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Informist, Friday, Jan. 17, 2025

By Vidhushi RajPurohit

MUMBAI – Government bond prices ended lower owing to poor demand at the weekly gilt auction for the five-year and 15-year papers, dealers said. Traders also trimmed their holdings ahead of US President-elect Donald Trump's inauguration on Monday.

The 10-year benchmark 6.79%, 2034 bond closed at INR 100.16, or 6.77% yield, compared with INR 100.28, or 6.75% yield, at the close on Thursday. The prices of government securities largely ignored the ease in US Treasury yields overnight as they awaited Trump's comments on tariffs and trade, dealers said.

"There is a lot to look at in terms of liquidity and auction, so the moderation in US yields did little to impact gilt prices today," a dealer at a private bank said. "The biggest offshore cue right now is Trump and what he will announce on Monday, so there was selling in the market as traders don't want to go into the weekend with risky portfolios."

Private banks and primary dealerships were likely sellers after the auction result, dealers said. The government sold INR 140 billion of the 6.75%, 2029 bond, INR 120 billion of the 6.92%, 2039 gilt, and INR 100 billion of the 7.09%, 2054 bond. Heavy supply of short-tenure bonds at the auction and a rise in gilt prices on Thursday hit demand for the 2029 gilt at the auction, dealers said. The cut-off price at the auction on the 6.75%, 2029 gilt was INR 100.08, against the estimate of INR 100.20 in an Informist poll.

The large auction size led to a disappointing bid-cover ratio – competitive bids were only 2.19 times the notified amount of INR 360 billion, against 2.92 times a week ago. The cut-off price on the 2039 gilt was slightly lower than expected due to a lack of short bets heading into the auction, as well as a lack of investor demand for the paper, dealers said. The 30-year gilt at auction sailed through due to demand from pension funds and life insurers, including those for derivatives trades. 

Despite the selling pressure post the auction results, losses were limited on the view the Reserve Bank of India would be proactive in ensuring liquidity support amid the consistent banking system liquidity deficit, dealers said. This came after the RBI announced on Wednesday that it will hold daily variable rate repo auctions. While this has eased overnight rates, traders expect the RBI to conduct an auction to purchase gilts via open market operation as the next part of its plan, dealers said. On Wednesday, the net liquidity injected by the RBI--a proxy for the systemic liquidity deficit--rose to INR 2.22 trillion from INR 2.09 trillion on Tuesday, as per data from RBI. 

"Something needs to be done by the RBI to bring durable liquidity and OMO seems a likely tool that it can take up next," a dealer at a state-owned bank said. "The hopes of OMO is one of the reasons why the (gilts) prices still picked up towards the end even after the low demand at the auction." Hopes of open market gilt purchases by the central bank also surged after Bloomberg reported Thursday that the RBI was said to be considering more permanent liquidity through various measures, dealers said.  

Liquidity injections by the RBI are seen by dealers as paving the way for the Monetary Policy Committee to cut the policy repo rate by 25 basis points to 6.50% at its next meeting in February. Dealers also expect the government to conduct another buyback auction next week. The government has bought back INR 201.10 billion of five gilts maturing in 2025-26 (Apr-Mar) via two auctions this month.

The prices of gilts rose early in the day, tracking an overnight fall in US Treasury yields which brought in some inflows from foreign portfolio investors, dealers said. A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors. The 10-year US yield was at 4.60% at 1700 IST Friday against 4.67% the previous day. The gains were short-lived as traders, likely from state-owned banks, took profit when the 10-year gilt yield fell to a week's low below 6.74%, dealers said.

Trading volume for the day was INR 522.55 billion, against INR 866.50 billion on Thursday, 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, against no trades on Thursday.

OUTLOOK 

The gilt market is shut on Saturday. On Monday, bond prices may open steady on caution ahead of US President-elect Donald Trump's inauguration. Any geopolitical cues or a further rise in crude oil prices will also impact gilt prices.

The market will also await any announcement by the RBI in regard to measures to infuse durable liquidity into the banking system, dealers said. Prices of gilts will also be sensitive to the movement in the Indian rupee against the dollar, as the Indian unit remained near record lows despite the dollar index falling.

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.73-6.80% during the day.

Informist, Friday, Jan. 17, 2025

India Gilts: Fall on poor auction demand, caution before Trump's swearing-in

MUMBAI--1610 IST--Prices of government bonds fell after poor demand for the 6.75%, 2029 bond at the weekly gilt auction, as well as caution ahead of US president-elect Donald Trump's inauguration on Monday, dealers said. While the fall was initially limited to short-term bonds, the 10-year benchmark 6.79%, 2034 gilt also slumped as private banks and primary dealers sold ahead of the US event.

The cut-off price at the auction on the 6.75%, 2029 gilt was INR 100.08, against the estimate of INR 100.20 in an Informist poll of 11 bond dealers. Following the release of the result, the price of the five-year bond fell initially as demand for the 2029 gilt at auction was expected to be robust, dealers said. The bond's cut-off price was lower due to its large quantum on offer – INR 140 billion – and due to the sharp rise in bond prices on Thursday following a slump in US Treasury yields, along with liquidity support measures taken by the Reserve Bank of India, they said. On the whole, the large auction size led to a disappointing bid-cover ratio – competitive bids were only 2.19 times the notified amount of INR 360 billion, against 2.92 times a week ago.

"The demand was poor because these (short-tenure) papers are usually demanded by banks for book-keeping needs, but as the market saw this week, banks did not place short-bets before the auction, so they did not have that much appetite at the auction," a dealer at a state-owned bank said. Traders had covered short bets aggressively on Thursday as the bond market had its best day in over 11 months.

Traders said they were wary of any announcements of tariffs by Trump over the weekend. The new US president's stated economic policies are expected to drive US Treasury yields higher, and dealers await the impact of his Day 1 measures on geopolitics and inflation expectations. 

Long-term bond prices were initially cushioned from the fall as the cut-off prices for the 6.92%, 2039 bond and the 7.09%, 2054 gilt were broadly on expected lines, though the cut-off price on the 15-year bond was slightly weaker due to lack of short bets heading into the auction, dealers said.  Moreover, expectations of an open market purchase of gilts by the RBI or another buyback announcement kept the losses limited, dealers said.

The market turnover was INR 419.55 billion, against INR 767.35 billion at 1630 IST on Thursday, 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 6.71-6.79%.  (Aaryan Khanna and Vidhushi RajPurohit)

India Gilts: Little changed before auction result; PSU banks book profit

MUMBAI--1242 IST--Prices of government bonds were little changed from the previous close, with volumes muted ahead of the result of the INR 360-billion weekly gilt auction. Prices reversed early gains as traders sold bonds at a profit after the yield on the 10-year benchmark 6.79%, 2034 bond briefly fell below 6.74%, dealers said.

State-owned banks were likely to have been on the selling side in the secondary market as the 10-year gilt yield touched the lowest level in more than a week, dealers said. At the auction, these banks are likely to have bid aggressively for the 6.75%, 2029 gilt to match their liability, dealers said. Demand from mutual funds and foreign banks is also expected to be firm for the five-year bond, with foreign investors keen on bonds maturing in five years and below over the past week. 

Life insurers and provident funds are likely to pick up majority of the 7.09%, 2054 paper on offer. Dealers said around INR 30 billion of the INR 100 billion on offer may go for bond forward-rate agreements, and Separate Trading of Registered Interest and Principal of Securities, which would be bid for by primary dealers and foreign banks. Demand for zero-coupon instruments of long-term bonds from life insurers has surged this week as yields remain well above the crucial 7.00% mark, while inflows have increased in the traditionally strong Jan-Mar quarter, dealers said. 

While the 6.92%, 2039 gilt would sail through at the auction, there is no natural investor demand in the paper and traders may demand higher yields than secondary market levels due to caution heading into the weekend, and after the sharp rise in prices already, dealers said. Traders await clarity on US president-elect Donald Trump's policies on tariffs and taxes after he assumes office on Monday, they said.  

"Market largely looks range-bound today (Friday) if there are no surprise offshore or corporate flows, because traders are still waiting for the US event to be over," a dealer at a primary dealership said. "There could be some tail in the 15-year (6.92%, 2039) paper at the auction but other than that demand at auction also seems firm given there are a lot of positives from the domestic side."

Traders also found gilts maturing within five years a good bargain after a fall in overnight borrowing rates following the Reserve Bank of India's decision to provide constant liquidity support through daily variable rate repo auctions. Some traders also built up bets on a 50-basis-point cut in the repo rate of 6.50% by the Reserve Bank of India's Monetary Policy Committee in 2025 due to its proactive steps on liquidity, dealers said. Hopes of open market gilt purchases by the central bank also surged after Bloomberg reported Thursday that the RBI was said to be considering more permanent liquidity through various measures, dealers said.  

The market turnover was INR 137.05 billion, against INR 369.00 billion at 1230 IST on Thursday, 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 6.71-6.79%.  (Srijita Bose)

India Gilts: Steady; sales before auction offset gains from fall in US ylds

MUMBAI--0950 IST--Prices of government bonds were steady as short sales by traders offset early gains due to the impact of a fall in US Treasury yields, dealers said. Traders were making room for the INR 360-billion weekly gilt auction at 1030-1130 IST.
 

At the auction, the government will sell INR 140 billion of the 6.75%, 2029 bond, INR 120 billion of the 6.92%, 2039 gilt, and INR 100 billion of the 7.09%, 2054 bond. Dealers expect firm demand at the auction despite the heavy supply, and see a rise in bond prices after the auction result. The market outlook towards bond prices has jumped after the Reserve Bank of India announced daily overnight variable repos on Wednesday, and traders are optimistic of durable liquidity injections soon, dealers said. 

"See, US yields have fallen because of the US rate cut news, but now there's a heavy auction and everyone is going to be cautious before (the inauguration of incoming US president) Trump on Monday," a dealer at a private bank said. 

The yield on the 10-year US Treasury note fell to 4.62% at 0905 IST from 4.67% at the end of Indian market hours on Thursday after Federal Reserve Governor Christopher Waller told news channel CNBC that if inflation in the US continued to cool, the US Federal Open Market Committee could cut rates in the first half of 2025. Investors had earlier feared that rates in the US might be cut only after June due to firm labour market data. 

A fall in US yields widens the interest rate differential between safe-haven assets and emerging market debt, making the latter more appealing to foreign investors. However, Trump's inauguration on Monday is a risk to trading on the fall in US yields Friday, dealers said. His economic policies on tariffs, tax cuts and immigration are seen as inflationary and may drive up US yields. In December, the Federal Open Market Committee had scaled down its forecast for rate cuts to 50 basis points from 100 bps earlier.

The market turnover was INR 62.10 billion, against INR 75.85 billion at 0930 IST on Thursday, 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 6.71-6.79%.  (Cassandra Carvalho)

India Gilts: Seen up on fall in US ylds, expectation of RBI's gilt purchases

MUMBAI – Prices of government bonds are seen opening higher tracking an overnight fall in US Treasury yields, dealers said. Expectations of the Reserve Bank of India announcing an open market purchase of gilts to infuse durable liquidity into the banking system may also aid bond prices, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.71-6.79%, compared to 6.75% on Thursday. The yield on the 10-year US Treasury note fell to 4.61% at 0800 IST from 4.67% at the close of Indian market hours Thursday. US yields fell after Federal Reserve Governor Christopher Waller told news channel CNBC that if inflation in the US continued to cool, the US Federal Open Market Committee could cut rates in the first half of 2025. Waller also did not entirely rule out a cut in March.

The comments came against the backdrop of US yields rising since December after the FOMC's forecast for rate cuts this year reduced the quantum to 50 basis points from 100 bps projected earlier. US jobless claims for the week ended Saturday printed at 217,000, slightly higher than the Dow Jones' estimate of 210,000. 

On the domestic front, traders may continue to pick up gilts on expectations of the RBI purchasing gilts to infuse long-term liquidity. Nearing market close on Thursday, Bloomberg reported that the RBI may "add lasting liquidity" through tools such as foreign exchange swaps, purchase of gilts through open market operations, or a further cut in the cash reserve ratio. The report, coupled with the slump in US yields Thursday and the RBI's announcement of daily variable rate repo auctions, saw the biggest single-day fall in the yield of the benchmark 10-year 6.79%, 2034 gilt since Feb. 1, 2024. The positive momentum is likely to continue Friday, dealers said.   

Traders may place short bets before the INR-360-billion bond auction at 1030-1130 IST. The government will sell INR 140 billion of the 6.75%, 2029 bond, INR 120 billion of the 6.92%, 2039 gilt, and INR 100 billion of the 7.09%, 2054 bond. Despite the heavy supply of bonds, dealers said that demand at the auction is seen firm. Prices of gilts will also be sensitive to the movement in the Indian rupee against the dollar, as the Indian unit remained near record lows despite the fall in the dollar index. (Cassandra Carvalho)

End

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

Edited by Saji George Titus

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