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Informist, Tuesday, Nov. 26, 2024

By Siddhi Chauhan

MUMBAI – Prices of government bonds ended lower as traders sold their bonds at a profit, dealers said. The fall in prices was, however, limited as state-owned banks started picking up the 6.79%, 2034 bond at lucrative yield levels, dealers said. 

The 10-year 6.79%, 2034 bond ended at INR 99.73, or 6.83% yield, against INR 99.76, or 6.82% yield, Monday. Meanwhile, the 7.10%, 2034 bond closed at INR 101.66, or 6.86% yield, Tuesday, against INR 101.68, or 6.85% yield, Monday. 

"Early trade's optimism was shed as everyone was confirmed that it won't be easy to break the levels of 6.80% (on 6.79%, 2034 bond)," a dealer at a private bank said. "This is why PSUs (state-owned banks) started booking profits as they had obtained the bond at much cheaper rates at the auction."

Apart from that, selling pressure from primary dealerships and some private banks also added to the fall in prices, dealers said. Primary dealerships and private banks were lightening their portfolios ahead of the India Jul-Sept GDP data, scheduled to be released on Friday, dealers said. Some traders see the domestic GDP data falling to 6.5% in Jul-Sept, against 6.7% projected by RBI staff last week and the official central bank estimate of 7%.

The fall in gilt prices was limited as some state-owned banks likely started purchasing the 6.79%, 2034 bond as the yield levels were considered lucrative. "State-owned banks are on both sides today (Tuesday), they were booking profit earlier," a dealer at state-owned bank said. "But now that the levels have reached 6.83% some buying will definitely happen from their side because these are lucrative levels."

In the initial half of trade, some selling pressure from mutual funds also weighed on gilt prices, dealers said. While some speculated mutual funds to be booking profits after buying bonds at cheaper levels at the gilt auction on Friday, a few traders said the selling could be because of redemption pressure. In general, mutual funds experience redemption pressure towards month-end, dealers said. As a result, mutual funds were also seen selling floating rate bonds, dealers said. 

"If they (mutual funds) wanted to book profits they would have done it yesterday (Monday) itself because the levels have hardly changed," a dealer at a primary dealership said. "This selling could be because of redemption pressures because generally it is very difficult to find buyers when the liquidity is this low, so they choose these kinds of days when the sentiment is positive."

An intraday rise in yields on the 10-year benchmark US Treasury note also weighed on gilt prices. After rising to the day's high of 4.31%, the yield on the 10-year benchmark US Treasury note was at 4.28% at the time the Indian market closed, against 4.35% at the same time on Monday. US yields rose as investors looked ahead to the latest Federal Reserve meeting minutes and key economic data due this week.

Traders also await US Personal Consumption Expenditure data, due to be released Wednesday as it would reveal a clearer picture of the interest rate trajectory in the US, dealers said. Fed fund futures priced in 59.4% chance of a 25 basis point cut in the federal funds rate at the Federal Open Market Committee's December meeting. 

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 299.30 billion, against INR 327.45 billion Monday. No trades were settled using the wholesale digital rupee pilot Tuesday, same as Monday.

OUTLOOK

Wednesday, the market may take cues from the Federal Open Market Committee's November meeting minutes, due early in the day, dealers said. Even though nothing surprising is expected out of the minutes, the market may still pay heed to the comments from Fed officials, dealers said. 

US personal consumption expenditure data for October, which will also be released at 2030 IST on Wednesday, will be closely watched, dealers said. The movement in US yields may also lend cues to gilt prices at the open, dealers said.

Market may remain cautious ahead of the release of the Jul-Sept GDP print, due at 1600 IST Friday, as the print will be taken into consideration by the Reserve Bank of India's Monetary Policy Committee before its December meeting, dealers said. 

The yield on the 6.79%, 2034 bond is seen at 6.79-6.86% on Wednesday. The yield on the 7.10%, 2034 bond is seen at 6.80-6.89%.

India Gilts: Gains erased on profit booking; state loan auction result eyed

MUMBAI--1402 IST--Government bonds erased all gains as traders sold bonds at a profit, with the near-term view that the 10-year benchmark gilt yield may not sustain below 6.80%, dealers said. A rise in overnight indexed swap rates, despite a fall in US yields, also weighed on bonds.

State-owned banks likely took profits after constantly picking up gilts earlier this month when bond prices were cheaper. With the lack of trading activity and subdued volumes recently, the volatility in gilt prices was welcomed by traders, dealers said. Meanwhile, swap rates likely reversed an earlier fall as domestic corporate flows faded after constant receiving for nearly a week, dealers said. At the day's low, the five-year swap rate fell 19 basis points since its highest level in November.

"(The five-year) OIS is higher from where it closed yesterday (Monday), it seems to have bottomed out, and has lent this inertia to gilt levels," a trader at a primary dealership said. 

Dealers expect higher cut-offs at the state bond auction held from 1030-1130 IST, than those of current secondary market levels. Heavy supply, wherein 12 states aimed to raise a large notified amount of INR 320 billion, would likely cause spreads over gilts to increase by 2-3 bps. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 164.30 billion, against INR 208.15 billion at 1330 IST Monday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.79-6.85%, and that on the 7.10%, 2034 bond is seen at 6.82-6.88%. (Cassandra Carvalho)

India Gilts: Up on fall in US ylds, gains capped as traders sell at profit

MUMBAI--1030 IST--Prices of government bonds were up on an overnight fall in US Treasury yields. Gains were, however, capped as domestic traders sold bonds at a profit, dealers said.

"It is just about the (yield) levels, it looks lucrative and so people are just making the most of it and testing the waters to see how much further up prices can go here," a dealer at a private bank said. 

The yield on the 10-year benchmark US Treasury note fell to 4.28% from 4.35% at the close of Indian market hours Monday, and is down 12 basis points this week. Short covering from domestic traders as well as passive inflows from foreign portfolio investors towards the end of the month led to the rise in prices, dealers said. FPI investment increased ahead of the increase of India's weight on J.P. Morgan's Government Bond Index – Emerging Markets from index-tracking funds. Purchases from active non-index trackers were muted near the end of the calendar year, when foreign entities close their accounts, dealers said. Some offshore inflows were also reflected in the fall in the five-year overnight indexed swap rate, which aided gilt prices.

Dealers said gilt prices may take cues from the INR 320-billion state bond auction at 1030-1130 IST, which is the largest state bond supply so far in the quarter ending December. While demand is seen robust for the paper, some traders said spreads over gilt yields are likely to increase and incremental appetite from domestic entities is limited.

Separately, dealers said there was no impact on the market from the news of Reserve Bank of India Governor Shaktikanta Das' hospitalisation earlier in the day, as it was a minor health issue and is not seen affecting his chances of reappointment. Das was admitted to Apollo hospital in Chennai on Tuesday due to acidity, an RBI spokesperson said. "He is now doing fine and will be discharged in the next 2-3 hours," the spokesperson added. Das has held the position of RBI governor for the last six years. His current term is due to end on Dec. 10.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 57.55 billion, against 84.15 INR billion at 1030 IST Monday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.79-6.85%, and that on the 7.10%, 2034 bond is seen at 6.82-6.88%. (Srijita Bose)

India Gilts: Seen opening higher on overnight fall in US yields

MUMBAI – Prices of government bonds may open higher on an overnight fall in US Treasury yields. Incremental bets on India's Jul-Sept GDP growth being lower than the Reserve Bank of India's estimates could also drive up prices during the day, dealers said.

The yield on the 6.79%, 2034 bond is seen at 6.79-6.85%, against 6.82% on Monday. The yield on the 7.10%, 2034 bond is seen at 6.82-6.88%, against 6.85% Monday. 

The yield on the 10-year benchmark US Treasury note fell to 4.29% from 4.35% at the close of Indian market hours Monday. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors. Foreign portfolio investors may also pick up gilts near the month-end, with the weightage of India's fully accessible route bonds rising to 6% on J.P. Morgan's Government Bond Index - Emerging Markets at the end of November.

Some dealers said traders were also keen to bet on India's GDP growth falling to 6.5% in Jul-Sept, against 6.7% projected by RBI staff last week and the official central bank estimate of 7%. India's GDP for the quarter ended September, due at 1600 IST Friday, has been in focus as the next domestic trigger to gauge India's pace and quantum of India's interest rate cuts. 

This week, key US economic data is due, including estimates for GDP growth and the release of the Federal Reserve's preferred inflation gauge. The November US Federal Open Market Committee's meeting minutes will also be released later this week. This could lead to some volatility in gilt prices. The 6.79%, 2034 bond is likely to remain in demand and be the most-traded bond, as traders are increasingly looking to it as the 10-year benchmark gilt, switching the 7.10%, 2034 bond with the on-the-run paper, dealers said. (Srijita Bose)

End

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

Edited by Deepshikha Bhardwaj

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