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Informist, Thursday, Dec. 26, 2024

By Aaryan Khanna

NEW DELHI – India's government bond prices ended lower Thursday as traders trimmed their holdings to make room for fresh supply of gilts at the weekly auction on Friday, dealers said. A rise in US Treasury yields also weighed on gilt prices, particularly those on bonds maturing above 10 years.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.04, or 6.78% yield, against INR 100.09, or 6.78% yield on Tuesday. India's financial markets were shut on Wednesday for Christmas.

The government will sell INR 100 billion of a new 2031 bond, INR 120 billion of the 6.92%, 2039 bond, and INR 100 billion of the 7.09%, 2054 bond at 1030-1130 IST on Friday. Traders fear demand could be lacklustre at the auction due to the large size and inadequate short selling. Short bets have been constrained by tepid trade volumes in the gilt market, and the high-liquidity deficits near the end of the calendar year at a time when banks' demand for funds spikes near the quarter-end, dealers said.

"The markets are a bit weak because there are no traders on the floor," a dealer at a private bank said. "Even the quantum of shorting (short selling) is not a lot, but towards the end (of the day) I think people are in a hurry to go home around this time. The market is not breaking any levels, but let's see how the auction goes."

The short-selling was concentrated in the 6.79%, 2034 bond, as none of the other papers received adequate trade volumes for placing short bets without risk, dealers said. Overall, the turnover for the day was INR 209.15 billion, lower than INR 240.00 billion on Tuesday, according to the RBI's Negotiated Dealing System-Order Matching platform.

Long-term bonds were under pressure as traders were unsure of demand at the auction and also due to a rise in US yields. Long-term US yields have risen due to consistent fears of US President-elect Donald Trump's fiscal policies after he assumes office on Jan. 20. Trump's policies are seen expanding the US fiscal deficit and pushing up inflation, pressuring US yields. The yield on the 10-year benchmark US Treasury note inched up to 4.62% at 1700 IST--its highest level since May.  

Both foreign and domestic investors have been on the sidelines this week, near the year-end. Foreign banks and primary dealers' trading activity has also shrunk as they close their accounts for 2024. Mutual funds were unexpectedly flush with funds, and may have bought gilts in small quantum Thursday as prices fell, dealers said. Neither state-owned nor private banks lent much direction to markets amid the dull volumes. 

"The problem for the (7.23%, 2039 and 6.92%, 2039) bonds, and even 30-year (at auction), is that for the last two (trading) days there are no buyers in the market," a dealer at a primary dealership said. "That doesn't sound good for the auction, but we have seen primary demand emerge when yields are at these levels." The 10-year benchmark yield has not risen above 6.80%, considered a psychologically-crucial mark, since Nov. 29.

Meanwhile, no trades were struck using the wholesale digital rupee pilot Thursday, against one trade worth INR 50 million settled on Tuesday.

OUTLOOK

On Friday, gilts may open steady ahead of the INR 320 billion auction at 1030-1130 IST, dealers said. Lacklustre volumes are expected for an auction day, as several dealers are on leave between Christmas and the New Year.

Prices of government bonds may take cues from the movement in US Treasury yields. The weakening domestic currency--the rupee fell to a record low against the dollar for the third straight day on Thursday--may weigh on demand on gilts from foreign investors. Activity from foreign banks and offshore investors is seen limited until the new year, dealers said.

Any major geopolitical developments and movement in crude oil prices could also lend cues to gilt prices at the open. The yield on the 6.79%, 2034 bond is seen at 6.74-6.82%.

India Gilts: In thin band; lack of cues, deficit liquidity weigh on volume

MUMBAI--1410 IST--Government bond prices were in a thin band because of a dearth of major cues in the market. Traders made room for the INR 320-billion gilt auction Friday, and a slight rise in US Treasury yields also weighed on gilt prices, dealers said.

On Friday, the government will sell INR 100 billion of a new 2031 bond, INR 120 billion of the 6.92%, 2039 bond, and INR 100 billion of the 7.09%, 2054 bond at the auction. Dealers expect the auction to receive bids at higher yields owing to lack of clarity on policy rate cuts in February and the absence of traders due to the holidays. Since the release of the minutes of the December Monetary Policy Committee meeting last week, traders have become more confident of a rate cut in India soon, but uncertainty on the global front and on domestic inflation continues to stop traders from placing large bets on a February repo rate cut, dealers said.

Traders placed short bets on the 6.79%, 2034 and the 7.23%, 2039 paper, which became the two most traded papers on the special repo segment of the Clearcorp Repo Order Matching System. A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment. Dealers expect further short-selling by primary dealers in the latter half of the day, though traders said the bonds offered at auction are relatively new and may be mopped up by investors seeking discounts at the debt sale. This is unlikely to lead to any volatility in prices, with several traders on leave between Christmas and New Year.

"Gilts are tracking US yields, but its holiday week and most traders are away. Even in the US there is not much activity, so traders are also awaiting fresh data points to resume trading," a dealer at a private bank said. "Later in the day, some sell-off could be there ahead of the gilt auction on Friday."

Meanwhile, traders said the tight liquidity conditions in the banking system erased demand for Treasury bills at Thursday's auction, pushing up cut-off yields. According to Reserve Bank of India data, the liquidity in the banking system was in a deficit of INR 2.12 trillion. The RBI set a cut-off of 6.55% on the 91-day T-bill, 8 basis points higher than last week. The cut-off yields on the 182- and 364-day T-bills were also 5-6 bps higher on week.

The market turnover was INR 84.20 billion, much lower than INR 156.40 billion at 1430 IST Tuesday, according to data on the RBI's Negotiated Dealing System-Order Matching platform. During the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.75-6.81%.  (Aaryan Khanna and Vidhushi RajPurohit)

India Gilts: Steady on lack of firm cues; volumes muted near year-end

MUMBAI--1014 IST--Prices of government bonds were in a thin band Thursday due to lack of significant cues, dealers said. Trade volumes were muted as several traders were on leave in the period between Christmas and New Year.

"Many (market) participants are not trading due to year-end leave, so it will largely be a non-eventful day," a dealer at a private bank said. "Market will be slightly on the downside (on prices) as the US (Treasury) yield is also higher, but for domestic traders, it will matter only if the (10-year) US (yield) remains higher above 4.62-4.65% in a sustainable manner, or if it jumps to near 4.75% because foreign players are not there at all right now."

Foreign banks' and investors' activity has slowed towards the year-end, as they are closing their accounts for 2024. The 10-year US Treasury yield inched up marginally to 4.62%, which led some private banks to trim their holdings, dealers said. The fall in prices was, however, limited as most traders awaited domestic cues to trade, dealers said.

The next domestic trigger that traders look forward to is the weekly gilt auction on Friday. At the state bond sale on Tuesday, demand for some bonds was lacklustre. Dealers said that demand for fresh gilt supply of INR 320 billion could also be tepid amid fewer traders on treasury desks, but may not lend a significant cue as investors are likely to return to the market next week.

The market turnover was INR 19.05 billion, much lower than INR 43.15 billion at 1030 IST Tuesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the rest of the day, the yield on the 6.79%, 2034 bond is seen at 6.75-6.81%.  (Srijita Bose)

India Gilts: Seen steady with muted volumes on lack of firm cues

MUMBAI – Prices of government bonds will likely open steady due to the lack of significant cues, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.75-6.81% compared to 6.78% on Tuesday. 

Indian financial markets were closed on Wednesday on account of Christmas. Trade volumes are expected to remain muted throughout the day as several traders are on leave in the period between Christmas and New Year. Foreign banks and foreign portfolio investors will also stay away from trading gilts as they close their accounts at the end of the year, dealers said.

Prices may fall in the latter half of the day as some traders trim their portfolios ahead of the INR 320-billion gilt auction on Friday. The government will sell INR 100 billion of the new 2031 bond, INR 120 billion of the 6.92%, 2039 bond, and INR 100 billion of the 7.09%, 2054 bond at the auction. Primary dealers are likely to place short bets on the liquid 7.23%, 2039 bond to make room for picking up the newer 15-year gilt at the auction, dealers said.

However, the fall in prices will be limited as there will be buying interest if the yield on the 10-year benchmark gilt nears 6.79-6.80%, dealers said. The yield has not crossed over 6.80% since Nov. 29 despite selling pressures, as traders have found the yield lucrative on the view of a rate cut in February by the Reserve Bank of India's Monetary Policy Committee, which is headed by new RBI Governor Sanjay Malhotra. (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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