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Informist, Friday, Dec. 20, 2024

By Cassandra Carvalho

MUMBAI – Prices of government bonds ended steady as the weekly gilts auction failed to lend any major direction to bond prices, dealers said. Traders were cautious ahead of the minutes of the Reserve Bank of India's Monetary Policy Committee meeting in December and the key US inflation data due post market hours. 

The 10-year benchmark 6.79%, 2034 bond ended at INR 99.99, or 6.79% yield, against 100.02, or 6.79% yield on Thursday. The yield has risen 8 basis points since the beginning of the month.

Bond prices remained within a thin band during the day, but some selling pressure was seen near the end of trading hours as traders tried to trim risk ahead of the weekend. Prices recovered by market close as state-owned banks continued to buy gilts, as the yield on the 10-year benchmark neared the profitable 6.80% level, dealers said. State-owned banks have bought gilts worth INR 222.78 billion in the secondary market since Dec. 12, according to Clearing Corp. of India data, limiting the downward pressure on prices.

Some traders placed short bets ahead of the US Personal Income and Outlays data for November due at 1900 IST, which is expected to cement the Federal Open Market Committee's recently-revised forecast of 50 basis points worth of rate cuts compared to 100 bps predicted earlier. Traders were also awaiting the MPC minutes for December, but the comments of former RBI Governor Shaktikanta Das and RBI Deputy Governor Michael Patra would be disregarded, as they will not be part of the panel in February, dealers said. 

"Some traders are saying that yields have already risen so it doesn't matter now, but if PCE (the US inflation data) prints above forecasts then it will strengthen the Fed's (US Federal Reserve's) view on rate cuts next year," a dealer at a state-owned bank said. 

Bond prices opened lower, tracking an overnight rise in US Treasury yields. The yield on the 10-year US Treasury note was at a seven-month high of 4.57% early in the day from 4.54% at 1700 IST on Thursday due to the FOMC's revised rate cut guidance, and amid ongoing negotiations on a spending bill in the US Congress. The yield spread between the 10-year benchmark US Treasury note and the 10-year domestic benchmark gilt has narrowed to 222 bps, the lowest level since at least 2007.

The weekly gilts auction was along expected lines, but the cut-off yields were still high compared to recent auctions, reflecting the poor sentiment in the gilt market, dealers said. Domestic banks picked up the new five-year bond to match their liabilities. Life insurance companies picked up the 40-year paper for bond forward rate agreements. Traders at primary dealerships said around INR 25 billion worth of bonds were bought for Separate Trading of Registered Interest and Principal of Securities at the auction. 

"FRAs (forward-rate agreements) are back in the market. FRAs is why the auction was strong today. Corporates should be in the market at these levels but client-buying is very thin right now," a dealer at a private bank said. 

Before the auction, traders were uncertain about the appetite for the 7.34%, 2064 bond at auction. However, firm demand from pension funds and life insurers at prices just below market levels helped the auction sail through, dealers said.

As for the new 5-year gilt, traders who picked up its stock at the auction trimmed other 5-year gilts, such as the 7.04%, 2029 bond and the 7.26%, 2029 paper. Those who did not get auction stock due to aggressive bidding, picked these up from the secondary market. While mutual funds were likely on the selling side in the secondary market, foreign portfolio investors bought gilts in small quantities, especially shorter-tenure papers, dealers said. 

According to the RBI's Negotiated Dealing System-Order Matching platform, the turnover for the day was INR 300.20 billion, lower than INR 525.95 billion on Thursday. No trade was settled using the wholesale digital rupee pilot on Friday, the same as on Thursday.

OUTLOOK

The gilt market is shut on Saturday. On Monday, prices of government bonds may take cues from the MPC minutes for December released at 1700 IST. Two external members, Nagesh Kumar and Ram Singh, who voted for a 25-bps cut at the December meeting, spoke along pro-rate cut lines, while the third external member Saugata Bhattacharya's comments sided with a status quo on rates. 

The movement in US Treasury yields over the weekend will also lend direction after the release of key inflation data. Data released after market hours showed core personal consumption expenditure inflation -- the US Federal Reserve's preferred inflation gauge -- was at 2.8% on year in November, marginally lower than the 2.9% expected in a Wall Street Journal survey.

While the rupee recovered slightly from a lifetime low, any further pressure on the local currency 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 6.75-6.85% on Monday.

India Gilts: Remain in thin band as auction result along expected lines

MUMBAI--1622 IST--Prices of government bonds remained in a thin band after the result of the weekly bond auction was along expected lines. Volumes remained light, and state-owned banks' purchases continued to hold bond prices at current levels, dealers said.

Domestic banks picked up the new five-year bond to match their liabilities. Life insurance companies picked up the 40-year paper for bond forward rate agreements. Traders at primary dealerships said around INR 25 billion worth of bonds were bought for Separate Trading of Registered Interest and Principal of Securities at the auction. 

"The auction was good. Investor demand was there, which is why cut-off yields were a little lower than expected," a dealer at a state-owned bank said. 

Foreign portfolio investors were buying short-term gilts in small amounts in the secondary market, despite the interest rate differential between US Treasury yields and Indian gilt yields narrowing over the past month. Trades based on lucrative spreads continued in the secondary market until traders got fresh cues to trade on, dealers said. 

Traders placed short bets on bonds ahead of the US November Personal Income and Outlays due post market hours, along with minutes of the Reserve Bank of India's Monetary Policy Committee meeting held during Dec. 4-6.

The market turnover was INR 265.15 billion, down from INR 486.70 billion at 1630 IST Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.75-6.83%. (Cassandra Carvalho)

India Gilts: In thin band; traders await auction result for direction

MUMBAI--1220 IST--Prices of government bonds were in a thin band as traders awaited the result of the INR 290 billion gilt auction on Friday. Traders are eyeing movement in US Treasury yields, owing to a lack of significant cues on the domestic front, dealers said. 

The government offered INR 140 billion worth of a new five-year, 2029 gilt and INR 150 billion of 7.34%, 2064 bond at the auction. Traders expect moderate demand at the auction. They see state-owned banks picking up the shorter-tenure gilt for their asset-liability management, but the buying may not be aggressive from traders.

Meanwhile, life insurance companies were likely the largest bidders for the 40-year bond, while pension funds' interest in the gilt was disputed. Some dealers saw heavy buys from the segment, while others said that the fall in the spread of the 40-year bond over the 10-year benchmark in December may make the 2064 bond unattractive. The spread between the two gilts was 29 basis points on Nov. 29, and fell to 26 bps on Thursday. Demand for Separate Trading of Registered Interest and Principal of Securities is also likely to be present in the longer tenure bonds, dealers said.

However, demand for bond forward-rate agreements from insurers was muted as some investors feared yields may trend higher, dealers said. Even for the 2029 paper, traders were of the view that short-term gilt yields may rise even more than the 10-year benchmark, despite the uptick already seen over the last two days. After the US Federal Open Market Committee members' guidance on rate cuts in 2025, traders are reassessing the US and domestic rate trajectory. Weak demand at the auction might lead investors to trim their existing holdings if their confidence on making a profit on bonds is punctured, dealers said. 

"If there is a long tail at the auction, then it would strengthen the activity of investors who are shorting," a dealer at a private bank said.

Meanwhile, deficit liquidity in the banking system led to some hope for an open market purchase of bonds from the Reserve Bank of India, both in the secondary market or at an auction. According to data on the RBI's website, the liquidity deficit widened on Thursday to INR 1.62 trillion. Some traders said the RBI began buying gilts in the secondary market last week, and looked ahead to the Weekly Statistical Supplement data for details on the central bank's open market activity for the week ended Dec. 13.

"We don't expect an OMO immediately, but seeing the depreciating rupee and the pressure on liquidity, there are chances of RBI's stepping in to provide some durable support," a dealer at another private bank said. The rupee hit a lifetime low of 85.1000 against the dollar Friday.

Trade volumes are expected to remain subdued near the end of the year, with moderation in activity from foreign banks and several dealers on leave around Christmas and New Year. However, dealers anticipate some volatility after the result of the gilt auction.

The market turnover was INR 113.30 billion, sharply down from INR 322.85 billion at 1230 IST Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.75-6.83%. (Aaryan Khanna and Vidhushi RajPurohit)

India Gilts: Steady on caution before gilt auction, US inflation data

MUMBAI--1030 IST--Prices of government bonds were steady as traders were cautious ahead of the INR 290-billion gilt auction at 1030-1130 IST and US inflation data to be released after market hours, dealers said. Prices fell in early trade after US Treasury yields inched up on Thursday.

"There is little signal in the market right now, everybody is waiting for fresh cues, both on the domestic side and from the US," a dealer at a private bank said. "And demand at auction will also come with a tail, but if the demand is more than expected, prices could go up in the latter half."

State-owned banks and private banks are likely to pick up the new five-year gilt for their asset-liability management. Dealers, however, said that demand for the 2029 paper could be moderate due to persisting tight liquidity conditions and a repricing of rate cut expectations after the US Federal Open Market Committee's decision, which has pushed up yields on shorter-tenure bonds more than the 10-year benchmark gilt. Dealers expect demand from life insurers for the 7.34%, 2064 bond, but investors are likely to bid at a higher yield for the paper than current secondary market levels. 

Traders are again unsure whether the Reserve Bank of India's Monetary Policy Committee will cut the policy repo rate at its next meeting in February. The certainty of a rate cut has weakened after US FOMC members halved their guidance on rate cuts in 2025 to 50 basis points on Thursday.

The yield on the 10-year US Treasury note was at a seven-month high of 4.57% from 4.54% at 1700 IST Thursday due to the rate cut guidance, and amid ongoing negotiations on a spending bill in the US Congress. The yield spread between the 10-year benchmark US Treasury note and the 10-year domestic benchmark gilt also narrowed to the lowest level since at least 2007, and is currently at 222 bps. A lower interest rate differential between safe-haven assets and emerging market debt makes the latter less appealing to foreign investors.

The market turnover was INR 59.45 billion at 1030 IST, sharply down from INR 160.30 billion at the same time Thursday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.75-6.83%.  (Srijita Bose)

India Gilts: Seen dn as US ylds rise; traders eye INR 290 bln gilt auction

MUMBAI – Government bond prices are seen lower Friday due to an overnight rise in US Treasury yields, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.75-6.83% compared to 6.79% Thursday. 

The yield on the 10-year US Treasury note is near a seven-month high of 4.57% as of 0745 IST, up from 4.54% at 1700 IST on Thursday. Traders await US Personal Consumption Expenditure data for November, due post market hours, dealers said. This will be the first inflation data after the US Federal Open Market Committee members guided for only 50 basis points of rate cuts in 2025, halving the September guidance.

Traders will also be watching out the demand for fresh supply at the INR 290 billion gilt auction at 1030-1130 IST. The government will sell INR 140 billion worth of new five-year, 2029 gilt and INR 150 billion of 7.34%, 2064 bond at the auction. Demand for the new five-year bond is expected to come from state-owned banks and private banks, while life insurers are likely to demand higher yields to pick up the long-term gilt as spreads over the 10-year bond's yield have narrowed this month.

Comments on growth and inflation by the Reserve Bank of India's Monetary Policy Committee members in the minutes of its December policy meeting are also awaited, dealers said. Traders are likely to broadly ignore comments from former RBI governor Shaktikanta Das and Deputy Governor Michael Patra for direction on gilt prices, as neither will be voting in the next policy meeting in February. Comments from the three external members - two of whom have already voted for a rate cut - will be keenly eyed, dealers said. (Srijita Bose)

End

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

Edited by Saji George Titus

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