Informist, Tuesday, Oct 17, 2023

By Aaryan Khanna

NEW DELHI – Government bond prices ended off highs today as traders trimmed their gilt holdings near close, noting an intraday rise in US Treasury yields ahead of key retail sales data and comments by US Federal Reserve officials, dealers said.

The 10-year benchmark 7.18%, 2033 bond closed at 98.97 rupees, or 7.33% yield, against 98.91 rupees, or 7.34% yield, on Monday.

The yield on the benchmark 10-year US Treasury note rose to 4.76% at the time of the Indian market close from 4.69% on Monday. 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.

Economists polled by Dow Jones estimate that retail sales in the US in September rose a modest 0.3% from the prior month, after rising robustly in August, in part because of higher gas prices. 

Meanwhile, the docket of US Fed speakers after market hours today include John Williams and Michelle Bowman, as well as Federal Open Market Committee voting member Thomas Barkin at 2015 IST.

"US Treasury yields had been creeping up during the day," a dealer at a private bank said. "People had bought in the morning, so they moved to correct their positions."

Meanwhile, foreign investors were speculated to have picked up gilts during the day, but the buys dried up in the face of oil prices rising by the end of market hours, dealers said. Brent crude for December delivery regained the $90-a-bbl mark at the Indian market close after remaining below the crucial level for most of the day.

Regardless, gilt prices ended higher due to relief that the Reserve Bank of India did not announce an open market sale operation after market hours on Monday, as some sections of the market had expected, dealers said. 

On Monday, the market was on watch for an OMO notice from the RBI, and lack of such a notice pushed up gilt prices.

Typically, the RBI notifies its open market operations after market hours on Monday and conducts the auction on Thursday. On Oct 6, RBI Governor Shaktikanta Das had said the central bank might resort to OMO sales to drain surplus liquidity. This is likely to keep the market on tenterhooks at the start of every week as there is lack of clarity on what will trigger the central bank to make the move, dealers said.

Trade volumes in the second half of the day were dull after traders covered their short bets early. With state-owned banks not keen to add gilts to their portfolios until the 10-year yield was near 7.35%, and private banks speculated to be booking profits, gilts were not able to hold on to gains, dealers said. 

"There is not much positioning beyond intraday movement," a dealer at a state-owned bank said. "Unless there are flows, either from mutual funds or foreign investors, the market is going to trade within this 7.30-7.35% band (on the 10-year benchmark yield)."

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 280.70 bln rupees, compared with 263.20 bln rupees on Monday. There were six trades using the wholesale digital rupee pilot today worth 300 mln rupees, against seven trades worth 450 mln rupees the previous day.

OUTLOOK

On Wednesday, prices of government bonds may open lower after US retail sales for September beat estimates and suggested that the US Federal Reserve might either tighten monetary policy further or keep rates higher for longer, dealers said. 

Data released after Indian market hours showed US retail sales rose 0.7% on month, against an estimate of 0.3% by economists polled by Dow Jones.

Losses may be limited due to lack of significant domestic cues. Traders may look ahead to a speech by US Fed Chair Jerome Powell on Thursday, before minutes of the Monetary Policy Committee's October meeting on Friday, dealers said.

A sharp move in US Treasury yields and crude oil prices could also be a trigger for gilt prices at open.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen in a range of 7.30-7.38%.

India Gilts: Remain up; volume low on lack of fresh domestic cues

MUMBAI--1530 IST--Prices of government bonds stayed up as concerns around open market operations eased temporarily. As such announcements are made on the first day of the week, the market had expected an announcement on Oct 16, but that wasn't the case. 

Traders refrained from placing large bets after early trade, as the market lacked fresh domestic cues, dealers said.

The state government loan auction was largely along expected lines and failed to lend any fresh cues to the market, dealers said. At the auction, the Reserve Bank of India set the cut-off range on states' 10-year papers in the range of 7.65%-7.67%, compared to the 7.65%-7.70% expected in a poll conducted by Informist.

Meanwhile, in the secondary market, state-owned banks were said to be on the buying side, and private sector banks on the selling side, dealers said. 

Dealers speculated that foreign portfolio investors stepped up purchases of government bonds, dealers said. This supported gains in gilts.

The market tracked US Treasury yields and crude oil prices throughout the day, dealers said. "While the Venezuelan oil sanction being lifted did ease the market sentiments, the market still holds concerns regarding the Israel war, which will weigh on crude prices," a dealer at a private bank said. 

Brent crude oil for December delivery fell under the crucial $90-a-barrel mark today, allowing foreign investors to receive overnight index swap rates, which aided gilt prices, dealers said. Currently, Brent crude for December delivery is at $90.03-a-bbl compared to $90.68-a-bbl at the close of Indian markets on Monday.

The yield on the benchmark 10-year US Treasury note rose to 4.75% from 4.69% at the time of Indian market close on Monday. The rise in US Treasury yields was due to a slew of bond issuances by the US government, which has stepped up its market borrowing since July.

However, the prospect of OMO sales continues to worry the market, and it expects an announcement on this sometime in November, dealers said.

"The market is really cautious about the OMO announcement", a dealer at another private bank said. "This is why the volumes have been low the past few days."

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 222.80 bln rupees, compared with 195.30 bln rupees at 1530 IST on Monday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.28-7.35%. (M.C. Adhiinthran)

India Gilts: Rise as levels seen lucrative on lack of OMO sale notice

MUMBAI--1335 IST--Prices of government bonds rose as traders considered prices to be lucrative since the Reserve Bank of India did not notify an open market sale operation this week, as some sections of the market had expected, dealers said. 
 

On Monday, the market was on watch for an OMO notice from the RBI, and lack of such a notice pushed up gilt prices despite a rise in US Treasury yields, dealers said.

Typically, the RBI notifies its open market operations after market hours on Monday and conducts the auction on Thursday. On Oct 6, RBI Governor Shaktikanta Das had said the central bank may resort to OMO sales to drain surplus liquidity. This is likely to keep the market on tenterhooks at the start of every week as there is lack of clarity on what will trigger the central bank to make the move, dealers said.

Brent crude for December delivery fell under the crucial $90-a-bbl mark today, which also led some foreign investors to receive overnight indexed swap rates, in turn pushing up gilt prices, dealers said.

"Market is up as we see buying interest as yield levels are lucrative," a dealer at a state-owned bank said. "Also, we expect yields to go down, and then the market will sell and book profits." 

The gains were capped as the yield on the benchmark 10-year US Treasury note rose to 4.75% from 4.69% at the time of Indian market close on Monday. The rise in US Treasury yields was due to a slew of bond issuances by the US government, which has stepped up its market borrowing since July.

The intraday movement in crude oil prices and US yields may lend cues for the rest of the day, as domestic cues and the lack of an OMO sale notice have been fully priced in, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 178.30 bln rupees, compared with 136.15 bln rupees at 1330 IST on Monday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.28-7.35%.  (Siddhi Chauhan)

India Gilts: Largely unchanged due to lack of firm domestic cues

MUMBAI--0930 IST--Prices of government bonds were largely unchanged as traders avoided placing aggressive bets on lack of firm domestic cues, dealers said. The volume remained concentrated in the 10-year 7.18%, 2033 paper.

"There are no main events or data lined up back home. During the day, the market may take cues from the state loan auction," a dealer at a private bank said. "Last time, there was a slight tail at the state loan auction. Let's see how this one goes." Fifteen states will look to raise 158.82 bln rupees via bond sale later in the day.

A deficit in the banking system also weighed on the short-term bonds, keeping traders from betting in the segment, dealers said. At the start of trade today, liquidity in the banking system was estimated to be in a deficit of 63.59 bln rupees.

The market may closely track global cues during the day amid lack of cues at the domestic front, dealers said.

Meanwhile, the impact of a rise in US Treasury yields was offset by a fall in crude oil prices, dealers said. The yield on the benchmark 10-year US Treasury note rose to 4.75% in early trade, as against 4.69% at the time of the Indian market close on Monday.

US Treasury yields rose on Monday as the US government increased debt issuance. Meanwhile, the conflict in West Asia kept the bond market in a wait-and-watch mode.

Brent crude oil future for December delivery was at $89.28 per barrel in Asian trade compared with $90.68 per bbl at the time of Indian market close on Monday. Oil prices fell on Monday as reports suggested that the US and Venezuela may reach a deal to ease sanctions on Venezuelan crude exports.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 15.50 bln rupees at 0927 IST compared with 8.20 bln rupees at 0930 IST on Monday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.28-7.35%.  (Nishat Anjum)

India Gilts: Seen opening lower tracking overnight rise in US yields

MUMBAI – Prices of government bonds are seen opening lower tracking an overnight rise in US Treasury yields, dealers said. The volume may remain low in early trade as traders may refrain from placing large bets due to a lack of significant domestic cues.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.31-7.36% today as against 7.34% on Monday. Investors, particularly state-owned banks, may step up purchase of the 10-year paper around the 7.35% yield level, which is considered lucrative, dealers said.

The yield on the benchmark 10-year US Treasury note rose to 4.73% in Asian trade today, as against 4.69% at the time of the Indian market close on Monday. 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 on Monday as the US government increased debt issuance. Meanwhile, the conflict in West Asia kept the bond market in a wait-and-watch mode.

The US Treasury sold $75 bln in 13-week bills, and $68 bln in 26-week bills. Meanwhile, $75 bln in 42-day bills is scheduled to be sold on Tuesday. It is also scheduled to auction $13 bln in 20-year papers on Wednesday and $22 bln in five-year Treasury Inflation-Protected Securities, or TIPS, on Thursday.

Meanwhile, a slight fall in crude oil prices may limit the losses on government bonds, dealers said. Brent crude oil future for December delivery was at $89.28 per barrel in Asian trade compared with $90.68 per bbl at the time of Indian market close on Monday. Oil prices fell on Monday as reports suggested that the US and Venezuela may reach a deal to ease sanctions on Venezuelan crude exports.

News reports citing sources said that the US has reached a preliminary deal to ease sanctions on Venezuela's oil industry in return for a competitive, monitored presidential election in Venezuela next year. The US had said it would relax some sanctions in exchange for democratic concessions from President Nicolas Maduro.  (Nishat Anjum)

End

US$1 = 83.26 rupees

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

Edited by Avishek Dutta

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