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Informist, Tuesday, Nov. 19, 2024

By Srijita Bose

MUMBAI – Government bond prices ended higher, but profits were capped even as US Treasury yields fell intraday. Investors preferred safe-haven assets such as US Treasuries after media reports of Ukraine attacking Russia with long-range missiles, and the fall in US yields did not translate to India's gilts, dealers said.

The benchmark 7.10%, 2034 bond closed at INR 101.73, or 6.85% yield, Tuesday, against INR 101.64, or 6.86% yield, Monday. The on-the-run 10-year 6.79%, 2034 bond ended at INR 99.83, or 6.81% yield, against INR 99.79, or 6.82% yield, Monday.

There was further caution on the geopolitical situation as Russia's President Vladimir Putin approved a change in the country's nuclear policy Tuesday amid escalating tensions with the US over Ukraine. Putin said Russia could consider using nuclear weapons if it were subjected to a conventional missile assault supported by a nuclear-armed state, after the US allowed Ukraine to fire American-made long-range missiles deep into Russia.

While news of the escalation was expected to hurt the rupee and push up crude oil prices, the immediate reaction across asset classes was muted, which limited the movement in gilt prices as well, dealers said. In addition to the caution offshore, gains were limited as traders refrained from increasing their exposure, given that the markets are shut Wednesday for the Maharashtra assembly election.

"The news of the Ukraine-Russia war escalation led to panic buying of US Treasuries after 1500 IST, but before that, too, US yields had been falling," a dealer at a private bank said. "Our market did not track the reaction to US yields since tomorrow (Wednesday) is a holiday, plus people are still looking at domestic cues majorly."

The yield on the 10-year US Treasury note fell to 4.36% at the end of the Indian trading session Tuesday, against 4.41% at 0900 IST and 4.47% at the end of Indian market hours Monday. The overnight fall pushed up prices right at the open, but expectations of foreign inflows into gilts were scant following the Russia-Ukraine tensions, dealers said.

While the offshore cue lent direction, traders looked at a variety of domestic factors as well. Finance Minister Nirmala Sitharaman's comments Monday, when she said bank interest rates would have to be more affordable for industrial growth, were seen as a positive, dealers said. Confidence of monetary policy continuity increased after Reuters reported that Reserve Bank of India Governor Shaktikanta Das would get an extension following the end of his current tenure on Dec. 10. The report, quoting government sources, said an extension of at least one year would be announced after the current round of assembly elections.

These positives did not compel fresh bets as traders' view on India's rate cuts remained mostly static for February, with the Monetary Policy Committee expected to hold the repo rate at 6.50% and stance at 'neutral' at its next meeting in early December, dealers said. Traders now look forward to the Jul-Sept GDP growth data next week, hoping for a slower pace of growth than the RBI's forecast, which some dealers said could prompt a quicker rate cut in India. The central bank forecasts Jul-Sept GDP growth at 7.0%, though RBI staff in a paper pegged it 20 basis points lower.

"Though the market is mostly pricing in a February rate cut by the MPC, if the GDP number is substantially lower than 6.5%, bets on a December cut will again increase," a dealer at a primary dealership said. 

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 352.75 billion, against INR 239.55 billion Monday. Four trades worth INR 200 million were settled using the wholesale digital rupee pilot Tuesday, same as Monday.

OUTLOOK

Money markets are closed Wednesday on account of Maharashtra's assembly elections. On Thursday, prices of government bonds may take cues from the movement in US yields and crude oil prices amid an escalation in the conflict between Russia and Ukraine, dealers said.

Prices could remain in a thin range and trade volumes may be low without fresh cues on interest rates, and on caution ahead of India's Jul-Sept GDP data next week. Some traders may be absent on account of a long holiday after elections, dealers said.

Some traders may also pick up bonds during the day on the view that a weaker-than-expected domestic GDP print next week could set the stage for rate cuts by the RBI, dealers said. Traders might also place short bets and trim their holdings towards the end of the session ahead of the INR 320-billion gilt auction Friday. The government will sell INR 220 billion worth of the 6.79%, 2034 gilt and INR 100 billion of a new 40-year paper.

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.81-6.88% on Thursday. The yield on the 6.79%, 2034 bond is seen at 6.79-6.86%.

India Gilts: Remain up; risk-off sentiment takes hold, limits gains

MUMBAI--1638 IST--Prices of government bonds remained up due to an overnight fall in US Treasury yields. A further fall in the 10-year US yield was disregarded by gilt traders as foreign investors flocked to the haven asset due to risk-off sentiment, after media reports that Ukraine had struck Russia with long-range missiles, dealers said.

"The news of Ukraine-Russia war escalation led US Treasuries to fall suddenly, but our market remained at the same level since traders are also less today and the US is a much more safer asset," a dealer at a private bank said.

There was further caution on the geopolitical front as Russian President Vladimir Putin approved a change in Russia's nuclear policy, including the use of nuclear weapons in retaliation to conventional weapons. The yield on the 10-year US Treasury note fell to 4.36%, from 4.41% earlier in the day. The risk-off momentum may lead to further sell-off by foreign investors in India's gilts, dealers said. According to Clearing Corp. of India data, foreign investors have sold over INR 90 billion of fully accessible route gilts, which have no limits on foreign investors, in November.

US yields have been falling earlier since European markets opened on the view that the European Central Bank might cut rates quicker than previously expected. On the domestic front, mutual funds were limiting their duration risk, cutting stock of 30-40 year bonds bought earlier, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 314.75 billion, against INR 203.65 billion at 1630 IST on Monday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.83-6.89%, and that on the 6.79%, 2034 bond is seen at 6.79-6.85%. (Srijita Bose)

India Gilts: Remain up; trade volume dull as foreign banks' activity muted

NEW DELHI--1240 IST--Government bond prices remained up, tracking an overnight fall in US Treasury yields. Trading activity in the secondary market was tepid for the second straight day, as the impact of offshore cues was dulled by the lack of activity from foreign investors, dealers said.

Traders, especially those from foreign banks and foreign-based primary dealerships, avoided placing large bets near the end of the year as they prepare to close their accounts for 2024. This aversion was especially true for illiquid securities such as state bonds, and participation at the state government security auction was seen lacklustre. Private banks were also offering state bonds for sale in the secondary market, dealers said. However, due to the small notified amount, the auction would sail through, they said.

Market sentiment had improved after Finance Minister Nirmala Sitharaman's comments Monday that bank interest rates were high, dealers said. Confidence of monetary policy continuity increased, after Reuters reported Monday that the Reserve Bank of India Governor Shaktikanta Das would get an extension following the end of his current tenure on Dec. 10. These positives did not compel fresh bets as traders' view on India's rate cuts remained static for February, with the Monetary Policy Committee expected to hold the repo rate at 6.50% and stance at 'neutral' at its next meeting in early December, dealers said. 

"There are no real fears in the market, as people have already priced out a December rate cut," a dealer at a private bank said. "No matter the governor, there is a greater than 50% chance of a rate cut in February. As long as US yields are well-behaved, there is enough appetite to hold the market at these levels."

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 97.25 billion, against INR 73.15 billion at 1230 IST Monday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.83-6.89%, and that on the 6.79%, 2034 bond is seen at 6.79-6.85%. (Aaryan Khanna)

India Gilts: Up on fall in US yields; traders cover some short bets

MUMBAI--1017 IST--Prices of government bonds were higher, tracking an overnight fall in US Treasury yields, dealers said. The yield on the 10-year US Treasury note fell to 4.41%, from 4.47% at 1700 IST Monday.

"Now (the 10-year) US yields have shown some recovery, they're not crossing 4.50% despite Trump winning, so market is looking at that," a dealer at a state-owned bank said. 

Global uncertainty persists after Republican Donald Trump won the US presidential election earlier this month. Trump's economic policies are seen inflationary, which may hamper rate cut cycles by central banks around the globe, dealers said. 

While the offshore cue lent direction, traders looked at a variety of domestic factors as well. Finance Minister Nirmala Sitharaman's comments Monday, when she said that bank interest rates would have to be more affordable for industrial growth, were seen as a positive, dealers said. 
 

Traders now look forward to the Jul-Sept GDP growth data next week, hoping for a slower pace of growth than the RBI's forecast, which may prompt quicker rate cuts in India, dealers said. Uncertainty on the monetary policy front eased after Reuters reported incumbent Shaktikanta Das' term as RBI governor would likely be extended by at least a year, quoting three government officials. Traders commended Das' management of banks, rates and the financial system, and said his policy continuity would be a positive for the market.

"We need to see if RBI governor's term is also extended, and if the GDP data comes on the lower side then it may reinforce some chances of dovish commentary in December, though I'm not seeing any rate cut in December," a dealer at another state-owned bank said.

Traders covered short bets after the developments on the domestic front, 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 0950 IST, data showed trades worth INR 133.00 billion in the 7.10%, 2034 gilt, against over INR 160 billion Monday.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 48.40 billion at 0930 IST, against INR 94.50 billion at the same time Monday. During the day, the yield on the most traded 7.10%, 2034, bond is seen at 6.83-6.89%, and that on the 6.79%, 2034 bond is seen at 6.79-6.85%. (Cassandra Carvalho)

India Gilts: Seen higher on fall in US yields; volumes likely to remain low

MUMBAI – Prices of government bonds are likely to open higher, tracking a fall in US Treasury yields from India's market close Monday. Volumes are likely to remain thin, as some traders may be on leave ahead of state Assembly elections in Maharashtra on Wednesday, dealers said. The gilt market will be shut on election day.

The yield on the most-traded 7.10%, 2034 bond is seen at 6.83-6.89%, against 6.86% Monday. The yield on the 6.79%, 2034 bond is seen at 6.79-6.85%, against 6.82% on Monday.

The yield on the 10-year US Treasury note fell to 4.41% at 0802 IST, from 4.47% at 1700 IST Monday. The US yield touched 4.49% overnight as investors pared back hopes of a December rate cut by the Federal Open Market Committee. The CME FEdWatch tool at 0802 IST showed Fed fund futures reflecting a 58% probability of a 25-basis-point rate cut, against 65% Monday. 

This comes after US Federal Reserve Chair Jerome Powell's comments on Friday--which indicated that the Fed may not be in a hurry to cut rates--and strong US economic data released last week. So far, the 10-year US yield has not sustained breaking the crucial psychological 4.50% level. In case it does, the yield on the benchmark 10-year gilt could reach 6.90%, dealers said. Foreign investors have already sold gilts worth INR 97.37 billion so far in November, according to Clearing Corp. of India data.

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 Monetary Policy Committee. Offshore traders received fixed overnight indexed swap rates on Monday on this view, which could translate to the gilt market, dealers said. India's GDP data for the quarter ended September is due at 1600 IST on Nov. 29.

Traders await the state bond auction at 1030-1130 IST, wherein six states will raise INR 93.49 billion. The auction is likely to sail through due to the low notified amount, dealers said. Traders may also track crude oil prices, which have risen slightly post news of a supply pause in Norway.

Dealers also await more news on the appointment of the RBI governor, with incumbent Shaktikanta Das' term ending Dec. 10. Quoting three government sources, Reuters reported Monday that Das would get at least a one-year extension, and this is likely to be announced post the Maharashtra elections. Policy continuity would be a positive for the market, as uncertainty surrounds the MPC's composition post December, dealers said. RBI Deputy Governor Michael Patra's term is scheduled to end in January. (Cassandra Carvalho)

End

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

Edited by Rajeev Pai

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