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Informist, Tuesday, Nov. 12, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended off lows as traders covered short bets placed before the release of India's CPI data for October. The bond market had largely priced in CPI inflation rising to a 14-month high in October, dealers said. For much of the day, gilt prices remained lower, tracking a rise in US Treasury yields and overnight indexed swap rates.  

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.85, or 6.83% yield, against INR 101.89, or 6.82% yield on Monday. The newer 6.79%, 2034 bond ended at INR 99.95, or 6.80% yield, against INR 100.01, or 6.79% yield on Friday. About 35% of the day's total traded volume took place in the last hour of trade, after the CPI data release. 

Headline consumer inflation in October rose to 6.21%, against an Informist poll of 5.9%, crossing the Reserve Bank of India's 2-6% target range for the first time since August 2023. Food inflation rose to a 15-month high, while core inflation rose to a 10-month high. The data dashed any remaining hope of a rate cut by the Monetary Policy Committee in December, but dealers who expected the onset of India's rate cut cycle in February said their views were unchanged post the data.

Prices recovered after momentary losses as traders were only waiting for the data to be out before covering their short bets made in preparation for the data, dealers said. Reserve Bank of India Governor Shaktikanta Das had said last week, that October inflation would be "very high" and possibly higher than September's reading of 5.49%.

"We (traders) had actually expected it (India's October CPI) to be much higher, economists understated the reading in the polls," a dealer at a private bank said. With CPI inflation being released during market hours for the first time, traders had anticipated the volatility that occurred.

While some dealers called the CPI data a "non-event" as it did not influence the rate view much, they will now await India GDP data for the quarter ended September for cues on rate cut by the MPC. The data is due Nov. 29. While September's Index of Industrial Production numbers were strong, some traders said a fall in growth rates was inevitable until the MPC cut rates. Industrial production grew 3.1% on year in September, after shrinking for the first time in 22 months in August.

Even though the recovery in bond prices was driven by traders covering short bets, a large quantum of bets still remained outstanding in the 7.10%, 2034 bond. These were taken before the outcome of the US presidential election last week, and have not been covered as Republican Donald Trump won the election. His proposed policies are seen inflationary and will likely drive up US Treasury yields in the medium-term, dealers said. A sizeable chunk of these bets is taken to hedge a trader's exposure in another bond, and is not likely to be covered in a hurry, they said.

"Growth numbers are anyway going to get hurt, I think our rates will now start mimicking global rates as I see no other positive cue other than the liquidity in the system," a dealer at another private bank said. Banking system liquidity has remained comfortable, with surpluses averaging above INR 2 trillion in November.

State-owned banks covered some short bets in light volumes before the data, keeping losses from a rise in swap rates and US yields limited. The five-year swap rate jumped to the day's high of 6.31% from Monday's close of 6.26%. Offshore and domestic traders paid fixed rates on caution before the CPI data, before OIS rates recovered by the end of trade.

The yield on the 10-year US Treasury note rose by 4 bps to 4.37% during Indian market trading hours, weighing on gilt prices, dealers said. Replacement demand due to redemption of around INR 1 trillion worth of gilts last week negated the impact of the rise in US yields on gilt prices. After the floating rate bond 2024 matured last week, banks wanted to replace the stock with FRBs maturing in 2033 and 2034, dealers said. Both were among the top five most traded bonds Tuesday.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 415.65 billion, against INR 227.85 billion on Monday. No trades were settled using the wholesale digital rupee pilot Tuesday, same as on Monday.

OUTLOOK

On Wednesday, prices of government bonds are seen taking cues from the overnight movement of US yields and crude oil prices, dealers said. US CPI data for October, due post market hours Wednesday, may see some volatility in US yield movement. A Dow Jones report said analysts expect headline annual CPI inflation to be higher in October than September's 2.4% due to base effect.

The comments of US Federal Reserve Board Philadelphia President Patrick Harker early Wednesday may also impact US yields. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.80-6.86%. The yield on the 6.79%, 2034 bond is seen at 6.77-6.83%.

India Gilts: India Gilts: Off lows; traders cover short bets post higher-than-view Oct CPI

MUMBAI--1638 IST--Prices of government bonds were off lows as traders covered short bets taken before the release of India's CPI data for October at 1600 IST. As data showed consumer inflation rose to a 14-month high of 6.21%, gilt prices fell more, before recovering.

"The yield level (on the 7.10%, 2034) bond after the initial panic reversed back to pre-data levels because the market had already priced in a range of 5.8-6.2% (for October CPI print)," a dealer at a primary dealership said.

An Informist poll of 20 economists had estimated India's consumer price inflation to rise to 5.9% in October, led by a surge in food prices. Food inflation was at a 15-month high of 10.87% against 9.24% in September. With CPI inflation above the Reserve Bank of India's target band of 2-6% for the first time since August 2023, chances of a rate cut at the Monetary Policy Committee's next meeting in December declined, dealers said.

Traders said the next trigger for India's domestic rate view was the Jul-Sept GDP data at the end of November, dealers said. Even with the market expecting growth lower than the RBI's forecast of 7.0%, the bar for a December rate cut is likely too high, dealers said. However, the consensus market view of a February repo rate cut by 25 basis points to 6.25% remained intact, they said. 

"Now, I think, people will look for (Jul-Sept) GDP data and further global data points to price in rate cuts in India, but February (rate cut) is still very much on the cards for now," a dealer at a private bank said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 371.55 billion, against INR 451.40 billion at 1630 IST on Monday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.78-6.87%, and that on the 6.79%, 2034 bond is seen at 6.74-6.83%. (Srijita Bose)

India Gilts: Down on rise in 5-yr OIS, US ylds; traders await India Oct CPI 

MUMBAI-–1315 IST--Prices of government bonds were down, tracking a rise in the five-year overnight indexed swap rate, as US Treasury yields rose slightly and offshore traders paid fixed rates. Trade volumes remained dull ahead of India's CPI inflation print for October at 1600 IST, dealers said.

The five-year swap rate rose 3 basis points from Monday's close to 6.29%, largely due to offshore flows, dealers said. This was because they expect a rise in US Treasury yields over the next few months as US president-elect Donald Trump assumes office in January. In addition, traders fear the domestic CPI inflation print could dash hopes of a rate cut by the Monetary Policy Committee in December, dealers said. Traders said the market has already discounted CPI inflation of around 6%, but a print higher than that could cause gilt prices to fall.

"There's already a nervousness in global markets, so a print above 6% would add to this jittery atmosphere, so offshore traders are paying in Indian markets...but a (CPI) reading between 5.7-6% will likely be a non-event," a dealer at a primary dealership said.

State-owned banks continue to add to their portfolios as prices fell due to replacement demand, with around INR 1.54 trillion of bonds maturing in November, dealers said. The quantum of these purchases had slowed, as traders expect bond prices to move in a thin band, or fall, over the next few weeks, offering opportunities to buy bonds later. After the floating rate bond 2024 matured last week, banks wanted to replace the stock with FRBs maturing in 2033 and 2034, which were both among the top five most-traded bonds Tuesday.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 161.60 billion, against INR 60.80 billion at 1230 IST on Monday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.78-6.87%, and that on the 6.79%, 2034 bond is seen at 6.74-6.83%.  (Cassandra Carvalho)

India Gilts: Steady on caution before India CPI data; trading volumes muted

MUMBAI--0933 IST--Government bond prices were steady due to caution ahead of the release of India's CPI data for October at 1600 IST, dealers said. Traders refrained from placing large bets ahead of the data print, keeping volumes limited, dealers said. 

"Today (Tuesday), the market will be dull until the results of the CPI (India) data are announced. After that, we can see a rise in volumes," a dealer at a primary dealership said. "Till the announcement, we might see little positioning ahead of the data as many people are expecting the data to be on the higher side." 

The market expects the print to be well above the Reserve Bank of India's 4% target with some traders even seeing the CPI inflation top the central bank's comfort band of 2-6% in October. India's consumer price inflation 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.

If the inflation print tops 6%, the chances of rate cuts in December by RBI's Monetary Policy Committee will be wiped off completely, dealers said. With this, the yield on the 7.10%, 2034 bond may rise up to 6.85%, while that on the 6.79%, 2034 bond may rise to 6.81%, dealers said. 

However, if the inflation print is below 5.8%, the chances of a rate cut at RBI's next MPC meeting will be back on the table, dealers said. In this case, the yield on the 7.10%, 2034 bond may fall to 6.80%, while that on the 6.79%, 2034 bond may fall to 6.76%, dealers said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 26.65 billion, against INR 34.40 billion at 1030 IST on Monday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.78-6.87%, and that on the 6.79%, 2034 bond is seen at 6.74-6.83%.  (Siddhi Chauhan)

India Gilts: Seen steady on caution ahead of India CPI data

MUMBAI – Government bond prices may open steady due to caution ahead of India's CPI inflation data for October, due at 1600 IST, dealers said. Prices may be volatile just before the release and in the last hour of trade. Volumes may be thin in the first half due to lack of other cues.

The yield on the most traded 7.10%, 2034 bond is seen at 6.78-6.87% Tuesday, against 6.82% Monday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.74-6.83%, against 6.79% on Monday.

India's consumer price inflation 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. The market is ready for a print well above the Reserve Bank of India's 4% target, and some traders expect CPI inflation to even top its 2-6% comfort band in October, traders said.

Dealers said if consumer inflation is lower than 5.5% and if Jul-Sept GDP growth 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.

Heading into the event, trading activity may be minimal and traders would like to limit risk as this is the first time CPI is being released within market hours, dealers said. Short-selling in bonds swelled last week in the run-up to the data, and these bets may hold Tuesday as traders are confident of covering them during market hours after the data, dealers said. The government will also release the Index of Industrial Production for September at 1600 IST. (Srijita Bose)

End

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

Edited by Deepshikha Bhardwaj

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