Informist, Friday, Dec 1, 2023

By M.C. Adhiinthran and Nishat Anjum

MUMBAI – Government bond prices ended lower today after a lower-than-expected cut-off for the 7.30%, 2053 paper at the 300-bln-rupee gilt auction, dealers said. An overnight rise in US Treasury yields and better-than-expected domestic GDP data also weighed on domestic bonds.

The 10-year benchmark 7.18%, 2033 bond closed at 99.23 rupees, or 7.29% yield, against 99.30 rupees, or 7.28% yield, on Thursday. 

In the secondary market, the 7.18%, 2037 bond fell the most owing to poor demand at the auction for the 2053 paper, dealers said. "SDLs (state government loans) are mostly coming in duration bonds, so that supply concern is weighing on the longer-term bond," said a dealer at another state-owned bank. "I feel the long-end is going to take the brunt in this quarter."

At the auction today, the government sold 7.37%, 2028 bonds worth 70 bln rupees, 7.18%, 2033 bonds worth 130 bln rupees, and 7.30%, 2053 bonds worth 100 bln rupees.

The Reserve Bank of India set the cut-off on the 10-year paper at 99.23 rupees, higher than the market expectations of 99.17 rupees. The cut-off on the five-year paper was set at 100.40 rupees, against the expectation of 100.36 rupees. Meanwhile, the cut-off on the 7.30%, 2053 bond was set at 97.11 rupees, or 7.55% yield, as compared to expectations of 97.17 rupees, or 7.54% yield.  

For the 2053 paper, dealers said that the cut-offs were lower than market expectations as the usual participants, insurance companies and pension funds, did not bid as much as their books were tight from the state loan auctions. 

The recent uptick in state government borrowing in the December quarter has worried the market on the supply front, dealers said. In the last auction, 17 states raised 358 bln rupees through bond sales, against the 295 bln rupees notified in the indicative calendar for Oct-Dec's borrowing.

For the 10-year benchmark paper, dealers speculated that state-owned banks bid well, and primary dealerships covered their short bets, which they had been placing in the last two days. 

Dealers also speculated that mutual funds actively partook in the auction for the five-year paper.

"The paper had decent demand from mutual funds. That maybe why cut-offs were slightly higher than market expectations. These are decent levels," a dealer at a state-owned bank said. "A month-and-a-half back when the yield curve was slightly inverted and yields on the five and seven year papers were higher than the 10-year, mutual funds entered the market for those papers then... haven't left since." 

Meanwhile, in the secondary market, the losses on the benchmark 10-year paper were limited as traders stepped up the purchase at around 7.29%, yield levels considered lucrative, dealers said. 

In early trade, government bonds were weighed by higher-than-expected India GDP data for Jul-Sep, dealers said. India's GDP grew sharply higher than expected at 7.6% in Jul-Sep, driven by a double-digit growth in industry. According to an Informist poll, GDP was seen easing to 6.8% during the quarter. The Jul-Sep GDP growth is also sharply higher than the Reserve Bank of India's projection of 6.5% for the quarter.

Meanwhile, on the global front, the yield on the benchmark 10-year US Treasury note rose to 4.35%, as against 4.30% at the closing hours of the Indian market on Thursday. 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 rose as the initial jobless claims in the US rose by 7,000 to 218,000 in the week ended Nov 25, a period that included the Thanksgiving holiday. Continuing claims, which are a proxy for the number of people receiving unemployment benefits, rose to 1.93 mln in the week ended Nov 18, higher than all estimates in a Bloomberg survey of economists. Continuing claims rose to their highest level since 2021, suggesting that the tight labour market was easing.

Furthermore, the US Federal Reserve's preferred inflation gauge, the Personal Consumption Expenditures Price Index, excluding food and energy prices, rose 0.2% for the month and 3.5% on a year-over-year basis, both in line with expectation. Personal income and spending both rose 0.2% on the month, also meeting estimates and indicating that consumers are keeping pace with inflation.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover was 383.60 bln rupees, compared with 375.75 bln rupees on Thursday. There were no trades done today using the wholesale digital rupee pilot, as against two trades worth 100 mln rupees on the previous day.

OUTLOOK

Gilts are not traded on Saturdays.

On Monday, gilt prices are seen opening steady as traders may avoid aggressive bets due to a lack of significant domestic cues, dealers said. 

Bonds may take cues from the comments of the US Federal Reserve Board Chair Jerome Powell, as he participates in a fireside chat with Spelman College President Helene Gayle. Traders may look out for any forward-looking statement of the Fed Chair regarding the rate trajectory in the US.

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 7.23-7.32%.

India Gilts: Erase most losses; weak demand for 2053 paper at auction

MUMBAI--1443 IST--Government bonds erased most losses today as investors stepped up purchases at lucrative yield levels, dealers said. However, weak demand for the 7.30%, 2053 paper at the 300-bln-rupee auction weighed on the longer-term bonds in the secondary market.

Amongst on-the-run gilts, the benchmark 7.18%, 2033 paper recovered all losses after a higher-than-expected cutoff at the weekly auction, dealers said. Earlier, prices were down tracking an overnight rise in US Treasury yields and better-than-expected GDP growth in India in Jul-Sep.  

At the auction today, the government sold 70 bln rupees of the 7.37%, 2028 bond, 130 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.30%, 2053 bond. The Reserve Bank of India set a cutoff of 100.40 rupees on the 5-year paper, which was a tad higher than the market expectations of 100.36 rupees.

The 5-year paper saw good demand from state-owned banks as the yield levels which were bid at were lucrative, dealers said. "With the 7.27% yield on the 5-year, you know it's a good paper to hold to maturity and trade if needed," a dealer at a state-owned bank said.  The RBI set a cutoff of 99.23 rupees on the 10-year paper, which was also higher than the market expectations of 99.17 rupees.

The 10-year paper also saw a diverse set of investors bid well, and primary dealerships who placed short bets before the auction covered it at the auction, dealers said. 

The RBI set the cutoff of 97.11 rupees or 7.55% yield on the 30-year paper, which was lower than the market expectations of 97.17 rupees or 7.54% yield. 

"The 30-year paper did not see good bidding this time, even from regular participants," a dealer at a state-owned bank said. "If you look at the last state loan auction, we could see the same where insurances and pension funds are just pushing the yields up. They are quite tight now and don't have a lot of space for these bonds." On Tuesday, 17 states raised 358 bln rupees through bond sales, against the 295 bln rupees notified in the indicative calendar for Oct-Dec's borrowing.

Meanwhile, amongst on-the-run papers, the 7.18% 2037 paper was down as demand for the longer-term paper was weak at the auction, dealers said.

Meanwhile, yield on the benchmark 10-year US Treasury note rose to 4.32%, as against 4.30% at the closing hours of the Indian market on Thursday. US Treasury yields rose as the initial jobless claims in the US rose by 7,000 to 218,000 in the week ended Nov 25, a period that included the Thanksgiving holiday.

On the domestic front, India's GDP grew sharply higher than expected at 7.6% in Jul-Sep, driven by double-digit growth in industry, data released on Thursday by the National Statistical Office showed.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 209.25 bln rupees compared with 231.10 bln rupees at 1430 IST on Thursday. 

For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.25-7.33%.  (M.C. Adhiinthran)

India Gilts: Remain down; mkt eyes 300-bln-rupee bond auction result

MUMBAI--1229 IST--Prices of government bonds remained down on the back of a rise in US Treasury yields and better-than-expected GDP growth in India in Jul-Sep, dealers said. The market is awaiting the result of 300-bln-rupee gilt auction, dealers said. 

At the auction today, the government offered 70 bln rupees of the 7.37%, 2028 bond, 130 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.30%, 2053 bond. 

Dealers said that the auction may sail through. However, traders would refrain from bidding aggressively. "The recent rise in supply of the SDLs (state government loans), and issuance in non-SLR has dampened investors' appetite for G-secs (government securities)," a dealer at a private bank said. "And then there is policy (Monetary Policy Committee meeting) next week, nobody would want to go heavy." The domestic rate-setting panel is scheduled to meet on Dec 6-8.

Meanwhile, the benchmark 10-year paper may see bids from multiple sections of the market, dealers said. State-owned banks may pick the paper around 7.29-7.30%, yield levels considered lucrative. Meanwhile, primary dealerships may cover their short bets today, which they had placed in the last two sessions.

The 7.37%, 2028 bond may see demand from banks for their held-to-maturity portfolio, dealers said. Dealers speculated that private bank and state-owned banks would purchase the short-term paper for non-trading books, as it currently trades merely 2 basis points lower than the benchmark 2033 paper. The 2033 paper traded at 7.29% in the secondary market.

Moreover, due to the prevailing illiquid nature of the five-year bond, investors will pick up the short-term papers from the auction rather than going to the secondary market, dealers said.

According to a poll by Informist, the cutoff for the 2028 paper is expected at 100.36 rupees, and for the 2033 bond at 99.17 rupees. Meanwhile, the cutoff on the 2053 paper is seen at 97.17 rupees or 7.54% yield.

The longer-term paper is expected to have moderate demand in the auction, dealers said. Dealers speculated that insurance companies and pension funds will bid for this paper. However, due to the recent supply concerns from the state loan auctions, investors may not bid aggressively for the longer-term paper.

Meanwhile, the yield on the benchmark 10-year US Treasury note rose to 4.33%, as against 4.30% at the closing hours of the Indian market on Thursday. US Treasury yields rose as the initial jobless claims in the US rose by 7,000 to 218,000 in the week ended Nov 25, a period that included the Thanksgiving holiday.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 125.15 bln rupees at 1225 IST compared with 158.85 bln rupees at 1230 IST on Thursday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.25-7.33%. (Siddhi Chauhan)

India Gilts: Fall as US ylds rise; 300-bln-rupee auction eyed

MUMBAI–-0950 IST--Prices of government bonds fell as US Treasury yields rose overnight and due to a better-than-expected GDP growth in India in Jul-Sep, dealers said. However, traders refrained from placing aggressive bets due to caution ahead of the 300-bln-rupee auction scheduled from 1030 IST to 1130 IST.

The government will sell 70 bln rupees of the 7.37%, 2028 bond, 130 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.30%, 2053 bond at the weekly auction.

The yield on the benchmark 10-year US Treasury note rose to 4.34% in trade today, as against 4.30% at the closing hours of the Indian market on Thursday. US Treasury yields rose as the initial jobless claims in the US rose by 7,000 to 218,000 in the week ended Nov 25, a period that included the Thanksgiving holiday. Continuing claims, which are a proxy for the number of people receiving unemployment benefits, rose to 1.93 mln in the week ended Nov 18, higher than all estimates in a Bloomberg survey of economists. 

Some traders also placed short bets on the 2033 paper, which weighed on the bond, dealers said. Traders typically cover their short bets at the auction.

Volume in short term bonds remained minimal due to the prevailing liquidity deficit in the banking system, dealers said. At the end of trade on Thursday, liquidity in the banking system was in a deficit of 487.55 bln rupees. 

With the 7.37%, 2028 paper lined up for the auction today, dealers speculate that it would replace the 7.06%, 2028 paper as the new 5-year benchmark paper. 

Furthermore, dealers expect rangebound trading until the auction results are out. "The market opened a little lower after good GDP data and the rise in US yields," a dealer at a private-bank said. " It will remain rangebound after that as the market would not go aggressive just before the auction."

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 61.55 bln rupees compared with 30.50 bln rupees at 0930 IST on Thursday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.25-7.33%. (M.C. Adhiinthran)

India Gilts: Seen dn as US ylds rise; mkt eyes 300-bln-rupee auction

MUMBAI – Prices of government bonds are expected to open lower following a rise in the yield on the 10-year US Treasury note and a better-than-expected GDP growth in India in Jul-Sep, dealers said. Traders may avoid placing aggressive bets on caution ahead of the 300-bln-rupee auction at 1030-1130 IST.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.25-7.33% today, as against 7.28% on Thursday.

The yield on the benchmark 10-year US Treasury note rose to 4.34% in Asian trade today, as against 4.30% at the closing hours of the Indian market on Thursday. 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 rose as the initial jobless claims in the US rose by 7,000 to 218,000 in the week ended Nov 25, a period that included the Thanksgiving holiday. Continuing claims, which are a proxy for the number of people receiving unemployment benefits, rose to 1.93 mln in the week ended Nov 18, higher than all estimates in a Bloomberg survey of economists. Continuing claims rose to their highest level since 2021, suggesting that the tight labour market was easing.

Furthermore, the US Federal Reserve's preferred inflation gauge, the personal consumption expenditures price index, excluding food and energy prices, rose 0.2% for the month and 3.5% on a year-over-year basis, both in line with expectation. Personal income and spending both rose 0.2% on the month, also meeting estimates and indicating that consumers are keeping pace with inflation.

Domestically, with India's economy showing robust growth, hopes of rate cuts in the next 12 months are likely to fade further and weigh on gilt prices, dealers said. India's GDP grew sharply higher than expected at 7.6% in Jul-Sep, driven by a double-digit growth in industry, data released on Thursday by the National Statistical Office showed.

According to an Informist poll, GDP was seen easing to 6.8% during the quarter. The Jul-Sep GDP growth is also sharply higher than the Reserve Bank of India's projection of 6.5% for the quarter.

The government will sell 70 bln rupees of the 7.37%, 2028 bond, 130 bln rupees of the 7.18%, 2033 bond, and 100 bln rupees of the 7.30%, 2053 bond.

Traders may cover their short bets on the 10-year paper at the auction, which may add to demand for the paper, dealers said. Typically, traders cover their short bets at the auction, and had been aggressive with making room for the auction on Thursday. Broadly, demand at the auction is seen lacklustre as investors prefer stocking up on state and corporate bonds due to their increased supply in November, locking in higher returns.

Crude oil prices fell by around 2% overnight, which may also limit losses in gilts, dealers said. Brent crude oil for February delivery fell to $80.27 a barrel in Asian trade today, from $83.74 per bbl at the closing hours of the Indian market on Thursday. 

Crude oil prices fell after the Organization of the Petroleum Exporting Countries and allies' voluntary oil output cuts fell short of market expectations. A fall in crude prices reduces fears of imported inflation in India, the world's second-largest importer, and reduces pressure on the RBI to keep monetary policy tight. (M.C. Adhiinthran)

End

US$1 = 83.29 rupees

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

Edited by Deepshikha Bhardwaj

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