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Informist, Monday, Nov. 11, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended lower Monday as traders were cautious of picking up gilts before the release of India's CPI data for October on Tuesday, dealers said. A rise in US Treasury yields in the futures market pushed up overnight indexed swap rates, which weighed on gilt prices. The fall was limited as state-owned banks picked up bonds after being net sellers in the secondary market in the previous two trading sessions.

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.89, or 6.82% yield, against INR 101.97, or 6.81% yield on Friday. The newer 6.79%, 2034 bond ended at INR 100.01, or 6.79% yield, against INR 100.09, or 6.78% yield on Friday.

The yield on the 10-year US Treasury note rose to a high of 4.36% in the futures markets, up around 6 basis points from Friday at 1700 IST, dealers said. The US bond market is shut for Veterans Day, which is why the little-tracked futures were looked at using alternate websites, dealers said. The five-year OIS rate rose 3 basis points to end at 6.26% Monday.

India CPI data due at 1600 IST Tuesday is seen at 5.9%, as per an Informist poll of 20 economists. The caution prevalent in the market due to CPI was reflected in a low market-wide turnover, as traders refrained from large bets before the data.

While traders have already priced in a reading in the range of 5.7-6.0%, some fear a reading above 6% that could delay the onset of the Monetary Policy Committee's rate cut cycle. On the other hand, a lower-than-estimated reading would see traders picking up bonds as it would strengthen hopes of a sooner rate cut by the MPC. Currently, traders expect the first rate cut by the MPC since its rate-hike cycle to be in February.

"We all expected inflation to be high, but then it was revised higher, so that's what all are worried about," a dealer at a state-owned bank said. "Traders are confused, we don't know which way we should go. US yields are also moving in a contradictory direction." US Treasury yields have seesawed since Republican Donald Trump's win in the US presidential election.

Dealers expected a Trump win would see the 10-year US yield going beyond 4.50%, though it was capped at 4.47% after the win, which had prevented a sharp fall in gilt prices last week. Traders now await US CPI data due post-market hours on Wednesday, for indications of future rate cuts by the Federal Open Market Committee. Currently, the CME FedWatch tool shows Fed fund futures pricing in a 34.9% possibility of status quo in December by the FOMC, higher than 20% a week ago, before the election result. The majority still sees rate cuts, despite the expectation that Trump's policies are seen inflationary.

The fall in gilt prices was limited as state-owned banks picked up bonds in light volumes. Some domestic banks covered short bets when prices were at the day's low, while others said they were adding bonds to their portfolios to replace the large quantum of securities maturing, dealers said. Government bonds worth INR 1.54 trillion are scheduled for redemption this month, with nearly INR 1 trillion of this already completed.

Outflows of foreign funds likely continued during the day, dealers said. The depreciation of the rupee to a record low of INR 84.3925 per dollar also weighed on gilts, dealers said. The depreciation of the rupee, which has been limited by the RBI's intervention over the last year and a half, will hurt potential gains of foreign investors on their bond investment, they said. Dealers expect inflows by foreign funds to be sluggish until the end of next month as foreign banks and investors close their accounts for 2024.

"At the year-end, generally flows are less. Already, because of Trump they've started withdrawing. We'll see this continue till December," a dealer at another state-owned bank said.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 227.85 billion, down by nearly half from INR 495.25 billion on Friday. No trades were settled using the wholesale digital rupee pilot on Monday, whereas two trades worth INR 100 million were settled under this method on Friday.

OUTLOOK

On Tuesday, prices of government bonds are seen steady as traders may avoid large bets ahead of CPI data. With the data now being released within market hours, traders expect significant volatility post 1600 IST, dealers said.

The fall would be limited as traders have already built up a large quantum of short bets, which they may cover as gilt prices drop, they said. At the opening, gilt prices may take cues from the overnight movement of US Treasury yields and crude oil prices, dealers said.

US CPI data due post-market hours on Wednesday and comments of US Federal Reserve officials later in the week, including those of US Federal Reserve Chair Jerome Powell, will also be tracked for cues on the interest rate cut cycle in the US, especially after the presidential election was won by Donald Trump, dealers said.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.78-6.88%. The yield on the 6.79%, 2034 bond is seen at 6.74-6.84%.

India Gilts: Remain dn as US yld futures rise; caution before India CPI Tue

MUMBAI--1605 IST--Prices of government bonds remained down, tracking a rise in US Treasury yield futures and caution before India's CPI data for October on Tuesday. State-owned banks likely picked up bonds as prices fell, limiting the losses, dealers said.

Some banks covered short bets when prices were at the day's low, while others said they were adding bonds to their portfolios to replace the large quantum of securities maturing, dealers said. Government bonds worth INR 1.54 trillion were scheduled for redemption in November, with nearly INR 1 trillion of this already completed.
 

Traders had already geared up for India's consumer inflation to rise to around 6% for October, dealers said. They said that if consumer inflation is lower than 5.5%, and if the Jul-Sept GDP is also lower, it could influence the Monetary Policy Committee to cut rates as early as December, against the widely expected February. However, if CPI inflation substantially tops 6%, rate cuts are likely to be completely off the table at the MPC's next meeting in December, dealers said.

"As such, trade volumes are not high, and though some investor demand has come due to the yield level, traders are not willing to build much of a trading position at present due to caution before the CPI data," a dealer at a primary dealership said.

Foreign banks were likely to have been sellers during the day due to a rise in US bond futures amid anticipation of slower rate cuts in the US after the election of Republican Donald Trump as president, dealers said. Currently, the CME FedWatch tool shows Fed fund futures pricing in a 34.9% possibility of status quo in December by the Federal Open Market Committee, higher than 20% a week earlier. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 188.05 billion, against INR 451.40 billion at 1630 IST on Friday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.78-6.83%, and that on the 6.79%, 2034 bond is seen at 6.74-6.82%.  (Srijita Bose)

India Gilts: Down on caution before India Oct CPI data Tue, volumes low

MUMBAI--1320 IST--Prices of government bonds were down as traders trimmed portfolios ahead of India's CPI data, due at 1600 IST on Tuesday. The inflation print is now a larger cause of concern for traders as the government earlier this month advanced the data release to within market hours, dealers said.

The data was earlier released at 1730 IST. Traders fear that gilt prices may slump if CPI inflation prints above 6.2%, against 5.9% in an Informist poll of economists and around 6% expected by the market, dealers said. With the reading already expected to be so high, against the Reserve Bank of India's 4% inflation target, short sales on the 7.10%, 2034 bond have swelled to capture a downward movement in gilt prices. Dealers said they would likely cover these bets either immediately before the release, or after it. A reading well above 6% would likely remove any hope among traders of the Monetary Policy Committee cutting rates at its next meeting in December, they said. 

Traders were in a wait-and-watch mode due to a lack of significant cues Monday, which kept market-wide volumes low. Other key data points are also due this week, including the US CPI release for October on Wednesday. Traders also await indications of the US President-elect Donald Trump administration's impact on the US Federal Reserve and the US bond market, dealers said. A rise in US Treasury yields in the futures market weighed on gilts, as the US bond market was shut.

"There is no immediate cue, we need a trigger from the US...those who pick up (bonds) for their (trading) books are on a pause," a dealer at a state-owned bank said. Traders expect volatility to be concentrated on Wednesday and Thursday, with India's money markets shut for Guru Nanak Jayanti.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 92.15 billion, against INR 185.50 billion at 1330 IST Friday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.78-6.83%, and that on the 6.79%, 2034 bond is seen at 6.74-6.82%. (Cassandra Carvalho)

India Gilts: Tad down as US yields rise in futures market

MUMBAI--1020 IST--Government bond prices were a tad down in thin trade due to a rise in US Treasury yield futures because the cash market was shut Monday, dealers said. Traders refrained from placing large bets on caution ahead of the release of India's inflation data on Tuesday. 

"There are some websites which are showing that the US (10-year) yield is at 4.35% levels, I think this is what has led to the gap at opening. But other than that, through the rest of the day, I don't see much of a movement from here before (India) CPI," a dealer at a private bank said. 

US financial markets are shut on Monday on account of Veteran's Day. On Friday, the 10-year US Treasury yield settled at 4.31%, little changed from the levels at the end of Indian market hours Friday.

As US Treasury futures are seldom tracked for direct cues on India's bond prices, some sections of the market were left confused by the fall in gilts at the open. Moreover, most traders had expected prices to open steady due to lack of domestic cues before the crucial India CPI data for October, at 1600 IST on Tuesday. With the print expected near 6%, traders said that would cover their short bets only after the data is released, and held onto those bets Monday.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 34.10 billion, against INR 93.45 billion at 1030 IST Friday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.78-6.83%, and that on the 6.79%, 2034 bond is seen at 6.74-6.82%.  (Srijita Bose)

India Gilts: Seen steady amid lack of cues ahead of India CPI Tue

MUMBAI – Prices of government bonds are seen steady Monday due to lack of significant cues, dealers said. Traders await the release of India's October CPI data for further direction on domestic interest rates.

The yield on the most-traded 7.10%, 2034 bond is seen at 6.78-6.83% Monday, against 6.81% Friday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.74-6.82%, against 6.78% on Friday.

India's CPI data for October is scheduled to be released at 1600 IST on Tuesday. The headline inflation rate is likely to have risen to a 14-month high of 5.9% in October, led by a surge in food prices, according to an Informist poll of 20 economists. This estimate is well above the Reserve Bank of India's target of 4% and just below the 6% upper limit of its comfort band. The Index of Industrial Production for September will also be released at the same time, with both prints to be released during market hours, a first.

Short-selling in bonds swelled last week in the run-up to the data, and these bets may hold Monday as traders are confident of covering them during market hours on Tuesday, after the data, dealers said. Incremental bets are unlikely in large amounts due to the lack of cues, they said.

On the global front, traders may take cues from an intraday movement in US Treasury yields. After falling overnight Friday, the 10-year US Treasury yield has remained steady, and was at 4.31% at 0830 IST.  (Srijita Bose)

End

US$1 = INR 84.39

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

Edited by Ashish Shirke

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