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Informist, Wednesday, Jan. 15, 2025

Srijita Bose

MUMBAI – Government bond prices ended off highs as traders likely placed short bets before the US CPI inflation data is released at 1900 IST, dealers said. A surge in the rupee led traders to build up their portfolios on bets of a February rate cut by the Reserve Bank of India's Monetary Policy Committee. Demand for zero-coupon bonds, likely from corporate houses and insurers, also pushed up gilt prices earlier in the day.

The 10-year benchmark 6.79%, 2034 bond closed at INR 99.82, or 6.81% yield, compared with INR 99.76, or 6.82% yield, at the close on Tuesday. Bond prices gave up gains on caution after the 10-year gilt's price hit a high of INR 99.90 during the day.

"The rupee was relatively well-behaved today, and looks like it is trying to find a natural level here," a dealer at a private bank said. "Some investor demand also came in, but because there is important data coming in from the US, everyone is waiting it out a bit." 

Traders said the US CPI inflation for December could lend direction to gilt prices as well, as it would move the 10-year US Treasury yield, which remained near multi-month highs. On Tuesday, producer price inflation in the US was lower than expected, but US yields did not fall before the consumer price data. Traders have already trimmed their expectations of a rate cut by the US Federal Open Market Committee after stronger-than-expected jobs data last Friday, and reflation fears kept traders on tenterhooks as to whether the US market would brace for a rate hike in 2025, dealers said.

The Indian currency ended at 86.3625 against the greenback on Wednesday, after touching a lifetime low of 86.6500 a dollar on Tuesday, marking its best day against the US unit since Jun. 3. The retracing of the rupee from the previous lows could provide some confidence for the RBI to cut the repo rate in its upcoming policy meeting in February, dealers said. Traders had feared the RBI would keep domestic liquidity conditions tight to support the currency, including delaying rate cuts despite flagging growth and falling inflation.

A fall in money market rates also led to increased risk appetite from domestic traders. Demand for Separate Trading of Registered Interest and Principal of Securities on the 7.09%, 2074 pushed up prices, dealers said. Insurers and private banks were also likely on the buying side through most of the day, they said. This followed about INR 60 billion worth of trades for the zero-coupon bonds on Tuesday.

"There was demand for STRIPS (Separate Trading of Registered Interest and Principal of Securities) of about INR 45 billion today (Wednesday), otherwise also insurers and private banks were mostly buying in the market," a dealer at a primary dealership said. "Some shorts were also covered I think, plus some flows from foreign investors in the shorter segment could be seen today, but for the yield to test below 6.80% levels (on the 10-year benchmark), some structural change through data is required."

Some traders continued to expect the RBI to conduct open market purchases of gilts, dealers said. A fall in overnight indexed swap rates due to corporate houses receiving fixed rates across tenures added to traders' appetite for gilts, as they had paid positions in the OIS market due to client flows, dealers said. The five-year OIS closed at 6.28% on Wednesday, against 6.29% the previous day.

Foreign investors paid fixed rates in the OIS market, and refrained from selling bonds as they were already underinvested in India's dated securities, dealers said. Fully accessible route bonds have a 7% weightage on J.P. Morgan's Government Bond Index – Emerging Markets. Traders said only passive investors had been left in gilts, with active investors trimming their portfolios since December as the rupee became more volatile. Since Sept. 21, 2023, the date of India's index inclusion, FPIs have invested around $18.5 billion into India's fully accessible route bonds, with the total 10% weightage expected to fetch over $25 billion earlier. 

Traders were cautious before US President-elect Donald Trump assumes office on Monday, to get some clarity on his policies on tariffs and taxes. Late Tuesday, Trump announced on social media he would form an agency to coordinate tariffs, duties, and revenue from foreign sources after his inauguration. This is the last significant offshore trigger before the focus shifts to domestic cues, dealers said.

With the Union Budget coming up on Feb. 1, traders looked to reports for cues on the gilt supply for 2025-26 (Apr-Mar). Demand is expected to comfortably exceed supply, with traders confident of the government's fiscal consolidation and likely to pick up gilts closer to the event, dealers said. 

Trading volume for the day was INR 383.25 billion, against INR 594.55 billion on Tuesday, according to data on the RBI's Negotiated Dealing System–Order Matching platform. There were two trades worth INR 100 million using the wholesale digital rupee pilot, the same as on Tuesday.

OUTLOOK 

On Thursday, bond prices may take cues from the movement in US yields after the release of US CPI data for December. Any geopolitical cues or a further rise in crude oil prices will also impact gilt prices.

Prices of gilts will also be sensitive to the movement in the Indian rupee against the dollar, dealers said. The RBI's intervention in the foreign exchange market with dollar sales to support the rupee has put further strain on liquidity in the banking system. Should the rupee appreciate against the dollar, as it did on Wednesday, hopes of a February rate cut in India will increase, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.77-6.88% during the day.

India Gilts: Remained up on rise in rupee; traders eye US CPI data

MUMBAI--1620 IST—Government bond prices remained up following the appreciation of the Indian rupee against the dollar, dealers said. Traders resumed building positions ahead of February's Monetary Policy Committee meeting after selling bonds in large quantums on Monday and Tuesday. Easing of the overnight indexed swaps rates also aided the prices, dealers said. 

"Probably, the market is not yet playing for February, but there is a sense now that a rate cut is on the way and, besides, how much can the RBI delay it now," a dealer at a primary dealership said. "The free fall of the rupee has been curbed, and we saw that RBI was also a bit active there (foreign exchange market) so that triggered some new positions in the market."

After touching a lifetime low of 86.6500 a dollar on Tuesday, the Indian currency ended at 86.3625 against the greenback on Wednesday, marking its best day against the US unit since Jun. 3. Dealers expect the retracing of the Indian rupee from low levels logged in the previous sessions to provide the central bank with the needed confidence to bring the policy rate cut back into view. However, traders are avoiding hefty purchases as their risk appetite was subdued after the sharp fall in gilts seen earlier in the week as the rupee was depreciating, dealers said.

Traders are also treading cautiously ahead of the US CPI data, due post market hours Wednesday. The price of the 6.79%, 2034 bond is expected to remain consolidated in the INR 99.84-INR 99.90 range with an upward bias following the gain in the Indian rupee on Wednesday, dealers said. State-owned banks were likely selling bonds at a profit as the 10-year gilt yield fell to near 6.80%, after they had bought the gilt above 6.84% yield. Dealers are also eyeing the upcoming Union Budget in February, which will provide direction for the market in regard to bonds for the next financial year.

"If the rupee is under control, then there is a clear route to positioning on the Budget. And all the domestic fiscal cues are positive, so yields could even collapse back down to 6.75% (on the 10-year benchmark)," a dealer at a private bank said. 

The market turnover was INR 308.20 billion, against INR 515.20 billion at 1630 IST on 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 6.79-6.86%. (Vidhushi RajPurohit)

India Gilts: Up more as rupee surges; firm demand for zero-coupon bonds

MUMBAI--1400 IST--Prices of government bonds rose further as the rupee surged, reducing fears the Reserve Bank of India's Monetary Policy Committee would refrain from cutting the repo rate at its next meeting in February, dealers said. Demand from corporate houses and insurers for zero-coupon bonds also pushed up gilt prices.

Dealers said corporate houses picked up separate trading of registered interest and principal of securities coupons for maturities of five to 10 years at levels they considered lucrative. Some traders also covered short bets placed earlier as the 10-year gilt had seen firm appetite from investors above 6.80% yield over the last few days, and did not expect prices to fall once the rupee appreciated, dealers said.

After the rupee's one-sided depreciation so far this month, traders had feared capital flight as well as concerns over an interest-rate defence of the currency. Instead, the rupee zoomed to 86.3050 a dollar, against 86.6300 per dollar at 1530 IST Tuesday, as foreign exchange dealers hit stop-losses on their long dollar bets around 86.40 a dollar. Dollar sales by exporters also aided the rupee, as did the RBI's likely dollar sales.

Gilt traders said the rupee was finding its natural level after the sharp depreciation, and the lack of sales from foreign portfolio investors despite the currency weakness over the last few days added to the relief. Moreover, the fall in overnight indexed swap rates due to corporate houses receiving fixed rates across tenures added to traders' appetite for gilts, as they had paid positions in the OIS market due to client flows, dealers said. A fall in money market rates also led to increased risk appetite from domestic traders.

Traders now await the US CPI inflation data for December, due after market hours Wednesday, which will be an important cue on rate cut expectations from the US Federal Open Market Committee, dealers said. Traders have already trimmed their expectations on the number of rate cuts by the Federal Reserve in 2025, but are waiting for more clarity on incoming President Donald Trump's take on policies after he assumes office on Monday. Late Tuesday, Trump announced on social media he would form an agency to coordinate tariffs, duties, and revenue from foreign sources after his inauguration.

"Everything looks very event dependent now. Today (Wednesday) also, the US CPI will come, so until the uncertainty in the market is over, no one can really take a call very aggressively, so the market is moving pretty much in a narrow range," a dealer at a primary dealership said. "Only intraday volatility can be seen if there is some corporate buying or foreign investors' buying coming in, or in the later hours, if there is positioning before the US data comes in." 

The market turnover was INR 240.00 billion, lower than INR 396.00 billion at 1430 IST on 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 6.79-6.86%. (Srijita Bose and Aaryan Khanna)

India Gilts: Up on report govt expects FY25 fiscal deficit lower by 10-20 bps

MUMBAI--1018 IST--Prices of government bonds were up, continuing the rise towards the end of market hours on Tuesday, following reports that the government would meet its fiscal targets for the current financial year ending March, as well as the next, dealers said. Gains were limited as state-owned banks sold bonds at a profit. 

Reuters reported Wednesday that the government might project fiscal deficit at 4.5% of GDP in FY26, and expects its fiscal gap to fall 10-20 basis points below the 4.9% of GDP budgeted for FY25. This led to hope of a cut in the supply of dated securities at a time when demand for gilts already exceeds it, dealers said. The report had a late impact on gilts on Tuesday, and the effects lingered in early trade as well, they said.

"Yesterday (Tuesday) there was a report of fiscal deficit being less than 4.5%, so this is just a continuation of that," a dealer at a state-owned bank said. "Profit-booking is there, but people are buying because of the news." 

As prices rose after a volatile day on Tuesday, state-owned banks turned net sellers in the secondary market for the first time since Jan. 8, according to Clearing Corp. of India data. After picking up the 6.79%, 2034 gilt at 6.84% or a higher yield over the past two days, it was profitable to sell the 10-year benchmark gilt at 6.81% yield, dealers said. 

Traders did not expect volatility in gilt prices during the day, since the movement of the rupee against the dollar was also expected to be limited, dealers said. Traders await US CPI inflation data for December, due post market hours, for further cues on the rate cut trajectory in the US.

The market turnover was INR 73.85 billion, sharply lower than INR 131.85 billion at 1030 IST on Tuesday, 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 6.79-6.86%.  (Cassandra Carvalho)

India Gilts: Seen steady as US yields unchanged post Dec PPI data

MUMBAI – Prices of government bonds are seen opening steady as US Treasury yields were largely unchanged overnight, dealers said. The US producer price index for December printed lower than expectations, but US yields recovered from temporary losses soon after. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.79-6.86% compared to 6.82% on Tuesday.

The yield on the 10-year US Treasury note was unchanged at 0800 IST. It was 4.79% at 1700 IST Tuesday. The yield retreated slightly after the producer price data was released post market hours Tuesday, cooling off from its high of 4.81%. The US headline PPI rose 0.2% in December, against consensus estimates of 0.4%. While the reading was a positive cue for bond traders, it did not change traders' rate cut expectations by the US Federal Open Market Committee, dealers said. At 0800 IST, the CME FedWatch tool showed that Fed fund futures priced in only one cut in the federal funds rate in 2025. Traders now await the US CPI inflation data for December, due after market hours Wednesday, which is a more important cue than the producer price index, dealers said. 

Prices of gilts will also be sensitive to the movement of the Indian rupee against the dollar, dealers said. The domestic currency fell to a record low against the dollar for the fifth straight session on Tuesday. The RBI's intervention in the foreign exchange market with dollar sales to support the rupee has put further strain on liquidity in the banking system, while some traders still expect the RBI to conduct open market purchases of gilts, dealers said. However, the depreciation of the rupee hasn't curbed purchases by foreign banks and portfolio investors. FPIs bought gilts worth INR 4.52 billion via the fully accessible route Tuesday, according to data from Clearing Corp. of India as of 0800 IST. Dealers said this was likely because the rupee was still the best performing currency compared to its peers. 

The Reserve Bank of India's announcement of reshuffling the deputy governors' portfolio was not a significant cue for bond traders, dealers said. The RBI on Tuesday allocated the Monetary Policy Department to Deputy Governor M. Rajeshwar Rao following the end of Michael Patra's term as deputy governor. In case a new deputy governor is not announced by the time the Monetary Policy Committee meets on Feb. 5-7, Rao, as the head of the Monetary Policy Department, will sit in the meeting and vote on the interest rate decision. Dealers said that a new deputy governor was likely to be appointed by next week, and would wait until then before factoring the announcement into any trading decisions. (Cassandra Carvalho)

End

US$1 = INR 86.3625

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

Edited by Akul Nishant Akhoury

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