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Informist, Wednesday, Dec. 11, 2024

By Cassandra Carvalho and Vidhushi RajPurohit

MUMBAI – Prices of government bonds ended lower Wednesday as comments by newly-appointed Reserve Bank of India Governor Sanjay Malhotra disappointed traders, dealers said. A rise in US Treasury yields weighed on prices and caution before US CPI inflation data kept market volatile and trade volumes low. Traders trimmed any risk nearing the end of trading hours, ahead of US and India CPI prints, due for release at 1900 IST Wednesday and 1600 IST Thursday, respectively. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.51, or 6.72% yield, against INR 100.58, or 6.71% yield Tuesday. The bond traded in a range of 2-3 basis points, as intraday cues kept the market direction changing, dealers said.  

Bond prices slipped after the former revenue secretary's first public address after taking charge as the RBI governor earlier in the day. Malhotra said stability and continuity in monetary policy were very important, leaving traders to infer that Malhotra would likely take his time in pushing for a softer monetary policy.

Traders had hoped Malhotra would focus more on supporting slowing growth rather than curbing high inflation, which would have cemented the market's hope of a 25-basis-point repo rate cut in February. Outgoing Governor Shaktikanta Das had steered the Monetary Policy Committee's focus solely to inflation, dealers said, which left no space for rate cuts as inflation continues to be high because of food and vegetable prices.

"Market thinks that he's not going to rush into anything. There won't be any sharp decisions, at least in the first 15 days, he didn't say anything about liquidity being squeezed, nothing on growth. He'll have to learn (more about his new position) first," a dealer at a private bank said.

Market participants said the softer stance traders expected from the new governor would have to be data-driven. The surprise news of the governor's address saw bond prices recovering from the day's low but the rise in prices did not last long.

Even before the announcement that RBI Governor Malhotra would hold a press conference, some state-owned banks likely picked up bonds when prices dipped, on bets that India's CPI inflation may cool to around 5.5% in November from a 14-month high of 6.21% in October, dealers said. This would allow the RBI's Monetary Policy Committee to cut interest rates soon, they said.

Moreover, the tight liquidity in the banking system limited trade volumes, which reflected in the day's Treasury bill cut-off yields, dealers said. The cutoff on the 182-day bill jumped to 6.61% from 6.54% last week. According to data on the RBI's website, the liquidity surplus in the banking system was INR 356.67 billion Tuesday. Dealers said the RBI was delivering dollars against its outstanding forward dollar sales, draining liquidity from the banking system. 

"The evolving conditions of the liquidity will also determine the trajectory of bond prices as right now, the tight systemic liquidity is not giving much room to trade," a dealer at a state-owned bank said.

Traders placed short bets on the 7.23%, 2039 paper on hope of widening spreads between the recently-issued 6.92%, 2039 gilt, 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 1932 IST showed trades worth INR 64 billion in the 7.23%, 2039 gilt. Currently, the spread between the two 15-year bonds is 1 basis point, but dealers expect it to increase to 3-4 basis points in a few months. 

Short bets on the 10-year benchmark rose as traders made space to pick up the paper at the weekly gilt auction Friday. The government will sell INR 220 billion of the 6.79%, 2034 bond, INR 50 billion of a new 30-year, 2054 green bond, and INR 100 billion of the 7.09%, 2074 bond. 

According to the RBI's Negotiated Dealing System-Order Matching platform, the turnover for the day was INR 344.55 billion, sharply down from INR 601.80 billion on Tuesday. No trade was settled using the wholesale digital rupee pilot on Wednesday, same as Tuesday. Earlier in the day, bond prices had fallen due to a slight rise in US Treasury yields. Ahead of US CPI inflation data for November, the yield on the 10-year US Treasury note rose to 4.24% from 4.23% at 1700 IST Tuesday.

OUTLOOK

On Thursday, gilts are likely to open steady ahead of Indian CPI data for November, due at 1600 IST, dealers said. Trade volumes will likely be muted until then. Prices may be volatile in the one hour of trading after the data is published. 

Gilt prices will take cues from the overnight movement of US yields. After the US CPI data for November was published, showing consumer prices rose 2.7% on year and core CPI was up 3.3% on year, US yields softened. Any developments in West Asia and the Russia-Ukraine war will also impact gilt prices at open. The yield on the 6.79%, 2034 bond is seen at 6.61-6.81% Thursday.

India Gilts: Recover losses as RBI Malhotra to hold first press meet 1500 IST

MUMBAI--1346 IST--Government bond prices recovered nearly all losses as traders shifted focus from offshore to domestic cues. For cues, dealers await newly-appointed Reserve Bank of India Governor Sanjay Malhotra's first press conference at 1500 IST, dealers said.

They hope Malhotra will focus more on supporting slowing growth rather than curbing high inflation in his first public comments as RBI governor, which would cement the market's hope of a 25-basis-point repo rate cut in February. Outgoing governor Shaktikanta Das had steered the committee's focus solely to inflation, dealers said, which left no space for rate cuts as inflation continues to be high because of food and vegetable prices. Volumes are expected to pick up after 1500 IST and trade may be volatile, dealers said.

Gilt prices were down earlier in the day due to a rise in US Treasury yields ahead of US CPI inflation data for November at 1900 IST. India's CPI inflation data for last month is due at 1600 IST on Thursday. Traders were cautious in trades ahead of both data points, which kept volumes muted.

Even before the announcement that RBI Governor Malhotra would hold a press conference, some state-owned banks likely picked up bonds at the day's low on bets that India's CPI inflation may cool to around 5.5% in November from a 14-month high of 6.21% in October, dealers said. This would allow the RBI's Monetary Policy Committee to cut interest rates soon, they said.

"In the morning, there was a sell-off, but the market recovered after the news of the (newly appointed RBI) governor's address came. It's just a first speech, nothing major is expected, but let's see," a dealer at a private bank said. "Private banks were mostly buying. But when (gilt) prices were down, PSUs (state-owned banks) also would've bought."

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 187.65 billion, against INR 451.10 billion at 1330 IST on Tuesday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.68-6.75%.  (Cassandra Carvalho)

India Gilts: Tad down on rise in US yields ahead of US CPI data 

MUMBAI--1040 IST--Prices of government bonds were a tad down due to a slight rise in US Treasury yields. Traders refrained from placing aggressive bets on caution ahead of US CPI inflation data for November, due post market hours, dealers said. 

"Today (Wednesday), the market will be in a wait-and-watch zone awaiting any further trigger before the data prints (US and India CPI inflation data) come in," a dealer at a state-owned bank said. "I don't see people trading aggressively though some accumulation might be there on (India) rate cut bets."

The yield on the 10-year US Treasury note rose to 4.24% from 4.23% at 1700 IST on Tuesday. Traders avoided aggressive bets before the inflation data, leading to a slump in trading volumes. Some dealers short sold gilts before the US CPI data, which is expected to show a rise in inflation, while primary dealers likely made room for the weekly gilt auction on Friday, which is scheduled after the inflation data for the US and India for November is released.

The 10-year benchmark gilt did not find large buyers under 6.70% yield on Tuesday, which is why traders did not place fresh bets on India rate cuts Wednesday, dealers said. With investors on the sidelines, volatility is likely to remain low before India's CPI data is released at 1600 IST on Thursday. Traders refrained from aligning their portfolios before the data due to the US inflation print in the interim, dealers said.

Ahead of the Treasury bill auction, a trader at a private bank speculated that the government may cancel its short-term debt issuances in the next two weeks. The government cut its T-bill borrowing in the last few weeks of both Apr-Jun and Jul-Sept. However, other dealers said the government did not have the same cash balance buffer as it did earlier in the year, and would auction the entire notified amount in Oct-Dec.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 66.60 billion, against INR 322.05 billion at 1030 IST on Tuesday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.68-6.75%.(Srijita Bose)

India Gilts: Seen steady on caution ahead of US CPI data

MUMBAI – Government bond prices are seen opening steady on caution ahead of the US CPI inflation data, due after market hours Wednesday, dealers said. Prices could rise during the day as traders place fresh bets on monetary policy easing in India. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.67-6.75%, against 6.71% on Tuesday.

The US CPI data for November is expected 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 Dow Jones. Intraday bets on the US CPI could be placed tracking the movement in US Treasury yields, which have remained largely unchanged from 1700 IST Tuesday. Traders preferred not to hold aggressive bets before the US data point, especially as it is seen influencing the US Federal Open Market Committee's rate decision next week, dealers said.

Hopes of a rate cut by the Reserve Bank of India's Monetary Policy Committee in February crystallised after Sanjay Malhotra was chosen to take the reins as the RBI governor. Malhotra will take charge on Wednesday as the 26th governor of RBI for a period of three years at a time when GDP growth has fallen to a seven-quarter low in Jul-Sept and CPI inflation is above the RBI's 2-6% comfort band. Any comments by Malhotra as he takes charge Wednesday may lend cues to prices, dealers said. Meanwhile, the November CPI data for India due Thursday is also awaited.  (Srijita Bose)

End

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

Edited by Akul Nishant Akhoury

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