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Informist, Thursday, Dec. 5, 2024

By Srijita Bose

MUMBAI – Government bond prices ended slightly higher on foreign investment inflows, and bets of a softer monetary policy as the Reserve Bank of India's Monetary Policy Committee concludes its meeting Friday, dealers said. Despite widespread expectation of a cut in the cash reserve ratio on Friday, traders remained circumspect in adding fresh exposure to their portfolios.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.77, or 6.68% yield, against INR 100.74, or 6.68% yield Tuesday. The 10-year benchmark bond mostly traded in a thin band but rose towards the end of the day as traders made last-minute bets going into the event. 

"People are going aggressively into the policy, everyone has accumulated their portfolios and the price action shows that only, but today, volumes have majorly come from foreign inflows, since domestic traders have already pre-positioned themselves the past few day and are just making incremental adjustments," a dealer at a primary dealership said. "Some people are punting for shorter-end bonds and reducing their overall positions by shorting longer-ends, but many were just intraday bets." 

Expectations of policy easing or liquidity-supportive measures on Friday saw traders picking up short-tenure papers earlier in the week. Foreign investors lapped up gilts, especially those maturing in three to seven years as shorter maturity segments are most sensitive to changes in near-term interest rates. Till 1700 IST, foreign portfolio investors bought gilts worth nearly INR 9 billion through the fully accessible route, according to data from Clearing Corp. of India.  

While buying short-term bonds, some traders placed short bets on some longer-tenure bonds to limit the overall exposure on their portfolios, dealers said. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1700 IST showed trades worth INR 57.58 billion in the 7.23%, 2039 gilt, surpassing those for all other papers. Short bets on the 15-year benchmark also rose as traders made space to pick up the new on-the-run 6.92%, 2039 paper at gilt auction on Friday. Primary dealers likely sold in light volumes ahead of Friday's INR 300-billion gilt auction.

Dealers have already priced in a 25-basis-point cut in the cash reserve ratio by RBI Governor Shaktikanta Das on Friday, they said. Betting on a liquidity infusion measure by the RBI, state-owned banks picked up bonds in light volumes, despite being largely net sellers the past week. Some dealers expect a cut of around 50 bps in the ratio, which is currently 4.50%. A further fall in yields would only happen after the policy decision, dealers said. The market is split between whether the RBI would opt for a 25 bps repo rate cut, or ease the CRR, to spur flagging growth.

"The yield (on the 10-year benchmark gilt) is already at near 3-year-lows, and some action needs to happen to justify any further movement," a dealer at a state-owned bank said. "Even if there is no significant action that the market is pricing in, if the panel is extremely 'dovish', then the quantum of sell-offs could be supported to 6.75%, but if anybody has gone heavy into the event and panic sells, then that could trigger a larger sell-off."

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 506.80 billion, against INR 902.45 billion on Wednesday. No trades were settled using the wholesale digital rupee pilot on Thursday, against two trades worth INR 100 million settled on Wednesday.

OUTLOOK

On Friday, bond prices may open steady ahead of the MPC outcome. While some traders expect the rate-setting panel to cut the policy repo rate by 25 bps from 6.50%, others expect liquidity conditions to be eased, dealers said.

Traders were positive that more than one external member of the rate setting panel will vote for a rate cut in the policy meeting and the committee will shift its 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 also await any news on the extension of RBI Governor Das' tenure. His term ends on Tuesday, and the announcement on either an extension of Das' term or appointment of a successor is expected this week. 

Any developments in West Asia and the Russia-Ukraine war may impact gilt prices at open. The movement in the US yields and crude oil prices could also lend cues to bond prices, but the impact on gilt prices will be limited before the domestic policy decision. The yield on the 6.79%, 2034 bond is seen at 6.60-6.77% Friday.

India Gilts: In thin band; state-owned banks realign portfolios before MPC

MUMBAI--1540 IST--Prices of government bonds remained in a thin band as traders were cautious ahead of the Reserve Bank of India's monetary policy meeting outcome on Friday, but they used the stability in prices to realign the proportions of tenures in their bond portfolios, dealers said. State-owned banks were realigning portfolios and picking up gilts in light volumes ahead of a possible cut in the cash reserve ratio on Friday.

Dealers have already priced in an announcement of a 25-basis-point cut in the cash reserve ratio by RBI Governor Shaktikanta Das on Friday, they said. Betting on this view, state-owned banks picked up bonds in light volumes, despite being largely net sellers the past week. Some dealers expect a cut of around 50 bps in the ratio, which is currently 4.50%.

"PSU banks are not net-sellers right now, they're selling less, there's some portfolio churning happening because they've already sold so much this week and now (chances of easing policy by) MPC is there," a dealer at a state-owned bank said. 

Expectations of policy easing or liquidity-supportive measures on Friday saw traders picking up short-tenure papers earlier in the week. Foreign investors lapped up gilts in the 2027-2031 maturities as these securities are most sensitive to rate cuts. To hedge these rate cut bets, some traders were placing short bets on some longer-tenure bonds to ensure minimum risk, dealers said. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. The data at 1520 IST showed trades worth INR 57.58 billion in the 7.23%, 2039 gilt, the highest among all.

Talk of the Maharashtra government announcing a holiday on Friday due to Mahaparinirvan Diwas has percolated treasury rooms. The Maharashtra government's holiday is local and has not been notified under the Negotiable Instruments Act, which means markets are open, and the MPC outcome should not be disrupted, dealers said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 337.35 billion, against INR 772.90 billion at 1530 IST on Wednesday. During the day, the yield on the 6.79%, 2034 bond is seen in a range of 6.62-6.70%. (Cassandra Carvalho and Srijita Bose)

India Gilts: Remain in thin band; traders cautious ahead of MPC outcome Fri

MUMBAI--1245 IST--Prices of government bonds remained in a thin band on caution ahead of Friday's outcome of the Reserve Bank of India's Monetary Policy Committee meeting. Traders have already built up their portfolios in anticipation of monetary easing over the past week, and refrained from placing aggressive bets a day before the outcome, dealers said. 

"In the morning there was some specific bias for selling, which put the market on caution, but mostly traders have already built and rebalanced their positions according to their view on the MPC (outcome), and intraday only some reshuffling is happening, or traders who are in the money are booking some profits," a dealer at a primary dealership said. 

State-owned banks likely continued to sell bonds at a profit after picking gilts when the yield on the 10-year benchmark 6.79%, 2034 bond was above 6.80% in November, dealers said. Primary dealers also sold in light volumes ahead of Friday's INR 300-billion gilt auction. A further fall in yields would only happen once the policy decisions are actually made, dealers said. The 10-year benchmark yield already at its lowest since February 2022, when the policy repo rate was 4% against the current 6.50%. The market is split between whether the RBI would opt for a 25 bps repo rate cut, or ease the cash reserve ratio, to spur flagging growth.

"The market is positioned in a 50-50 chance on both (repo rate cut and CRR cut), and if both the done at the same time, then the yield level (on the 10-year benchmark gilt) could fall to 6.60% also and if nothing happens, then you will see the yield rise to 6.75% at least," a dealer at a state-owned bank said. "Traders are mostly pre-positioned and are now reducing the overall positioning now to reduce their risk ahead of the event."

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 193.55 billion, against INR 553.60 billion at 1230 IST on Wednesday. During the day, the yield on the 6.79%, 2034 bond is seen in a range of 6.62-6.70%. (Srijita Bose)

India Gilts: Steady on caution ahead of MPC outcome Friday

MUMBAI--1030 IST--Prices of government bonds opened slightly higher on rate cut bets and a fall in US Treasury yields, but gave up those gains almost immediately. Caution before the Reserve Bank of India's three-day Monetary Policy Committee meeting outcome kept traders from placing aggressive bets, keeping bond prices in a thin band, dealers said. 

 "There's is no sustainability in the rise because no one knows what to expect tomorrow (Friday). Some say CRR (cut), some say rate cut, so prices are flattening out," a dealer at a private bank said.

At the MPC outcome Friday, traders are betting either on a 25 basis point repo rate cut or the RBI infusing durable liquidity into the banking system. Measures the central bank could take include a cash reserve cut of up to 50 basis points, or announcing open market bond purchases, dealers said. Hopes of policy easing have soared in the past week after India's GDP growth in Jul-Sept fell to 5.4%, much lower than the RBI's projection of 7.0%.

US Treasury yields fell overnight after US services purchasing managers' index data for November missed consensus estimates, as did job gains reported by the ADP. The yield on the 10-year US Treasury note fell to 4.20% at 1030 IST from 4.26% at 1700 IST Wednesday. The overseas trigger did not have an impact on gilt prices before the domestic policy decision, but may continue to spur purchases by foreign investors, dealers said.  

Traders were also looking ahead to confirmation on the RBI governor, who is the chairperson of the MPC. The tenure of incumbent Shaktikanta Das is scheduled to end on Tuesday after six years at the helm. Media reports suggested Das' tenure is likely to be extended, but traders were jittery that an extension has not been announced so far. In his recent comments, Das is seen as being among the most particular MPC members on inflation aligning to the RBI's 4% aim before cutting interest rates, but traders are unwilling to place large bets on the future direction of monetary policy before clarity on the appointment, dealers said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 116.85 billion, against INR 322.85 billion at 1030 IST on Wednesday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.62-6.70%. (Cassandra Carvalho)

India Gilts: Seen tad up before MPC outcome Fri, intraday volatility likely

MUMBAI – Prices of government bonds are likely to open a tad up before the outcome of the Reserve Bank of India's Monetary Policy Committee meeting on Friday, dealers said. As seen Wednesday, intraday volatility is likely due to the range of expectations from RBI Governor Shaktikanta Das' speech detailing the outcome.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.62-6.70%, against 6.68% on Wednesday, the lowest in over 31 months. Inflows into gilts are expected to continue Thursday as traders bet on easing monetary policy and a further fall in gilt yields, dealers said. Foreign portfolio investors have already bought INR 64.76 billion of fully accessible route bonds this week, after being net sellers in November, according to the Clearing Corp. of India.

At the MPC outcome Friday, traders are betting either on a 25-basis-point repo rate cut or the RBI infusing durable liquidity into the banking system. Measures the central bank could take include a cash reserve cut of up to 50 basis points, or announcing open market bond purchases, dealers said. Hopes of policy easing have soared in the past week after India's GDP growth in Jul-Sept disappointed.

Ahead of the INR 300-billion auction on Friday, traders, especially primary dealerships, may trim portfolios to pick up auction stock. Dealers said that most traders would prefer to hold gilts and play for gains after the MPC's decision, and auction-related selling may be limited. The government will sell INR 70 billion of a new 2027 gilt, INR 130 billion of the 6.92%, 2039 gilt and INR 100 billion of the 7.09%, 2054 gilt at 1230-1330 IST Friday.

On the global front, US Treasury yields fell overnight after US services purchasing managers' index data for November missed consensus estimates, as did job gains reported by the ADP. Comments from policymakers, including US Federal Reserve Jerome Powell, did not have a significant impact on the US rate-cut view. The yield on the 10-year US Treasury note fell to 4.20% at 0800 IST from 4.26% at 1700 IST Wednesday. (Cassandra Carvalho)

End

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

Edited by Deepshikha Bhardwaj

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