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Informist, Tuesday, Dec. 17, 2024

By Srijita Bose

MUMBAI – Government bond prices ended lower due to a rise in US Treasury yields. Traders awaited the Federal Open Market Committee's policy outcome and the outlook on US rates after the policy, due to be released early Thursday, dealers said.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.21, or 6.76% yield, down from INR 100.32, or 6.74% yield on Monday. Trade volumes were muted due to caution ahead of the key event, and lack of any significant domestic cues.

"There are no more fresh triggers in the market right now and everyone is waiting for the FOMC's dot plot, so every movement in US yields is being tracked. Some selling pressure from foreign investors was also there and, without much buying interest, prices fell," a dealer at a private bank said. 

The yield on the 10-year US Treasury note rose to 4.43% at the end of Indian market hours from 4.38% at 1700 IST on Monday. Foreign banks and foreign portfolio investors are likely to have sold gilts as US yields rose, dealers said. A rise in US yields narrows the interest rate differential between safe-haven assets and emerging market debt, making the latter less appealing to foreign investors.

Traders refrained from placing large bets ahead of the outcome of the FOMC meeting. Though the panel is expected to cut the benchmark policy rate by 25 basis points, traders widely expect a pause in rate cuts from January after president-elect Donald Trump assumes office, as he is expected to execute fiscally expansionary policies.  

Traders also sold gilts after data released on Monday showed India's trade deficit hitting a record high of $37.84 billion in November, weakening rate cut expectations by the Reserve Bank of India's Monetary Policy Committee in February. The high trade deficit dragged the rupee to a record low of 84.93 a dollar Tuesday, leading to concern that a weakening currency could deter the central bank from cutting rates. Moreover, the central bank might be wary of stoking demand through policy easing at a time when imports are already uncomfortably high, dealers said. 

"Trade deficit will remain high and that is mostly being priced in. Overall too, on the domestic front, there is nothing good coming up right now, so traders are not willing to add risks any more, given the rupee is also under so much pressure," a dealer at a state-owned bank said. 

State-owned and private banks are likely to have picked up gilts in light volumes as the yield on the 10-year benchmark 6.79%, 2034 bond remained above 6.75%. The fall in the off-the-run 7.10%, 2034 paper and the 7.23%, 2039 gilt was less as traders placed bets on the yield spreads of these papers with the 10-year benchmark gilt narrowing, making it lucrative for them to buy these papers while placing short bets on the 10-year benchmark. The yield spread between the 6.79%, 2034 bond and the 7.10%, 2034 bond rose to nearly 4 bps, while that with the 7.23%, 2039 gilt rose to over 10 bps. 

According to the RBI's Negotiated Dealing System-Order Matching platform, the turnover for the day was INR 278.10 billion, slightly higher than INR 204.90 billion on Monday. One trade worth INR 50 million was settled using the wholesale digital rupee pilot on Tuesday, compared to two trades worth INR 100 million settled under this method on Monday. 

OUTLOOK

On Wednesday, prices of government bonds may take opening cues from overnight movement in US yields. Traders will remain cautious before the FOMC makes its decision early Thursday.

Trade volume may be low, with prices seen confined to a narrow range for most of the day. Activity of foreign banks is expected to be muted as they close their accounts towards the end of the year, dealers said. Further pressure on the currency could also weigh on gilt prices, dealers said. 

Any major geopolitical developments and movement in crude oil prices could also lend cues to gilts at opening. The yield on the 6.79%, 2034 bond is seen at 6.72-6.80% on Wednesday.

India Gilts: Down as US yields rise more; FOMC outcome in focus

MUMBAI--1620 IST--Prices of government bonds fell more as US Treasury yields inched up after European markets opened, dealers said. The yield on the 10-year benchmark US Treasury note rose to 4.42% from 4.38% at 1700 IST on Monday. 

"Everyone is waiting for the (US) FOMC's (Federal Open Market Committee) dot plot now, and people are already positioned long, so there are not many buyers in the market. Plus, with US yields rising, selling pressures are also coming in from the foreign side, leading to the fall," a dealer at a primary dealership said. 

State-owned and private banks are likely to have picked up gilts in light volumes as the yield on the 10-year benchmark 6.79%, 2034 bond remained above 6.75%. Foreign banks and foreign portfolio investors, however, are likely to have sold gilts as US yields rose, dealers said. A rise in US yields narrows the interest rate differential between safe-haven assets and emerging market debt, making the latter less appealing to foreign investors. 

Traders refrained from placing large bets ahead of the outcome of the FOMC meeting, due early Thursday. Though the panel is expected to cut the benchmark policy rate by 25 basis points, traders widely expect a pause in rate cuts from January after president-elect Donald Trump assumes office, as he is expected to execute fiscally expansionary policies. Traders also sold gilts after a record high trade deficit was clocked for November at $37.84 billion, weakening rate cut expectations by the Reserve Bank of India's Monetary Policy Committee in February. The trade deficit, along with expectations of gold imports continuing to be high, pushed the rupee to a record low of 84.93 a dollar Tuesday. Rate cuts increase the pressure of currency depreciation.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 253.25 billion, up from INR 137.70 billion at 1530 IST on Monday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.72-6.78%.  (Srijita Bose)

India Gilts: Remain down; high trade deficit, fall in rupee weigh on prices

MUMBAI--1310 IST--Prices of government bonds remained down as US Treasury yields were up. The rupee falling to record lows against the dollar dampened domestic rate cut expectations for February, weighing on gilt prices, dealers said.

Record high imports and a fall in exports pushed India's merchandise trade deficit to an all-time high of $37.84 billion in November. On Tuesday, the high merchandise trade deficit also weighed on the Indian currency, leading it to fall to a record low of 84.9225 to the dollar. 

"There are different variables at play now, and all of them are lessening the expectations of a rate cut in February," a dealer at a private bank said. "The chance of a policy rate cut in February's MPC (Monetary Policy Committee) meeting is not wiped out, but the probability is slightly inching down with the new data."

Volumes were low as traders tread cautiously ahead of the US Federal Open Market Committee meeting outcome early Thursday. Traders expect a statement that emphasises a lack of further policy easing in 2025, though a dovish statement could lead to volatility in gilt yields, dealers said. Traders see yields easing to 6.70% if the Summary of Economic Projections signals a chance of rate cuts in 2025. 

Dealers also await any news from the Reserve Bank of India regarding its decision to buy gilts from open market operations to infuse liquidity in the banking system. On Monday, the systemic liquidity deficit widened to INR 1.10 trillion due to outflows on gilts settlement and advance taxes, dealers said. 

"OMO purchase is a last avenue left for the RBI now to infuse durable liquidity in the banking system as it has already exhausted other means (in the form) of CRR (cash reserve ratio) cut and regular VRRs (variable rate repo auctions). Both of them did not cushion the liquidity from falling into deficit," a dealer at another private bank said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 135.75 billion, up from INR 91.95 billion at 1330 IST on Monday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.71-6.77%. (Vidhushi RajPurohit)

India Gilts: Down; lack of significant cues, low liquidity cap volume

MUMBAI--1017 IST--Prices of government bonds were a tad lower as US Treasury yields continued to inch up. A lack of significant cues and a high liquidity deficit kept volume low, dealers said. The next major event for bond traders was the Federal Open Market Committee's outcome early Thursday. 

Dealers expect bond prices to remain within a thin band during the day, but a lack of positive domestic cues may lead to prices falling gradually, as on Monday. Optimism about the possibility of the Reserve Bank of India purchasing gilts in the secondary market to infuse liquidity kept bond prices from falling further, especially as the 10-year benchmark yield approached 6.75%.

On Monday, the systemic liquidity deficit widened to INR 1.10 trillion due to outflows on gilts settlement and advance taxes, dealers said. The cash crunch inhibited investment activity, and in turn traders also lacked direction to place large bets. The RBI's variable rate repo operations were only temporary liquidity infusions, and would not lead to gilt purchases, dealers said.

"Liquidity is tight so we expect low volumes and prices to be range-bound today," a dealer at a private bank said. "We're waiting to see the WSS (weekly statistical supplement next week) if RBI has done any OMOs (open market operations). Some announcement of OMO could see some relief." The 'Others' segment, which constitutes the RBI, state-owned funding entities, insurance companies and pension funds, bought gilts worth INR 10.58 billion in the secondary market Monday, according to data from the Clearing Corp. of India.

Traders also await the state-bond auction from 1030-1130 IST, where 13 states will invite bids for INR 203.25 billion via bonds. State-owned banks were likely on the buying side in the secondary market as the yield on the 10-year benchmark gilt neared 6.75%, the upper end of the recent trading range for the 2034 paper, dealers said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 34.65 billion, up from INR 26.35 billion at 1030 IST on Monday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.71-6.77%. (Cassandra Carvalho)

India Gilts: Seen steady due to lack of major cues; FOMC outcome awaited

MUMBAI – Government bond prices are seen opening steady Tuesday due to lack of significant cues. Traders are waiting for the US Federal Open Market Committee's meeting outcome early Thursday for market direction, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.71-6.77%, compared to 6.74% on Monday.

The next cue for global and domestic bond traders is the Federal Open Market Committee's meeting outcome, scheduled at 0030 IST Thursday. While gilt traders have priced in a 25 basis point cut by the FOMC this week, they await the Summary of Economic Projections. Dealers fear that the forecast would signal only shallow or no rate cuts in 2025.

Earlier in the month, US Federal Reserve Chair Jerome Powell had said that policymakers could move cautiously as they continue lowering interest rates. The policies proposed by US President-elect Donald Trump, seen as inflationary and pushing up the fiscal deficit in the world's largest economy, are also a negative for long-term US yields. Ahead of the FOMC outcome, the yield on the 10-year US Treasury note was 4.40% at 0836 IST, little changed from 4.38% at 1700 IST on Monday.

On the domestic front, traders said there were no immediate triggers for gilts until the end of December. Trading activity and volumes have slowed over the past few days, particularly as activity of foreign banks has cooled towards the end of the year, when they close their accounts, dealers said. Even so, on Monday, foreign banks sold gilts while foreign portfolio investors were on the buying side, according to data from the Clearing Corp. of India. (Cassandra Carvalho)

End

US$1 = INR 84.8950

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

Edited by Avishek Dutta

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