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Informist, Monday, Nov. 18, 2024

By Srijita Bose

MUMBAI – Government bond prices ended off highs as the yield on the 10-year benchmark US Treasury note inched up towards the end of the domestic trading day. For most part of the day, bonds traded on a positive note due to purchases by state-owned banks as they found gilts lucrative when the 10-year benchmark yield topped the 6.85% level, dealers said.

The benchmark 7.10%, 2034 bond closed at INR 101.64, or 6.86% yield Monday, after climbing to the day's high of INR 101.69, or 6.85% yield. The bond had closed at INR 101.60, or 6.86% yield, Thursday. The on-the-run 10-year 6.79%, 2034 bond ended at INR 99.79, or 6.82% yield, against INR 99.71, or 6.83% yield, Thursday.

The yield on the 10-year US Treasury note rose to 4.47% by the time the domestic markets closed Monday, from 4.44% when trading ended in the US Friday. One of the reasons for the positive start to the Indian market was that US yields remained unchanged over the long weekend despite negative cues. On Friday, domestic money markets were shut for Guru Nanak Jayanti. Even as strong US retail sales data for October and US Federal Reserve Chair Jerome Powell's comments caused a brief rise in US yields over the weekend, they returned to Friday's levels by the time the Indian gilts market opened Monday. Early Friday, Powell said the ongoing economic growth and a robust job market do not warrant a need to rush into lower rates.

During the day, traders placed short bets on the 10-year benchmark bond as they entered into spread trades to exercise a bullish view on bonds while keeping their portfolio exposure in check. Traders short-sold the benchmark paper and bought higher-yielding longer duration paper, dealers said.

The spread between the 7.10%, 2034 bond and the 15-year benchmark 7.23%, 2039 paper has increased to over 6 basis points. The yield spread between the 10-year benchmark and the 7.34%, 2064 paper has increased well over 19 bps. The yield spreads for both longer-tenure bonds were the highest since Sept. 20. A proxy for tracking short sales in a particular bond is the quantum of repo trades in the paper. The data in the special repo segment of the Clearcorp Repo Order Matching System at 1803 IST showed trades worth INR 162.38 billion in the 7.10%, 2034 gilt.

"There is no firm cue in the market right now, plus next week the GDP will come out, so traders don't want to make any heavy positions ahead of that," a dealer at a state-owned bank said. "But the yield (on the 10-year benchmark) is at a very technical level, and it made sense to buy at this level."

Prices mostly moved in a thin range during the day due to lack of incremental cues, dealers said.

Traders are likely to remain cautious ahead of key data releases next week, including US personal consumption expenditures data and domestic data on Jul-Sept GDP. For interest rates, the more crucial print would be India's GDP data. Some traders are also likely to have picked up gilts on the growing possibility of India's GDP growth rate being lower than view for the September quarter, dealers said. The Reserve Bank of India has revised its forecast for the quarter to 6.8% from 7%. Expectations of an interest rate cut in December by the RBI's Monetary Policy Committee could resurface if the GDP growth rate falls below 6.5%, they said. However, dealers could realign their portfolios and even bet on a rate cut as late as April if the print is above 7%, they said.

"The lack of volumes was synonymous with market sentiment... also GDP has mostly been priced in at this point. People are only making some incremental bets now," a dealer at a primary dealership said. "Before these data points, I don't see gilts moving much. Only thing is, if US (10-year) yields move beyond 4.50-4.55%, we will see some reaction here."

At the auction, the government switched seven gilts worth INR 115.79 billion against eight gilts worth INR 200 billion. While some banks did not participate at the auction as they did not have the notified source securities in their portfolios, demand was mostly firm due to the growing preference for long-tenure paper.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 242.05 billion, against INR 416.00 billion Thursday. Four trades worth INR 200 million were settled using the wholesale digital rupee pilot Monday, against none on Thursday.

OUTLOOK

On Tuesday, prices of government bonds may take opening cues from the overnight movement in US yields and crude oil prices. Traders will also remain cautious ahead of the INR 93.49 billion state bonds auction at 1030-1130 IST Tuesday, with demand at the debt sale likely to lend cues for trades later in the day.

Prices could remain within a thin range due to lack of fresh cues on interest rates, and caution ahead of key data releases next week. 

The trade volume may be low, with prices confined to a narrow band for most part of the day. Some traders may be inclined to buy bonds on the view that a weaker-than-expected domestic GDP print next week could set the stage for rate cuts by the RBI.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.82-6.90% on Tuesday. The yield on the 6.79%, 2034 bond is seen at 6.78-6.86%.

India Gilts: Remain up; short bets on 10-year bond rise on spread trade

MUMBAI--1640 IST--Prices of government bonds remained up amid thin volumes as state-owned banks possibly picked up gilts as they found the prevailing yield levels lucrative, dealers said. 

Short bets on the 10-year benchmark 7.10%, 2034 bond increased as traders entered into spread trades to exercise a bullish view on bonds while keeping their portfolio exposure in check. Traders short-sold the benchmark paper and bought higher-yielding longer duration paper, dealers said. 

"The current levels are good for spread trading if you see the spread between the 10-year benchmark and longer-term paper. It has risen to around 6 to 7 bps (basis points)," a dealer at a state-owned bank said. "The 40-year is being preferred by most traders as it is more liquid in comparison to other longer-tenure bonds."

The spread between the 7.10%, 2034 bond and the 15-year benchmark 7.23%, 2039 paper has increased to over 6 basis points. The yield spread between the 10-yeaar benchmark and the 7.34%, 2064 paper has increased well over 19 bps. The yield spreads for both longer-tenure bonds were the highest since Sept. 20. A proxy for tracking short sales in a particular bond is the quantum of repo trades in the paper. The data in the special repo segment of the Clearcorp Repo Order Matching System at 1640 IST showed trades worth INR 166.26 billion in the 7.10%, 2034 gilt.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 212.70 billion, against INR 367.85 billion at 1630 IST Thursday. 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: Remain up on PSU bks' purchases; switch auction result awaited

MUMBAI--1308 IST--Government bond prices remained up as state-owned banks picked up bonds in light volumes at levels seen lucrative, dealers said. Traders await the result of the switch auction conducted from 1030-1130 IST. Firm demand is expected at the auction, dealers said.

As the yield of the benchmark 10-year 7.10%, 2034 bond traded in a 6.85-6.86% range, state-owned banks picked up gilts in light volumes at lucrative yield levels, they said. This came after a recent fall in prices following the depreciation of the rupee to record lows, and foreign outflows from gilts post Donald Trump winning the US presidential election, dealers said.

While some banks did not participate in the switch auction as they did not have the notified source securities in their portfolios, demand at the auction is seen firm. Traders favoured the long-tenure destination securities, along with the 10-year 7.73%, 2034 gilt, they said.

Spread-trading likely caused the amount of short bets on the benchmark 10-year gilt to increase in the secondary market, dealers said. 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. At 1307 IST, trades worth INR 162.38 billion were recorded in the 7.10%, 2034 gilt, data showed.

"Before any big event (such as the US presidential election) the spreads between the 15-year and 10-year gilts tend to narrow. Now there's no major cue or event, so the spreads are widening again, so traders might be exiting the 10-year and picking up the 15-year since the spread has now widened to 6 basis points," 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 92.85 billion, against INR 156.50 billion at 1230 IST on Thursday. 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: Up in thin trade; mkt takes comfort from unch US yields

MUMBAI--1047 IST--Prices of government bonds were up in thin trade as US Treasury yields remained largely unchanged over the weekend despite negative cues, dealers said. Demand at the switch auction is expected to be firm, especially in longer-tenure papers.

On Friday, money markets were shut on account of Guru Nanak Jayanti. Despite a slew of cues over the long weekend, the yield on the 10-year US Treasury note was 4.44% at 1047 IST, against 4.45% on Thursday. Strong US retail sales data for October, and US Federal Reserve Chair Jerome Powell's comments caused a brief rise in US yields over the weekend, but yields returned to Thursday's levels by the time the Indian gilts market opened Monday. Early Friday, Powell said the ongoing economic growth and a robust job market do not warrant a need to rush into lower rates.

Demand at the monthly switch auction is seen firm. Dealers said they expected strong demand in the longer-tenure 6.62%, 2051 and 6.95%, 2061 destination securities, as their spreads between the benchmark 10-year 7.10%, 2034 gilt were seen lucrative. Traders also expect strong demand for the 7.40%, 2035 gilt due to its large notified amount at the auction.

"I think even G-sec levels are much more supportive, these (long-tenure) bonds (yields) have fallen quite a lot already, these yields, the 10-year and 40-year spread is almost 19-20 basis points, I think it can simplify to 15 bps, this is the view for this week," a dealer at a private bank said.

Chances of India's GDP printing lower-than-view for the quarter ended September also pushed up gilt prices, dealers said. The Reserve Bank of India revised its forecast for the quarter to 6.8% from 7%. Traders' expectations of an interest rate cut in December by the Monetary Policy Committee could resurface after a lower GDP print, they said. Hopes of a December rate cut had faded post a higher-than-view CPI reading for October. Purchases from state-owned banks aided gilt prices as traders considered the yield on the 7.10%, 2034 benchmark gilt to be lucrative.

Volumes were low due to a lack of significant global and domestic cues, dealers said. According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 41.00 billion, against INR 93.70 billion at 1030 IST on Thursday. 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 steady due to lack of firm global, domestic cues

MUMBAI – Prices of government bonds are seen opening steady Monday due to lack of significant global and domestic cues, dealers said. Traders may wait for the gilt switch auction scheduled at 1030-1130 IST, dealers said. 

The yield on the most-traded 7.10%, 2034 bond is seen at 6.83-6.88%, against 6.86% Thursday, which was highest level since Oct. 28. Meanwhile, the yield on the 6.79%, 2034 bond is seen at 6.80-6.86%, against 6.83% on Thursday. Money markets were shut on Friday for Guru Nanak Jayanti.

During the day, the government will switch eight gilts totalling INR 200 billion with seven government bonds through an auction, the Reserve Bank of India said in a release.

Traders will also track the movement of US Treasury yields, dealers said. Despite a slew of data points over the weekend, at 0809 IST, the yield on the 10-year benchmark US Treasury note was little changed from 4.45% at the time the Indian market closed on Thursday.

The yield on the benchmark 10-year US Treasury note was steady as investors assessed the latest comments by Federal Reserve Chair Jerome Powell, which indicated the Fed may not be in a hurry to cut rates. Multiple economic data released last week also suggested an underlying strength in the US economy.

Powell on Thursday said the ongoing economic growth and a robust job market do not warrant a need to rush into lower rates. After his remarks, the odds of an interest rate cut by the Fed in December fell. As of Monday, the chances of an interest rate cut were 61.6%, down from 64.6% a week ago. (Siddhi Chauhan)

End

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

Edited by Rajeev Pai

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