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Informist, Monday, Dec. 2, 2024

By Srijita Bose

MUMBAI – Government bond prices ended sharply higher Monday as traders picked up bonds ahead of the Monetary Policy Committee's outcome on Friday. Dealers said the lower-than-estimated GDP growth in Jul-Sept had raised market expectations of the Reserve Bank of India easing its monetary policy, including a possible repo rate cut, soon.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.57, or 6.71% yield, against INR 100.33, or 6.74% yield, Friday. The yield has fallen 10 basis points from levels seen before the release of India's Jul-Sept GDP print on Friday, and ended at its lowest since Feb. 18, 2022.

Bets on a rate cut by the MPC resurfaced after India's GDP growth for the quarter ended September was at a seven-quarter low of 5.4%, against an Informist poll estimate of 6.5% and the RBI's projection of 7%. With this, even the three RBI members of the policy panel could soften their tone on bringing down inflation and shift their focus to supporting growth, dealers said.

"Traders are now hoping for a possible rate cut and an increased quantum of cuts throughout the next year. So there is clearly a good buying momentum coming in and people want to go long before the (monetary) policy meeting," a dealer at a private bank said. 

Even if the panel doesn't cut rates immediately, traders said at least one more member along with external member Nagesh Kumar would vote for a rate cut at the MPC decision on Friday. Kumar had voted for a 25-basis-point rate cut in October as well. Some traders preferred short-term gilts, on the view that India's gilt yield curve would steepen due to additional liquidity measures or a rate cut, dealers said. Others favoured long-term bonds, which generate greater returns in price terms for every basis point fall in yield.

However, some traders remain circumspect about a rate cut this month as the latest CPI inflation print of 6.21% for October was above the RBI's comfort band of 2-6%. In lieu of a rate cut, traders said the RBI may move to inject liquidity into the banking system to spur growth.

For this, traders see higher chances of a cut in the cash reserve ratio than the purchase of gilts by the RBI through open market operations. The RBI could cut the cash reserve ratio, currently at 4.50%, by 25-50 basis points this week, dealers said. A 50 bps cut is seen more likely due to the liquidity needs of the banking system, implemented across two fortnights, returning the cash reserve ratio to the pre-COVID level of 4%.

"We are at a crucial juncture, and the (MPC) panel will likely be extremely 'dovish' in this MPC even if they choose not to cut rates at this point. But growth will certainly come into focus because that is a more fundamental indicator of the economy, since inflation can be seasonal also," a dealer at a state-owned bank said. "Plus, constraint on liquidity is also there, which makes it more likely that the RBI will step in at this point and cut the cash reserve ratio by at least 25 basis points if not more." 

During the day, state-owned banks sold bonds at a profit as the yield on the 10-year benchmark bond approached 31-month lows while traders also picked up gilts for their investment portfolios as expectations of the yield to fall further in coming months ran ahead of the policy outcome, dealers said. Foreign portfolio investors also bought gilts worth nearly INR 33 billion through the fully accessible route on Monday, according to Clearing Corp. of India data at 1900 IST.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 805.05 billion, against INR 628.60 billion on Friday. No trades were settled using the wholesale digital rupee pilot on Monday, the same as Friday.

OUTLOOK

On Tuesday, bond prices are likely to open steady ahead of the state bond auction of INR 258.37 billion, dealers said. Traders expect bonds to consolidate some of the gains after India's GDP growth slowed sharply in Jul-Sept.

The market's focus will be on the RBI's possible action at the MPC meeting which begins on Wednesday. The outcome of the meeting will be announced on Friday. Bets on the central bank announcing a liquidity injection, or even the panel cutting rates, have been placed ahead of the outcome, dealers said.

Traders also await any news on extension of RBI Governor Shaktikanta Das' tenure. His term ends on Dec. 10, and the announcement on either a reappointment or a new governor is expected this week. Das has been holding the position of governor for six years, and an extension is seen as good news on grounds of policy continuity. On the other hand, some dealers said that considering Das' stance on controlling inflation, the market may welcome a new governor who is seen more likely to cut rates.

Any developments in West Asia and Russia-Ukraine war may impact gilt prices at the open. The movement of US yields and crude oil prices could also lend cues to bond prices. The yield on the 6.79%, 2034 bond is seen at 6.68-6.75% Tuesday.

India Gilts: Up more as traders confident of policy easing by MPC on Friday

MUMBAI--1617 IST--Prices of government bonds were up more as traders picked up bonds ahead of the Monetary Policy Committee's outcome Friday. A lower-than-estimated GDP growth in Jul-Sept has increased market expectations of policy easing this week, they said.

While some traders expect a cut in the repo rate, most dealers are adjusting portfolios in preparation for a cut in the cash reserve ratio. Dealers expect a 25-50 basis point cut in the ratio this week, which currently stands at 4.5%. Dealers see higher chances of a cut in the cash reserve ratio than the purchase of gilts by the Reserve Bank of India through open market operations. Dealers said the discussion in the market was now whether the MPC would continue to focus on inflation or whether it would shift its focus to growth.

"I'm not expecting a rate cut, but I'm not ruling it out completely either...the (gilt) market is not pricing in a rate cut; so if that happens the yield will see a sharp fall – we can't say how much fall because the market will be taken by surprise," a dealer at a private bank said.

Dealers said that while the swaps market had priced in a cut in the repo rate this week, even short-term bonds had more room to gain from a repo rate cut. If not December, traders are confident the MPC will definitely cut the repo rate in February.

Volumes jumped, especially of long-term bonds, which were seen out of favour until last week. Traders jumped into longer-tenure papers despite investor interest as these bonds will see the most gains in price during a secular fall in yields, dealers said. The 7.34%, 2064 bond was the third-most traded paper Monday, according to data from Clearing Corp. of India.

The intraday movement of US Treasury yields was largely neglected as traders were mostly focused on the MPC outcome, dealers said. According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 729.80 billion, higher than INR 408.00 billion at 1630 IST on Friday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.69-6.74%. (Vidhushi RajPurohit and Cassandra Carvalho)

India Gilts: Give up some gains on profit booking as 10-yr yld hits 2-mo low 

MUMBAI--1402 IST--Prices of government bonds gave up some gains as traders sold bonds at a profit after the yield on the 10-year benchmark gilt touched a two-month low earlier in the day, dealers said. Prices remained up on hopes of a rate cut by the Monetary Policy Committee at its upcoming policy meeting this week as growth for the quarter ended September was well below the Reserve Bank of India's estimate.

State-owned banks likely sold bonds at a profit as the yield on the 10-year benchmark 6.79%, 2034 gilt approached its lowest level in the current financial year that began in April. On Sept. 26, the 10-year benchmark yield had hit 6.7051%, a 31-month low. On Monday, the benchmark yield flirted with that level before selling surpassed purchases, dealers said.

"The initial euphoria after the poor growth data is sliding off and traders are seeing things more clearly as the MPC meeting is just around the corner. Though some people are still thinking of a December rate cut, chances are more that they will be 'dovish' but cut rates only in February as inflation is still high and this could be a single blip in growth," a dealer at a primary dealership said. "Chances are that the RBI (Reserve Bank of India) will take some measure on liquidity but without injecting durable liquidity, likely lowering the cash reserve ratio by maybe 50 basis points."

Some traders were circumspect about an immediate rate cut as the latest CPI inflation print, at 6.21% for October, was above the RBI's 2-6% comfort band. While the view on a rate cut is not unanimous, traders said at least one more member along with external member Nagesh Kumar would vote for a rate cut at the MPC decision on Friday. Kumar had voted for a 25-basis-point rate cut in October as well. The RBI members of the rate-setting panel may also acknowledge the increase in growth risks as Jul-Sept GDP growth tumbled to 5.4%, against the central bank's estimate of 7.0%. Some traders preferred short-term gilts, on the view that India's gilt yield curve would steepen due to additional liquidity measures or a rate cut, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 540.00 billion, sharply higher than INR 215.50 billion at 1430 IST on Friday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.69-6.74%.  (Srijita Bose)

India Gilts: Sharply up on Dec rate cut hope post lower-than-view GDP growth

MUMBAI--1020 IST--Prices of government bonds rose sharply as India's Jul-Sept GDP growth printed at a seven-quarter low of 5.4% on Friday, which strengthened traders' hopes of a 25-basis-point rate cut by the Monetary Policy Committee this week, dealers said. The 10-year benchmark gilt yield fell to its lowest since Sept. 26.

The three-day MPC meeting begins Wednesday, and Reserve Bank of India Governor Shaktikanta Das will present the outcome on Friday. The RBI had projected Jul-Sept GDP growth at 7%, while traders had expected a reading of 6.3-6.5% growth. With the shocker from the GDP data, dealers said the rate-setting panel might bring forward rate cuts to December from the market's earlier expectation of February.

At the MPC's previous meeting in October, only external member Nagesh Kumar had voted in favour of a rate cut, with the five others voting for status quo on rates. At the October meeting, the MPC unanimously softened its stance to 'neutral' from 'withdrawal of accommodation' after over two years.

"The momentum from Friday is still there in the market. After the data on Friday, we got only one hour to react to the news, so today we're seeing a continuation of that," a dealer at a state-owned bank said. 

Foreign inflows and a fall in overnight indexed swap rates kept prices up, while state-owned banks picked up bonds after being net sellers in the latter half of last week. Traders covered short bets and stocked up on bonds ahead of the outcome of the MPC meeting, dealers said. The 10-year gilt yield fell to its lowest level since late September due to the rate cut bets, leading some traders to sell bonds at a profit, dealers said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 242.90 billion, sharply higher than INR 43.00 billion at 1030 IST on Friday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.69-6.74%. (Cassandra Carvalho)

India Gilts: Seen steady after jump in prices Fri post lower-than-view GDP

MUMBAI – Prices of government bonds are likely to open steady after shooting up Friday last week following an unexpectedly low GDP print for Jul-Sept, dealers said. Traders will assess the impact of the print on the Monetary Policy Committee's meeting outcome on Friday. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.71-6.77%, against 6.74% on Friday.

Last week, India's GDP growth for the quarter ended September printed at a seven-quarter low of 5.4%, against an Informist poll estimate of 6.5%. The low reading increased the probability of a rate cut by the MPC in February, with some traders expecting one this week itself. The benchmark 10-year gilt fell by 6 basis points after the data, the most since February. Traders are likely to continue covering their short bets if they see the likelihood of a rate cut this week, dealers said.

As for the MPC outcome, most traders expect a status quo and said that the Reserve Bank of India was likely to infuse additional liquidity into the banking system either through a cash reserve ratio cut or by announcing open market purchases of bonds. The cash reserve ratio is currently at 4.5% and could be cut by up to 50 basis points, dealers said.

On the global front, the 10-year US Treasury yield was little changed from Friday's Indian market close of 4.21%. Over the Thanksgiving holiday weekend, the yield dropped to a month's low of 4.17% but recovered to 4.22% as of 0800 IST. Foreign inflows into Indian gilts may continue as US yields have been easing. 

Further, US President-elect Donald Trump's comments on BRICS countries, of which India is a member, might hurt market sentiment. Trump has threatened 100% tariffs on exports from BRICS nations to the US if these countries attempt to replace the dollar as the trading currency. The RBI has in recent years stepped up its efforts to internationalise the rupee, and has bilateral agreements with several countries, including Russia, to encourage trade using local currencies rather than resorting to dollar conversion.

Traders now also await any news on RBI Governor Shaktikanta Das' tenure extension. Das' term ends on Dec. 10, and the announcement is expected any time this week. Das has been holding the position of governor for six years, and a term extension would be good news for traders on grounds of policy continuity. (Cassandra Carvalho)

End

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

Edited by Ashish Shirke

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