Informist, Friday, Oct 13, 2023

By Nishat Anjum

MUMBAI – Government bond prices ended off lows after higher-than-expected cutoff prices at the 340-bln-rupee gilt auction, dealers said. An overnight rise in US Treasury yields also weighed on gilt prices.

The 10-year benchmark 7.18%, 2033 bond closed at 99.04 rupees, or 7.32% yield, against 99.17 rupees, or 7.30% yield, on Thursday.

The government issued 120 bln rupees of the 7.17%, 2030 bond, 100 bln rupees of the 7.18%, 2037 bond, and 120 bln rupees of the 7.25%, 2063 bond.

"After bad auctions in the last few weeks, most people were cautious. But these are good levels to buy across the curve," a dealer at a state-owned bank said. "The 2037 paper had good demand both from traders and investors."

During the auction, state-owned banks aggressively bid for the seven-year paper for their portfolio, dealers said. Typically, state-owned banks step up purchases of seven-year bond for their asset-liability management needs.

Ahead of the auction, the market feared that demand for the seven-year paper might not be robust at the auction as state-owned banks may refrain from bidding aggressively after buying heavily in the secondary market, dealers said. Since Sep 27, state-owned banks have been net buyers, except on Oct 10. 

Demand for 14- and 40-year bonds was also robust as investors stepped up purchases at yield levels considered attractive, dealers said. For the 2037 paper, pension funds and state-owned banks were speculated to have bid aggressively. Traders also covered their short bets at the auction, adding to the demand. 

Meanwhile, in the 2063 bond, insurance companies, including a state-owned insurer, and provident funds had robust demand, dealers said.

Moreover, banks were likely to have stepped up purchases of the 40-year paper for their bond-forward rate agreements with insurance companies, which were keen on stocking up on long-term bonds, dealers said. 

Meanwhile, a rise in US Treasury yields weighed on government bonds, dealers said. The yield on the benchmark 10-year US Treasury note rose to 4.69% today from 4.56% at the end of Indian market hours 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.

"Even before the US data was out, it was predictable that it was going to be the moving factor for the market today," a dealer at a private bank said. "With this sharp rise in US yields, our data will not have that significant impact."

US yields rose after higher-than-expected US retail inflation data for September. The US consumer price index rose 0.4% on month in September, down from a 0.6% rise in August. On an annual basis, the CPI was unchanged from August at 3.7%. Economists polled by Reuters had forecast that CPI inflation would stand at 0.3% on month and 3.6% on a year-on-year basis.

The inflation readings stoked fears that the US Federal Open Market Committee could raise rates again, or keep monetary policy tight for longer. Earlier this week, remarks from a slew of US Federal Reserve officials offered some relief after they suggested higher long-term US yields would percolate into the economy and do away with the need for raising interest rates further.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 371.35 bln rupees, compared with 340.40 bln rupees on Thursday. There were six trades in the rupee pilot today worth 400 mln rupees, against six trades worth 500 mln rupees the previous day.

OUTLOOK

Gilts are not traded on Saturdays.

On Monday, prices of government bonds may open steady as traders may avoid aggressive bets on lack of firm domestic cues, dealers said.

Traders may also take cues from the US and India September inflation data, 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 7.28-7.35%.

India Gilts: Off lows on higher-than-view cutoffs at bond auction

MUMBAI--1507 IST--Prices of government bonds recovered some losses after higher-than-expected cutoff prices at the 340-bln-rupee gilt auction, dealers said. 

The government issued 120 bln rupees of the 7.17%, 2030 bond, 100 bln rupees of the 7.18%, 2037 bond, and 120 bln rupees of the 7.25%, 2063 bond.

"The yield level for 14-year paper was very lucrative for PSUs (state-owned banks) and pension funds," a dealer at a state-owned bank said. "Insurance companies usually jump in the auction to buy these papers at these yield levels."

During the auction, state-owned banks aggressively bid for the seven-year paper for their portfolio, dealers said. Typically, state-owned banks step up the purchase of seven-year bond for their asset-liability management needs.

Ahead of the auction, the market feared that demand for the seven-year paper might not be robust at the auction as state-owned banks may refrain from bidding aggressively, dealers said.

Demand for 14- and 40-year bond was firm as investors stepped up purchase at yield levels considered attractive, dealers said. In the 2037 paper, pension funds and state-owned banks were speculated to have bid aggressively on these bonds. Meanwhile, in the 2063 bond, insurance companies, including a state-owned insurer, and provident funds had robust demand, dealers said.

Meanwhile, a rise in US Treasury yields weighed on the bonds, dealers said. "If anything negative comes up, maybe something related to the Israel war or strengthening of the dollar, we will see big swings," a dealer at a primary dealership said. 

Meanwhile, the yield on the 10-year US Treasury note rose to 4.65%, as against 4.56% at the end of Indian market hours on Thursday. US Treasury yields rose after higher-than-expected US September retail inflation data.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 283.35 bln rupees at 1507 IST, compared with 281.20 bln rupees at 1530 IST on Thursday. 

For the rest of the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.28-7.33%.  (Anupreksha Jain)

India Gilts: Down; market awaits 340-bln-rupee bond auction result

MUMBAI--1144 IST--Prices of government bonds remained down today, tracking an overnight rise in US Treasury yields, dealers said. The market now awaits the outcome of the 340 bln rupees gilt auction for significant domestic cues.

The government looks to raise 120 bln rupees worth of the 7.17%, 2030 bond, 100 bln rupees of the 7.18%, 2037 bond, and 120 bln rupees worth of the 7.25%, 2063 bond.

The market feared that demand for the seven-year paper may not be robust at the auction as state-owned banks may refrain from bidding aggressively, dealers said. Investors may bid for the paper around the 7.40% yield level, which is considered lucrative for their non-trading portfolios.

"It is not like they (state-owned banks) are not bidding at all, they might just not bid aggressively," a dealer at a state-owned bank said. "Also, around 7.40% is a good level to add to the book". Typically, state-owned banks step up the purchase of seven-year bond for their asset-liability management needs.

Dealers also said state-owned banks had bought heavily in the last two weeks, which may result in limited appetite for the new supply. Since Sep 27, state-owned banks have been net buyers, except on Oct 10. 

Meanwhile, demand for the 14-year bond, up for the auction, was seen firm, dealers said. Investors, including banks and pension funds, were expected to bid for the paper. Traders may also cover their short bets at the auction, adding to the demand. 

As for the 2063 paper at the auction, dealers speculated that a state-owned insurer may avoid aggressive bids, but 

provident funds may have a good appetite for the bond, dealers said.

Moreover, banks may have bid for the 40-year paper for their bond-forward rate agreement with insurance companies, which were keen on stocking up on long-term bonds, dealers said.

"There has been some interest in FRAs (forward rate agreement) lately. Other than that, some demand from provident funds is there too," a dealer at a primary dealership said. 

Meanwhile, the yield on the 10-year US Treasury note rose to 4.66%, as against 4.56% at the end of Indian market hours on Thursday. US Treasury yields rose after higher-than-expected US September retail inflation data.

US CPI rose 0.4% on month in September compared with a 0.6% rise in August. On an annual basis, the CPI was unchanged from August at 3.7%. Economists polled by Reuters had forecast the CPI would gain 0.3% on month and 3.6% on an annual basis.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 97.25 bln rupees at 1144 IST compared with 119.05 bln rupees at 1130 IST on Thursday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.30-7.35%.  (Nishat Anjum)

India Gilts: Dn as US ylds rise; mkt eyes 340-bln-rupee bond auction

MUMBAI--0945 IST--Prices of government bonds fell as US Treasury yields rose sharply after a higher-than-expected US CPI print for September, dealers said.

Traders look forward to the 340-bln-rupee bond auction, scheduled later in the day, to gauge investors' appetite, dealers said. The government will auction 120 bln rupees worth of the 7.17%, 2030 bond, 100 bln rupees of the 7.18%, 2037 bond, and 120 bln rupees worth of the 7.25%, 2063 bond.

"The market is overall bearish after the October policy review," a dealer at a private bank said. "We are expecting moderate demand at the auction, as those who wanted to cover their position have already done so in the secondary market in the last few days."

The volume remained concentrated in long-term paper, as traders avoided placing large bets on short-term papers, owing to a liquidity deficit in the banking system, dealers said. At the start of trade today, liquidity in the banking system was estimated to be in a deficit of 289.32 bln rupees.

The yield on the benchmark 10-year US Treasury note rose to 4.68%, as against 4.56% at the end of Indian market hours on Thursday. US CPI rose 0.4% on month in September, down from a 0.6% rise in August. On an annual basis, the CPI was unchanged from August at 3.7%. Economists polled by Reuters had forecast the CPI would gain 0.3% on month and 3.6% on a year-on-year basis.

Today, the losses were limited on lower-than-expected domestic retail inflation data, dealers said. India's CPI combined inflation rate for September came in at 5.02%, as against expectations of 5.4% in an Informist poll. The Reserve Bank of India had projected inflation at 5.0%, but estimates in the poll were in the range of 5.2-6.2%.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 31.85 bln rupees compared with 32.60 bln rupees at 0930 IST on Thursday. 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.28-7.33%.  (Nishat Anjum)

India Gilts: Seen down as impact of US CPI may trump domestic print

MUMBAI – Government bond prices are likely to open lower today as the impact of the higher-than-expected US CPI print for September is likely to outweigh a softer-than-expected reading on India's consumer inflation, dealers said.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.27-7.35% today as against 7.30% on Thursday.

The US consumer price index rose 0.4% on month in September, down from a 0.6% rise in August. On an annual basis, the CPI was unchanged from August at 3.7%. Economists polled by Reuters had forecast the CPI would gain 0.3% on month and 3.6% on a year-on-year basis.

The inflation readings stoked fears that the US Federal Open Market Committee could raise rates again, or keep monetary policy tight for longer. Earlier this week, remarks from a slew of US Federal Reserve officials offered some relief after they suggested higher long-term US yields would percolate into the economy and do away with the need for raising interest rates further.

The yield on the benchmark 10-year US Treasury note was at 4.68% in Asian trade today compared with 4.56% at the end of Indian market hours 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.

The US CPI print, released 30 minutes after the release on Thursday of India's CPI data for September, soured the market's mood completely as it was the more closely watched figure for the near-term trajectory for gilt prices, dealers said.

India's CPI combined inflation rate for September was at 5.02%, against the expectation of 5.4% in an Informist poll. The Reserve Bank of India had projected inflation at 5.0%, but estimates in the poll were in a 5.2-6.2% range.

While the reading was positive and would keep the fall in gilt prices limited, it would not influence the domestic rate trajectory, dealers said. The reading was in line with the RBI's own projection and the Monetary Policy Committee is still expected to keep the repo rate unchanged at least until mid 2024 instead of bringing forward rate cuts.

Dealers were also of the view that the yield on the 2033 bond may remain above the crucial 7.25% mark, unless the market gets clarity from the central bank regarding open market operation sales, dealers said. Last week, RBI Governor Shaktikanta Das said the central bank may opt for OMO sales to drain liquidity.  (Aaryan Khanna)

End

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

Edited by Avishek Dutta

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