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Informist, Wednesday, Jan. 1, 2025

By Vidhushi RajPurohit

MUMBAI – Government bond prices ended lower due to a rise in US Treasury yields and because the borrowing calendar of states for Jan-Mar was higher than expected, dealers said. Traders began trimming their holdings of the most traded 6.79%, 2034 bond ahead of the weekly gilt auction on Friday.

The 10-year benchmark 6.79%, 2034 bond ended at INR 100.06, or 6.78% yield, against INR 100.20, or 6.76% yield on Tuesday. Trade volume remained subdued as some traders were on leave, while others said they did not have intraday cues to move prices as most global markets were shut on New Year's Day.

"The market was extremely range-bound. The slight up-and-down was basic trading activity, hard to make out any major players in such limited volume," a dealer at a state-owned bank said. "Majorly, the market was led by US yields and slightly higher number in (states') borrowing calendar."

In a release after market hours on Tuesday, the RBI said states would borrow INR 4.73 trillion in Jan-Mar, about INR 200-INR 500 billion more than traders had expected. Meanwhile, the yield on the 10-year US Treasury note rose to 4.58%, from 4.52% at the end of Indian market hours Tuesday, due to concern on the fiscal and inflation outlook in the US under the incoming Donald Trump administration.

Traders also made room for fresh stock at the weekly gilt auction, which weighed on gilt prices starting a few hours after trade began, dealers said. On Friday, the government will sell INR 220 billion of the 6.79%, 2034 bond and INR 100 billion of the 7.09%, 2074 bond at the auction. Some dealers said they had placed short bets on the 10-year benchmark gilt, but others said the size of the short bets compared to the bond's outstanding auction amount suggested traders were selling the bond outright. A proxy for tracking short sales of a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Order Matching System. The data showed trades worth INR 69.37 billion in the 6.79%, 2034 gilt.

According to market participants, primary dealers were the major sellers and state-owned banks likely picked up gilts, keeping the prices in a narrow trading zone. Foreign portfolio investors' gilt buys on Tuesday, totalling INR 25.58 billion of fully accessible route bonds, had infused some confidence among traders on inflows. However, others said the number was not large for the last day of the month, which usually attracts investments from offshore due to the increase in India's weightage on the J.P. Morgan emerging market bond index. On Wednesday, activity from FPI likely fizzled out again and dealers said they would have to wait until next week to get a better handle on what the new normal for flows is.

Purchases from domestic banks were also not as robust as in previous days, which led to further downward pressure on bond prices in the second half of trade. The 6.79%, 2034 bond's price has risen for the last two days, and reversed nearly all losses on Friday, despite a lack of significant positive cues on two of the three days. Traders said some of the robust buys had been to inflate the valuations of gilts, especially illiquid papers, in the last few days of the quarter. This would allow banks, which are listed on stock exchanges, to show slightly higher mark-to-market profits on their existing portfolios for the quarter, dealers said. This was standard practice near the quarter-end; with such buys not coming in, the 10-year bond's price fell.

Bonds maturing in 15 years and above fell more than those of shorter maturities, with most bonds maturing below seven years only falling marginally in price. This was likely due to the impact of the state bond calendar; a majority of the issuance is concentrated in papers maturing above 10 years. Life insurers had enquired for and picked up a few illiquid long-term bonds to take advantage of the rise in yields, dealers said. However, they also said that the volumes were not that significant for them to decipher any major motive in the market. 

"When volumes are so thin, a few trade placements can make the market move in one direction, and that is what happened today as well with the fall in prices," a dealer at another state-owned bank said.

Trade volume remained low as several traders were absent on New Year's Day, dealers said. The absence of foreign banks also constrained the volume along with the dearth of cues to stir the market significantly, dealers said. Traders expect the volume to pick up somewhat on Thursday and Friday, with normal trade quantum expected next week. 

Trading volume for the day were at INR 200.20 billion, against INR 256.35 billion on Tuesday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. There were no trades using the wholesale digital rupee pilot for the fourth straight day.

OUTLOOK
On Thursday, gilt prices may open steady owing to a lack of cues, dealers said. Volume is expected to pick up as traders will likely make room for the fresh supply of gilts at the weekly auction on Friday for INR 320 billion, and activity from foreign banks may also increase after the year-end lull.

Gilt prices will also track movement in the Indian rupee against the dollar, after it hit a record closing low for the seventh straight session on Wednesday. The impact of offshore cues may be limited as most global markets, including the US, are shut for New Year's Day. Any major geopolitical developments and movement in crude oil prices could also lend cues to gilt prices at the open.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.75-6.81% during the day.

India Gilts: Remain down on rise in US ylds; volumes muted on New Year's day

MUMBAI--1440 IST--Prices of government bonds remained down owing to the overnight rise in US Treasury yields and a larger-than-expected borrowing calendar for states in Jan-Mar, dealers said. Trade volumes remained largely subdued as traders were on leave on New Year's day, dealers said. 

"Prices are down, as a lack of significant cues makes prices move as per US yields," a dealer at a state-owned bank said. "But there is not much momentum, so range-bound is what we can expect the market to be today (Wednesday)."

States said they would borrow INR 4.73 trillion in Jan-Mar, about INR 200-INR 500 billion more than traders had expected. The yield on the 10-year US Treasury note rose to 4.58%, from 4.52% at the end of Indian market hours Tuesday.

Some traders also placed short bets on the 6.79%, 2034 gilt ahead of the weekly gilt auction on Friday, dealers said. The government will sell INR 220 billion of the 10-year benchmark gilt this week. Purchases from life insurers were keeping the losses in gilt prices limited, dealers said.

The return of foreign portfolio investors to the market on Tuesday also buoyed market sentiment. On Tuesday, FPIs bought INR 25.58 billion of fully accessible route gilts. However, dealers said the buying was largely tied to the rebalancing date on the J.P. Government Bond Index – Emerging Markets, when India's weightage went up. While some foreign buying may offset sales by domestic entities, traders said it would be best to gauge the activity from offshore investors only by next week.

The market turnover was INR 116.10 billion, against INR 105.55 billion at 1430 IST on Tuesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.73-6.80%. (Vidhushi RajPurohit and Cassandra Carvalho)

India Gilts: Dn on higher-than-view Jan-Mar state borrowing, rise in US ylds

MUMBAI--0955 IST--Prices of government bonds were down as the state borrowing calendar for Jan-Mar indicated a quantum which was higher than dealers' estimates, they said. An overnight rise in US Treasury yields also weighed on gilt prices. 

"We were expecting states to borrow around INR 4.2 trillion-INR 4.3 trillion, so this is higher than that," a dealer at a private bank said. States expect to borrow INR 4.73 trillion in Jan-Mar, while traders had expected a figure near INR 4.5 trillion. The higher-than-view borrowing amount in Jan-Mar will be reflected in widening spreads between state bonds and gilts, dealers said.

However, some traders said the Centre's devolvement of tax revenue to states kept state borrowing in Oct-Dec low, which has led to a higher indicated issuance in Jan-Mar. In the December quarter, states raised only INR 2.53 trillion, against INR 3.20 trillion in the calendar. The Centre devolved INR 1.78 trillion to states as their share of taxes in October. The amount included the usual tranche of monthly devolution to states and an additional instalment, each worth INR 890.87 billion.

An overnight rise in US yields also weighed on gilt prices, as the yield on the 10-year US Treasury note rose by 6 basis points to 4.58% from 1700 IST Tuesday. During the day, volumes are expected to be muted due to a lack of any other significant cues as most global markets are shut on New Year's Day. Some gilt traders are also on leave for the same, dealers said.  

The market turnover was INR 30.45 billion, slightly higher than INR 24.20 billion at 0930 IST on Tuesday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform. During the day, the yield on the 6.79%, 2034 bond is seen at 6.73-6.80%. (Cassandra Carvalho)

India Gilts: Seen dn on rise in US ylds, higher-than-view state borrowing

MUMBAI – Prices of government bonds are seen opening lower, tracking an overnight rise in US Treasury yields. The state borrowing indicative calendar for Jan-Mar was slightly higher than expected, which may weigh on gilt prices, dealers said. The calendar was released after market hours on Tuesday.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.73-6.80%, compared to 6.76% on Tuesday. Lower gilt supply and optimism on rate cuts pushed down the benchmark yield 42 basis points in 2024 despite the Reserve Bank of India's Monetary Policy Committee not actually cutting the repo rate through the year.

The yield on the 10-year US Treasury note rose to 4.58% at 0740 IST from 4.52% at 1700 IST Tuesday. The grim outlook for bonds in the new year--a slower rate-cut cycle by the US Federal Open Market Committee and US President-elect Donald Trump's likely inflationary economic policies--pushed up Treasury yields. 

The only significant domestic cue is the indicative borrowing calendar given out by states on Tuesday. They expect to borrow INR 4.73 trillion in Jan-Mar, while traders had expected a figure near INR 4.5 trillion. States had raised INR 4.03 trillion through bonds in the year-ago quarter, and INR 2.53 trillion in Oct-Dec.

The impact on gilt prices may be limited, but spreads between state bonds and gilts may rise more than 5 basis points at auction next week, dealers said. With insurers' demand likely to pick up in the last quarter of the financial year ending April, and 80% of the Centre's borrowing done, the supply would be absorbed at higher yields, they said.

Further, the Indian bond market may closely observe domestic cues due to an absence of international cues as most global markets are shut on account of the New Year, dealers said. Volumes are likely to remain low as several traders are on leave due to the New Year, dealers said. The activity of foreign portfolio investors and foreign banks is expected to pick up this week after the holiday season and quarterly closure of accounts. (Cassandra Carvalho)

End

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

Edited by Deepshikha Bhardwaj

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