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Informist, Friday, Nov. 22, 2024

By Srijita Bose

MUMBAI – Prices of government bonds ended off lows as traders covered their short bets, limiting risk ahead of the weekend, dealers said. The results of the weekly gilt auction showed poor demand for fresh supply of bonds, leading to prices settling lower.

The most traded 7.10%, 2034 bond closed at INR 101.55, or 6.87% yield, Friday, against INR 101.62, or 6.86% yield, Thursday. The 10-year 6.79%, 2034 bond ended at INR 99.59, or 6.85% yield, against INR 99.69, or 6.83% yield, Thursday.

Cut-off prices on bonds were lower than consensus estimates amid uncertainty on India's rate cut view and foreign portfolio investors, but not as much as some traders had feared. The Reserve Bank of India set the cut-off price on the 6.79%, 2034 gilt at INR 99.48, while the lowest estimate in an Informist poll was INR 99.45. This prompted traders to cover short bets taken before the results, dealers said. 

The demand came from investors who wanted to add the 6.79%, 2034 gilt to their portfolio as it becomes the benchmark 10-year paper going forward, dealers said. Some mutual funds sold the 7.10%, 2034 bond and picked up the newer bond, which is seen becoming the most traded gilt in December. Meanwhile, the RBI set the coupon on the new 2054 bond at 7.09%, in line with an Informist poll, with demand largely coming from life insurers, dealers said.

"The auction was more or less on expectations," a dealer at a primary dealership said. "The market had already priced in poor demand at the auction, and people are still cautious ahead of next week's cue."

Traders await US Personal Consumption Expenditure due to be released on Wednesday, and India's GDP data for the quarter ended September, due to be released on Nov. 29. Traders widely expected the print to come below RBI's forecast of 7%. Though most dealers expect the Monetary Policy Committee to cut rates at the earliest in February, they said that if the GDP print is below or near 6%, some chances of a December rate cut could resurface. The RBI Governor Shaktikanta Das has repeated his strong focus on stabilising inflation, though comments from ministers Nirmala Sitharaman and Piyush Goyal over the past week suggested that pressure from the government to cut borrowing rates has risen, dealers said. These mixed signals have led to a split view in the market. 

"Even though US (Treasury) yields fell a bit intraday, our market is looking ahead to the GDP data to get more certainty on rate cut in India," a dealer at a state-owned bank said. Yield on the 10-year benchmark US Treasury note eased to 4.39% during the day against 4.41% at 1700 IST on Thursday.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 420.25 billion, against INR 246.25 billion Thursday. Two trades worth INR 100 million were settled using the wholesale digital rupee pilot Friday, same as Thursday.

OUTLOOK

Money markets are shut Saturday. Monday, the movement in US yields may lend gilt prices cues at the open, dealers said. Developments in the Russia-Ukraine conflict during the weekend would also be closely watched.

US S&P Flash Purchasing Managers' Index for October is due at 2015 IST Friday. Dealers, however, said that only a major reaction of the data in US yields could impact gilts on Monday. 

Investors are 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. 

The yield on the 10-year benchmark 7.10%, 2034 bond is seen at 6.83-6.90% on Monday. The yield on the 6.79%, 2034 bond is seen at 6.81-6.88%.

India Gilts: Recover some losses on short covering; auction shows poor demand

MUMBAI--1605 IST--Prices of government bonds recovered some losses as traders covered their short bets after the result of the INR 320 billion gilt auction. The cut-off prices showed poor demand for the fresh supply of bonds, but not as much as some traders had feared, dealers said.

Traders had placed short bets in liquid papers even during the auction at 1030-1130 IST as bidding was seen as lacklustre amid constant selling by foreign portfolio investors in the 10-year gilt and an uncertain view on rate cuts in India, dealers said. The Reserve Bank of India set the cut-off price on the 6.79%, 2034 gilt at INR 99.48, while the lowest estimate in an Informist poll was INR 99.45. This led to some short covering and helped the 10-year gilt recover to above the cut-off price, although bond prices remained lower than Thursday's close. 

The demand came from investors now looking to track the 6.79%, 2034 bond as the 10-year benchmark paper, dealers said. The bond is likely to become the most-traded gilt in December, taking over from the 7.10%, 2034 bond, dealers said. Some mutual funds switched the bonds in their portfolios Friday, and investors likely picked up the 6.79%, 2034 bond only above the psychologically crucial 6.85% yield.

The 7.10%, 2034 gilt's yield is likely to remain 2.5-4 basis points higher than the newer bond as traders will readjust their portfolios over the next week, after which its yield will not be as closely tracked, dealers said. The trade volumes of both bonds were closely matched in the secondary market Friday.

"The auction was mostly as expected, but I wouldn't like to accumulate at these levels," a dealer at a private bank said. "Market looks confused on where to go, and we are just dealing (on a) day-to-day basis."

The coupon on the newly issued 50-year bond was set at 7.09%, in line with the median of the Informist poll. Pension funds and life insurers, including a large state-owned life insurer, likely picked up the 2074 bond at auction, dealers said. The bond's price traded higher in the secondary market as some traders had feared a coupon as high as 7.11%.

Traders remained cautious ahead of the release of India's GDP data next week, and refrained from placing large bets on the secondary market. Traders held off their bets to limit their exposure ahead of the weekend, amid tensions in the Russia-Ukraine geopolitical conflict flaring up this week, dealers said. Gilt prices are not expected to move significantly by the close, though further gains are unlikely, they said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 360.50 billion, against INR 197.10 billion at 1630 IST Thursday. During the day, the yield on the most traded 7.10%, 2034 bond is seen at 6.84-6.89%, and that on the 6.79%, 2034 bond is seen at 6.80-6.86%.  (Srijita Bose)

India Gilts: Fall more; traders cite weak bids for both bonds at auction

MUMBAI--1230 IST--Prices of government bonds were further down as dealers said bids for both gilts at auction Friday were poor, and lower than the secondary market prices, dealers said. With a dull outlook on the auction cut-off prices, traders likely placed short bets in the secondary market to cover after the auction result, when prices may fall, dealers said.

"Bids are not coming in that range which market expects: INR 99.50 (price cut-off on the 6.79%, 2034 gilt). The weak bidding is adding to (negative) sentiment in the market," a trader at a primary dealership said.

The government offered to sell INR 220 billion of the 6.79%, 2034 bond and INR 100 billion of a new 2074 bond at 1030-1130 IST. While private banks and primary dealers placed bids lower than market prices, state-owned banks said they would pick up the 10-year gilt around prevailing levels in the secondary market, dealers said. However, the appetite from state-owned banks is not likely to be able to absorb the significant supply of the 10-year bond, and cut-off prices may be around 5-8 paise lower than the current price of the 2034 bond at auction, they said.

An Informist poll estimated the cut-off price on the 6.79%, 2034 bond to be INR 99.52, and the coupon on the new 50-year 2074 gilt to be 7.09%. The coupon estimate is 1 basis point higher than the last traded yield of the 7.46%, 2073 bond in the secondary market. While pension funds and life insurance companies were present at the auction, they likely demanded higher yields, dealers said. Inflows into insurance had been slack in the last two months, and the market sentiment on long-term bonds had soured, dealers said. Some dealers said there were around INR 10 billion worth of bids placed for bond-forward rate agreements.

"Even if LIC (Life Insurance Corp. of India) is there at the auction, the supply will not be fully absorbed. I wouldn't be shocked if (the coupon) went to 7.11% also," a fund manager at a life insurer said. "And overall demand sentiment is very weak right now, there are no flows coming in."

Global uncertainty in financial markets contributed to negative sentiment in the gilts market, but on an intraday basis there were no significant cues to cause bond prices to fall. The fresh supply may lead to a correction in bond prices after secondary market trade has been thin for around three weeks, and investors have not been able to get exits after buying constantly when prices fell earlier this month, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 169.00 billion at 1230 IST, against INR 63.60 billion at the same time on Thursday. 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 6.80-6.86%. (Cassandra Carvalho)

India Gilts: Down ahead of bond sale; auction demand seen moderate

MUMBAI--1007 IST--Prices of government bonds declined as traders trimmed portfolios ahead of the weekly gilt auction, dealers said. Demand at the bond sale from 1030-1130 IST is seen moderate. A slight rise in US yields and crude oil also weighed on prices, they said.

Traders placed short bets on bonds in the secondary market to pick up bonds at the auction, dealers said. A new 2074 gilt and the relatively new 2034 gilt will be auctioned by the Reserve Bank of India. This will be the third auction of the 2034 gilt, taking its outstanding amount to INR 660 billion. Dealers expect the bond to replace the 7.10%, 2034 paper as the most traded gilt and 10-year benchmark for pricing bonds in December.

Some dealers expected strong demand at the auction, but most expect investors demanding higher yields than secondary market prices. The new 2074 paper's coupon is likely to be set 1-2 basis points higher than the yield on the 7.46%, 2073 bond, currently at 7.08%, dealers said. This week, traders sold longer-tenure papers to trim their duration risk as global uncertainty in financial markets escalated. Pension funds and insurance companies, the major buyers of long-term papers, are expected to pick the 2074 gilt at higher yields. 

"There'll be a tail, foreign banks are not covering any portion, and PSUs they've already bought so much, they can't buy more. Sentiment is not very bullish for the market," a dealer at a private bank said. 

Some traders tracked a rise in the yield of the 2-year US Treasury note to 4.35% from 4.31% at Thursday's Indian market close. Others also said a slight rise in crude oil prices due to escalation of the Ukraine-Russia war weighed on bond prices at opening. The auction cut-offs are expected to determine the trajectory of bond price movement for the rest of the day, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 69.80 billion at 0930 IST, against INR 163.50 billion at the same time Thursday. 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 6.80-6.86%. (Cassandra Carvalho)

India Gilts: Seen opening steady on caution ahead of INR 320-bln bond sale

MUMBAI – Prices of government bonds are seen opening steady on caution ahead of the INR 320-billion gilt auction scheduled at 1030-1130 IST, dealers said. 

The yield on the most-traded 7.10%, 2034 bond is seen at 6.83-6.89%, against 6.86% Thursday. The yield on the 6.79%, 2034 bond is seen at 6.80-6.86%, against 6.83% on Thursday. 

The government will sell INR 220 billion of the 6.79%, 2034 bond and INR 100 billion of a new 2074 bond. The auction is expected to see neutral demand. The 10-year paper is expected to see demand from across the market, even though traders are not likely to bid aggressively, dealers said. 

Primary dealerships may also cover short bets placed by them ahead of the auction, dealers said. Primary dealers place short bets in the run-up to the auction, hoping to pick up gilts cheaply at the debt sale and net a profit.

The new 2074 bond is expected to be picked up by life insurers and pension funds, but at a coupon a basis point or two higher than the prevailing yield on the 7.46%, 2073 gilt. Investor demand is likely to be robust as borrowing by state governments in Oct-Dec so far has undershot the indicative calendar by about 40%.

After the gilt auction, the market may shift its focus back to India's Jul-Sept GDP data, due next week. On the global front, traders may keep a close watch on the intraday movement of the yield on the benchmark 10-year US Treasury note, which was little changed from the previous day's close of 4.41%. The market may also keep a close watch on developments in the Russia-Ukraine war, dealers said. (Siddhi Chauhan)

End

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

Edited by Deepshikha Bhardwaj

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