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Informist, Monday, Jan. 20, 2025

By Srijita Bose

MUMBAI – Government bond prices ended steady on Monday as traders refrained from placing large bets ahead of US President-elect Donald Trump's swearing-in later in the day. Trade volumes in bonds fell sharply as most traders stayed on the sidelines ahead of the event in anticipation that Trump could bring in aggressive policies on trade and tariffs on his first day in office, dealers said.

The 10-year benchmark 6.79%, 2034 bond closed at INR 100.19, or 6.76% yield, compared with INR 100.16, or 6.77% yield, at the close on Friday. For most of the day, bond prices moved in a narrow range. Prices rose briefly in the latter part of the day as traders covered short bets placed on Friday, dealers said.

"There is a lot of uncertainty about Trump, so the market has been extremely cautious before that (Trump's swearing-in ceremony)," a dealer at a private bank said. "There are expectations that he will immediately bring out restrictions on trade and impose tariffs, but I still think that he will be less hostile as his first tenure."

Trump is expected to bring fiscally expansionary as well as inflationary policies that are seen causing a further rise in US Treasury yields. US markets are shut Monday on account of Martin Luther King Jr. Day. The yield on the 10-year US Treasury note was 4.63% at 1700 IST, up from 4.60% at the close of Indian market hours Friday.

Gilt prices were also weighed down by an uptick in US Treasury yields earlier in the day, dealers said. The yield on the US 10-year note has risen 100 basis points since the US Federal Open Market Committee began cutting rates in September. Trump's policies are seen weakening the case for rate cuts in the US while also further delaying the onset of the rate cut cycle in India by the Reserve Bank of India's Monetary Policy Committee. 

The initial fall in prices was, however, short-lived as state-owned banks likely bought gilts as the yield on the 10-year benchmark gilt neared 6.78%, a level from which it has eased repeatedly in recent days. Traders found the yield on the 10-year gilt lucrative on the view of an incoming rate cut in India by the Monetary Policy Committee. Some traders still expect the rate-setting panel to cut the repo rate by 25 basis points next month, while others see a rate cut by April. Traders who had placed short bets on Friday also reversed their bets, causing a brief rise in prices. However, depreciation of the rupee against the dollar may reduce chances of a rate cut in February, dealers said.

"The medium-term view of the domestic market still looks good with at least one rate cut in April and maybe another during the year looking at the growth numbers and Budget around the corner," a dealer at a state-owned bank said. "If RBI is able to tune liquidity and the rupee effectively, they will also look towards a rate cut in the near-term with growth numbers already flailing." India's GDP growth slowed to a seven-quarter low of 5.4% in Jul-Sept. The first advance estimate released by the statistics ministry earlier in the month also placed GDP growth for the current financial year at a four-year-low of 6.4%, while traders still expect an even weaker reading near 5.5-6.0%.

Meanwhile, traders picked up gilts maturing within five years in view of easing liquidity conditions and a fall in overnight borrowing rates, as shorter maturity papers stand to benefit most from a fall in the near-term cost of funds. Some foreign portfolio investors also likely picked up shorter-tenure gilts with an expectation of bull-steepening--the fall in shorter tenure yields outpacing longer tenures--as expectations of a rate cut in India during the year get further cemented.

Trade volumes during the day also remained muted due to lack of any incremental cues during the day and caution before the US event. Trading volume for the day was INR 245.30 billion, against INR 520.90 billion on Friday, 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 Friday.

OUTLOOK 

On Tuesday, bond prices will react to the movement in US yields after Trump's inauguration. Any announcement on tariffs and taxes by Trump on his first day will also give cues to gilts, dealers said.

During the day, prices of gilts will also be sensitive to the movement of the Indian rupee against the dollar, dealers said. The domestic currency may fall against the dollar on Tuesday after Trump's swearing-in ceremony.

On Monday after market hours, the RBI said that the government will buy back five gilts – 7.72%, 2025 gilt; 5.22%, 2025 gilt; 8.20%, 2025 gilt; 5.15%, 2025 gilt; and 7.59%, 2026 gilt – worth INR 200 billion on Thursday. Though traders had expected the RBI to bring measures to infuse durable liquidity into the banking system, dealers said that with the same bonds up for auction, traders may have very limited stock to sell.

Any geopolitical cues or a further rise in crude oil prices after the US event will also impact gilt prices. The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.73-6.88% during the day.

India Gilts: Trade volume slumps due to caution before Trump's inauguration

MUMBAI--1635 IST—-Trade volume in the government bond market fell sharply Monday as most traders stayed on the sidelines ahead of US President-elect Donald Trump's swearing-in later in the day. The market-wide turnover was INR 202.65 billion, against INR 430.75 billion at 1630 IST on Friday, according to data on the Reserve Bank of India's Negotiated Dealing System-Order Matching platform.

"Some people are expecting Trump to come in with a 'bang' and announce stricter policies on tariffs the very first day," a dealer at a state-owned bank said. "Even if he (Trump) indicates any policy stance, markets will react sharply, and you can see nearly 10 basis points reaction on the 10-year (6.79%, 2034) gilt yield tomorrow (Tuesday)." 

Amid dismal volumes, bonds traded on a positive note as some traders saw gilts as a good bargain when the yield on the 10-year benchmark 6.79%, 2034 neared the 6.78% level earlier in the day, dealers said. Some traders also covered short bets placed before the weekend, dealers said. The rise was, however, limited as traders refrained from placing large bets before the event, dealers said.

Traders picked up gilts maturing within five years in view of easing liquidity conditions and a fall in overnight borrowing rates, as shorter maturity papers stand to benefit most from a fall in near-term cost of funds. Some foreign portfolio investors also likely picked up shorter-tenure gilts with an expectation of bull-steepening—-the fall in shorter tenure yields outpacing longer tenures--as expectations of a rate cut in India during the year get further cemented.

State-owned banks also likely bought gilts as the yield on the 10-year benchmark 6.79%, 2034 neared 6.78%, a level from which it has eased repeatedly in recent days, dealers said. On the other hand, short bets on the paper increased before Trump's swearing-in and due to expectations of fresh supply of the 10-year paper at the auction Friday, dealers said. A proxy for tracking short sales in a particular bond is the number of trades on the paper in the special repo segment of the Clearcorp Repo Order Matching System. At 1635 IST, data showed trades worth INR 101.91 billion in the 6.79%, 2034 gilt.  (Srijita Bose)

India Gilts: In thin band on lack of cues, Trump's swearing-in looms

MUMBAI--1330 IST--Prices of government bonds were stuck in a narrow range as traders remain cautious ahead of US president-elect Donald Trump's swearing-in, scheduled post market hours on Monday, dealers said. Dealers also cited dearth of significant data points to provide trading cues as a reason for low trading volumes.

"There's a wait and watch in the market, no one wants to enter into a fresh trading position right now. Those who have some risky exposure will try to sell off but other than that, not much to place fresh bets now," a dealer at a private bank said. 

Traders await clarity on Donald Trump's policies on tariffs and taxes after he assumes office on Monday, they said. US Treasury yields have also been rising ahead of Trump's swearing-in due to fear that economic policies could slow down the pace of rate cuts by the US Federal Reserve this year. 

Trade volumes were muted in the absence of fresh cues, dealers said. The market-wide turnover was INR 100.35 billion, against INR 144.45 billion at 1330 IST on Friday, 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 6.73-6.80%.

Given the low trade volumes, even modest purchases by public sector banks helped bonds shake off their early losses, dealers said. State-owned banks had trimmed their holdings on Thursday, when the 10-year gilt yield slumped to 6.75% from a high of 6.87% earlier in the week. However, gilts prices remained weighed down by a rise in US yields, as the 10-year benchmark US Treasury yield inched up to 4.63% on Monday from 4.60% at the close of Indian market hours on Friday. 

Dealers were also disappointed by the absence of durable liquidity-infusion measures by the Reserve Bank of India. Traders had expected the RBI to announce an open market purchase of gilts on Friday or over the weekend, but no such measure was released. However, traders expect the central bank to gauge liquidity conditions for another week and see the impact of the daily variable rate repo auctions before coming up with some durable measure. 

Traders expect gilt prices to trade around the current range, with 6.78% yield on the 10-year benchmark, 6.79%, 2034 bond seen as the upper end of the trading band.  (Vidhushi RajPurohit)

India Gilts: Down on caution before Trump inauguration, rise in US yields

MUMBAI--1000 IST--Prices of government bonds were down before the inauguration of incoming US president Donald Trump, with markets fearing the announcement of inflationary measures such as tariff hikes and immigration restrictions. Such policies, and the tax cuts proposed by him, are seen weakening the case for rate cuts in the US, dealers said.

Domestic bond prices were also weighed down by an uptick in US Treasury yields Monday, dealers said. The yield on the 10-year US Treasury note rose to 4.63% at 0911 IST from 4.60% at the close of Indian market hours on Friday, rising around 100 basis points since the US Federal Open Market Committee began cutting rates in September. US yields have been rising ahead of Trump's swearing-in, scheduled late Monday, as Trump's economic policies could slow down the pace of rate cuts by the US Federal Reserve this year.

"Immediately I doubt Trump will enforce anything, but it (market) is forward-looking, so the market is assuming that his policies will be inflationary and increase government spending," a dealer at a state-owned bank said. "I was hearing he will sign 25 orders on immigration the first day itself, so let's see."

In December, the US Federal Open Market Committee lowered its forecast for the quantum of rate cuts this year to 50 bps from 100 bps. A slowing rate cut cycle by the FOMC could further delay the onset of the rate cut cycle in India, as dealers fear imported inflation could see India's CPI inflation rising above the Reserve Bank of India's 2-6% band.

State-owned banks were on the buying side, limiting the fall in bond prices, dealers said. The yield of 6.77% on the 10-year benchmark is seen as a favourable level for buying bonds as it has been the upper end of the recent trading range, dealers said. During the day, dealers expect bond prices to slide further nearing Trump's swearing-in ceremony.

The market turnover was INR 17.70 billion, against INR 42.90 billion at 0930 IST on Friday, 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 6.73-6.80%.  (Cassandra Carvalho)

India Gilts: Seen dn on rise in US ylds, caution before Trump's swearing-in

MUMBAI – Prices of government bonds are seen opening lower Monday tracking a rise in US Treasury yields, dealers said. Caution before the inauguration of incoming US president Donald Trump may likely keep volumes low, dealers said. 

The yield on the 10-year benchmark 6.79%, 2034 bond is seen at 6.73-6.80%, compared to 6.77% on Friday. The yield on the 10-year US Treasury note rose to 4.63% at 0800 IST from 4.60% at the close of Indian market hours Friday, rising around 100 basis points since the US Federal Open Market Committee began cutting rates in September. US yields have been rising ahead of Trump's swearing-in, scheduled late Monday Indian time, as Trump's economic policies on tariffs, tax cuts and immigration are seen as inflationary, which could slow down the pace of rate cuts by the FOMC this year. In December, the FOMC had lowered its forecast for the quantum of rate cuts this year to 50 bps from 100 bps earlier. 

A slowing rate cut cycle by the FOMC could further delay the onset of the rate cut cycle in India. Most dealers expect the Reserve Bank of India's Monetary Policy Committee to cut the repo rate by 25 bps next month. However, depreciation of the rupee against the dollar may reduce chances of a rate cut in February, dealers said. 

Bond prices may also open lower as traders were expecting any announcement by the RBI over the weekend in regard to measures to infuse durable liquidity into the banking system, dealers said. The RBI so far hasn't announced any such measure, neither did it announce a bond buyback which some traders were expecting. The government bought back gilts worth around INR 291 billion in the past two weeks, spurring hopes of the government reducing gross borrowing in the next financial year. (Cassandra Carvalho)

End

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

Edited by Ashish Shirke

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