Informist, Monday, Feb 26, 2024

By Siddhi Chauhan

MUMBAI – Prices of government bonds ended off highs today as traders sold their bond holdings at a profit after prices rose sharply early in the day, dealers said. A sharp fall in US Treasury yields and crude oil prices kept gilt prices firm, but the buying momentum faded later in the session.

The 10-year benchmark 7.18%, 2033 bond closed at 100.79 rupees, or 7.06% yield, compared with 100.70 rupees, or 7.08% yield, on Friday. The bond hit a high of 100.94 rupees, or 7.04% yield, intraday.

Traders were wary of picking up the 7.18%, 2033 bond above the 100.83-rupee mark, with incremental demand from investors uncertain beyond that point, dealers said. Demand from foreign portfolio investors had also become less robust over the past week, even though foreign banks were speculated to have bought gilts today. On the other hand, private and state-owned banks were on the selling side, dealers said.

"People are playing the 7.04-7.10% range, and we have not found any ways to break it," a dealer at a private bank said. "Since there is no fresh stock in the market, people are trading from their existing books only, which is pulling down the trade volumes."

Foreign portfolio investors have been buying ahead of the JP Morgan and Bloomberg index inclusions, dealers said. JP Morgan will include India's gilts in its Government Bond Index – Emerging Markets starting Jun 28, and Bloomberg has proposed to add fully-accessible-route bonds in its Emerging Markets Local Currency Index starting September.

Meanwhile, the shorter-tenure papers remained out of favour due to the tight liquidity conditions and uncertainty regarding rate cuts on the domestic front, dealers said. On Sunday, the liquidity deficit in the banking system was 2.14 trln rupees. It has been above 1 trln rupees since mid-December.

"Overall, there was selling in the market during the latter half of the day as US Treasury yields inched upwards," a dealer at a private bank said. "Apart from that, profit booking also added to downward pressure. Even the longer tenure bond closed a bit lower than the previous closing."

Towards the end of trade, the 10-year US Treasury yield inched up to 4.25%, limiting the gains in gilts prices, dealers said. The 10-year US benchmark yield had fallen to as low as 4.22% earlier in trade, from 4.33% at the close of Indian markets on Friday.

The fall in US Treasury notes was accompanied by a fall in crude oil prices as well. The Brent crude oil futures contract for April delivery fell nearly 3% on Friday to settle at $81.62 a barrel, and was down further today to $81.18 a bbl.

However, traders saturated with long-term bonds were not in favour of adding to their portfolios as prices rose. The 7.30%, 2053 bond, which has remained in favour as it offers greater capital gains in a falling interest rate environment, erased all early gains and ended lower due to profit booking by some traders, dealers said. Meanwhile, dealers speculated that the 7.25%, 2063 bond was picked up by foreign banks and insurance companies early in the day, but even this bond tumbled from highs.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover was 299.85 bln rupees, up from 258.40 bln rupees on Friday. Four trades worth 200 mln rupees were carried out using the wholesale digital rupee pilot, as against eight trades worth 900 mln rupees on Friday.

OUTLOOK

On Tuesday, bond prices may open steady due to lack of significant cues, dealers said. Some investors may stock up on gilts as the state bond auction this week is smaller than expected. Twelve states will raise 328.49 bln rupees through the sale of bonds on Tuesday, against 451.60 bln rupees scheduled for this week in the indicative calendar for Jan-Mar.

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 7.05-7.10% during the day.

India Gilts: Give up some gains; buying fades as traders book profit

MUMBAI--1618 IST--Government bonds gave up some gains as buying momentum in the market faded and selling for profit kicked in after prices rose sharply earlier in the day, dealers said. Gilt prices had risen on the back of a slump in US Treasury yields and crude oil prices.
 

"As the yield (on the 7.18%, 2033 bond) reached 7.04% levels, traders started booking profits." a dealer at a state-owned bank said. "State-owned banks might have booked some profit. Along with them, some private banks would have also booked profits." Traders were wary of picking up the 7.18%, 2033 bond above the 100.83-rupee mark, with incremental demand from investors uncertain beyond that point, dealers said.

Foreign banks likely spearheaded bond purchases today, while state-owned and private banks were on the selling side, dealers speculated. Foreign banks have been buying gilts for themselves and for foreign portfolio investors ahead of the inclusion of Indian bonds in global indices. JP Morgan will add Indian gilts to its Government Bond Index-Emerging Markets starting June. Bloomberg Index Services Ltd has proposed to clients the inclusion of Indian bonds to its Emerging Market Local Currency Index from September.

Long-term bonds held their gains, buoyed by overseas cues. The yield on the 10-year benchmark US Treasury note was at 4.24%, down 9 basis points from the Indian market close on Friday. The Brent crude oil futures contract for April delivery fell nearly 3% on Friday to settle at $81.62 a bbl, and was down further today to $81.17 a bbl. Meanwhile, bonds maturing up to 2030 remained out of favour as uncertainty regarding rate cuts on the domestic front kept traders at bay, dealers said.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the marketwide turnover was 249.65 bln rupees, against 200.40 bln rupees at 1530 IST on Friday. For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.04-7.08%.  (Siddhi Chauhan)

India Gilts: Remain up; poor participation seen at switch auction

MUMBAI--1220 IST--Prices of government bonds remained sharply up today as US Treasury yields and crude oil prices fell, dealers said. Most dealers said they did not participate at the 190-bln-rupee gilt switch auction held during 1030-1130 IST. 

Some of the participants at the auction said that only around half the notified amount may be picked up by state-owned and private banks for their balance-sheet management, with cutoff prices around the levels notified by Financial Benchmarks India Ltd on Friday. The government is set to switch seven short-term gilts with 10 bonds of longer maturities. Of the longer-term destination securities, traders preferred the 8.33%, 2036 bond, the 6.80%, 2060 bond and the 6.76% 2061 bond, dealers said.

"People are already heavy on duration, and don't seem to be lacking such securities in the market," a dealer at a private bank said. "I'm not ruling out a rally due to FII (foreign institutional investor) buying, but there's not that much incentive to do this through the switch."

In the secondary market, volumes were low as traders lacked firm cues to place large bets beyond the opening hour, dealers said. Amid thin trade, state-owned banks were selling their bond holdings at a profit, while private banks and foreign banks picked up gilts. "The buying side is really weak today," a dealer at a private bank said. "These are not good levels to buy at all. Just some foreign banks and privates (banks) I heard were buying."

After rising sharply in opening trade, gilts traded in a narrow band as crude oil prices and US yields were steady from levels at the beginning of gilt trading hours. The yield on the benchmark 10-year US Treasury note was at 4.23%, down 10 basis points from the Indian market close on Friday, as investors firmed up expectations of a rate cut in the middle of the year. Crude oil prices fell nearly 3% as high interest rates were set to continue in the world's largest economy. Brent crude oil futures contract for April delivery was at $81.46 a bbl.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the marketwide turnover was 119.00 bln rupees as against 104.20 bln rupees at 1230 IST on Friday.

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.02-7.08%.  (M.C. Adhiinthran)

India Gilts: Sharply up on fall in US yields, crude oil prices

MUMBAI--1007 IST--Prices of government bonds rose sharply, tracking a slump in US Treasury yields, dealers said. Moreover, a significant fall in crude oil prices also aided gilt prices, dealers said.

The 10-year US benchmark fell to 4.24% from 4.32% at the time Indian markets closed on Friday. US Treasury yields fell as investors firmed up expectations of a rate cut in the middle of the year.

"This is purely a reaction to a fall in US yields. Another trigger is a fall in crude oil prices," a dealer at a state-owned bank said. "PSUs (state-owned banks) are booking profits, while everyone else is buying right now."

The delay in interest rate cuts by at least another couple of months could slow economic growth and curb oil demand, US Federal Reserve Governor Christopher Waller said. Crude oil prices fell nearly 3% on Friday and posted a weekly decline after Waller's comments.

Back home, dealers speculated that state-owned banks that bought the benchmark 10-year 7.18%, 2033 paper last week around 7.08%-7.11% yield levels were trimming their holdings. Some state-owned banks said they were still hopeful of prices falling again despite the rise today, as there was no firm trigger for the benchmark yield to move below 7.00% yet.

Traders expect firm demand at the 190-bln-rupee gilt switch auction at 1030-1130 IST, which would help the government meet its target of 1 trln rupees in 2023-24 (Apr-Mar). The government has so far switched 903.02 bln rupees of gilts this year, and may avoid switching more than the target, keeping the total subscription capped. Investors prefer long-term bonds in lieu of short-term paper due to the higher capital gains on such paper, amid no clarity on India's rate cut path, dealers said.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 62.65 bln rupees, as against 71.10 bln rupees at 1030 IST on Friday.

During the day, yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.02-7.08%.  (Anupreksha Jain)

India Gilts: Seen higher tracking fall in US yields

MUMBAI – Government bond prices are seen opening higher today owing to a sharp fall in US Treasury yields, dealers said. Traders may avoid aggressive bets amid a lack of firm domestic cues. 

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.02-7.08%, against 7.08% on Friday. 

Meanwhile, the 10-year US benchmark fell to 4.24% from 4.32% at the time the Indian market closed on Friday. A fall in US yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter less appealing to foreign investors. 

US Treasury yields fell as investors firmed up expectations of a rate cut in the middle of the year. The US Federal Reserve policymakers should delay interest rate cuts by at least another couple of months, said Fed Governor Christopher Waller, which could slow economic growth and curb oil demand. 

In a policy speech delivered in Minneapolis, he said higher-than-expected inflation readings for January raised questions about where prices are heading and how the US Fed should respond. The consumer price index in the US, released Tuesday, showed that it rose 0.3% in January and was up 3.1% from the same period a year ago, both higher than expected. 

Moreover, a fall in crude oil prices may also aid gilt prices, dealers said. Crude oil prices fell nearly 3% on Friday and posted a weekly decline after one of the US Fed policymakers indicated interest rate cuts could be delayed by at least two more months.

Meanwhile, back at home, the Reserve Bank of India will conduct a switch auction of government securities for an aggregate amount of 190 bln rupees at 1030-1130 IST. Demand at the auction is seen as firm, especially for long-term bonds as traders might buy long-term papers due to end of fresh supply of gilts for the current financial year ending March, dealers said.

Further, investors globally await a slew of economic data this week. These include China's manufacturing purchasing manager's index data, Japan's CPI data for January, and the US personal consumption expenditure price index data, which is the US Fed's preferred inflation gauge.  (Anupreksha Jain)

End

US$1 = 82.89 rupees

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

Edited by Ashish Shirke

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