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Informist, Monday, Dec. 9, 2024

By Srijita Bose

MUMBAI – Prices of government bonds ended sharply higher Monday as traders seized the opportunity to buy at lucrative prices after the sharp fall on Friday, and to stock up their portfolios for the interest rate cuts expected in coming months. A fall in US Treasury yields, following an uptick in the US unemployment rate for November, buoyed prices.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.50, or 6.72% yield, against the previous close of INR 100.31, or 6.74% yield. The bond fell 46 paise on Friday due to disappointment over the Monetary Policy Committee's decision to not cut rates at its meeting and the rate-setting panel's continued focus on managing inflation despite slowing growth.

Towards the latter half of Monday, traders placed fresh bets on the expectation of a fall in CPI in India and the US, giving a further leg up to bond prices, dealers said. Both domestic and US data releases on CPI are due this week.

"People oversold on Friday as a panic reaction to MPC and the poor show at the (gilt) auction, so today (Monday) they were placing fresh bets and covering shorts placed before the (US) NFP (non-farm payrolls) data," a dealer at a state-owned bank said. 

The 15-year 7.23%, 2039 and 6.92%, 2039 bonds were amongst the biggest gainers Monday, as traders covered short bets placed on the bonds earlier. Gilts maturing in 4-7 years along with the 10-year and 15-year papers were seen as lucrative for traders due to views forming on a rate cut in February, dealers said.

Primary dealers and private banks, which turned net sellers on Friday, likely covered their short bets and placed fresh bets on liquid papers on the expectation of a fall in CPI prints. Traders who had bought gilts at the auction continued to trim holdings of the paper, but demand from other sections poured in to pick up the on-the-run 6.92%, 2039 paper as traders are fairly confident of a February rate cut by the MPC, dealers said.

Traders expect the US CPI to have fallen in November, which could lead to a further decline in US yields before the Federal Open Market Committee's December meeting. 

"Market is mostly expecting a cut by the FOMC by 25 basis points in December, but if the US (10-year benchmark) yield fall below 4.0%, then our market will also see a bigger rally. Plus news on (US President-elect Donald) Trump also indicates that he might be softer in his second term which is also boosting our market," a dealer at a private bank said. 

Foreign banks and foreign portfolio investors likely bought gilts during the day. Some domestic traders also picked up longer-tenure bonds in light volumes as they wished to lock in the higher term premium on the view that the RBI would cut rates in February. Some traders also expected the appointment of a new RBI governor who may favour rate cuts, dealers said. 

According to the RBI's Negotiated Dealing System-Order Matching platform, the market turnover was INR 461.85 billion, against INR 863.05 billion on Friday. No trades were settled using the wholesale digital rupee pilot on Monday, same as Friday.

OUTLOOK

On Tuesday, gilts may open higher after the government's announcement regarding the appointment of Revenue Secretary Sanjay Malhotra as the next RBI governor. Given Das' steadfast focus on lowering inflation, dealers hope that a change of command at the RBI would result in a central bank that is relatively more amenable towards lowering interest rates.

Gilts may also take cues from the movement of US yields before the US CPI inflation data Wednesday, dealers said.

Traders will place fresh bets on the expectation of a rate cut in February by the MPC after the appointment of a new governor. "This is definitely market moving news, we will see a sharp rally in gilts as the new governor is expected to be from the government's side (in favour of the government) and may opt for a rate cut in February," a dealer at a private bank said. 

Any developments in West Asia and the Russia-Ukraine war may impact gilt prices at open. The yield on the 6.79%, 2034 bond is seen at 6.66-75% Tuesday.

India Gilts: Sharply up; traders place fresh bets before US, India CPI data

MUMBAI--1612 IST--Prices of government bonds remained up as traders placed fresh bets on the expectation that India and US CPI data, due for release this week, may be lower, dealers said. The fall in US Treasury yields during the weekend aided prices after the disappointment among traders over the Reserve Bank of India's Monetary Policy Committee not cutting the repo rate on Friday.

"Prices are up but will move in a thin range till the GDP data (both US and India) comes out, after which people will take a firm view on further rate cuts. Anyway, a December rate cut by the Fed (Federal Open Market Committee) is likely and the US (10-year benchmark) yield is likely to test 4.0%, so gilts are also going up on that view," a dealer at a primary dealership said. "Also, the view on February rate cut (in India) is also forming now, so demand-supply dynamics are also keeping prices up, especially for the short-end and the liquid papers."

Gilts maturing in 4-7 years along with the 10-year and 15-year papers were seen lucrative for traders due to view forming on a rate cut in February, dealers said. Primary dealers and private banks turned net sellers on Friday as they trimmed their portfolios ahead of Friday's US non-farm payrolls data and also after the poor gilts auction. They likely covered their short bets and placed fresh bets on liquid papers on the expectation of a fall in India and US CPI data, they said. 

"People oversold before the NFP (non-farm payrolls) data, so now they are buying gilts again, but going forward, they will likely hold on to their bets until a solid data suggests otherwise," a dealer at a state-owned bank said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 393.20 billion, against INR 784.05 billion at 1630 IST on Friday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.71-6.77%. (Srijita Bose)

India Gilts: Remain up as US ylds fall, prices seen lucrative after Fri slump

MUMBAI--1255 IST--Prices of government bonds remained up as traders considered current price levels lucrative after the sharp fall on Friday, dealers said. The fall in US Treasury yields, following an uptick in the US unemployment rate for November, buoyed prices.

Traders had trimmed their portfolios and placed short bets ahead of the data. Moreover, the disappointment over the Reserve Bank of India's Monetary Policy Committee not cutting rates, and a poorly bid auction, led to prices slumping, dealers said. The 15-year 7.23%, 2039 and 6.92%, 2039 bonds were among the biggest gainers Monday, as traders covered short bets placed on the bonds earlier.

"People sold furiously on Friday after the monetary policy, so some people are covering their short positions and placing fresh bets now. The US (10-year benchmark) yield is also down and might go down further, so that is a positive that the market is pricing in," a dealer at a primary dealership said. 

Private banks and primary dealers likely bought gilts after turning net sellers on Friday, dealers said. Traders are also pricing in a February rate cut, expecting the appointment of a new RBI governor who may favour rate cuts, dealers said. RBI Governor Shaktikanta Das' tenure ends Tuesday, and neither the government nor the central bank has so far announced an extension, leading to speculation over his exit from the top RBI post after six years.

"The 7-15 year bonds or the belly (of the yield curve) looks lucrative right now," a dealer at a private bank said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 204.55 billion, against INR 566.55 billion at 1330 IST on Friday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.71-6.77%. (Srijita Bose)

India Gilts: Up on fall in US ylds; gains capped as India rate cut view hazy

MUMBAI--0911 IST--Prices of government bonds opened higher, tracking a fall in US Treasury yields after US monthly jobs data Friday indicated a higher unemployment rate, making the case for a rate cut in the US in December. The gains were limited as lack of clarity on domestic rate cuts dampened market sentiment, dealers said.

The yield on the 10-year US Treasury note fell to 4.15% at 0911 IST from 4.18% at 1700 IST on Friday. The US employment report for November, released after Indian market hours on Friday, showed non-farm payrolls rose higher than expected at 227,000 against a Dow Jones consensus of 214,000. However, the unemployment rate rose to 4.2% in November from 4.1% in October, leading to a fall in US yields due to hope of a quarter-point rate cut by the Federal Open Market Committee next week.

Gilts slumped on Friday after the Reserve Bank of India's Monetary Policy Committee kept the repo rate unchanged at 6.50%, with some traders betting on a rate cut. After the disappointment, traders had lightened their portfolios and had the appetite to pick up bonds. On the other hand, traders unsure of a rate cut even at the February MPC meeting booked profits on the early gains, dealers said.

"The sell-off after MPC was unexpected in a way. So now, the market is recovering from that. Traders will build positions now, (before) US and India CPI," a dealer at a state-owned bank said.

US CPI data is due on Wednesday, while India's November CPI print is due on Thursday. These are the next triggers for rate cues both globally and in India, dealers said. India's headline retail inflation rate is likely to have moderated to 5.6% in November from a 14-month high of 6.21% in October, according to an Informist poll of 14 economists. However, it would remain well above the RBI's target of 4%.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 74.55 billion, against INR 47.80 billion at 0930 IST on Friday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.71-6.77%. (Cassandra Carvalho)

India Gilts: Seen up on fall in US ylds; unch repo by MPC Fri may weigh

MUMBAI – Prices of government bonds may open a tad higher after a fall in US Treasury yields over the weekend. Traders who had placed short bets expecting an adverse US employment report may cover those bets, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.71-6.77%, against 6.74% on Friday. The benchmark yield had shot up 6 basis points on Friday after the Reserve Bank of India's Monetary Policy Committee held the repo rate at 6.50%. That may continue to weigh on gilt prices. 

The yield on the 10-year US Treasury note fell to 4.15% at 0830 IST from 4.18% at 1700 IST on Friday. US yields fell after the unemployment rate in November rose to 4.2% from 4.1% a month earlier, making the case for the US Federal Open Market Committee to cut rates by 25 basis points later this month. Another supportive factor before the US CPI data this week was that US President-elect Donald Trump said he would not replace Federal Reserve Chair Jerome Powell when he assumes office, walking back on a statement made on the campaign trail.

On the domestic front, traders anxiously await any news on RBI Governor Shaktikanta Das' tenure. His term ends on Tuesday, and the announcement of either an extension of his tenure or a change in the governor will lend direction to bond prices, dealers said. Das's tone on controlling inflation at the MPC outcome had weighted on bond prices, and if he continues, chances of a February rate cut will also dwindle, they said.

Some traders had expected a 25-bps cut in the repo rate on Friday. Now, most of the market has shifted its hope to the February MPC meeting. Last week, the RBI cut the cash reserve ratio of banks by 50 bps to 4.00% of banks' net demand and time liabilities. With this being the only measure to ease monetary policy, dealers were disappointed and bond prices slumped.(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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