Informist, Monday, Dec 11, 2023

By Nishat Anjum

MUMBAI – Prices of government bonds ended lower, tracking a rise in US Treasury yields, dealers said. Meanwhile, traders refrained from placing aggressive bets due to lack of significant domestic cues after the outcome of the Monetary Policy Committee's meeting on Friday.

On Friday, the domestic rate-setting panel kept the repo rate unchanged at 6.50%, and retained the 'withdrawal of accomodation' policy stance.

Today, the 10-year benchmark 7.18%, 2033 bond closed at 99.28 rupees, or 7.28% yield, against 99.37 rupees, or 7.27%, on Friday.

Mutual funds stepped up purchase of short-term papers at levels considered lucrative, which limited the losses, dealers speculated.

"They (mutual funds) would get flows during the quarter-end, so they would be deploying them in gilts," a dealer at a private bank said. "Also, when your 6- and 7-year papers give you the same yield as the 10-year, investors will definitely pick them up. The yields on the 7.10%, 2029 paper and 7.32%, 2030 paper ended at 7.28%, the same as the benchmark 10-year paper. 

A deficit in the banking system liquidity weighed on short-term bonds, which in turn keeps the yields on these papers high, dealers said. On Sunday, liquidity in the banking system was in a deficit of 231.59 bln rupees.

Meanwhile, private banks were speculated to be on the selling side. Some traders also trimmed their bond holdings due to caution ahead of the data lined up both on the domestic and global fronts, dealers said.

The volume remained low as traders avoided placing large bets due to caution ahead of the US and India November inflation prints, due on Tuesday, dealers said. India's inflation data is scheduled to be released at 1730 IST, while the US data will be released at 1900 IST. 

According to a poll by Informist, India's retail inflation based on CPI is likely to have risen to a three-month high of 5.8% in November from 4.87% in October due to a rise in vegetable prices. At 5.8%, the overall CPI index will rise 0.8% month-on-month in November, the sharpest sequential rise in four months.

The US November headline inflation print is expected to be 3% on year, according to a poll by Dow Jones. The core inflation is seen at 4% on an annualised basis. In October, headline inflation rose to 3.2% on year.

"The US CPI data is definitely more important than India CPI data. Overshooting data on both would mean our yields would rise, showing the market's disappointment," a dealer at a primary dealership said. "If India's data overshoots above 6% (on-year), then it is a problem."

The yield on the benchmark 10-year US Treasury note rose to 4.26% from 4.18% at the time of Indian market close on Friday. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors.

US Treasury yields surged after data on non-farm payrolls in November showed continued tightness in the labour market despite the US Federal Reserve's efforts to cool the economy. On Friday, the yield on the 10-year paper jumped 10 basis points, its biggest one-day gain since Nov 9. The two-year US Treasury yield rose by 14.5 basis points, its biggest daily jump since Jun 29. It closed at 4.71% on Friday, as against 4.58% on Thursday.

The Labor Department's employment report indicated that US job growth accelerated in November. Data showed non-farm payrolls increased by 199,000 jobs last month, above the 180,000 estimate of economists polled by Reuters, after rising by an unrevised 150,000 in October. The unemployment rate fell to 3.7% from the near two-year high of 3.9% in October.

After the strong economic data, CME's FedWatch Tool showed expectations for a rate cut of at least 25 basis points by the US Fed in March fell to about 40% from about 65% on Thursday.

Meanwhile, at the Federal Open Market Committee's meeting scheduled for Tue-Wed, a whopping 98.4% of interest rate traders expect the US rate-setting panel to maintain status quo. The current target rate is 5.25-5.50%.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover was 254.35 bln rupees, compared with 483.60 bln rupees on Friday. There was no trade done today using the wholesale digital rupee pilot, as against two trades worth 100 mln rupees on Friday.

OUTLOOK

On Tuesday, government bond prices are seen opening steady as traders may avoid aggressive bets due to caution ahead of the US and India CPI data for November, due after market hours, dealers said. 

A sharp move in US Treasury yields and crude oil prices may also lend cues at opening. 

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.22-7.30%.

India Gilts: Recover some losses; mutual funds buy shorter-term bonds

MUMBAI--1510 IST--Prices of government bonds recovered some losses as mutual funds stepped up purchase of shorter-term bonds at lucrative yield levels, dealers said. However, gilt prices remained down, owing to an overnight rise in US Treasury yields.

Moreover, private banks were speculated to trim their holding ahead of the November inflation data, lined up in India and the US, on Tuesday, dealers said. The US Federal Open Market Committee meeting, which is scheduled to take place on Tuesday and Wednesday, also added to the caution. 

"The volume in the market remains lacklustre. At the opening, the market was in tandem with a rise in US treasury yields," a dealer at a state-owned bank said. "Buying was seen in the market from mutual funds, however, there was some selling as well from private banks." During the day, trade volumes were low as traders remained on the sidelines ahead of CPI data in India and the US, dealers said. 

Moreover, the US inflation print is expected to have more impact on our market compared to the domestic CPI inflation data, dealers said. The data on the domestic front is expected to be around the market expectation, and even if it inches up to 6%, it will unlikely be a worrying factor for the market.

According to a poll by Informist, India's retail inflation based on CPI likely rose to a three-month high of 5.8% in November from 4.87% in October on the back of a rise in vegetable prices. The RBI's comments at the domestic policy review on Friday suggested it would not take further monetary policy actions even if the print crossed 6%, dealers said.

Meanwhile, the US November headline inflation data is expected to be at 3% on year, according to a Dow Jones poll. The core inflation is seen at 4% on an annualised basis. In October, headline inflation rose to 3.2% on-year.

The yield on the benchmark US 10-year note rose to 4.26% from 4.18% at the close of Indian markets on Friday owing to strong non-farm payroll data, dealers said. 

Data showed non-farm payrolls increased by 199,000 jobs last month, above the 180,000 estimate of economists polled by Reuters, after rising by an unrevised 150,000 in October. The unemployment rate fell to 3.7% from the near two-year high of 3.9% in October.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 118.87 bln rupees compared with 310.95 bln rupees at 1430 IST on Friday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.25-7.30%. (Siddhi Chauhan)

India Gilts: Remain down tracking rise in US yields; volumes low

MUMBAI--1310 IST--Prices of government bonds remained down, tracking a rise in US Treasury yields, dealers said. The losses were, however, limited as some traders picked up the benchmark 7.18%, 2033 paper around the 7.28% yield level, considered lucrative.

Trade volumes were low as traders remained cautious ahead of data on CPI in India and the US, both scheduled for Tuesday, dealers said. The US Federal Open Market Committee's two-day meeting also begins Tuesday.

The yield on the benchmark 10-year US Treasury note was at 4.25%, compared with 4.18% at the close of Indian markets on Friday. US Treasury yields surged after November non-farm payroll data showed continued tightness in the labour market despite the US Federal Reserve's efforts to cool the economy.

Traders, both domestic and global, are keeping an eye out for the US rate decision and comments by US Fed Chair Jerome Powell on the interest rate trajectory. In its October meeting, the US Federal Reserve had kept its key interest rate unchanged at 5.25-5.50%, which it is expected to maintain on Wednesday.

Dealers speculated mutual funds were buying bonds maturing in 2029 and 2030 as current levels in the market offer the same return as the 10-year bond. Moreover, these bonds were in favour, with the fear of open market operation sales through auction pushed back beyond December due to the prevailing liquidity deficit.

On Sunday, liquidity in the banking system was in a deficit of 231.59 bln rupees.

"Traders wouldn't buy the short-term papers as the liquidity is in deficit," a dealer at another state-owned bank said. "However, mutual funds don't have such worries per se, which would be why they might be buying." 

The seven-year benchmark 7.10%, 2029 bond saw trades worth 9.50 bln rupees on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform, about double the typical volumes for this time of the day, dealers said. In the reported deals segment, the bond had four trades worth 6 bln rupees, which was unusual and could signal interest from a corporate treasury or foreign investors.

The RBI holds nearly 500 bln rupees of the 5.85%, 2030 bond that it picked up in open market operations in 2020, which is seen as a favourite for its OMO sales, dealers said.

Traders avoided large bets as they want to keep their portfolios light ahead of the key data releases Tuesday. The next cue on the domestic front is CPI inflation data for November, dealers said.

According to a poll by Informist, India's retail inflation based on CPI likely rose to a three-month high of 5.8% in November from 4.87% in October on the back of a rise in vegetable prices. The RBI's comments at the domestic policy review on Friday suggested it would not take further monetary policy actions even if the print crossed 6%, dealers said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 140.15 bln rupees compared with 286.95 bln rupees at 1330 IST on Friday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.25-7.30%. (M.C. Adhiinthran)

India Gilts: Fall tracking rise in US Treasury yields; volume low

MUMBAI--0930 IST--Prices of government bonds fell, tracking a rise in US Treasury yields, dealers said. The losses were limited as some traders picked up the benchmark 7.18%, 2033 paper, around 7.28% yield level, considered lucrative.

After the outcome of the Monetary Policy Committee meeting, the market remained lacklustre due to lack of fresh cues back home, dealers said. Trade volume also remained low as traders avoided placing large bets as they awaited firm domestic cues.

The ongoing liquidity deficit in the banking system, weighed on short-term bonds, which have remained out of favour for a while now, dealers said. At the end of trade on Friday, liquidity in the banking system was in a deficit of 127.97 bln rupees.

"After the non-event MPC, the market has now moved to inflation data," a dealer at a private bank said. "If it comes way above 6% (for November) then the market will move, otherwise consider that also a non-event."

Next firm cue on the domestic front would be November CPI inflation data, which is scheduled for release on Tuesday. According to a poll by Informist, India's retail inflation based on CPI likely rose to a three-month high of 5.8% in November from 4.87% in October due to a rise in vegetable prices.

At 5.8%, the overall CPI index will rise 0.8% month-on-month in November, the sharpest sequential rise in four months.

On the global front, the yield on the benchmark 10-year US Treasury note rose to 4.24% in early trade, as compared with 4.18% at the time of the Indian market close on Friday. US Treasury yields surged after November non-farm payroll data showed continued tightness in the labour market despite the US Federal Reserve’s efforts to cool the economy.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 13.50 bln rupees compared with 18.45 bln rupees at 0930 IST on Friday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.25-7.32%. (Nishat Anjum)

India Gilts: Seen opening lower tracking rise in US yields

MUMBAI – Prices of government bonds are seen opening lower, tracking a rise in US Treasury yields, dealers said. However, traders may refrain from placing aggressive bets due to lack of significant domestic cues after the outcome of the Monetary Policy Committee meeting on Friday.

On Friday, the domestic rate-setting panel kept the repo rate unchanged at 6.50%, and retained the "withdrawal of accomodation" policy stance.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.24-7.30% today, against 7.27% on Friday. Investors, particularly state-owned banks may step up purchase of the paper at around 7.28% yield, level considered lucrative, which may limit the losses.

Yield on the benchmark 10-year US Treasury note rose to 4.24%, as against 4.18% at the time of the Indian market close on Friday. A rise in US Treasury yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors.

US Treasury yields surged after November non-farm payroll data showed continued tightness in the labour market despite the US Federal Reserve’s efforts to cool the economy. On Friday, the yield on the 10-year paper jumped 10 basis points, marking its biggest one-day gain since Nov 9. The two-year US Treasury yield, rose by 14.5 basis points, its biggest daily jump since Jun 29. It closed at 4.71% on Friday, as against 4.58% on Thursday.

The Labor Department's employment report indicated that US job growth accelerated in November. Data showed non-farm payrolls increased by 199,000 jobs last month, above the 180,000 estimate of economists polled by Reuters, after rising by an unrevised 150,000 in October. The unemployment rate fell to 3.7% from the near two-year high of 3.9% in October.

After the strong economic data, according to CME's FedWatch Tool, expectations for a March cut by the US Fed of at least 25 basis points fell to about 42% currently, down from about 65% on Thursday.

Meanwhile, at the upcoming Federal Open Market Committee meeting, scheduled for Tue-Wed, a whopping 98.4% of interest rate traders expect the US rate-setting panel to maintain the status quo. The current target rate is 5.25-5.50%.  (Nishat Anjum)

End

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

Edited by Avishek Dutta

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