Informist, Friday, Jun 3, 2022

By Shubham Rana

NEW DELHI – Government bonds ended lower today as traders placed fresh short bets ahead of the three-day Monetary Policy Committee meeting starting Monday, dealers said.

The 10-year benchmark 6.54%, 2032 bond settled at 93.78 rupees, or 7.46% yield, against 93.92 rupees, or 7.43% yield on Thursday.

In a poll by Informist, all 30 respondents expect the Reserve Bank of India's rate setting panel to hike the repo rate. Of them, 28 expect the repo rate to be raised by 30-50 basis points. The Monetary Policy Committee had hiked the repo rate by 40 bps to 4.40% in an off-cycle policy meeting on May 4.

"It's just people taking positions before policy," a dealer at a private bank said. "The market had recovered after the auction result today, but then people again placed short bets."

Bonds fell earlier today on fears that the RBI may partially devolve one or more bonds at the 320-bln-rupee weekly gilt auction, particularly the 7.54%, 2036 bond.

Traders were seen cautious of adding to their gilt portfolios ahead of the policy review next week, dealers said.

However, bonds recovered after the auction result came on expected lines and without any devolvement, dealers said.
 

Short-sellers moved to cover their positions after auction cutoffs were set on expected lines, dealers said.

At today's gilt auction, the RBI set 94.44-rupee cutoff at the 5.74%, 2026 bond, 97.62-rupee cutoff at floating rate bond 2028, 98.78-rupee cutoff at the 7.54%, 2036 bond and 90.93-rupee cutoff at the 6.99%, 2051 bond.

"I think investors would have picked up the stock in the 7.54%, 2036 bond as there isn't a big difference between the yields of the 14-year paper and the longer dated papers like the 6.99%, 2051 bond," the dealer said.

After the recovery, traders exercised caution and again took short positions before the policy review, which dragged down bond prices, dealers said.

The yield on the 10-year benchmark 6.54%, 2032 bond topped the 7.47% level but came back as investors stepped up bond purchases at levels considered lucrative, which limited losses. Moreover, traders also covered their short bets as they did not anticipate prices to fall sharply before the policy outcome.

The 10-year benchmark yield is seen at 7.50% at the end of June, according to an Informist poll of 15 analysts, economists and Treasury heads.

"I think till Wednesday, the yield on the 10-year bond should stay near the 7.45% level," a dealer at a state-owned bank said. "Nobody will take a big position right now."

Trade volumes were dismal today, staying below the 300-bln-rupee mark for a third straight day as the demand for dated securities remained muted ahead of the policy outcome.

According to data on RBI's Negotiated Dealing System – Order Matching platform, the market-wide turnover was 260.75 bln rupees compared with 217.90 bln rupees on Thursday.

OUTLOOK

Government bonds are not traded on Saturday.

On Monday, government bonds are seen steady as traders may refrain from placing large bets ahead of the Monetary Policy Committee's meeting outcome on Wednesday.

In a poll by Informist, all 30 respondents expect the rate-setting panel to hike the repo rate. Of them, 28 expect the repo rate to be raised by 30-50 basis points. The Monetary Policy Committee had hiked the repo rate by 40 bps to 4.40% in an off-cycle policy meeting on May 4.

Traders will keep an eye on any sharp movement in crude oil prices or US Treasury yields for triggers.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.42-7.48%.

India Gilts:Recover some losses after auction cutoff on expected lines

NEW DELHI--1445 IST--Government bonds recovered some losses after the 320-bln-rupee auction sailed through today, allaying traders' fears of a devolvement.

Traders covered their short bets after auction cutoffs were set on expected lines, dealers said.

The RBI set 94.44-rupee cutoff at 5.74%, 2026 bond, 97.62-rupee cutoff at floating rate bond 2028, 98.78-rupee cutoff at the 7.54%, 2036 bond and 90.93-rupee cutoff at 6.99%, 2051 bond at today's gilt auction.

Bonds fell earlier on fears that the RBI may partially devolve one or more bonds at the 320-bln-rupee weekly gilt auction, particularly the 7.54%, 2036 bond.

"The auction result came in better than expected, we had expected the RBI to devolve some part of the auction," a dealer at a state-owned bank said. "There is some recovery in the market because the RBI is now seen comfortable at these levels."

Traders are now expected to be cautious about placing large bets before the policy review outcome on Wednesday.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.42-7.47%. (Shubham Rana)

India Gilts: Slip more on fears RBI may devolve 2036 bond at auction

NEW DELHI--1235 IST-–Government bonds fell further on fears that the Reserve Bank of India may partially devolve one or more bonds at the 320-bln-rupee weekly gilt auction, particularly the 7.54%, 2036 bond.

The government has offered to sell 90 bln rupees of the 5.74%, 2026 gilt, 40 bln rupees of the 2028 floating rate bond, 100 bln rupees of the 7.54%, 2036 gilt, and 90 bln rupees of the 6.99%, 2051 gilt.

Auction bidding was muted as traders were cautious of adding to their gilt portfolios ahead of the policy review next week, wherein the Monetary Policy Committee is expected to raise the repo rate by 50 basis points, dealers said.

Banks often avoid stocking up on gilts maturing over 10 years and kept to the sidelines earlier this week at the treasury bill auction also, which led to a rise in the yields on the 182-day and 364-day T-bills, dealers said.

In addition to the newly issued 14-year paper, investors may have demanded yields that the RBI would be uncomfortable with for the 2026 gilt and the 2028 floating rate bond as well, dealers said.

"State-owned banks were seen on the sidelines, there has been no strength to the bidding for the 2036 paper, and it may come with a 3-5 bps tail from the market level, leaving the RBI no step but to devolve," a dealer at a primary dealership said.

"We are hearing devolvement concerns on both the floater and the 2026 paper as well; on our end, the FRB 2028 is likely to see less participation," the dealer said.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.42-7.50%.  (Aaryan Khanna)

India Gilts: Down ahead of auction on crude price rise; MPC meet eyed

NEW DELHI--0950 IST--Government bonds fell ahead of the 320-bln-rupee weekly auction as demand for dated securities was seen muted at the gilt issuance ahead of the policy review next week, wherein the Monetary Policy Committee is expected to raise the repo rate by 50 basis points, dealers said.

Traders made room for the four gilts at the auction, three of which were lightly traded in the secondary market, by dumping on-the-run gilts, dealers said.

A rise in crude oil prices added to traders' concerns on sharp rate hikes, and weighed on gilt prices. Brent crude for August delivery rose over 1% on Thursday, and traded over $117.50 a bbl in Asian trade today.

Short-term bonds saw heavy selling pressure ahead of the fresh supply of the 5.74%, 2026 bond ahead of the policy, even though a recent rise in yields restricted losses.

"Crude at these levels just before policy is an additional concern, because it tells the rate-setting panel that we continue to be in a phase where imported inflation is a sustained risk despite the supply-side measures taken by the government," a dealer at a state-owned said.

Investors stepped up purchases in the 6.54%, 2032 bond after the 10-year benchmark yield topped the psychologically-crucial 7.45% mark, which limited losses. Moreover, traders also covered their short bets as they did not anticipate prices to fall sharply before the policy outcome.

The 10-year benchmark yield is seen at 7.50% at the end of June, according to an Informist poll of 15 analysts, economists and Treasury heads.

During the day, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.41-7.48%.  (Aaryan Khanna)

India Gilts: Seen down ahead of weekly auction as crude prices rise

NEW DELHI – Government bonds are seen opening lower ahead of the 320-bln-rupee weekly gilt auction, and also due to an overnight rise in crude oil prices.

The government has offered to sell 90 bln rupees of the 5.74%, 2026 gilt, 40 bln rupees of the 2028 floating rate bond, 100 bln rupees of the 7.54%, 2036 gilt, and 90 bln rupees of the 6.99%, 2051 gilt.

Traders are seen making room for bonds at the auction by the trimming their holdings of on-the-run securities, with none of the securities at the auction except for the 2026 bond traded heavily in the secondary market, dealers said.

Demand may be muted for the fresh issuance as traders do not have a large quantum of short bets built up ahead of the auction, which typically spurs buying, dealers said.

On the global front, oil prices rose on Thursday as US crude inventory fell more than expected this week, pointing to demand outstripping current supply, even as the Organization of the Petroleum Exporting Countries and its allies lined up production increases.

The bloc of oil producers agreed to raise output by a larger-than-expected 648,000 bps in July and August to compensate for lower supply from Russia.

The Brent crude contract for August delivery settled over 1% higher on Thursday at $117.61 a bbl. Typically, a rise in crude oil prices increases the risk of imported inflation in India and provides less room for the Reserve Bank of India to prolong its monetary policy accommodation.

Moreover, traders are seen wary of stocking up on gilts ahead of the policy review next week, set to be detailed on Wednesday. A majority of dealers expect the Monetary Policy Committee to raise the repo rate by 50 basis points to 4.90%.

Today, the yield on the 10-year benchmark 6.54%, 2032 bond is seen at 7.39-7.47%, as against 7.43% on Thursday.  (Aaryan Khanna)

End

US$1 = 77.62 rupees

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

Edited by Tanima Banerjee

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