Informist, Monday, Feb 12, 2024

By Anupreksha Jain

MUMBAI – Prices of government bonds ended on a mixed note. Most gilt prices were little changed as traders avoided placing aggressive bets ahead of India's January CPI data due at 1730 IST, dealers said.

The 10-year benchmark 7.18%, 2033 bond ended higher as investors stepped up purchases at psychologically crucial levels, dealers said. On the other hand, the 14-year benchmark 7.18%, 2037 gilt was the laggard among on-the-run papers ahead of the weekly gilt auction on Friday, the last for this financial year ending March, dealers said.

The 7.18%, 2033 bond closed at 100.58 rupees, or 7.09% yield, compared with 100.50 rupees, or 7.11% yield on Friday.

India's annual inflation rate based on CPI is expected to moderate to a three-month low of 5.1% in January from 5.69% in December, mainly on account of a statistical effect of a high base, an Informist poll showed. Along with the favourable base effect, a fall in vegetable prices in January is likely to have helped in moderating retail inflation, economists said. 

If the January CPI inflation data is lower than 5.1%, the yield on the 7.18%, 2033 bond may reach 7.00% and if the print comes higher than expected, the yield on the benchmark 10-year bond may reach 7.15%, dealers said. 

Dealers speculated that state-owned banks were on the buying side in the secondary market as the yield on the benchmark 7.18%, 2033 hovered around 7.10%, a level considered lucrative, and with limited fall in prices seen. Some traders also bet on a positive CPI reading and added to their portfolios late in the day, after trimming their gilt holdings on Friday, dealers said. Moreover, some were of the view that consumer inflation prints until March would tend towards the Reserve Bank of India's 4% target.

"Not a lot of action in the market right now. The market is in a tight range as traders are waiting for the CPI data," a dealer at a state-owned bank said. "Overall expectations of the CPI are positive and if it comes on these lines there will definitely be some cheer in the market. We may see the yield on the 10-year falling to 7.05%."

Foreign banks may have been on the selling side today with limited trading volumes as foreign portfolio investment flows were limited, dealers said. Primary dealerships likely placed short bets on the 14-year benchmark paper, which is scheduled for auction on Friday.

The volume of interbank repo trades in a given paper is a proxy for tracking the quantum of short bets, as overnight short-sellers necessarily have to borrow the securities. On the Clearcorp Repo Order Matching System, the repo turnover for the 7.18%, 2037 bond rose to 61.50 bln rupees, up from Friday, dealers said.

Trade volumes were also subdued ahead of inflation data in the US. Traders may remain cautious ahead of the US January CPI data, due at 1900 IST on Tuesday, to take further cues on the Federal Reserve's rate trajectory. Economists surveyed by Bloomberg expect the US year-on-year inflation figure to drop to 2.9% in January, from 3.4% the previous month, which would be the lowest level since early 2021. 

"Apart from our inflation data, the only significant cue that is left is the US CPI data," a dealer at a state-owned bank said. "Every other significant event is over, such as the MPC (Monetary Policy Committee) meeting, the Interim Budget, so US data becomes very crucial to track."

The US CPI print for January has become more closely-watched after much-awaited revisions to 2023 CPI data did not lend cues to the market. The US CPI rose 0.2% in December instead of 0.3% as reported last month, the revisions showed. Data for November was revised upward with the CPI increasing 0.2% rather than 0.1% as previously estimated.

After the revisions, 82.5% of Fed fund futures traders expect the Federal funds interest rate to remain at 5.25-5.50% in the next Federal Open Market Committee meeting in March, according to the CME Group's FedWatch tool. Over two-thirds of the traders expect a 25-basis-point rate cut in the US in May.

On the domestic front, traders may take cues from investors' appetite at the state-loan securities auction, scheduled at 1030-1130 IST on Tuesday. The lower-than-indicated state loan auction quantum this week may also aid bond prices. Nine states will raise 175 bln rupees through the sale of bonds on Tuesday. The indicative calendar for state borrowing for Jan-Mar showed states would borrow 369.60 bln rupees on Tuesday.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 310.45 bln rupees, sharply down from 489.15 bln rupees on Friday. Two trades totalling 100 mln rupees were carried out using the wholesale digital rupee pilot today, as against no trades on Friday.

OUTLOOK

On Tuesday, long-term gilts may open higher as traders stock up on those gilts, with the state bond auction this week much smaller than expected, dealers said. Though the RBI announced the state auction on Friday, the movement was limited today ahead of India's January CPI print.

In data released post market hours, India's headline inflation fell to a three-month low of 5.1% in January from 5.69% in December. The reading was in line with the median estimate of 20 economists in an Informist poll.

Traders may add to their long-term bonds with CPI inflation out of the way, dealers said. The RBI on Friday said nine states will raise 175 bln rupees through the sale of bonds on Tuesday, against 369.60 bln rupees scheduled this week in the indicative calendar for Jan-Mar.

Traders also await US Jan CPI data, due at 1900 IST on Tuesday. Any sharp movement in US Treasury yields or crude oil prices may lend cues at the opening.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.05-7.11% during the day.

India Gilts: Most largely unchanged on caution before India Jan CPI

MUMBAI--1509 IST--Prices of most government bonds were largely unchanged as traders avoided placing aggressive bets on caution ahead of India's January CPI data due at 1730 IST, dealers said. Meanwhile, the 7.18%, 2037 bond traded lower as traders placed short bets ahead of the bond auction on Friday.

"Foreign banks might be selling as US yields have gone up," a dealer at a state-owned bank said. "They might not be selling too much because if they were, then the market would have fallen sharply." A rise in US yields narrows the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors. 

According to data from Clearing Corporation of India Ltd, foreign banks were on the selling side on Friday. Meanwhile, the yield on the 10-year benchmark US Treasury note rose to 4.19% from 4.16% at the time of Indian market close on Friday.

Meanwhile, dealers speculated that state-owned banks were on the buying side as the yield on the benchmark 7.18%, 2033 hovered around 7.10%, a level considered lucrative. 

India's annual inflation rate based on CPI likely moderated to a three-month low of 5.1% in January from 5.69% in December, mainly on account of a statistical effect of a high base, an Informist poll showed. Dealers said if India's annual inflation data for January comes in the range of 4.8-5.4%, it may not have an impact on the market as it is already factored in. However, if India January CPI inflation data is lower than estimate, the yield on the 7.18%, 2033 bond may reach 7.00%. Meanwhile, if the Jan CPI print comes higher than expected, the yield on the benchmark 10-year bond may reach 7.15% levels, dealers said.

Dealers said the market is looking forward to the core CPI inflation data as it is likely to remain around 3.8-3.9%, within the Reserve Bank of India's inflation band of 2-6%, dealers said. On the other hand, food inflation has been more volatile than the headline, and vegetable prices have been the main culprit for the noise contributed by the segment.
 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 231.95 bln rupees, as against 327.75 bln rupees at 1430 IST on Friday.

For rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.07-7.12%. (Siddhi Chauhan)

MUMBAI--1226 IST--Prices of government bonds erased most gains, while investors' purchases at psychologically crucial levels helped gilts to stay afloat, dealers said. Traders awaited India's Jan CPI data, due at 1730 IST, dealers said. 

Among on-the-run papers, the 14-year paper, 7.18%, 2037 was down as traders placed short bets ahead of the gilts auction scheduled on Friday. However, dealers said that post the Interim Budget for 2024-25 (Apr-Mar), traders have cut down their short positions, leading to a lower number of short bets.

"Nothing much is happening in the market as the market is awaiting CPI data. Apart from the CPI data, there are no significant cues, both globally and domestically. Yields on the 10-year paper (7.18%, 2033) are likely to remain around 7.07-7.12%," a dealer at a primary dealership said. "In the last couple of days, FPIs have sold large chunks of gilts. Since then, there has been some selling pressure in the market."

According to the Clearing Corporation data, foreign investors trimmed their bond holdings by 48 bln rupees on Friday from 160.75 bln rupees on Thursday. Dealers speculated that state-owned banks were on the buying side, while primary dealerships and foreign banks were on the selling side.

India's annual inflation rate based on CPI likely moderated to a three-month low of 5.1% in January from 5.69% in December, mainly on account of a statistical effect of a high base, an Informist poll showed. 

Meanwhile, dealers said that the market is looking forward to the core CPI inflation data as it is likely to remain around 3.8-3.9%, within the Reserve Bank of India's inflation band of 2-6%, dealers said. On the other hand, food inflation has been more volatile than the headline, and vegetable prices have been the main culprit for the noise contributed by the segment.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 143.90 bln rupees, as against 236.85 bln rupees at 1330 IST on Friday.

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.07-7.12%. (Anupreksha Jain)

India Gilts: Up as traders cover short bets ahead of India Jan CPI 

MUMBAI--0930 IST--Prices of government bonds were up as some traders rushed to cover their short bets ahead of India's Jan CPI data, dealers said. The lower-than-indicated state loan auction quantum this week also aided prices.

The Reserve Bank of India on Friday said nine states will raise 175 bln rupees through the sale of bonds on Tuesday. The indicative calendar for state borrowing for Jan-Mar showed states would borrow 369.60 bln rupees on Tuesday. "With CPI expected to be on the lower side, some are rushing to cover their short bets," a dealer at a private bank said. "The market should remain in a thin range after that." 

India's annual inflation rate based on CPI likely moderated to a three-month low of 5.1% in January from 5.69% in December, mainly on account of a statistical effect of a high base, an Informist poll showed. 

Later in the day, the market would take cues from US Treasury yields when European trade starts, dealers said. US Treasuries were not traded in Asian trade as the Japanese markets were shut on account of Japan National Foundation Day. The yield on the benchmark 10-year US Treasury note settled at 4.17% on Friday, little changed from the time of the Indian market close on the same day. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 39.00 bln rupees, as against 28.50 bln rupees at 0930 IST on Friday.

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.07-7.12%. (M.C. Adhiinthran) 

India Gilts: Seen opening steady; market awaits Jan CPI data

MUMBAI – Prices of government bonds are seen opening steady today due to lack of significant cues, both on the domestic and global fronts, dealers said. Moreover, traders may refrain from placing aggressive bets on caution ahead of the January CPI data, due at 1730 IST today.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.08-7.14%, against 7.11% on Friday.

India's annual inflation rate based on CPI likely moderated to a three-month low of 5.1% in January from 5.69% in December, mainly on account of statistical effect of a high base, according to an Informist poll. The headline inflation rate was 6.52% in January last year. 

The base effect is such that even if the overall index remains unchanged in January from the previous month, 

CPI inflation will ease to 5.2%. Along with the favourable base effect, a fall in vegetable prices in January is also expected to have helped in moderating retail inflation, economists said. 

Core inflation, which excludes volatile items like food and fuel, is expected to stay below the 4% mark in January as well. Core inflation fell to 3.9% in December. This was the first sub-4% core inflation print since December 2019.

Getting inflation to the target of 4% on a sustainable basis has been a key objective of monetary policy as repeated by the rate-setting panel's members on multiple occasions. In his statement on Thursday, Reserve Bank of India Governor Shaktikanta Das said the job is not yet finished, and we need to be vigilant about new supply shocks that may undo the progress made so far.

Later in the day, traders may take cues from the US Treasury yields as they start trading in European trade. US Treasury notes were not traded in Asia today, as the Japanese markets were shut on account of Japan National Foundation Day. Yield on the benchmark 10-year US Treasury note settled at 4.17% on Friday, little changed from the time of the Indian market close on the same day.  (Nishat Anjum)

End

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

Edited by Saji George Titus

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