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Informist, Thursday, Jan. 2, 2025

By Vidhushi RajPurohit

MUMBAI – Government bond prices ended lower Thursday as traders trimmed their holdings of the 6.79%, 2034 bond ahead of the weekly gilts auction Friday, dealers said. For some time, auction-related sales were balanced out by state-owned banks' purchases near the 6.80% yield on the 10-year gilt. Easing of US Treasury yields also helped limit losses, dealers said.

The 10-year benchmark 6.79%, 2034 bond ended at INR 99.99, or 6.79% yield, against INR 100.05, or 6.78% yield, Wednesday. Trade volume picked up both on account of the resumption of trading activity after the year-end lull and due to the divergent cues, from the gilts auction to US yields. The government will sell INR 220 billion of the 6.79%, 2034 bond and INR 100 billion of the 7.09%, 2074 bond at Friday's auction at 1030-1130 IST.

"On a broader scale, PDs (primary dealerships) are mostly shedding their portfolios, but there is some PD in particular which is bullish and that led to PDs being the major buyers yesterday (Wednesday)," a dealer at a primary dealership said. On Wednesday, primary dealerships were the biggest net buyers of gilts, according to Clearing Corp. of India data.

Primary dealerships and foreign banks were likely on the selling side throughout the day, but the moderation in US yields prompted some traders to cover their short bets. The 10-year US Treasury yield was at 4.53% at 1700 IST, against 4.58% Wednesday. Meanwhile, state-owned banks consider the 6.80% mark attractive as the 10-year benchmark yield has not closed above that level since Nov. 28.

Traders said there wasn't a significant reaction to US yields easing, and they expect a move upwards leading up to US President-elect Donald Trump assuming office on Jan. 20. Trump's policies on tariffs and tax cuts are seen as inflationary, putting a strain on US yields. However, some others are of the view that concerns around Trump taking charge have been priced in, and yields will take further cues from the effects of his policies.

Trade volumes picked up Thursday and traders expect them to regain their normal level from next week with the arrival of fresh cues. The first advance estimate of the GDP for the financial year 2024-25 (Apr-Mar) is due Tuesday. At its meeting in December, the Reserve Bank of India's Monetary Policy Committee had forecast India's GDP growth for FY25 at 6.6%, down 60 basis points from its earlier estimate.

On the domestic front, traders remained watchful of the depreciation of the Indian rupee against the dollar as it could lead to inflationary pressures in the economy. On Thursday, the rupee settled at a record closing low of 85.7525 against the dollar. While traders are optimistic the RBI's rate-setting panel will cut the repo rate at its next meeting in February with growth slowing, the pressure on the rupee may prevent the central bank from going ahead with such a move, dealers said.

"RBI is letting the rupee depreciate, but the intervention is still a bit on the higher side with its continued dollar sales," a dealer at a private bank said. "All this volatility ahead of the February meeting on policy rates is making the rate-cut scenario a bit tricky."

Trading volume for the day was INR 357.15 billion, against INR 200.20 billion Wednesday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. For the fifth day in a row, there were no trades using the wholesale digital rupee pilot.

OUTLOOK
On Friday, gilt prices may open steady ahead of the weekly gilts auction at 1030-1130 IST, dealers said. Prices may also take cues from US Treasury yields, dealers said.

During the day, gilt prices will also track the movement in the Indian rupee against the dollar, after it hit a record closing low for the eighth straight session Thursday. 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: Down as traders place short bets ahead of gilt auction Fri

MUMBAI--1530 IST--Prices of government bonds were down as traders continued short-selling gilts ahead of the weekly gilt auction on Friday, dealers said. Earlier, the bonds had recovered some losses as US Treasury yields fell intraday, dealers said.

The yield on the benchmark 10-year US Treasury note eased to 4.53% from 4.58% at the close of the Indian market on Wednesday. Likely buying by state-owned banks continued to limit losses in gilts and kept prices near INR 100 on the 6.79%, 2034 bond, dealers said. At the day's high, the bond had recovered all losses. Subsequently, sales by foreign banks and primary dealerships, especially in the 10-year gilt, brought prices down again, dealers said.

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.

"The selling by foreign banks was seen both today (Thursday) and yesterday (Wednesday) but their activity is still muted, so their selling did not lead to a sharp fall," a dealer at a private bank said. "US yields also moderated a bit. That also helped prices to pick up slightly."

Foreign traders are also cautious regarding US Treasury yields remaining higher as Donald Trump is set to assume the office of the US president on Jan. 20, dealers said. The economic policies of Trump are seen to be stoking inflation, thereby hindering rate-cut cycles across the globe. Traders had mixed views on the outlook for foreign investment in gilts in the near term, with several saying offshore investors would be cautious in adding to their holdings of risky emerging market assets before the inauguration.

Traders also said the fall in the rupee earlier in the day weighed on gilt prices. However, the Reserve Bank of India's intervention in the foreign exchange market with dollar sales prevented any sharp depreciation in the currency, as well as a major sell-off in gilts too, dealers said. The rupee fell to a low of 85.7950 a dollar during the day, just shy of its record low of 85.8075 a dollar hit last week.

The market turnover was INR 261.15 billion, against INR 122.05 billion at 1530 IST on Wednesday, 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%.  (Vidhushi RajPurohit)

India Gilts: Down on short bets before auction Friday; OIS lend cues

MUMBAI--1329 IST--Government bond prices were down as traders placed short bets ahead of the INR 320-billion weekly bond sale on Friday. Traders were sensitive to the volatility in overnight indexed swap rates. Rise in the five-year swap earlier in the day also weighed on bond prices.

Foreign portfolio investors were likely selling 10-year bonds, along with primary dealerships, dealers said. Among deals reported on the Negotiated Dealing System – Order Matching platform, INR 12 billion of the 7.10%, 2034 gilt was traded, which traders attributed to a sale by a foreign investor.

While primary dealerships were net buyers the past two days, dealers said they were short-selling on Thursday to make room for Friday's auction stock. The government will sell INR 220 billion of the 6.79%, 2034 bond and INR 100 billion of the 7.09%, 2074 bond on Friday.

Prices of bonds maturing in 15 years and more have been under pressure since Wednesday after states' indicated borrowing in Jan-Mar was higher than expected. Short-term bonds, however, were comparatively steady due to lack of cues in those tenures, dealers said.

Earlier in the day, traders unwound their received positions in OIS ahead of the inauguration of Donald Trump as the next US president, fearing a further rise in US yields. Economic policies of Trump, who will take office on Jan. 20, are seen stoking inflation, thereby hindering rate-cut cycles across the globe. Most traders are on wait-and-watch mode until next week, when traders would have more cues to trade on. As OIS rates cooled off to Wednesday's close, the fall in gilt prices was also limited.

The market turnover was INR 153.30 billion, higher than INR 70.30 billion at 1330 IST on Wednesday, 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%.  (Cassandra Carvalho)

India Gilts: Most steady; 10-year bond down on short bets before auction Fri

MUMBAI--1030 IST--Prices of government bonds were largely steady across most tenures due to lack of significant cues. The 10-year benchmark 6.79%, 2034 bond prices, however, fell as traders placed short bets on the gilt, intending to cover the sale at the weekly gilt auction on Friday, dealers said. 

A proxy for tracking short sales in a particular bond is the number of trades in the paper in the special repo segment of the Clearcorp Repo Order Matching System. At 1020 IST, data showed trades worth INR 73.62 billion in the 6.79%, 2034 gilt. Traders expect this number to swell to at least INR 80 billion by the end of the day.

The fall in the 10-year gilt's price was expected, dealers said, and the short sales by traders now will ensure better demand at the auction on Friday, with INR 220 billion of the paper on offer. "So many short bets on 10-year means that demand will be good at the auction tomorrow (Friday)," a dealer at a private bank said. "Everyone knew this was going to happen because there's no other cue." The government will also sell INR 100 billion of the 7.09%, 2074 bond at 1030-1130 IST Friday. 

A rise in crude oil prices was watched with concern by traders, though the inflationary impact may not be large at current levels, dealers said. Brent crude for March delivery rose to around $75 a barrel in Asian trade at 0930 IST from $74.46 a barrel at the end of Indian market hours on Wednesday, after reports on declining US crude reserves and the termination of Russian gas delivery to Europe via Ukraine.

Dealers do not expect the yield on the benchmark gilt to rise above 6.80% during the day, with state-owned banks likely to buy gilts near the psychologically crucial level. Trade volumes recovered somewhat as the year-end lull of foreigners' activity in the market ended, though activity may return to normal only next week.  

The market turnover was INR 75.50 billion, higher than INR 38.20 billion at 1030 IST on Wednesday, 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 6.75-6.81%.  (Cassandra Carvalho)

India Gilts: Seen steady lacking cues; short bets likely before auction Fri

MUMBAI – Prices of government bonds are seen opening steady due to a lack of significant cues, dealers said. However, during the day, selling pressure on the 10-year benchmark gilt may persist before the weekly gilts auction. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.75-6.81%, compared to 6.78% on Wednesday. 

During the day, dealers expect gilt prices to trade in a narrow band due to a dearth of prominent triggers, both on the global and domestic fronts. Trade volumes, which have been dull for the past few weeks, may pick up pace starting Thursday as foreign banks and portfolio investors return to the market, dealers said. Traders may place short bets on the 10-year gilt ahead of the weekly bond sale. The government will sell INR 220 billion of the 6.79%, 2034 bond and INR 100 billion of the 7.09%, 2074 bond at 1030-1130 IST Friday.

Key data points are awaited for the next cue on market direction. The first advance estimate of GDP for 2024-25 (Apr-Mar), due Tuesday, is also awaited. At its meeting in December, the Reserve Bank of India's Monetary Policy Committee forecast India's GDP growth for FY25 at 6.6%, down 60 basis points from its earlier estimate. On the global front, US weekly jobless claims and December manufacturing data are due post market hours.  

The yield on the benchmark 10-year US Treasury note was 1-basis-point lower at 4.57% from the Indian market close on Wednesday. Most global markets remained shut on account of New Year's Day. Meanwhile, financial markets in Japan will remain closed till Monday.  (Cassandra Carvalho)

End

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

Edited by Rajeev Pai

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