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Informist, Thursday, Nov. 21, 2024

By Srijita Bose

MUMBAI – Government bond prices ended lower on Thursday due to an overnight rise in US Treasury yields and the news of a flare-up in the Russia-Ukraine war, dealers said. Volumes remained muted due to a lack of domestic cues.

The benchmark 7.10%, 2034 bond closed at INR 101.62, or 6.86% yield, Thursday, against INR 101.73, or 6.85% yield, on Tuesday. The on-the-run 10-year 6.79%, 2034 bond ended at INR 99.69, or 6.83% yield, against INR 99.83, or 6.81% yield, Tuesday. India's money markets were shut on Wednesday for Maharashtra's assembly elections.

The 10-year US Treasury yield rose to a high of 4.42% during Indian market hours, from 4.38% at 1700 IST Tuesday, after US Federal Reserve Governor Michelle Bowman said the central bank needs to be cautious while cutting rates. This weighed on gilt prices at the open, after which prices settled in a narrow-band for most of the trading session, dealers said.

Towards the end of the session, bond prices fell further on reports of Russia firing an intercontinental ballistic missile on Ukraine, days after Ukraine fired US-made missiles into Russia. A rise in geopolitical tensions in the region is likely to draw out foreign portfolio investment in gilts, dealers said.

"The market was mostly range-ish today, only in the end news from Russia dragged prices a bit, but people are still waiting for domestic cues which will only come in next week," a dealer at a private bank said. India's Jul-Sept GDP data, due on Nov. 29, has been in focus throughout the week as the next major domestic trigger.

Traders widely expect the GDP growth to be between 6.3% and 6.8% in Jul-Sept as against the Reserve Bank of India's forecast of 7.0%. Though the Monetary Policy Committee is not seen cutting rates until February, a GDP print near 6% could put pressure on the rate-setting panel to cut the repo rate at the next monetary policy review in December, dealers said.

Meanwhile, bonds maturing in 30-50 years fell more than the 10-year benchmark gilt, as mutual funds and pension funds reduced their exposure to long-term bonds. Incremental demand for long-term paper has not picked up as some traders expected in recent days, dealers said. The yield spread of the 40-year benchmark 7.34%, 2064 gilt over the 7.10%, 2034 paper has increased to over 20 basis points from 16 bps at the end of October. Shorter tenure bonds are seen gaining, as higher US Treasury yields in longer tenures in the coming months may keep bonds maturing above 10 years out of favour. Moreover, demand from mutual funds and pension funds for long-duration paper has been lacklustre in the last few days, dealers said.

"Traders had shorted the 10-year (7.10%, 2034) and went long on the longer-tenures hoping that investors would turn, but that did not happen, so, they are selling now," a dealer at a primary dealership said. 

However, dealers were confident that at the weekly gilt auction on Friday, life insurers and pension funds would pick up the INR 100 billion of a new 50-year paper, albeit at a higher coupon, especially after borrowing by state governments in Oct-Dec so far has undershot the indicative calendar by about 40%. Short bets by primary dealers on the 6.79%, 2034 paper increased ahead of the auction, where the government will sell INR 220 billion of the bond, dealers said.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 247.55 billion, against INR 339.30 billion Tuesday. Two trades worth INR 100 million were settled using the wholesale digital rupee pilot Thursday, against four trades worth INR 200 million Tuesday.

OUTLOOK

On Friday, the overnight movement in US yields after weekly unemployment claims data at 1900 IST may lend gilt prices cues at the open, dealers said. A further escalation in the Russia-Ukraine conflict overnight would also be closely watched, particularly with crude oil prices rising near the end of trade.

Prices may not be volatile on caution ahead of the weekly gilt auction at 1030-1130 IST. The government will sell INR 220 billion worth of the 6.79%, 2034 gilt and INR 100 billion of a new 50-year paper. Demand at the debt sale is seen modest, with investors likely to hold off on large gilt purchases amid uncertainties overseas, dealers said. 

The Jul-Sept GDP print next week has been in focus as the next domestic trigger to gauge India's pace and quantum of India's interest rate cuts. This will likely continue on Friday. Traders expect a print lower than the RBI's 7% forecast, which may spur prices, dealers said. 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.90% on Friday. The yield on the 6.79%, 2034 bond is seen at 6.80-6.86%.

India Gilts: Remain dn; volumes muted on caution ahead of India GDP next wk

MUMBAI--1300 IST--Prices of government bonds remained lower on an overnight rise in US Treasury yields amid a lack of domestic cues. Trade volumes on the secondary market remained muted as investors remained on the sidelines ahead of release of GDP data next week, dealers said.

"The market is a little confused and doesn't want to place many shorts only to get trapped, some are going long, but the poor volumes are a testament to the wait-and-watch mode," a dealer at a primary dealership said. "There are no domestic cues now and on the global front too, there is no major data, only if Ukraine-Russia war escalates can we see some volatility."

State-owned banks likely picked up gilts as they found gilt prices lucrative, limiting some losses, dealers said. Some banks had begun buying bonds in their held-to-maturity portfolios, as hopes of mark-to-market gains on a sharp fall in yields over the next six months faded, dealers said.

Primary dealerships will likely place short bets towards the end of the trading session ahead of INR 320-billion gilt auction on Friday, dealers said. The government will sell INR 220 billion worth of the 6.79%, 2034 gilt and INR 100 billion of a new 50-year paper at 1030-1130 IST Friday.

The 10-year US Treasury yield was at 4.42%, against 4.38% at 1700 IST Tuesday. Money markets were shut on Wednesday for the Maharashtra Assembly elections. Even though the Jul-Sept GDP print is over a week away, dealers said that was the only significant domestic trigger coming up that would influence gilt prices and help move them out of the narrowband traded for the last few weeks. The impact of offshore cues on gilt prices has been limited as activity from foreign banks was lower near the end of the calendar year, when they limit trading exposure and prepare for closing their accounts, dealers said. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 122.00 billion, against INR 134.95 billion at 1330 IST Tuesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.82-6.88%, and that on the 6.79%, 2034 bond is seen at 6.78-6.84%. (Srijita Bose)

India Gilts: Dn on rise in US yields; mkt volume muted on lack of firm cues

MUMBAI--1010 IST--Prices of government bonds were lower, tracking a rise in US Treasury yields. Traders refrained from placing large bets, and volumes were low due to a lack of significant domestic cues before the release of India's Jul-Sept GDP data next week, dealers said.

The yield on the 10-year US Treasury note rose to 4.41%, from 4.38% at the time of the Indian market close on Tuesday. US yields rose as US Federal Reserve Governor Michelle Bowman indicated that there is still time for inflation to reach the 2% target and the US central bank needs to be cautious while cutting rates.

"The reaction is only because of US yields, otherwise we don't have a significant trigger to really bet on," a dealer at a private bank said. "I think the prices may remain at this level as traders are looking forward to the next cues which our (India) GDP data."

Traders expect India's GDP growth to be between 6.3% and 6.8% in Jul-Sept. The Reserve Bank of India forecasts the September quarter GDP growth at 7.0%. An RBI staff paper released on Wednesday, which has Deputy Governor and Monetary Policy Committee member Michael Patra amongst its authors, pegged Jul-Sept GDP growth at 6.7%.

Traders said the Monetary Policy Committee is not seen cutting rates until February, though growth slowing to near 6% could prompt a repo rate cut even at the next monetary policy review in December, dealers said. Near-term rate cut hopes have been dashed by CPI inflation in October rising above 6%, the upper end of RBI's tolerance band, after 14 months.

At the same time, positive demand-supply dynamics are keeping the fall in bond prices in check, dealers said. The net supply of gilts in November has been very small, and traders picked up bonds as the yield on the 7.10%, 2034 gilt rose above 6.85%.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 21.95 billion at 1030 IST, against INR 53.50 billion at the same time Tuesday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.82-6.88%, and that on the 6.79%, 2034 bond is seen at 6.78-6.84%. (Siddhi Chauhan)

India Gilts: Seen opening lower due to rise in US yields; volume seen tepid

MUMBAI – Prices of government bonds are seen opening lower due to a rise in US Treasury yields. Trade volumes are expected to be tepid as foreign bank activity is muted and traders wait for significant domestic cues, dealers said.

The yield on the most-traded 7.10%, 2034 bond is seen at 6.82-6.88%, against 6.85% Tuesday. The yield on the 6.79%, 2034 bond is seen at 6.78-6.84%, against 6.81% on Tuesday. Money markets were shut on Wednesday on account of the Assembly elections in Maharashtra.

The yield on the 10-year US Treasury note rose to 4.41% at 0810 IST, from 4.38% at the time of the Indian market close on Tuesday. A rise in US yields narrows the interest rate differential between safe-haven assets and emerging market debt, making the latter less appealing to foreign investors.

The benchmark 10-year US Treasury yield rose as investors assessed comments from US Federal Reserve Governor Michelle Bowman who said there is still time for inflation to reach the 2% target and the US central bank needs to be cautious while cutting rates. "We have seen considerable progress in lowering inflation since early 2023, but progress seems to have stalled in recent months. ...I would prefer to proceed cautiously in bringing the policy rate down to better assess how far we are from the endpoint," Bowman said. 

Further cues on US rate cuts will come from weekly unemployment data after market hours Thursday, as well as US flash purchasing managers' index readings Friday, dealers said. Odds of a 25-basis-point rate cut in the US in December shrank to 55.7% from 82.5% a week ago, according to the CME FedWatch tool. The alternative view was there would be no rate cuts.

The market may also keep a close watch on developments in the Russia-Ukraine war, dealers said. On the domestic front, volumes are expected to remain muted ahead of India's Jul-Sept GDP data, due next week. Losses in gilts may be limited as investors pick up the 7.10%, 2034 bond when its yield rises above 6.85%, seen as lucrative, dealers said. (Siddhi Chauhan)

End

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

Edited by Saji George Titus

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