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Informist, Wednesday, Dec. 18, 2024

By Cassandra Carvalho

MUMBAI – Government bonds ended slightly higher, tracking an overnight fall in US Treasury yields, with purchases by state-owned banks also supporting domestic bond prices during the day, dealers said. However, trade was lacklustre ahead of the outcome of the US Federal Open Market Committee meeting, due at 0030 IST Thursday.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.30, or 6.75% yield, up from INR 100.21, or 6.76% yield on Tuesday. Trade volume was muted due to caution ahead of the key event, and lack of any significant domestic cues.

The yield on the 10-year US Treasury note fell to 4.40% at 0900 IST, from 4.43% at 1700 IST Tuesday. While domestic traders have priced in a 25-basis-point cut in the US Fed funds rate this meeting, they were wary of the uncertainty surrounding the FOMC's forecast on rate cuts for the year ahead.

As US-president elect Donald Trump takes office in January, his economic policies for the world's largest economy would likely see the FOMC slowing its pace of rate cuts next year. Ahead of the outcome, some sections of the market including private banks trimmed portfolios, dealers said. Traders feared that any indication of slower rate cuts in the US could further delay India's rate cut cycle as the Reserve Bank of India might be wary of adding to the pressure on the weakening rupee.

"Everyone is squaring off before FOMC, except nat (nationalised) banks. Private banks already picked up bonds in plenty earlier so some of that is being sold now," a dealer at a private bank said.

State-owned banks bought bonds as the yield of the 6.79%, 2034 benchmark gilt hit the 6.75% mark. Since this has been the upper end of the trading range for the benchmark, it offers buyers a potential for gains, given that the yield fell as low as 6.68% earlier this month, dealers said. As state-owned banks stocked up on bonds, investor demand from private insurance companies was also likely, dealers said. 

During the day, primary dealerships were also likely on the selling side, as they lightened their books to make space for the bonds being auctioned on Friday. While such sales are routine, the uncertain near-term outlook on gilts before FOMC also added to the selling pressure, traders at primary dealerships said. 
 

Some traders complained about tightening liquidity in the banking system weighing down bond prices. Liquidity in the banking system was in deficit of INR 1.45 trillion on Tuesday. The cash crunch was reflected in the cut-offs of the Treasury bill auction held earlier in the day. The cut-offs were 2-5 basis points higher than last week's cut-offs. 

Traders expect the Reserve Bank of India to announce a calendar of its gilt purchases to soothe the strain on liquidity either this month or the next, with some traders expecting an announcement post market hours Wednesday. However, some traders said that the measure would only be introduced after the staggered implementation of the cut in the cash reserve ratio was complete. 

On Dec. 6, the RBI announced a cut in the ratio by 50 basis points to 4% of banks' net demand and time liabilities. The second stage of the cut is set to be implemented from the fortnight starting Dec. 28.

"I don't think they'll use OMOs (open market operations) until the second tranche of the CRR money is released," a dealer at a private bank said. "Now GST (goods and service tax) outflows will squeeze the liquidity further, but until the CRR money, they (RBI) can only use VRRs."

According to the RBI's Negotiated Dealing System-Order Matching platform, the turnover for the day was INR 221.60 billion, slightly lower than INR 278.10 billion on Tuesday. One trade worth INR 50 million was settled using the wholesale digital rupee pilot on Wednesday, same as that of Tuesday. 

OUTLOOK

On Thursday, prices of government bonds may take opening cues from overnight movement in US yields after the FOMC outcome. Traders will watch out for US Federal Reserve officials' comments on the future interest rate trajectory in the world's largest economy.

While traders have already priced in a 25 basis point cut by the FOMC Thursday, traders will look for any indications of Trump's impact on the US Federal Reserve's policy decisions. Fears that the FOMC may project only two or three rate cuts instead of four times next year have driven US yields up to November's levels. A slower pace of rate cuts in the US could delay the MPC's decision to cut rates from the currently expected timeline of February. 

Further pressure on the rupee could also weigh on gilt prices as traders fear that a weakening currency might deter the RBI from lowering policy rates. 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 6.69-6.79% on Thursday.

India Gilts: In narrow band; T-bill cut-off yields rise on tight liquidity

MUMBAI--1627 IST--Government bonds were stuck in a narrow range with low trade volumes, as tight liquidity conditions in the banking system and caution ahead of the Federal Open Market Committee's meeting outcome kept investors on the sidelines. Bonds continued to trade on a positive note due to purchases by state-owned banks as the yield on the 10-year benchmark 6.79%, 2034 paper neared the psychologically significant 6.75% level, dealers said. 

The benchmark gilt is seen as a lucrative buy at a yield of 6.75% as this level has been the upper limit of the recent trading range this month, dealers said. While state-owned banks purchased bonds at profitable yield levels, some sections of market participants are likely to have trimmed portfolios ahead of the outcome of the FOMC meeting, expected at 0030 IST Thursday. Traders also speculated that insurance companies were picking up longer-tenure bonds.

"Only PSUs (state-owned banks) are building positions, because of the 6.75% (yield) level. Others are not going into FOMC with too much risk," a dealer at a state-owned bank said.

The INR 1.45-trillion liquidity deficit in the banking system was reflected in the cut-off yields on treasury bills auctioned earlier in the day, dealers said. Cut-offs on the 91-, 182-, and 364-day bills were set 2-5 basis points higher than a week ago. 

Meanwhile, dealers remained divided on whether the Reserve Bank of India would announce a bond purchase under open market operations to ease the strain on liquidity, with some traders expecting the announcement after market hours. Others see such purchases as a last resort for the RBI as it would further skew the demand-supply balance of gilts, which is already tilted by excess demand. Some dealers said the central bank could buy gilts from the secondary market to limit the widening deficit.

Traders expect some selling pressure nearing the end of trading hours as traders would reduce any risk before the FOMC outcome. The FOMC is expected to cut rates by 25 basis points, but dealers were cautious ahead of its forecast on future rate cuts.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 184.85 billion at 1630 IST, down from INR 250.75 billion at the same time on Tuesday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.74-6.77%. (Cassandra Carvalho)

India Gilts: Up as US ylds ease; state-owned banks buy as 10-yr yld at 6.75%

MUMBAI--1341 IST--Prices of government bonds were up Wednesday afternoon as the 10-year US Treasury yield eased intraday, dealers said. State-owned banks bought bonds in light volumes, as the yield on the benchmark 10-year gilt touched 6.75%, a level seen profit-making.

As the yield on the 6.79%, 2034 benchmark gilt stayed put at 6.75%, state-owned banks picked up gilts, dealers said. The 6.75% yield level is seen as a good level to buy, since it is the upper end of the recent trading range in December, dealers said.

Traders bought bonds in light volumes as they expect a 25-basis point cut by the US Federal Open Market Committee, but remained uncertain about its projections and the future course of action it could take. The Fed is expected to detail its decision at 0030 IST Thursday. Dealers fear that the forecast by Federal Reserve would signal only shallow or no rate cuts in 2025. However, ahead of the FOMC's decision, the yield on the 10-year US Treasury note eased slightly to 4.38% from 4.39% at 0900 IST. Short bets on most gilts across tenures decreased from around the same time Tuesday, as dealers likely built positions ahead of the FOMC outcome.

The 7.10%, 2034 gilt saw short bets increase by around INR 20 billion from Tuesday, according to data from the Clearcorp. Repo Order Matching System. A similar jump in short bets was seen in the old 15-year, 7.23%, 2039 paper. Some dealers said both gilts were popular options for spread-trades, and traders were swapping these to buy other tenures. The old 15-year 7.23%, 2039 paper, which was being traded for spreads early this week, continued to outperform other gilts of similar tenures, dealers said.  

"Market positioning is quite heavy, so traders' short bets are being covered now. Spread papers can be trimmed a little since ahead of FOMC," a trader at a primary dealership said. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 121.85 billion at 1330 IST, down from INR 141.75 billion at the same time Tuesday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.74-6.77%. (Cassandra Carvalho)

India Gilts: Tad up on fall in US yields; traders await FOMC outcome Thu

MUMBAI--1035 IST-–Prices of government bonds were a tad up, taking cues from the overnight fall in US Treasury yields. Dealers await the outcome of the US Federal Open Market Committee's meeting, due early Thursday. Trade volumes remained tepid due to caution ahead of the meeting outcome, dealers said.

The yield on the 10-year benchmark US Treasury note fell to 4.39% at 0920 IST from 4.43% at the close of Indian market hours Tuesday. "Domestically, traders have little to track as, right now, the significant event is the FOMC (meet) outcome, which will give some direction to the market," a dealer with a primary dealership said.

While traders have priced in a 25-basis-point cut by the committee at this meeting, they await the Summary of Economic Projections. Dealers fear that the forecast by Federal Reserve officials would signal only shallow or no rate cuts in 2025.

Trade volumes are expected to remain poor during the day due to the lack of major cues on the domestic front. However, dealers expect some selling later in the day as traders might lighten their portfolios ahead of the FOMC's meeting outcome. Foreign banks are expected to be on the selling side, while state-owned banks are expected to buy in light volumes. Dealers also expect mutual funds to sell bonds near the quarter-end as outflows from redemptions are seen ramping up amid tight liquidity. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was INR 37.65 billion, down from INR 42.60 billion at 1030 IST on Tuesday. During the day, the yield on the 6.79%, 2034 bond is seen at 6.74-6.77%. (Vidhushi RajPurohit)

India Gilts: Seen higher on fall in US yields; caution before FOMC outcome

MUMBAI – Prices of government bonds are seen opening higher due to an overnight fall in US Treasury yields, dealers said. The yield on the 10-year benchmark US Treasury note fell to 4.39% at 0820 IST from 4.43% at 1700 IST on Tuesday.  

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.73-6.78% compared to 6.76% on Tuesday. For most of the day, prices may move in a narrow range due to the lack of any major cues. 

Dealers said traders await the US Federal Open Market Committee's meeting outcome, due 0030 IST Thursday, for market direction. While traders have priced in a 25-basis-point cut by the committee at this meeting, they await the Summary of Economic Projections. Dealers fear that the forecast would signal only shallow or no rate cuts in 2025. A pause in rate cuts from January is also expected as US President-elect Donald Trump is seen executing fiscally-expansionary policies.  

Traders may refrain from placing aggressive bets ahead of the key event, dealers said. Trade volumes could also remain low as foreign banks' activity slows down at the year-end when they close their accounts.

Any further pressure on the rupee could also weigh on gilt prices, dealers said. On Tuesday, the rupee fell to a record low of 84.93 a dollar, leading to concerns that a weakening currency could deter the Reserve Bank of India's Monetary Policy Committee from cutting rates. With imports already expected to remain on the higher side, traders also fear that the central bank might be wary of stoking demand through policy easing, dealers said. (Srijita Bose)

End

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

Edited by Deepshikha Bhardwaj

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