Informist, Friday, Jun 9, 2023

By Kasthuri Akhil

MUMBAI – Prices of government bonds ended down as traders trimmed their bond holdings after the June monetary policy review dampened market sentiment. Unlike earlier, traders now do not see any rate cuts in this calendar year at least, dealers said.

The 10-year benchmark 7.26%, 2033 bond ended at 101.54 rupees, or 7.04% yield, against 101.63 rupees, or 7.02% yield on Thursday. 

Some traders placed short bets, while others who had stocked up on gilts before the policy review on Thursday, sold their holdings at a profit today. This further contributed to the fall in prices despite the slightly better-than-expected auction result, dealers said. 

"Even after the cut-offs, there was sell-off as traders seem to be chickening out after trading within a narrow range for quite some time before the policy," a dealer at a primary dealership said. "Going forward, 7.06% (yield on 10-year benchmark 2033 paper) will stay protected, but if it breaks, it will go even higher."

At the auction, the government raised 80 bln rupees of the 6.99%, 2026 bond, 70 bln rupees of the 7.17%, 2030 bond, 120 bln rupees of the 7.41%, 2036 bond and 120 bln rupees of the new 2063 bond.

Dealers said that the 2026 bond saw firm demand at the auction as traders considered the yield on the paper to be lucrative. The Reserve Bank of India set the cutoff on 6.99%, 2026 paper at 100.09 rupees, against the estimate of 100.04 rupees in an Informist poll.

Dealers speculated that the 2030 paper saw the most demand from state-owned banks that typically keep the seven-year paper in their held-to-maturity portfolio. A state-owned insurance company was also speculated to have received funds from banks, which they likely deployed in the 14-year benchmark 2036 paper.

Moreover, the coupon on the new 2063 bond was set at 7.25%, against estimates of 7.23% in the poll. Employees' Provident Fund Organisation and insurance companies likely bid for the long-term papers at the auction, dealers said.

On Thursday, the outcome of the Monetary Policy Committee's meeting was on expected lines, wherein, it kept the repo rate unchanged at 6.50% and retained the policy stance of 'withdrawal of accommodation'.

However, RBI Governor Shaktikanta Das' emphasis on headline inflation being merely within the tolerance band of 2-6% as not enough, and that the MPC will remain vigilant on the evolving inflation and growth outlook, dulled market sentiment, dealers said.

"The shorter term bond yields fell after reverse repo auction because very few banks parked money with the RBI," a dealer at a private bank said. "This also led to receiving in short term swap rates."

Today, the central bank held a four-day variable rate reverse repo auction, where banks parked only 57.80 bln rupees against the notified amount of 1 trln rupees. 

Uncertainty around liquidity conditions going forward also led traders to sell their bond holdings today, dealers said. Dealers reiterated Governor Das' comment at the post-policy press conference on Thursday, where he said that the central bank expects the overnight call rate to align with the repo rate.

On liquidity, the governor had also said in his statement that going forward, the central bank will remain nimble and act swiftly in its liquidity management, while ensuring that adequate resources are available for the productive requirements of the economy.

In early trade, prices were up due to an overnight fall in US Treasury yields, dealers said. Dealers speculated that state-owned banks had stepped up purchases of the 10-year benchmark 2033 bond.

The yield on the 10-year benchmark US Treasury note fell to 3.73% in early Asian trade today as compared to 3.81% at the end of Indian market hours on Thursday. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

US Treasury yields fell as a result of a rise in new unemployment claims made last week, which suggested that the labour market was softening, and raised hopes of a rate hike "skip" by the US Federal Reserve in its policy meeting scheduled for Jun 13-14. 

Initial claims for state unemployment benefits jumped 28,000 to a seasonally adjusted 261,000 for the week ended Jun 3, the highest level since October 2021. Economists polled by Reuters had forecast 235,000 claims for the latest week.

According to the CME FedWatch tool, about 73% of fed funds futures traders are now expecting a pause by the Fed on Jun 14, while the rest see a 25-basis-point hike.

According to data on RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 384.60 bln rupees, compared with 557.75 bln rupees on Thursday. Meanwhile, trades aggregating 150 mln rupees were settled in three deals with the digital rupee today, as against 300 mln rupees settled in four deals on Thursday.

OUTLOOK

Gilts are not traded on Saturdays.

On Monday, bonds are seen opening steady due to lack of firm domestic cues. Traders may also await CPI inflation data for May, due for release after market hours on Monday, dealers said.

India's CPI inflation likely fell to a 20-month low of 4.4% in May, from 4.70% in April, mainly on account of the statistical effect of a high base, according to an Informist poll of 18 economists.

Traders may track any overnight movement in US Treasury yields and crude oil prices.

The yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.00-7.08%.

India Gilts: Fall as mkt sees no possibility of rate cut in 2023

MUMBAI--1430--Prices of government bonds fell despite a slightly better than expected result at the 390-bln-rupee gilt auction today as market sentiment was weighed down by the June monetary policy review, dealers said. Unlike earlier, traders now do not see rate cuts in this calendar year.

Traders also sold their gilt holdings at a profit, which weighed on prices, dealers said.

"The policy had no positives. People are not expecting rate cuts in the next 12 months, liquidity may also come down," a dealer at a state-owned bank said. "Cutoffs are as expected, but what I think is people covered their short positions at the auction, and are now shorting again."

On Thursday, RBI Governor Shaktikanta Das' emphasis on headline inflation being merely within the tolerance band of 2-6% is not enough, and that the Monetary Policy Committee will remain vigilant on the evolving inflation and growth outlook, dampened market sentiment, dealers said.

Despite the committee's decision on repo rate and the policy stance was largely in line with expectations, the market remained hesitant to think about rate cuts, dealers said. The domestic rate setting panel kept the repo rate unchanged at 6.50% and retained the policy stance of 'withdrawal of accommodation'.

Talking about the liquidity, the governor had said that going forward, the central bank will remain nimble and act swiftly in its liquidity management, while ensuring that adequate resources are available for the productive requirements of the economy.

At the auction, the government raised 80 bln rupees of the 6.99%, 2026 bond, 70 bln rupees of the 7.17%, 2030 bond, 120 bln rupees of the 7.41%, 2036 bond and 120 bln rupees of a new 2063 bond. RBI had set the cutoff on 6.99%, 2026 paper at 100.09 rupees, against the estimate of 100.04 rupees in an Informist poll. The coupon was set at 7.25%, against estimates of 7.25%.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 240.65 bln rupees at 1439 IST, compared with 410.35 bln rupees at 1430 IST on Thursday.

For the rest of the day, yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.99-7.05%.  (Nishat Anjum)

India Gilts: In thin band ahead of auction result, mkt sentiment dull

MUMBAI--1210 IST--Prices of government bonds were in a thin band as traders awaited the result of the 390-bln-rupee auction. Traders refrained from placing aggressive bets as market sentiment was weighed by the June policy review as it dimmed hopes of rate cuts anytime soon, dealers said.

"There is insurer demand in the 14-year paper. But overall, nobody is expected to have bid aggressively as the market has nothing new to look forward to," a dealer at a private bank said. "Now people will track the monsoon patterns to gauge its impact on inflation."

At the auction, the government looked to 80 bln rupees of the 6.99%, 2026 bond, 70 bln rupees of the 7.17%, 2030 bond, 120 bln rupees of the 7.41%, 2036 bond and 120 bln rupees of a new 2063 bond, held at 1030-1130 IST.

Dealers speculated that the 2030 paper saw the most demand from state-owned banks. Typically, state-owned banks keep the seven-year paper in their held-to-maturity portfolio.

A state-owned insurance company was also speculated to have received funds from banks, which they likely plan to deploy in the 14-year benchmark 2036 paper. Further, Employees' Provident Fund Organisation and insurance companies likely bid for the long-term papers at the auction, dealers said.

On Thursday, the Monetary Policy Committee kept the repo rate unchanged at 6.50% and retained the policy stance of 'withdrawal of accommodation'. However, RBI Governor Shaktikanta Das' emphasis on headline inflation being merely within the tolerance band of 2-6% is not enough, and that the MPC will remain vigilant on the evolving inflation and growth outlook, dampened market sentiment, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 131.35 bln rupees at 1210 IST, compared with 236.45 bln rupees at 1130 IST on Thursday.

For the rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.99-7.05%. (Kasthuri Akhil)

India Gilts: Up as US ylds fall amid caution before weekly auction

NEW DELHI--0920 IST--Government bonds prices were higher due to an overnight fall in US Treasury yields, dealers said. However, prices didn't rise more as traders avoided placing aggressive bets on caution ahead of the 390-bln-rupee auction. 

At the auction, the central government will sell four dated securities worth 390 bln rupees. The government will sell 80 bln rupees of the 6.99%, 2026 bond, 70 bln rupees of the 7.17%, 2030 bond, 120 bln rupees of the 7.41%, 2036 bond and 120 bln rupees of a new 2063 bond.

Meanwhile, Reserve Bank of India Governor Shaktikanta Das' commentary after the policy review hinted that rate cuts might be further away than the market's expectations, dealers said.

RBI Governor Shaktikanta Das said the Monetary Policy Committee decided to keep the repo rate unchanged as the cumulative effect of the total 250-basis-point increase in the repo rate since May 2022 will reflect in the coming months. He emphasised that headline inflation continues to stay above the central bank's 4% target, and that merely being within the tolerance band of 2-6% is not enough. 

"Market sentiment has been affected after policy," a dealer at a state-owned bank said. "However, there should be buying at around 7.02-7.03% yield (on the benchmark 7.26%,2033 bond) level." 

Traders might stock up on gilts as yield on the benchmark 7.26%,2033 bond crosses 7.02%, which is considered lucrative, dealers said. Dealers speculated that state-owned banks stepped up purchases of the 7.26%,2033 bond.  

US Treasury yields fell on Thursday as a result of the rise in new unemployment claims made last week, which suggested that the labour market was stalling amid growing indications of a recession.

Initial claims for state unemployment benefits jumped 28,000 to a seasonally adjusted 261,000 for the week ended Jun 3, the highest level since October 2021. Economists polled by Reuters had forecast 235,000 claims for the latest week.

The yield on the 10-year US Treasury note fell to 3.73% in Asian trade today as compared to 3.81% at the time of Indian market close on Thursday. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the marketwide turnover was 20.50 bln rupees at 0920 IST compared with 23.55 bln rupees at 0915 IST on Thursday.

During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.97-7.04%.  (Anjali)

India Gilts: Seen up as US yields fall; mkt eyes weekly gilt auction

MUMBAI – Prices of government bonds are seen opening higher today due to an overnight fall in US Treasury yields, dealers said. However, traders may avoid placing aggressive bets on caution ahead of the 390-bln-rupee gilt auction later in the day. 

Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 6.98-7.08% as against 7.02% on Thursday.

US Treasury yields fell on Thursday as a result of the rise in new unemployment claims made last week, which suggested that the labour market was stalling amid growing indications of a recession.

Initial claims for state unemployment benefits jumped 28,000 to a seasonally adjusted 261,000 for the week ended Jun 3, the highest level since October 2021. Economists polled by Reuters had forecast 235,000 claims for the latest week.

The yield on the 10-year US Treasury note fell to 3.73% in Asia trade today as compared to 3.81% at the time of Indian market close on Thursday. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

Back home, traders would await the weekly gilt auction for firm domestic cues, after the outcome of the Reserve Bank of India's Monetary Policy Committee's meeting was along the expected lines, dealers said.

At the auction, the central government will sell four dated securities worth 390 bln rupees. The government will sell 80 bln rupees of the 6.99%, 2026 bond, 70 bln rupees of the 7.17%, 2030 bond, 120 bln rupees of the 7.41%, 2036 bond and 120 bln rupees of a new 2063 bond.

On Thursday, the domestic rate-setting panel kept the policy repo rate unchanged at 6.50% and retained the policy stance of 'withdrawal of accommodation'. The decision to keep the repo rate unchanged was unanimous. Five of six members voted to retain the stance, while external member Jayanth Varma dissented on retaining the policy stance. (Nishat Anjum)

End

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

Edited by Tanima Banerjee

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (22) 6985-4000 

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2023. All rights reserved.