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Informist, Tuesday, Dec. 3, 2024

By Srijita Bose

MUMBAI – Government bonds recovered most losses, with short-term bonds ending on a positive note on expectation that the Reserve Bank of India would announce measures to ease liquidity conditions at its policy review Friday. In fact, some sections of the market placed bets in favour of a cut in policy rates as a disappointing GDP print released Friday underscored the need for easier financial conditions, dealers said. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.54, or 6.71% yield, against INR 100.57, or 6.71% yield, Monday. The price of the 10-year benchmark 6.79%, 2034 bond was down earlier as traders sold at a profit after its yield opened at 6.7013%, the lowest since Feb 21, 2022.

"I think the market is running ahead of itself and expecting the policy rate to be lowered immediately, but so far only the growth aspect has been in concern. Inflation is still high, so some traders are still assessing how much to accumulate before policy, so we saw some selling on the 10-year today (Tuesday) as well," a dealer at a state-owned bank said. "Of course, there were also many who were just profit booking at these levels."

The rise in bond prices was capped due to caution ahead of the policy outcome on Friday, as most traders remained circumspect on whether the Monetary Policy Committee would cut rates this week, given the sharp rise in the headline inflation for October. Traders were, however, positive that more than one external member of the rate cutting panel will vote for a rate cut in the policy meeting and shift focus towards supporting growth, dealers said. In the last meeting in October, external member Nagesh Kumar voted for a rate cut while others had favoured a status-quo. 

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 by the MPC, dealers said. The yield on the 7.02% 2027 gilt was down over 35 basis points at 6.61% from the previous close. Traders expect the MPC to ease the cash reserve ratio by at least 25 bps from the current 4.50%. 

"The MPC will most likely cut the CRR by 50 bps, which makes sense at this point since the RBI has a forward book of $50 billion which will mature next year. But if there is even a 25 bps cut, we might see some sell-off in the market on Friday," a dealer at a primary dealership said. "During the week, we will see a bull steepening on the yield curve as the policy (outcome) nears, and yield on short-term bonds could fall by nearly 4 bps more."

The RBI may opt for a CRR cut to aid liquidity at the upcoming policy meeting since it has little room to infuse liquidity through dollar/rupee buy-sell swaps, given its already bloated forward book. Data released Friday showed RBI had net outstanding forward dollar sales worth $49.18 billion at the end of October, a number that is estimated to have ballooned further in November. 

Meanwhile, state-owned banks were likely to have remained sellers, as they picked up bonds in November when yields were around 10 basis points higher. State-owned banks have been the largest net sellers since the Jul-Sept GDP data was released on Friday, according to data from Clearing Corp. of India. Foreign banks likely picked up bonds during the day after buying over INR 98 billion worth of gilts on Monday, according to CCIL data. 

At the state bond auction, demand was seen firm with state-owned banks likely to replenish their portfolios after selling gilts on the secondary market, dealers said. Shorter-tenure state bonds drew demand from mutual funds, while cut-offs on the 10-year state bonds were set 5-6 bps lower than those at the previous week's auction.

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 605.30 billion, against INR 801.55 billion on Monday. Two trades worth INR 100 million were settled using the wholesale digital rupee pilot on Tuesday, against no trades settled on Monday.

OUTLOOK

On Wednesday, bond prices may open steady as market focus will be on the RBI's possible action at the MPC meeting which begins on Wednesday, dealers said. Gilts may also take cues from the movement on US Treasury yields after jobs data from the US later today. 

Traders expect bonds to consolidate some of the gains after India's GDP growth slowed sharply in Jul-Sept, with most bets in favour of policy accommodation already in place. 

Traders also await any news on the extension of RBI Governor Shaktikanta Das' tenure. His term ends on Dec. 10, and the announcement on either an extension of Das's term or appointment of a successor 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 the 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% Wednesday.

India Gilts: Recover losses; short-end in favour ahead of MPC outcome

MUMBAI--1520 IST--Prices of government bonds recouped losses, led by shorter-tenure bonds, on the expectation that the Reserve Bank of India would take measures to ease liquidity conditions at its Monetary Policy meeting ending Friday. The price of the 10-year benchmark 6.79%, 2034 bond was down earlier as traders sold at a profit after Monday's sharp rise.

The 10-year benchmark bond rose sharply by over 18 paise Monday from the previous close after weaker-than-expected GDP growth revived some traders' expectations of a rate cut by the MPC Friday. 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 by the MPC, dealers said. Traders expect the MPC to ease the cash reserve ratio by at least 25 basis points from the current 4.50%.

"There was some profit booking on the 10-year (gilt) after the rise on Monday. Overall, market looks good, people are bullish and picking different tenures as they expect liquidity to be eased in the (monetary) policy meeting (outcome)," a dealer at a state-owned bank said. "The current range (on the 10-year benchmark bond) looks to be around 6.70-6.74%, but if there are more inflows from foreign (portfolio) investors, the support of 6.70% could also be breached easily."

State-owned banks are likely to have continued to sell bonds for the third consecutive day after picking up bonds last month at higher yields, dealers said. Some dealers expect foreign banks and foreign portfolio investors to keep buying bonds during the week, while others see some caution ahead of the US jobs data Tuesday. FPIs bought gilts worth near INR 33 billion through the fully accessible route and foreign banks bought gilts worth over INR 98 billion on Monday after prices rose, according to data from the Clearing Corp. of India. 

At the state bond auction, demand was seen firm with state-owned banks likely to replenish their portfolios after selling gilts on the secondary market, dealers said. Shorter-tenure state bonds drew demand from mutual funds, while cut-offs on the 10-year state bonds were set 5-6 bps lower than those at the previous week's auction. 

According to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 476.30 billion, against INR 623.15 billion at 1530 IST on Monday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.69-6.74%.  (Srijita Bose)

India Gilts: Off highs as traders book profits after sharp price rise Mon

MUMBAI--1015 IST--Prices of government bonds were off highs as traders booked profits after a sharp rise in prices on Monday following a lower-than-expected GDP growth print for Jul-Sept, dealers said. While bets of a rate cut by the Reserve Bank of India's Monetary Policy Committee this week are still on the table, some caution began setting in ahead of the panel's meeting which starts Wednesday, dealers said. 

"After days of rallying, the market is just adjusting itself, some profit-booking is there, but we're just going back to yesterday's (Monday's) levels," a dealer at a state-owned bank said. 

The benchmark 10-year gilt opened at a yield of 6.7013%, the lowest since Feb 21, 2022. Shortly after, prices fell as traders took the opportunity to sell at lucrative levels. State-owned banks were likely to have remained on the selling side, as they picked up bonds in November when yields were around 10 basis points higher. State-owned banks have been the largest net sellers since the Jul-Sept GDP data was released on Friday, according to data from Clearing Corp. of India. The MPC's meeting is the next domestic cue for bond prices, with some traders expecting a 25-bps rate cut to be announced on Friday.

Bonds opened on a positive note, tracking an overnight softening of US Treasury yields and continued bets on rate cuts by the RBI, dealers said.  The yield on the 10-year Treasury note fell to 4.20% at 0800 IST from 4.22% at the time Indian markets closed on Monday. US bond yields fell following US Federal Reserve Governor Christopher Waller’s comment that he might vote for a rate cut in December, but would wait for the slew of economic data due before the meeting to decide if rates needed to be steady. The Federal Open Market Committee will meet on Dec. 17-18.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 71.45 billion, against INR 246.55 billion at 1030 IST on Monday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.69-6.74%.  (Cassandra Carvalho)

India Gilts: Seen higher on fall in US ylds, RBI rate cut bets

MUMBAI – Prices of government bonds are likely to open a tad higher, tracking an overnight softening of US Treasury yields, dealers said. Bond prices may continue their rise, seen on Monday, after the Jul-Sept GDP growth figure came in much below expectations at a seven-quarter low on Friday, fuelling hopes of a rate cut by the Reserve Bank of India's Monetary Policy Committee at its policy meeting this week. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.68-6.75%, against 6.71% on Monday.

The yield on the 10-year Treasury note fell to 4.20% at 0800 IST from 4.22% at Monday's Indian market close. Bond yields softened following US Federal Reserve Governor Christopher Waller’s comments saying he may vote for a rate cut in December, but would wait for the slew of economic data, due before the meeting, to decide if rates needed to be steady. The Federal Open Market Committee will meet on Dec. 17-18. At 0800 IST, the CME FedWatch tool showed that Fed fund futures reflected a 74.3% probability of a 25-basis-point rate cut at the Federal Open Market Committee's December meeting, up from 66% a day ago. The remaining 25.7% opted for status quo.

Post the India Jul-Sept GDP printing at 5.4%, against traders' estimates of 6.3-6.5%, dealers said that the MPC might shift its focus to growth from inflation. The rise in bond prices because of this may continue, but gains may be limited as traders will book profits at lucrative levels. The yield on the 10-year benchmark gilt closed at 6.71%, the lowest level since Feb. 18, 2022. Traders will also await the state bond auction of INR 258.37 billion at 1030-1130 IST, dealers said.
 

The market's focus will be on the Reserve Bank of India's possible action at the Monetary Policy Committee 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 the extension of RBI Governor Shaktikanta Das' tenure. His term ends on Dec. 10, and the announcement of either a reappointment or the appointment of a new governor is expected this week. Das has been the 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 as more likely to cut rates.  (Cassandra Carvalho)

End

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

US$1 = INR 84.6850

Edited by Akul Nishant Akhoury

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