Informist, Monday, Mar 28, 2022

By Shubham Rana

NEW DELHI – Government bonds ended lower today as traders trimmed their bond holdings after the yield on the 10-year US Treasury note surged past the psychologically-crucial 2.50%, a three-year high, due to fear of the US Federal Reserve hiking interest rates quicker than expected, dealers said.

The 10-year benchmark 6.54%, 2032 bond settled at 97.90 rupees, or 6.84% yield, against 98.07 rupees or 6.81% yield on Friday.

US Treasury yields have risen 35 basis points over the past week after Fed Chair Jerome Powell and other Fed officials said the central bank would take necessary steps to address the multi-decade high inflation, including a 50-bps hike in the next policy meeting.

A rise in US Treasury yields narrows the interest rate differential between the haven asset and emerging market debt, making the latter less appealing to foreign investors.

However, the losses were limited because of a fall in crude oil prices, dealers said.

Brent crude futures for May delivery were down close to 4% today from Friday's close of $120 a barrel as demand for the commodity was seen impacted after a fresh lockdown was imposed in Shanghai due to rising COVID-19 cases.

Investors also stepped up purchases as the domestic 10-year benchmark yield hit the key 6.85% level. Last week, investors, mainly pension funds, were seen stocking up on gilts as they deployed their excess funds near the end of the financial year.

"The market has remained stable despite US yields surging because of the lack of supply and uncertainty surrounding the borrowing programme. The monetary policy is also due, so people are cautious," a dealer at a state-owned bank said.

Meanwhile, traders avoided aggressive bets as they await the release of the government's Apr-Sep borrowing calendar later this week. Officials from the Reserve Bank of India and the Centre are likely to meet on Wednesday to finalise the borrowing plan for Apr-Sep, television news channels reported today, quoting agencies.

"If the government borrows closer to 60% in the first half, then the yield on the 10-year bond will reach 7.00%," a dealer at a state-owned bank said. "The RBI has to keep this in mind before the releasing the calendar or else they will have to provide support to the market through open market operations."

The market is of the view that the Centre will borrow around 55% of its gross borrowing in the first half this time, compared to 60% in 2021-22 (Apr-Mar).  

According to data on the RBI's Negotiated Dealing System – Order Matching platform, the market-wide turnover was 199.05 bln rupees, as against 177.90 bln rupees on Friday.

OUTLOOK

On Tuesday, government bonds are seen opening steady as traders may stay on the sidelines due to lack of significant cues.

A larger-than-expected issuance of state bonds may weigh on gilts. After market hours on Friday, the RBI said 17 states would raise 373.53 bln rupees through the sale of bonds on Tuesday at the last scheduled auction of dated securities in the current financial year.

For triggers, traders await the release of the borrowing calendar for Apr-Sep, likely to be detailed this week.

The lack of fresh supply of gilts in March is seen supporting bonds. Moreover, traders may avoid aggressive bets ahead of the end of the financial year on Thursday, dealers said.

Traders will also take into account fresh developments related to the Russia-Ukraine conflict.

Any sharp movement in crude oil prices and US Treasury yields may lend cues when the market opens.

The yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.79-6.89%.

India Gilts: Remain down; volumes muted as mkt awaits borrow calendar

NEW DELHI--1430 IST--Government bonds remained down as yield on the 10-year benchmark Us Treasury note stayed above the psychologically-crucial 2.50% level. Volumes were muted because traders stayed on the sidelines as they await the release of the Centre's borrowing calendar for Apr-Sep, dealers said.

US Treasury yields have risen 34 basis points over the last one week after US Federal Reserve officials, including Chair Jerome Powell, said that they are open to aggressive rate hikes in the coming meetings to control the multi-decade high inflation. 

Meanwhile, officials from the Reserve Bank of India and the Centre are likely to meet on Wednesday to finalise the borrowing plan for Apr-Sep, television news channels reported today quoting agencies.

The Centre usually frontloads its borrowing in Apr-Sep. However, the market is hopeful that this time the government will borrow around 50% in the first half on the financial year as compared to 60% in 2021-22 (Apr-Mar).

Further, a drop in crude oil prices limited the fall in bond prices, dealers said.

Brent crude futures for May delivery fell nearly 4% today from Friday's close of $120 a barrel as China imposed a fresh lockdown in Shanghai due to rising COVID-19 cases.

"Right now, the fall in crude prices is keeping the bonds from falling more. People are also not placing bets near end of financial year," a dealer at a state-owned bank said.

"While we expect the government to borrow around 55%, anything higher than this will hurt the market badly."

For the rest of the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.80-6.86%.  (Shubham Rana)

India Gilts: Slump as 10-year US yld tops 2.50% on Fed rate hike view

NEW DELHI – Government bonds slumped as traders trimmed their bond holdings due to a sharp rise in US Treasury yields on fears of aggressive rate hikes by the US Federal Reserve, dealers said.

Foreign investors could favour the safe-haven US treasury notes or bonds issued by other governments, with domestic gilts not providing a lucrative interest rate differential over US yields, due to a lack of supply which has limited the rise in yields, dealers said.

Yield on the 10-year US Treasury note topped the psychologically-crucial 2.50% in Asian trade today after gaining 34 basis points in the previous week.

Investors stepped up purchases as yield on the 10-year benchmark 6.54%, 2032 bond approached 6.85%, with purchases at that level seen attractive until the Centre's next issuance in the upcoming financial year, dealers said.

"Despite the Reserve Bank of India's comments, I don't think we can continue to ignore global movements for an extended period of time," a dealer at a private bank said.

Moreover, pension funds were likely stocking up on on-the-run gilts to invest inflows ahead of the end of the financial year on Thursday, dealers said.

Traders also avoided aggressive bets on caution ahead of the release of the borrowing calendar for Apr-Sep this week, dealers said.

Officials from the Reserve Bank of India and the Centre are likely to meet on Wednesday to finalise the borrowing plan for Apr-Sep, television news channels reported quoting agencies.

During the day, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.79-6.86%.  (Aaryan Khanna)

India Gilts: Seen down on surge in US yields; borrow calendar eyed

NEW DELHI – Government bonds may open lower today tracking a surge in US Treasury yields amid fear of continued outflows by foreign investors due to a sharply lower interest rate differential between the safe-haven asset and emerging market debt, dealers said.

Yield on the 10-year US Treasury note jumped 14 basis points to a near three-year high of 2.48% on Friday as investors anticipated more aggressive rate hikes by the Federal Reserve. In Asian trade today, the US benchmark yield topped the psychologically-crucial 2.50% mark.

Market participants have raised their expectations for rate hikes after comments by Fed Chair Jerome Powell and several other Fed officials last week. The yield on 10-year US Treasury note jumped 34 basis points last week.

Foreign investors sold 10.98 bln rupees worth of gilts under the general and fully-accessible route last week, according to data from the Clearing Corp of India.

With the rising US yields and the Reserve Bank of India unlikely to hike rates at its policy review in April, domestic debt may remain out of favour for overseas investors as gilt yields have been in a narrow band over the past week, dealers said.

On the other hand, gilts may find support from a slump in crude oil prices today. Brent crude oil contract for May fell 3% to $117.27 per bbl in Asian trade from its settlement on Friday.

On the domestic front, a larger-than-expected issuance of state bonds may also reduce appetite for gilts. After market hours on Friday, the RBI said 17 states will raise 373.53 bln rupees through the sale of bonds on Tuesday at the last scheduled auction of dated securities in the current financial year.

Traders may avoid large bets ahead of the release of the borrowing calendar for Apr-Sep this week, with uncertainty about both the size of the government's weekly issuance and the maturity buckets under which it will borrow, dealers said.

Last week, Informist reported that officials from the government and the Reserve Bank of India are likely to meet early this week to finalise the calendar for the first half of the upcoming fiscal.

Today, yield on the 10-year benchmark 6.54%, 2032 bond is seen at 6.79-6.86% against 6.81% on Friday.  (Aaryan Khanna)

End

US$1 = 76.16 rupees

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

Edited by Avishek Dutta

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