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Informist, Tuesday, Dec. 10, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended off highs Tuesday as traders sold bonds at a profit tracking an intraday rise in US Treasury yields, dealers said. However, traders were broadly upbeat after the announcement of Revenue Secretary Sanjay Malhotra as the next Reserve Bank of India governor starting Wednesday. Malhotra is seen more "market-friendly" and is expected to vote for rate cuts starting at the next Monetary Policy Committee meeting in February.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.58, or 6.71% yield, against the previous close of INR 100.50, or 6.72% yield. The price of the benchmark bond was up earlier in the day, but gains were erased later as a rise in US yields weighed.

The yield on the 10-year US Treasury note was 4.23% at the end of Indian market hours, up from 4.17% on Monday. US yields moved higher ahead of US CPI inflation data on Wednesday, which is seen as a crucial indicator as to whether the US Federal Open Market Committee will cut interest rates next week.

Bond prices had opened higher and were up for most of the day as the six-member rate-setting panel is likely to cut rates in February under the chairmanship of Malhotra, dealers said. Two external members have already voted for a rate cut at the MPC meet last week, and outgoing RBI Governor Shaktikanta Das was considered one of the members who was farthest away from voting on a rate cut.

"Actually, he (Malhotra) will have to make data-driven decisions only, but because he's from the finance ministry which wants lower rates, there are much more chances of a rate cut in February," a dealer at a state-owned bank said. Independent economic research company Capital Economics on Monday advanced its India rate cut expectation to February from April after the appointment of Malhotra as RBI governor.

The appointment of Malhotra as the next governor came after weeks of fevered speculation. Some traders were confident of an extension of term for Shaktikanta Das, while others said that since the announcement was delayed, another candidate for the position was likely. Malhotra will helm the central bank for a tenure of three years, starting Wednesday. His name was not among the names the market had speculated, with other secretaries to the government among those that traders had anticipated.

Bond prices also rose as banks stocked up ahead of India's CPI inflation for November. The consumer inflation, due at 1600 IST Thursday, is seen at 5.5-5.6%, down from 6.2% in October. A reading within the RBI's 2-6% comfort band could increase rate cut hopes in February, but another inflation shocker could dash rate cut hopes, dealers said.

Foreign banks were likely buyers of gilts on Tuesday for foreign portfolio investors, dealers said. FPIs had trimmed their holdings of India's gilts because of weak global and domestic market sentiment. FPIs Tuesday bought gilts worth INR 17.70 billion through the fully accessible route, according to data from Clearing Corp. of India at 1834 IST.

"Passive investors are very active in the market, but other flows also are coming in before they (foreign banks and investors) close their books before the holiday (Christmas) season," a trader at a primary dealership said.

State-owned banks likely sold gilts at a profit during the day, keeping prices capped, dealers said. State-owned banks bought gilts last week when prices fell as the MPC kept the repo rate unchanged. While early sales were largely from state-owned banks, other traders also sold gilts as they did not expect the 10-year yield to stay below 6.70% for long, dealers said.

A rate cut by the RBI in February would depend on India's inflation data, as well as global factors, including US monetary and fiscal policy, they said. Pressure from the depreciating rupee, which fell to a record low of 84.86 a dollar on Tuesday, could also be an obstacle for a rate cut cycle.

According to the RBI's Negotiated Dealing System-Order Matching platform, the turnover was INR 601.80 billion, against INR 461.85 billion on Monday. No trades were settled using the wholesale digital rupee pilot on Tuesday, same as Monday.

OUTLOOK

On Wednesday, gilts may open steady ahead of US CPI data post market hours Wednesday and India's CPI data Thursday, dealers said.

Gilt prices are likely to maintain an upward momentum as rate cut bets crystalise around February. Comments by Malhotra on Wednesday, as he takes charge as RBI governor, may lend cues to gilt prices, dealers 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 6.67-6.75% Wednesday.

India Gilts: Off highs as traders book profit; Feb rate cut hopes persist

MUMBAI--1620 IST--Prices of government bonds were off highs as traders booked profits after an early rise in prices, dealers said. Bond prices remained up as traders redoubled their expectations of a February rate cut after the appointment of Revenue Secretary Sanjay Malhotra as Reserve Bank of India governor starting Wednesday.

"At the day's high, traders started capping gains, so the price did not go up sharply despite the overall bullish sentiment," a dealer at a state-owned bank said.

While early sales were largely from state-owned banks, other traders also sold gilts as they did not expect the 10-year yield to sustain below 6.70% immediately, dealers said. The February rate cut, while almost certain now, would be dependent on India's inflation readings, as well as geopolitical factors including US monetary and fiscal policy, they said.

A large section of the market was also wary of the depreciating currency, which fell to a record low of 84.86 a dollar on Tuesday as rate cut hopes increased. Malhotra's appointment was seen as an effort by the government to push for rate cuts, but dealers were also wary he would have to contend with a lot of global pressure to ensure financial stability.

For the rest of the day, prices are expected to remain steady at current levels on caution ahead of US and India CPI data for November due this week. Market participants expect a softer inflation print for November in India, which will allow the Monetary Policy Committee to cut rates at its next meeting. According to an Informist poll of 14 economists, headline CPI inflation likely moderated to 5.6% in November from October's 14-month high of 6.21%.

Meanwhile, the RBI set the coupon for Tamil Nadu's 10-year bond at 7.10%, higher than the median estimate of 7.07% in an Informist poll of 13 dealers. Dealers preferred gilts to state bonds as they are more sensitive to rate cuts.

"Traders are reverting more to government securities, finding them more profitable than the state bonds, and they also wanted higher yields which resulted in the poor demand," the dealer quoted above said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 565.30 billion, sharply up from INR 399.85 billion at 1630 IST on Monday. For the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.68-6.72%. (Vidhushi RajPurohit)

India Gilts: Remain up on Feb rate cut hope with Malhotra as RBI governor

MUMBAI--1306 IST--Prices of government bonds remained up as traders bet on a rate cut by the Reserve Bank of India's Monetary Policy Committee in February with a new central bank governor at the helm, dealers said. Revenue Secretary Sanjay Malhotra will take charge as RBI governor on Wednesday. He will succeed Shaktikanta Das, whose term ends Tuesday.

Traders expect a softer stance on cutting rates by Malhotra, dealers said.

Bond prices were little changed during the last press conference held by Das before he remitted office. Traders said that Das' comments did not provide any cue to the market, after bond prices jumped earlier in the day on hope that the new RBI governor's stance on monetary policy would be softer than Das's.

"It (the press conference) was just a farewell of sorts...He (Das) was one of the MPC panel's most bearish governors. Anyone after him, especially after government officials calling for a rate cut, will be more dovish on cutting rates," a dealer at a private bank said.

Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal had separately said in November that interest rates should moderate for the economy to fire on all cylinders. Earlier in the day, Malhotra had told reporters that he would continue to work based on the requirements of the Indian economy, but would have to first understand his new position before commenting on the same.

Gains in the secondary market were capped as investors sold bonds at a profit after picking them up earlier in the month, dealers said. State-owned banks were likely to have been on the buying side, after being net sellers Monday, dealers said. 

"There was a huge sell-off during MPC, so now the traders are buying to cover the lost ground," a dealer at another private bank said. "On the other hand, the investors who were on the buying side then are selling now to provide for the demand and hence the 64 (paise) price ceiling (on the 6.79%, 2034 gilt) is not getting breached."

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 430.70 billion, sharply up from INR 190.00 billion at 1230 IST on Monday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.65-6.75%. (Cassandra Carvalho)

India Gilts: Up; Feb rate cut hopes soar as Malhotra appointed RBI governor

MUMBAI--1010 IST--Prices of government bonds were up after the government appointed Revenue Secretary Sanjay Malhotra as the new governor of the Reserve Bank of India for a period of three years starting Wednesday. Traders welcomed the appointment on the view that he would favour rate cuts, and placed bets on a 25-basis-point repo rate cut by the Monetary Policy Committee in February.

"The news of the revenue secretary joining as RBI governor is definitely a positive for the market at this point as he will be more likely to listen to the government, which has been asking for a rate cut," a dealer at a private bank said. "The market is currently testing the 6.70% levels (yield on the 10-year benchmark 6.79%, 2034 gilt), if it sustains below this, it could go down to near 6.65% levels."

Finance Minister Nirmala Sitharaman and Commerce Minister Piyush Goyal had separately said in November that interest rates should moderate for the economy to fire on all cylinders. India's GDP growth slumped to a seven-quarter low of 5.4% in Jul-Sept, well below the RBI's 7.0% projection. Following outgoing RBI Governor Shaktikanta Das' statement outlining the monetary policy decision on Friday, the 10-year gilt yield had slumped to a 31-month low of 6.65%, as most traders had placed bets firmly on a rate cut.

After the new governor was appointed, traders preferred gilts maturing within 4-10 years as they expected the yield curve to steepen further on expectations of a rate cut. Traders expect a "bull steepening" – short-term yields falling more than those of longer tenures. State-owned banks were likely selling bonds at a profit, capping gains, dealers said.

Trade volumes ballooned around the psychologically crucial 6.70% level on the 6.79%, 2034 gilt. According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 298.75 billion, against INR 103.85 billion at 1030 IST on Monday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.65-6.75%. (Srijita Bose)

India Gilts: Seen up as govt appoints Sanjay Malhotra as new RBI governor

MUMBAI – Government bond prices may open higher on the news of the appointment of Sanjay Malhotra as the new governor of the Reserve Bank of India. Malhotra, who will become the new head of the Monetary Policy Committee, is seen as more amenable to supporting the government's growth agenda by lowering interest rates.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.65-6.75%, against 6.72% on Monday.

After market hours on Monday, the government named current Revenue Secretary Malhotra as the RBI governor for three years starting Wednesday. This comes after two weeks of intense speculation in the market, with traders split between an extension for outgoing governor Shaktikanta Das and the announcement of a new governor. As the announcement was delayed to near the end of Das' term on Tuesday, dealers had broadly switched their expectations to the fact that the government would replace Das after six years at the helm.

Traders are likely to pick up gilts during the day due to renewed bets of the MPC cutting rates in February with the new governor at the helm, dealers said. Shorter-tenure bonds are likely to outperform longer-duration papers as traders expect the yield curve to steepen further in case of a rate cut, they said.  

The rise in prices may be capped as traders sell bonds at a profit. Selling pressures could also come as traders may sell bonds due to an overnight rise in US Treasury yields, dealers said. The yield on the 10-year US Treasury note rose to 4.20% at 0800 IST from 4.17% at 1700 IST on Monday. Investors will also be watchful ahead of US CPI data for November, set to be released on Wednesday. The data is anticipated to show a rise in annual headline inflation to 2.7% from 2.6%, while core CPI is expected to remain steady at 3.3%, according to a poll by FX Street. (Srijita Bose)

End

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

Edited by Ashish Shirke

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