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Informist, Monday, Jan. 6, 2025

MUMBAI – Government bond prices ended higher Monday after a choppy trade tracking a fall in overnight indexed swap rates, dealers said. The rise in bond prices was aided by the softening of US Treasury yields close to the end of day on reports that the tariffs proposed by US president-elect Donald Trump will not be as widespread as earlier thought.

The 10-year benchmark 6.79%, 2034 bond closed at INR 100.28, or 6.75% yield, compared with INR 100.07, or 6.78% yield, Friday. The benchmark yield ended at its lowest since Dec. 18, after rising early in the day.

The Washington Post on Monday reported that Trump's proposed tariffs on countries may not be as harsh as expected, citing the incoming president's aides. Trump's economic policy, which includes promises on tax cuts and tariffs, was seen pushing up US yields due to higher inflation and fiscal deficits in the world's largest economy.

Offshore traders received swap contracts in the five-year tenure, pulling it down 7 basis points from its intraday high to end at 6.18%. An intraday fall in the yield of the 10-year US Treasury note to 4.60% from 4.62% at 0900 IST also dragged gilt yields down, dealers said.

"There's heavy offshore receiving in OIS (overnight indexed swap rates). If you see, the 5-year has fallen around 4-5 basis points," a trader at a primary dealership said. "There's been some short-covering during the rally in bond prices."

Gilt prices opened lower tracking a rise in the 10-year US Treasury note to 4.62%, up 7 basis points from the end of Indian market hours Friday, due to higher-than-expected Purchasing Managers' Index data. However, gilt prices recovered on purchases from private banks, likely due to February rate cut bets, and buying on behalf of corporate entities, dealers said. Purchases from private banks helped gilts recover nearly all losses in the middle of trade, while likely sales from state-owned banks led to choppy trade before OIS rates convincingly fell, dealers said.

Mutual funds were speculated to be purchasing gilts during the day, after media reports of a possible announcement of a relief in capital gains tax on debt funds in the Union Budget of 2025-26 (Apr-Mar). Foreign banks and foreign portfolio investors were also likely buyers as prices fell early, dealers said.

"I heard foreign banks were buying in the morning. I've gotten some queries from FPIs too," a trader at another primary dealership said.

Traders had said in the middle of the day that only the rise in US yields was holding back a "rally" in gilts. Both domestic and foreign investors were optimistic of a rate cut by the Reserve Bank of India's Monetary Policy Committee in February. Traders also placed bets that upcoming data on growth and inflation in India may point to a larger quantum of rate cuts, or increase certainty on the February rate cut of 25 basis points, dealers said.

The immediate trigger would be the advance estimate for India's GDP growth in 2024-25 (Apr-Mar). India's GDP growth may have moderated to a four-year low of 6.4% in the current financial year ending March, with a sharp slowdown in economic activity in the second half of 2024 seen dragging the full-year growth figure down to its lowest level since the contraction witnessed in pandemic-hit FY21, according to the median of an Informist poll.

Short-term gilts initially outperformed bonds of longer tenures after the RBI announced that the government would buy back INR 250 billion worth of five gilts maturing in 2025-26 (Apr-Mar) on Friday. Some traders expect another buyback auction for another INR 250 billion next week.

While the buyback news was positive for the gilts market, some traders said it dampened their hope of large open market gilt purchases by the central bank. Traders preferred the RBI's buys to that of the government's, since the bonds on offer were not very profitable to sell, and with maturities in the next year, not all banks had the bonds on hand. Moreover, the RBI typically buys bonds across tenures, leading to a rise in prices across the yield curve, dealers said.

Trading volume for the day was INR 622.25 billion, against INR 509.15 billion on Friday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. Volume picked up after the holiday season, with foreign banks being more active after reduced activity last month. There were no trades using the wholesale digital rupee pilot for the seventh straight day. 

OUTLOOK

On Tuesday, bond prices may take cues from the overnight movement of US Treasury yields, dealers said. While traders expect a further rise in prices after the jump witnessed Monday, some caution could be seen before the release of the first advance estimate of GDP for FY25, due at 1600 IST Tuesday. A lower-than-expected reading could aid bond prices as slowing growth would boost rate cut expectation. An Informist Poll estimated India's GDP growth at a 4-year low of 6.4% in FY25.

Traders will also track the number of Human Metapneumovirus (HMPV) cases in the country, with the first three cases confirmed by the central government on Monday. Any shutdown or slowing of economic progress, similar to lockdowns seen during the COVID-19 pandemic era, would see a rise in gilt prices as the RBI could cut rates sooner to aid economic growth. 

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 tenth straight session Monday. Any major geopolitical developments and a further rise 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 6.68-6.80% during the day.

(Cassandra Carvalho)

India Gilts: Trade choppy after recovery amid conflicting local, global cues

MUMBAI--1618 IST--Prices of government bonds were choppy after recovering losses, and moved higher due to optimism over repo rate cuts by the Reserve Bank of India's Monetary Policy Committee and the government buying back gilts. Private and foreign banks were likely on the buying side despite a rise in US Treasury yields since Friday, dealers said. 

Expectations that GDP growth in 2024-25 (Apr-Mar) will fall to a four-year low of 6.5%, according to an Informist poll ahead of the government's advance GDP estimate Tuesday, aided bond prices. Bets on the first repo rate cut of the policy easing cycle by the Monetary Policy Committee in February have strengthened, which has led to more traders picking up bonds, dealers said.

"We've seen excellent price movement today (Monday). US rates are the only thing stopping G-sec rally," a dealer at a private bank said. "The domestic cues are quite supportive, volumes have finally picked up."

The 10-year US Treasury note rose to 4.62%, with some traders fearing a rise to above 4.75% – a level last seen in November 2023. The offshore cue was offset by the RBI notifying a bond buyback by the government at auction. Bonds maturing in under five years gained the most from the announcement, along with the rate cut hopes, as it was likely the government and RBI's intent to ease liquidity conditions in the financial system, dealers said. Some traders expect another buyback auction for another INR 250 billion next week. With the government buying back bonds, traders' hopes of large open market gilt purchases by the central bank were dampened. 

State-owned banks likely remained on the selling side, as US yields and crude oil prices remained unfavourable for gilts and the rupee hit a fresh record low Monday, dealers said. Some traders were on the sidelines due to the mixed cues, with the market lacking direction, they said.      

"We are tracking all (cues) but we're cautious because we're trying to figure out what all that is happening in the market," a dealer at a state-owned bank said.

The market turnover was INR 485.40 billion, slightly higher than INR 458.25 billion at 1630 IST on Friday, 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 6.75-6.80%. (Cassandra Carvalho)

India Gilts: 10-year gilt recovers all losses, likely due to pvt banks' buys

MUMBAI--1340 IST--The 10-year benchmark gilt recovered all losses due to significant buying by private banks, dealers said Monday. Speculation on the reasons for the purchases ranged from corporate inflows, optimism on lower growth necessitating rate cuts, covering of short bets placed earlier and buys relating to the government's buyback.

"The buying in gilts is from private banks. Though the trade volume hasn't shot up, it looks like it could be a subsidiary general ledger flow," a dealer at a primary dealership said. Financial institutions with no direct access to the Negotiated Dealing System – Order Matching platform maintain subsidiary general ledger accounts with banks to trade government securities. 

Foreign banks were also likely buying gilts, betting on the government releasing a lower-than-expected outlook for growth in

2024-25 (Apr-Mar) in its advance estimate of GDP growth, dealers said. India's GDP growth may moderate to a four-year low of 6.5% in the current financial year ending March, with a sharp slowdown in economic activity in the second half of 2024 seen dragging the full-year growth figure down to its lowest level since the contraction witnessed in pandemic-hit FY21, according to the median of an Informist poll.

While the yield on 10-year US Treasury note rose 7 basis points over the weekend to 4.62%, weighing on gilt prices in early trade, dealers said gilts were insulated from the global markets due to positive domestic triggers. These included persistent hopes of repo rate cuts in India starting in February, helped by the lower growth number, as well as the government's notice of an INR 250-billion buyback auction. On Friday, the RBI announced that the government will buy back the 7.72%, 2025 bond; the 5.22%, 2025 bond; the 8.20%, 2025 bond; the 5.15%, 2025 bond; and the 7.59%, 2026 bond at an auction Thursday.

"The domestic market, right now, seems to be isolated from the global market with limited losses, as the traders are receiving good data points in the form of buyback announcements and talk of a policy rate cut in February," a dealer at a primary dealership said. "There is no euphoria in the market about a rate cut, but there is still expectation and market is kind of in a positive mode because of that."

In addition to US yields, some traders shed their holdings in early trade after being disappointed by the Reserve Bank of India's open market buys of gilts. Data on Friday showed the RBI bought gilts worth INR 200 million for the week ended Dec. 27, while traders had expected buys worth tens of billions, dealers said. Volumes have also picked up as foreign participants renew their activity after the year-end lull, and due to the diversity of triggers that traders were looking at.

The market turnover was INR 274.05 billion, against INR 209.35 billion at 1330 IST on Friday, 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 6.75-6.80%. (Aaryan Khanna and Vidhushi RajPurohit)

India Gilts: Tad down on rise in US ylds; govt buyback notice limits losses

NEW DELHI--0950 IST--Government bond prices were slightly lower due to a rise in US Treasury yields, amid increasing selling activity likely from foreign banks, dealers said. Traders said the government's intention to buy back gilts did not have as much of an impact on the 10-year 6.79%, 2034 gilt as all the bonds being bought back matured in 2025-26 (Apr-Mar), although it limited losses.

"We were expecting some positivity from the buyback, or at least the market to open flat," a dealer at a state-owned bank said. "That has gone for a toss since US data is showing continuous positives, and the 10-year US yield may start making a play towards 4.80% if it breaks the current range (of up to 4.64%)."

The yield on the 10-year US Treasury note rose to 4.62%, from 4.55% at the end of Indian market hours on Friday, due to a better-than-expected purchasing managers index data on consecutive days from the Institute of Supply Management and S&P Global. Foreign banks have increased their market activity at the start of the New Year, and were the top net sellers on Friday, according to Clearing Corp. of India data. 

Others said that the government's buyback reduced the chance of open market gilt purchases by the Reserve Bank of India, which would be a bigger positive for bonds. Moreover, some sections of the market were disappointed by the lack of large gilt purchases by the Reserve Bank of India through screen-based open market operations. Data released Friday showed the RBI bought only INR 200 million worth of gilts in the week ended Dec. 27. While the buys were long-awaited, and have been the first outright RBI purchases–-without an offsetting sale within a day--since 2021, the minuscule amount was in contrast with traders hoping for weekly buys of up to INR 30 billion starting in the second week of December. Liquidity conditions have been tight in part because the RBI has sold dollars to limit the depreciation in the rupee.

"At the margin, the buyback announcement is negative for RBI open market operations (bond buys)," a dealer at a private bank said. The government's buyback will introduce durable liquidity for up to a year, reducing the need for the RBI to conduct open market purchases to shore up deficit liquidity in the banking system. The RBI has injected liquidity into the banking system on a daily basis since Dec. 16. 

"But if you look at it on a relative basis, we are only 1 basis point higher (on the 10-year yield) versus 10 bps rise in the (10-year) US yield (from intraday levels on Friday)," the dealer said.

Firm demand for the 10-year bond at its INR 220 billion of fresh supply on Friday was a positive that was limiting the fall in bond prices, along with buys likely from state-owned banks Monday, dealers said. However, with US yields on the rise, traders fear a close on the 6.79%, 2034 bond below INR 100.00 may lead to a further downward pressure on gilt prices, with investors then sitting back until the 10-year gilt yield hits the psychologically crucial 6.80% level, dealers said.  

The market turnover was INR 60.50 billion, against INR 40.50 billion at 0930 IST on Friday, 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 6.75-6.80%.  (Aaryan Khanna)

India Gilts: Seen up on buyback notice; rise in US yields may weigh

NEW DELHI – Prices of government bonds are seen opening higher Monday after a buyback announcement, though the rise may be tempered by a rise in US Treasury yields. Volumes may rise as traders return from year-end holidays, dealers said. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.74-6.81%, compared to 6.78% on Friday. 

The government said it would buy back INR 250 billion worth of five bonds maturing in 2025-26 (Apr-Mar) at an auction on Thursday. Short-term bonds may gain more than long-term securities, dealers said. The government will buy back the 7.72%, 2025 bond; the 5.22%, 2025 bond; the 8.20%, 2025 bond; the 5.15%, 2025 bond; and the 7.59%, 2026 bond at the auction.

On the other hand, the yield on the 10-year US Treasury note rose to 4.62%, up 7 basis points from the end of Indian market hours Friday, due to higher-than-expected purchasing managers index data. Gilt prices may be more sensitive than usual to US yields as foreign banks may be more active in the New Year, dealers said.  (Aaryan Khanna)

End

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

Edited by Deepshikha Bhardwaj

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