latter less appealing to foreign investors.

On the domestic side, supply-demand dynamics have remained favourable, leading to purchases that have absorbed the outflow. Dealers said that the maturity of bonds this week has also been a positive for the market, with the floating rate bond 2024 worth INR 113.87 billion being redeemed Thursday. Traders also expect India's GDP in Jul-Sept to expand less than the Reserve Bank of India's forecast of 7.0%, which some said could prompt the MPC to cut rates in December. Bets on an early rate cut remained light, they said.

"We could see some significant decoupling in the coming months as Trump assumes office, but it is mostly a win for gilts traders as yields would only go down from here," a dealer at a primary dealership said. "I think that is somewhat adding to the bullish sentiment even though (RBI Governor Shaktikanta Das) Das has repeatedly tried to prevent the market to run ahead."

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 333.50 billion, against INR 591.00 billion on Wednesday. Two trades worth INR 100 million were settled using the wholesale digital rupee pilot on Thursday, the same as Wednesday.

OUTLOOK

On Friday, prices of government bonds will take cues from the movement of US Treasury yields after the FOMC outcome at 0030 IST, dealers said. The FOMC is widely expected to cut interest rates by 25 bps, but any commentary from US Federal Reserve Chair Jerome Powell may lend cues.

Traders may avoid large bets before the weekly gilt auction at 1030-1130 IST. Appetite for gilts at the auction will be closely eyed, after bond prices have had little reaction to Donald Trump's win in the US presidential election. His policies are expected to be negative for gilt prices, as they could push up US Treasury yields, dealers said. The government will sell INR 70 billion of 7.02%, 2027 bond and INR 150 billion of 7.34%, 2064 bond at the auction.

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 6.76-6.83% on Friday.

India Gilts: In thin band on lack of fresh cues before US FOMC meet outcome

MUMBAI--1620 IST--Prices of government bonds moved in a thin band for lack of fresh cues during the day. They avoided aggressive bets before the outcome of the US Federal Open Market Committee's policy review at 0030 IST, dealers said.

Some foreign portfolio investors likely placed short bets on the 7.10%, 2034 paper, after the bond rose in early trade. 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 most-traded 7.10%, 2034 bond had trades worth nearly INR 165 billion on Thursday, against INR 128 billion on Wednesday. 

"I think FPIs were hedging their illiquid positions by shorting the 10-year paper. So, that has created some downward pressure, but overall, domestic banks covering shorts have kept the market up," a dealer at a primary dealership said.

While the FOMC is widely expected to cut rates by 25 basis points, traders were look for any comments by Federal Reserve Chair Jerome Powell to take cues on future rate cut scenarios, dealers said. The medium-term outlook for US rate cuts has turned hazy following Donald Trump's win as US President on Wednesday. Trump's proposed policies are seen as inflationary and may potentially put the US central bank on a slower and shallower path for interest rate cuts, dealers said. In India, however, traders retained their views of a rate cut in February. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 286.00 billion, against INR 538.35 billion at 1630 IST Wednesday. During the day, the yield on the most traded, 7.10%, 2034 bond is seen at 6.79-6.85%, and that on the 6.79%, 2034 bond is seen at 6.76-6.82%.  (Srijita Bose)

India Gilts: Tad up on slight ease in US ylds, post-election short covering

MUMBAI--1340 IST--Government bond prices were up as the US 10-year Treasury yield eased slightly, dealers said. Traders also covered short bets and were watchful ahead of the US Federal Open Market Committee's upcoming decision.

Domestic banks covered short bets made before the US presidential election, having prepared for uncertainty for a few days, dealers said. With Republican Donald Trump winning, the uncertainty was done away with and the negative impact of his policies on gilt prices may only take effect after he assumes office in January, dealers said. There is some caution among traders ahead of the outcome of the Federal Open Market Committee's meeting, due after midnight. While the panel is widely expected to cut rates by 25 basis points, traders await commentary from Federal Reserve Chair Jerome Powell following the rate decision for cues, they said.

"In the longer term, gilts look positive for traders, even though there is a possibility of a hiccup with MPC (Monetary Policy Committee) keeping rates the same in December," a dealer at a state-owned bank said. "People are covering short bets as it will soon be profitable to take long positions after the US events are done."

Dealers said that the maturity of bonds this week has also been a positive for the bond market, with the floating rate bond 2024 worth INR 113.87 billion up for redemption Thursday. Traders also expect India's GDP in Jul-Sept to expand less than the RBI's forecast of 7.0%, though bets on a December rate cut still seemed unfavourable, dealers said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 219.45 billion, against INR 343.90 billion at 1330 IST Wednesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.79-6.85%, and that on the 6.79%, 2034 bond is seen at 6.76-6.82%.  (Srijita Bose)

India Gilts: Up on replacement demand from bks; easing US ylds overnight aid

NEW DELHI--1015 IST--Government bond prices rose due to an overnight easing in US Treasury yields despite the Republican Party sweeping the polls to regain control of the US Congress and the White House, which are seen as leading to inflationary policies in the world's largest economy. Domestic banks stepped up purchases to replace bonds maturing this month in their portfolios, dealers said.

Gilts worth INR 1.54 trillion were set to mature between Nov. 4-14, including the floating rate bond 2024 on Thursday. Domestic traders also picked up gilts as a high CPI inflation print in October was priced in, while a growth slowdown in India seemed more and more likely. This could convince the Reserve Bank of India's Monetary Policy Committee to cut interest rates as early as December, provided India's Jul-Sept GDP growth significantly undershoots the central bank's 7% projection, dealers said. The view has become more popular after corporate earnings in the September quarter were lacklustre.

"I think there is a decoupling looking at the domestic factors, rather than the US, which is leading to some buying," a dealer at a state-owned bank said. "There is some replacement demand, and banks are picking up the old 10-year (7.10%, 2034 bond), but the fall (in its yield) may not be beyond 6.80%."

However, foreign banks were on the selling side as foreign portfolio investment outflows are likely to continue from India's debt market, dealers said. This was despite the 10-year US Treasury yield falling 2 basis points overnight to 4.44%. Already, Republican candidate Donald Trump's victory is seen ushering in protectionist policies in the US, driving down investment in emerging markets like India. Foreign portfolio investors sold INR 24.02 billion worth of fully accessible route bonds on Wednesday, when voting showed Trump would be the next US President.

The spread between the 10-year gilt yield over the 10-year benchmark US Treasury yield has declined to less than 240 basis points, which is the lowest in at least 15 years. After the uncertainty over outcome of the US poll faded, volumes were muted as traders looked ahead to the US Federal Open Market Committee's rate decision post market hours, dealers said. The outlook for US rates is keenly awaited, even as the panel is widely expected to cut rates by 25 basis points at its ongoing meeting.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 86.05 billion, against INR 126.95 billion at 1030 IST Wednesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.79-6.85%, and that on the 6.79%, 2034 bond is seen at 6.76-6.82%. (Aaryan Khanna)

India Gilts: Seen tad up as US ylds fall; caution before FOMC outcome

MUMBAI – Prices of government bonds are likely to open slightly higher on a softening in US Treasury yields. Any gains from a fall in US yields may be capped as traders await the Federal Open Market Committee's meeting outcome, dealers said.

The yield on the most-traded 7.10%, 2034 bond is seen at 6.78-6.86% Thursday, against 6.83% Wednesday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.74-6.82%, against 6.79% on Wednesday.

Republican candidate Donald Trump won the US presidential election on Wednesday. The impact of his policies will only play out in the US after he is sworn-in in January, dealers said. Traders also said the risk premium of a Trump presidency has been priced into US yields, which have risen sharply since October, and is limiting a further rise. The yield on the 10-year US Treasury note eased to 4.43% at 0830 IST, from 4.46% at the end of Indian market hours Wednesday.

However, with Trump's proposed policies expanding fiscal stimulus in the economy and seen as inflationary, traders fear the FOMC may not opt for a deep rate cut cycle. The first guidance of that would be US Federal Reserve Chair Jerome Powell's comments overnight, after the FOMC decision at 0030 IST Friday. Domestic dealers have already priced in a 25-basis-point rate cut by the FOMC this week, but have lowered their expectations of a 25-bps cut in December. At 0824 IST, the CME FedWatch tool showed that Fed fund futures reflected a 67% probability of a 25-bps rate cut at its December meeting, down from 77% a day ago, while there was a 31% probability of a status quo.

Traders may cover short bets placed during a volatile trading session Wednesday, as the counting of US electoral votes occurred during Indian market hours. 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 as on Wednesday showed trades worth INR 128.24 billion in the 7.10%, 2034 gilt. While these short bets were likely placed to offset the risk from their holdings of other illiquid securities, traders may cover these bets as negative cues are already "discounted", dealers said. (Cassandra Carvalho)

End

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

Edited by Akul Nishant Akhoury

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