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Informist, Wednesday, Nov. 13, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended down as traders trimmed their portfolios ahead of the weekly gilt auction and on caution before the US CPI print for October. The fall in prices was limited as state-owned banks picked up gilts tracking an intraday softening of US Treasury yields, dealers said.
 

The 10-year benchmark 7.10%, 2034 bond closed at INR 101.79, or 6.84% yield, against INR 101.85, or 6.83% yield, Tuesday. The bond's price moved in a range of 7 paise after opening lower, with volumes muted for much of the day. The newer 6.79%, 2034 bond ended at INR 99.90, or 6.80% yield, against INR 99.95, or 6.80% yield, Tuesday.

The government will sell three bonds worth INR 370 billion Thursday instead of the usual Friday as money markets are shut for Guru Nanak Jayanti. The market's appetite for bonds is healthy, but traders said bids may be lacklustre as the near-term trading view is that gilt prices would fall owing to the potential delay in rate cuts in both India and the US. "No one is keen on adding positions right now," said a dealer at a private bank. "Whatever (trade) is going on is in light volumes, no cues, but market sentiment is bearish."

Dow Jones has estimated US CPI in October at 2.6% on year against 2.4% in September, and an upside surprise could pause further rate cuts in the world's largest economy. Odds of a December US rate cut have shrunk to around 60% ahead of the inflation print and after Donald Trump's election as the 47th US President, down around 25 percentage points from a month ago, according to the CME FedWatch tool.

During the day, foreign and private banks are likely to have placed short bets on caution ahead of the US CPI data, while state-owned banks picked up bonds as prices fell, dealers said. Primary dealerships were also on the selling side, to make room for gilts at Thursday's auction.

The current 7.23%, 2039 bond, the maiden issuance in that tenure, has an outstanding of only INR 1.17 trillion. The last bonds maturing in the 14-year bucket, which were issued until 2023-24 (Apr-Mar), have an outstanding of over INR 1.50 trillion. This led to some confusion in the market on the need for a new 15-year bond which is being offered at the auction, dealers said. 

The depreciation pressure on the rupee is also likely to have weighed on gilt prices as it made foreign investors less confident of high returns on their Indian investments, dealers said. Consistent foreign portfolio investor outflows from the equity market and a strong dollar following Trump's election for a second term has led to weakness in the rupee. The Indian unit touched its record low of 84.41 per dollar intraday, before recovering slightly to 84.38 a dollar at the close.

While market participants have no doubt the RBI's Monetary Policy Committee will cut interest rates within the next 12 months, uncertainty about the start and pace of the rate-cutting cycle has led to several traders losing money on the trade, dealers said. The most recent cue, India's CPI inflation for October, rose to a 14-month high of 6.21% Tuesday, dashing the few remaining hopes of the MPC beginning its rate cuts next month, they said.

While traders had prepared for such a reading by placing intraday short bets, most now expect gilt prices to fall by the end of the month, catalysed by foreign outflows. A reversal would only be likely if India's GDP for Jul-Sept prints significantly lower than expectations, they said. The data is scheduled for release at 1600 IST on Nov. 29.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 361.45 billion, against INR 415.65 billion on Tuesday. No trades were settled using the wholesale digital rupee pilot on Wednesday, the same as on Tuesday.

OUTLOOK

On Thursday, prices of government bonds may open slightly lower on caution ahead of the weekly gilt auction, dealers said. The government will sell INR 140 billion of the 7.04%, 2029 gilt, INR 130 billion of a new 2039 gilt, and INR 100 billion of the 7.09%, 2054 gilt at 1030-1130 IST.

At the open, gilt prices may also take cues from the overnight movement of US Treasury yields following the release of the US CPI data for October at 1900 IST Wednesday. A Dow Jones report said analysts expect headline annual CPI inflation in the US to be higher in October than September's 2.4% due to a base effect.

Traders are also focused on comments from US Federal Reserve Chair Jerome Powell later this week for cues on US interest rates. However, the impact of the comments would not be felt until next week in gilt prices, as money markets are shut Friday for Guru Nanak Jayanti.

The movement of crude oil prices may also affect gilts. The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.80-6.88% on Thursday. The yield on the 6.79%, 2034 bond is seen at 6.76-6.84%.

India Gilts: Remain dn, trade in thin band before US CPI data post mkt hours 

MUMBAI--1612 IST--Prices of government bonds remained down and moved in a narrow range through the day before the release of US CPI data for October post market hours, dealers said. Traders were cautious of any changes to the view on the US rate trajectory as it may have an impact on rate cuts in India as well. 

Expectations for a much looser fiscal policy and tariff impositions by the incoming Donald Trump administration drove up the yield on US Treasuries overnight, with the 10-year US yield rising to a high of 4.45% Wednesday, up 8 basis points from Tuesday. The impact on gilt prices was limited as domestic demand-supply conditions were favourable, which led to a significant appetite for India's bonds that prevented a fall in prices. A moderation in the 10-year US yield to 4.42% intraday also helped, dealers said.

"Yes, US yields have gone up sharply from yesterday's (Tuesday's) closing, but these levels are not new and people have mostly priced in for the (US CPI) data to be higher," a dealer at a private bank said. The 10-year US Treasury yield had risen to a four-month high of 4.48% last week. 

While foreign portfolio investors continued to sell gilts during the day owing to a rise in US yields, likely buying from state-owned banks limited losses, dealers said. Traders avoided buying aggressively on the view that prices will fall further in the near term after India's CPI inflation topped 6% in October, suggesting the Monetary Policy Committee may only cut rates in February, not December. In the medium term, gilt yields are expected to fall, but not significantly until the end of the financial year in March.  

"People have mostly picked up bonds when the yield levels (on the 10-year benchmark bond) were below 6.80%, so now they are only trading on a day-to-day basis and waiting for the yields to come down, as the medium term view still remains unchanged," a dealer at a state-owned bank said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 313.90 billion, against INR 335.10 billion at 1630 IST on Tuesday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.80-6.87%, and that on the 6.79%, 2034 bond is seen at 6.76-6.84%.  (Srijita Bose)

India Gilts: Remain down on rise in US yields ahead of US CPI data for Oct

MUMBAI--1307 IST--Prices of government bonds were down, tracking a rise in US Treasury yields, ahead of US CPI data for October at 1900 IST. Investors remained on the sidelines, awaiting a clear view on rate cuts and economic policy in the US, dealers said.

The yield on the 10-year US Treasury note rose to 4.45%, after an overnight rise ahead of the CPI data. As US president-elect Donald Trump chooses his administrative staff, fears of inflationary pressures as a consequence of his economic policies pushed up US yields, dealers said. The CME FedWatch tool shows only a 60% chance of a 25-basis-point rate cut in the US in December, despite the median US Federal Reserve official guiding for rates to be another quarter percentage point lower in December.

"This is the third time (in the past two months) that US yields (the 10-year US yield) have reached here (4.45%) but from past experience, we've seen them receding quickly. So, while our yields will also go up, they'll recover (fall) soon, so it's a good thing," a trader at a primary dealership said. 

Banks have been waiting for opportunities to add gilts to their portfolios as the yield on the 7.10%, 2034 bond tops 6.85%, which they expected after India's CPI inflation topped 6% in October. They held off on large purchases until the benchmark yield hit that level, dealers said. However, some replacement demand from investors due to large bond redemptions limited losses. Bond redemptions in November total INR 1.54 trillion, including the INR 650.80 billion of the 9.15%, 2024 bond maturing on Thursday.

Gilt prices may fall further towards the end of the day as traders will trim stock ahead of the weekly gilt auction on Thursday, dealers said. The auction will be held on Thursday, as financial markets are shut on Friday on account of Guru Nanak Jayanti. The auction is a much-talked about event as the Reserve Bank of India will issue a new 15-year bond on Thursday.

The current 7.23%, 2039 bond, the maiden issuance in that tenure, has an outstanding of only INR 1.17 trillion. The last bonds maturing in the 14-year bucket, which were issued until 2023-24 (Apr-Mar), have an outstanding of over INR 1.50 trillion. This led to some confusion in the market on the need for a new 15-year bond, dealers said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 193.15 billion, against INR 129.40 billion at 1230 IST on Tuesday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.80-6.87%, and that on the 6.79%, 2034 bond is seen at 6.76-6.84%. (Cassandra Carvalho)

India Gilts: Down on rise in US yields; market awaits US CPI data for October

MUMBAI--0953 IST--Government bond prices were down due to an overnight rise in US Treasury yields. Traders refrained from placing large bets due to caution ahead of US CPI data for October, due at 1900 IST.

"The market has opened down because of a sharp rise in US yields. I don't think that anyone is trading on India CPI data because it had already been discounted by traders yesterday (Tuesday)," a dealer at a primary dealership said. "The focus now is on US CPI data, due to which the volumes will remain tepid."

The yield on the 10-year benchmark US Treasury note climbed to 4.44% from 4.37% at the close of the Indian market on Tuesday on the view that US president-elect Donald Trump's proposed policies will increase inflation and reduce the quantum of rate cuts in the US going ahead. A rise in US yields is likely to have prompted foreign banks and foreign portfolio investors to sell gilts, dealers said. According to data from Clearing Corp of India, foreign banks sold gilts worth INR 15.65 billion on Tuesday. 

Gilt prices are not expected to fall sharply due to purchases by state-owned banks as the yield on the 7.10%, 2034 bond approaches 6.85%, a level they consider lucrative, dealers said. According to data from Clearing Corp of India, state-owned banks bought gilts worth INR 22.27 billion on Tuesday. 

"Already, we have seen a redemption of around INR 1 trillion (in November) and tomorrow (Thursday) also, around INR 650 billion will be added into the banking system due to redemption," a dealer at a state-owned bank said. "This is why we are seeing replacement demand from PSUs (state-owned banks) some days."

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 19.80 billion at 0930 IST on Tuesday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.80-6.87%, and that on the 6.79%, 2034 bond is seen at 6.76-6.84%. (Siddhi Chauhan)

India Gilts: Seen down on overnight rise in US yields; US CPI awaited

MUMBAI – Prices of government bonds are likely to open lower as US Treasury yields surged overnight ahead of the release of US CPI data, dealers said. The impact of India's CPI inflation for October was largely priced into the market Tuesday, but may also slightly weigh on gilt prices Wednesday.

The yield on the most-traded 7.10%, 2034 bond is seen at 6.80-6.87% Wednesday, against 6.83% Tuesday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.76-6.84%, against 6.80% on Tuesday.

The yield on the 10-year benchmark US Treasury note climbed to 4.43% at 0845 IST from 4.37% at the close of the Indian market Tuesday. Yields rose overnight on the view that President-elect Donald Trump's policies would be inflationary, driving up US yields and also reducing the number of rate cuts the Federal Open Market Committee takes up over the next year. 

The US CPI data for October is due at 1900 IST. Consumer inflation likely rose to 2.6% against 2.4% in September due to a base effect, according to Dow Jones. A reading like this may further drive down US rate cut hopes in the near term, dealers said.

On the domestic front, data released at 1600 IST Tuesday showed CPI inflation rose to a 14-month high of 6.21%, topping the Reserve Bank of India's comfort band of 2-6%. This may exert downward pressure on prices after traders covered short bets on Tuesday, dealers said.

Market participants were watchful ahead of the US CPI data for October, scheduled for release on Wednesday. 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.  (Srijita Bose)

End

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

Edited by Rajeev Pai

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