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Informist, Thursday, Nov. 14, 2024

By Srijita Bose and Aaryan Khanna

MUMBAI – Prices of government bonds ended sharply lower due to an overnight rise in US Treasury yields and disappointing cut-off prices at the weekly gilt auction in an already cautious market. The results showed weak investor demand for gilts amid negative global and domestic cues on interest rates, dealers said.

The benchmark 7.10%, 2034 bond closed at INR 101.60, or 6.86% yield, against INR 101.79, or 6.84% yield, on Wednesday. The bond's yield ended at its highest level since Oct. 28. The 10-year 6.79%, 2034 bond ended at INR 99.71, or 6.83% yield, against INR 99.90, or 6.80% yield, on Wednesday.

Traders sought higher returns at the auction and were able to snag the 7.04%, 2029 gilt and the 7.09%, 2054 gilt at a bargain, with cut-off prices slightly lower than estimated in an Informist poll, dealers said. The coupon on the new 15-year, 2039 bond was set at 6.92%, in line with the Informist poll. The five- and 15-year bonds were largely mopped up by domestic banks, while the 30-year benchmark was picked up by life insurers and pension funds, dealers said. 

Heading into the long weekend –- money markets are shut for Guru Nanak Jayanti Friday – traders trimmed their holdings ahead of a slew of interest rate cues in the US, dealers said. The 10-year US Treasury yield rose to 4.46% at 1700 IST, from 4.41% on Wednesday, despite US CPI data for October coming in on expected lines. 

"People placed short bets towards the end and some selling due to the lower cut-offs and then going into the long weekend, also we don't know where US yields could be next week," a dealer at a private bank said.

Demand for derivatives on the long-term bond was lower than usual as foreign investors were not in favour of buying Indian bonds, dealers said. The 10-year US Treasury yield has been rising constantly after Republican Donald Trump's win in the US presidential election. The weakness in the Indian rupee against the dollar, after over a year and a half of relative stability, also dampened foreign portfolio investor sentiment towards India, dealers said. The rupee ended at a record closing low of 84.3950 a dollar Thursday. 

Trump's proposed policies are expected to be inflationary for the world's largest economy, putting rate cuts in the US in 2025 under threat, dealers said. US Treasury yields are expected to rise further closer to Trump's swearing-in on Jan. 20, which is seen putting pressure on gilt prices in the near term. FPIs have sold over $1 billion worth of fully accessible route gilts in November so far, despite the inclusion of Indian bonds on JP Morgan's emerging market bond index.

Activity from foreign banks has declined in India ahead of December, at which time they will close their books for 2024, dealers said. Some primary dealerships picked up the 2054 bond at the auction to sell to clients through the Separate Trading of Registered Interest and Principal of Securities route. 

Some traders hold out hope that a slower GDP growth in Jul-Sept may provide a boost to gilt prices as it could bring forward rate cut hopes in India to December. Traders also cite a positive demand-supply over the next six months, and pin hopes of the Monetary Policy Committee cutting the repo rate in February, to realise gains on their bond purchases. State-owned banks picked up gilts after the yield on the 7.10%, 2034 bond topped 6.85%, and short sellers covered some bets near the day's low as prices hit a two-week low.

"The GDP data is the last hope of the market, for data to help support yields at this level," a dealer at a foreign bank said. "Otherwise, we could see bonds take a beating going into the year-end because even a February rate cut can disappear like the rest of them have."

According to the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market turnover was INR 420.55 billion, against INR 359.50 billion on Wednesday. No trades were settled using the wholesale digital rupee pilot on Thursday, the same as on Wednesday.

OUTLOOK

Money markets are closed on Friday for Guru Nanak Jayanti, and gilts are not traded on Saturday. On Monday, prices of government bonds will take cues on movement in US yields after a series of cues over the long weekend, dealers said.

In addition to weekly unemployment claims data later Thursday, US retail sales for October are scheduled for release Friday. Before that, US Federal Reserve Chair Jerome Powell will speak, which could lend cues on the interest rate trajectory in the world's largest economy. 

The movement of crude oil prices may also affect gilts. On Monday, the government will switch INR 200 billion worth of eight bonds with seven gilts at 1030-1130 IST.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.82-6.90% on Monday. The yield on the 6.79%, 2034 bond is seen at 6.79-6.86%.

India Gilts: Remain down; fall slightly more after tepid demand at auction

MUMBAI--1518 IST--Prices of government bonds fell slightly more as demand at the weekly gilt auction was tepid and cut-off prices were lower than the market expected, dealers said. Bond prices were already down before the result as the 10-year US Treasury yield remained above 4.45%.

The results showed weak investor demand for gilts amid negative global and domestic cues, and traders sought higher returns, dealers said. Cut-off prices for both the 7.04%, 2029 gilt and the 7.09%, 2054 gilt were slightly lower than expected, while the coupon on the new 15-year, 2039 bond auctioned was set at 6.92%, the same as the median of an Informist poll. The five- and 15-year bonds were largely mopped up by domestic banks, while the 30-year benchmark was largely picked up by insurers, dealers said.

Demand for derivatives on the long-term bond was lower than usual as foreign investors were not in favour of buying India bonds after the US electoral win of Republican Donald Trump, which has been driving up US yields. Moreover, activity from foreign banks had declined in India ahead of the year-end in December, at which time they will close their books for 2024, dealers said. Some primary dealerships picked up the bond to sell to clients through the Separate Trading of Registered Interest and Principal of Securities route. 

Uncertainty about the pace of rate cuts in the US and India has weighed on gilt prices and the demand for fresh supply. This is because CPI inflation is likely to average closer to 5% in 2024-25 (Apr-Mar), rather than the Reserve Bank of India's 4% target. In the US, Trump's proposed policies are expected to be inflationary for the world's largest economy, putting rate cuts in the US in 2025 under threat, dealers said. Regardless, the fall in bond prices was limited as state-owned banks likely picked up gilts at levels they considered lucrative, despite the poor auction.

"The market is holding well, despite the overnight data (US October CPI), India's WPI, and this auction result, because everyone is short on bonds, so some covering is happening," a trader at a primary dealership said. Wholesale inflation rose to a four-month high of 2.36% in October, according to data released at 1200 IST.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 302.85 billion, against INR 237.20 billion at 1430 IST on Wednesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.80-6.88%, and that on the 6.79%, 2034 bond is seen at 6.76-6.84%. (Cassandra Carvalho)

India Gilts: Down as US yields up; traders expect bargains on auction stock

MUMBAI--1230 IST--Prices of government bonds remained down as traders awaited the result of the weekly gilt auction. A rise in US Treasury yields pushed down gilt prices earlier, though buys from state-owned banks at levels they considered lucrative limited losses, dealers said. 

The government offered to 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. Demand for the new 15-year paper is seen firm with state-owned banks likely to pick up most of the amount. Bidding was not aggressive as traders hunt for bargains at the auction. The near-term outlook for gilts is that prices would drop, with investor demand also not robust amid uncertainty on global and India interest rates, dealers said. 

Demand for the 7.04%, 2029 bond as well as for the 7.09%, 2054 paper at the auction is also seen firm. The five-year paper is likely to be picked up by state-owned banks and private banks after gilt redemptions worth INR 1.54 trillion in November, dealers said. For the 30-year paper, dealers said demand from insurers and pension funds will be present with buying interest coming in due to lesser state bond auction amounts over the past few weeks. However, bond forward-rate agreements written for the auction stock have been modest, dealers said.

In the secondary market, state-owned banks likely bought gilts as the 7.10%, 2034 bond's yield topped 6.85%, dealers said. Banks picked up bonds for their available for-sale portfolios. The 10-year US Treasury note rose 7 basis points overnight to 4.48%, but positive supply-demand dynamics in India limited the losses in gilts.

"Support is still quite good in the market, even though US yields have risen so much, gilt yields have only shown a partial reaction because the medium-term domestic outlook for the market is still good," a dealer at a state-owned bank said. "The market is mostly bottoming out and there is an opportunity here to take fresh positions."

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 158.00 billion, against INR 166.90 billion at 1230 IST on Wednesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.80-6.88%, and that on the 6.79%, 2034 bond is seen at 6.76-6.84%.(Srijita Bose)

India Gilts: Down on overnight rise in US ylds, short bets before auction

MUMBAI--1029 IST--Prices of government bonds opened lower, tracking an overnight rise in US Treasury yields. Traders placed short bets on the current 15-year 7.23%, 2039 gilt to pick up the new 2039 bond at the weekly gilts auction, dealers said.

The yield on the 10-year US Treasury note rose to 4.48% from 4.41% at the end of Indian market hours Wednesday. This was despite the odds of a December US rate cut increasing, with short-term US yields down. Traders fear a rise beyond 4.50% in the 10-year US Treasury yield may accelerate outflows from the gilt market, and the yield on the 7.10%, 2034 bond could rise to 6.90%, a three-month high, dealers said.

Though appetite for gilts will help the INR 370-billion auction sail through, bids are not expected to be aggressive, reflecting the uncertainty in the market, dealers said. Investors are likely to demand higher yields, of up to 2 basis points from secondary market levels, for the bonds at the auction.

"(India's) CPI (for October) also printed high, US yields are here (10-year at 4.48% yield), I think there'll be one, one-and-half (bps) tail in the 5-year and 2054 bonds (at the auction)," a dealer at a state-owned bank said.

The INR 130 billion of the new 2039 bond on offer this week has puzzled traders, as the 7.23%, 2039 bond has an outstanding of only INR 1.17 trillion - with other bonds in similar tenures drawing issuances of nearly INR 2 trillion. To pick up the new paper, traders trimmed their holdings of the old bond. The 7.23%, 2039 gilt fell 22 paise to 102.92 at 1029 IST, from 103.14 at Wednesday's close.

State-owned banks picked up gilts as the yield of the 7.10%, 2034 gilt broke the crucial 6.85% level, dealers said. Foreign outflows are likely to continue as the dollar continued to strengthen, making Indian investments less appealing to foreign investors.  

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 95.85 billion, against INR 73.55 billion at 1030 IST on Wednesday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.80-6.88%, and that on the 6.79%, 2034 bond is seen at 6.76-6.84%. (Cassandra Carvalho)

India Gilts: Seen opening lower on US yld rebound post US Oct CPI

MUMBAI – Prices of government bonds are seen lower after an overnight rise in US Treasury yields. The overnight rise was despite consumer inflation data in the US printing at 2.6% in October, in line with estimates.

The yield on the most-traded 7.10%, 2034 bond is seen at 6.80-6.88% Thursday, against 6.84% Wednesday. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.76-6.84%, against 6.80% on Wednesday.

Even as US CPI inflation rose on month, odds of a 25-basis-point rate cut in the US in December zoomed to around 82%, from around 60% before the print, according to the CME FedWatch tool. However, post the data, the yield on the benchmark US Treasury note briefly cooled to 4.36% but rose to 4.48% by 0800 IST. US economists believe that the Federal Open Market Committee will now have lesser reasons to implement a deeper and quicker rate cut cycle, especially on the cusp of Republican Donald Trump's administration in January. The winning US president-elect's economic policies on tariffs and trade are feared to be inflationary, dealers said. 

Meanwhile, the weekly gilt auction will be held 1030-1130 IST Thursday, instead of the usual Friday. Money markets are shut Friday on the occasion of Guru Nanak Jayanti. 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. The auction will likely cause selling pressure in the secondary market, as traders will trim stock to make room for the auctioned bonds. Traders will want to get their hands on the new 2039 gilt, and demand at the auction is seen firm, dealers said. 

The dollar index rose to a one-year high Thursday, which is likely to put pressure on the rupee and lead to further outflows from gilts. Towards the end of the day, traders may trim their bond-holdings on caution ahead of the long weekend, dealers said. Several cues on US interest rates are due, including a speech by US Federal Reserve Chair Jerome Powell and US retail sales data for October. (Cassandra Carvalho)

End

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

Edited by Saji George Titus

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