Informist, Tuesday, Sep 26, 2023

By Aaryan Khanna

NEW DELHI – Government bond prices ended higher today, reversing early losses on the back of a sharp intraday fall in US Treasury yields from 16-year highs, dealers said.

The 10-year benchmark 7.18%, 2033 bond closed at 100.24 rupees, or 7.14% yield, against 100.17 rupees, or 7.15% yield, on Monday. The 7.26%, 2033 bond closed at 100.55 rupees, or 7.18% yield, against 100.49 rupees, or 7.19% yield, the previous trading day.

The yield on the 10-year benchmark US Treasury note retreated below the key 4.50% level by the end of Indian market hours today, after hitting 4.57% in Asian trade, reaching levels last seen in 2007. A fall in US Treasury yields widens the interest rate differential between the safe-haven asset and emerging market debt, making the latter more appealing to foreign investors.

Long-term US Treasury yields eased from their highs due to firm investor demand at multi-decade highs, along with easing of German bond yields due to a lower-than-expected borrowing calendar for Oct-Dec. 

Some traders also punted on a potential cut to the Indian government's record borrowing programme of 15.43 trln rupees in 2023-24 (Apr-Mar) at the announcement of the gilt issuance calendar for Oct-Mar. The quantum of the expected cut ranged from 100-750 bln rupees.

The finance ministry may release the government borrowing calendar for Oct-Mar later today, a ministry official told Informist. Officials from the Reserve Bank of India and the finance ministry are currently in a meeting to discuss the borrowing calendar, the official said.

However, a majority of the market remained of the view that the government will stick to 6.55-trln-rupee gross borrowing in Oct-Mar to complete its borrowing programme. The government may trim the percentage of borrowing in short-term bonds, and heavily issue bonds maturing above 14 years to match robust demand from long-term investors, dealers said.

"We're not expecting a cut in the borrowing programme, and in fact the entire premise of a cut is very flimsy," a fund manager at a life insurance company said. "The feedback to the RBI (Reserve Bank of India) has been to give a larger portion of borrowing to the long-end, because the second half is when inflows are also good."  

Informist had reported last month, quoting a senior government official, that the Centre may have some space to cut market borrowing for the current financial year because of robust inflows into small savings  schemes.

However, a finance ministry official told Informist last week that while there was some thinking within the finance ministry about a token cut in the government's market borrowing programme, unplanned expenditures and possible higher spending ahead of the general election next year could spoil any such plan.

While the market does not expect a drastic change in the borrowing pattern from the first half of the fiscal year, which has not caused the government or the market any problems, the government may issue a new 20-year bond following demand from investors, dealers said.

"There will be no cut (in borrowing), because of the elections," a dealer at a state-owned bank said. "We are expecting a nodal point for 20-year, and they can reduce the supply from 10-year and 14-year."

Moreover, dealers said tax collections in the second half of the fiscal year could be a point of worry that would make a borrowing cut unlikely. After the cut in the issuance of dated securities in the fiscal year ended March, the government had to increase its short-term borrowing through Treasury bills by 500 bln rupees to shore up its finances, and ended up dipping into the ways-and-means advances to fund its fiscal deficit, the first time in over two decades.

The government's current fiscal position suggests that chances of fiscal slippage are high in the ongoing financial year, ICICI Securities Primary Dealership said in a research report on Monday. According to the report, the fiscal deficit will be higher than the Budget estimate by 525 bln rupees and may print at 6.2% of GDP, 30 basis points higher than the Budget target.

Gilts had opened lower noting the rise in US Treasury yields, especially as the US Federal Reserve is expected to keep interest rates higher for longer. This has led to subdued bond buys from foreign portfolio investors, despite JPMorgan including India gilts in its index for emerging market debt starting June, dealers said.

"US yields are the major threat right now, they are pushing up yields anyway," a dealer at a primary dealership said. "And a bigger issue is that, at the current level of US yields, foreign investors will not be looking at India even after the index inclusion."

Following JPMorgan's decision last week, traders were hopeful that Indian gilts could be included in indices for emerging market debt operated by Bloomberg and FTSE Russell, which limited the losses. Indian government bonds will be included in its Global Bond Index – Emerging Markets suite over a 10-month period starting Jun 28, JPMorgan said in a release dated Thursday.

FTSE Russell's index review is scheduled for the end of the month, while traders speculated Bloomberg may move up its typical review date from November to early October on a request from investors, dealers said.

Meanwhile, the state bond auction held today drew firm demand from investors but saw spreads over government securities widening as it was the largest in the current financial year, dealers said. Twelve states raised 270 bln rupees through the sale of bonds, and the RBI set cutoffs on 10-year state bonds in a range of 7.46-7.49%, a spread of 32-35 bps over the 10-year benchmark 7.18%, 2033 gilt at the end of the day.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 488.70 bln rupees, compared with 731.45 bln rupees on Friday. There were no trades today with the digital rupee pilot for the fifth straight trading session.

OUTLOOK

Gilts may take cues from the borrowing calendar for Oct-Mar, expected to be released later today, dealers said.

If the government keeps its borrowing target unchanged at 6.55 trln rupees in the second half of the fiscal year, gilts may open steady due to a lack of other significant cues, dealers said.

Investors were not keen to stock up on gilts after the recent volatility, and awaited a direction from foreign investment into Indian debt to pick up following JPMorgan's inclusion of Indian gilts on its bond indices from June, dealers said.

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

The yield on the 10-year benchmark 7.18%, 2033 bond is seen in a range of 7.10-7.20%.

India Gilts: Rise ahead of expected H2 borrow calendar announcement

NEW DELHI--1610 IST--Government bond prices rose in anticipation of the borrowing calendar for Oct-Mar, expected after market hours today, with some traders speculating that the government may cut its record borrowing target in the current financial year ending March, dealers said.

The finance ministry may release the government borrowing calendar for Oct-Mar after 1700 IST today, a ministry official told Informist. Officials from the Reserve Bank of India and the finance ministry are meeting to discuss the borrowing calendar today, the official said.

The government is scheduled to borrow 15.43 trln rupees in 2023-24 (Apr-Mar), with the second half set to draw an issuance of 6.55 trln rupees on a gross basis. Last year, the government had cut its borrowing target by 100 bln rupees to 14.21 trln rupees for 2022-23 at the announcement of the Oct-Mar borrowing calendar.

Informist last month reported quoting a senior government official that the Centre may have some space to cut market borrowing for the current financial year because of robust inflows into small savings schemes.

Traders' estimates for a cut in the gross borrowing ranged from 100-750 bln rupees.

"US Treasury yields eased after Germany debt issuance cut came, but buying in the domestic market started after the domestic borrowing cut news came," a dealer at a state-owned bank said.

However, a finance ministry official told Informist last week that while there was some thinking within the finance ministry about a token cut in the government's market borrowing programme, unplanned expenditures and possible higher spending ahead of the General Election next year could spoil any such plan.

Moreover, dealers said tax collections in the second half of the fiscal year could be a point of worry that would make a borrowing cut unlikely. After the cut in the issuance of dated securities in the fiscal year ended March, the government had to increase its short-term borrowing through Treasury bills by 500 bln rupees to shore up its finances, and ended up dipping into the ways-and-means advances to fund its fiscal deficit, the first time in over two decades.

The government's current fiscal position suggests that chances of fiscal slippage are high in the ongoing financial year, ICICI Securities Primary Dealership said in a research report on Monday.

An intraday fall in the 10-year US Treasury yield to 4.51% from 4.56% helped gilts recover losses earlier in the day, before news of the borrowing calendar broke. Traders had expected the Oct-Mar calendar to be released on Friday and moved to stock up on gilts in the shortened timeframe, dealers said.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 414.80 bln rupees, compared with 453.80 bln rupees at 1430 IST on Monday.
 

During the day, yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.14-7.18%, while on the 7.26%, 2033 bond is seen at 7.18-7.22%.  (Aaryan Khanna)

India Gilts: Off lows on fall in US ylds, further index inclusion hope

NEW DELHI--1420 IST--Government bonds recovered most losses as traders covered short bets noting an intraday fall in US Treasury yields, with some also remaining upbeat that India's bonds will be included in other global bond indices soon, dealers said.

The yield on the 10-year US Treasury note fell to 4.51% from 4.56% in early trade, likely on short covering from 16-year highs on fears of interest rates remaining higher for longer.

Moreover, traders were hopeful that Indian gilts could be included in indices for emerging market debt operated by Bloomberg and FTSE Russell following JPMorgan's decision last week. Indian government bonds will be included in its Global Bond Index – Emerging Markets suite over a 10-month period starting Jun 28, JPMorgan said in a release dated Thursday.

FTSE Russell's index review is scheduled for the end of the month, while traders speculated Bloomberg may move up its typical review date from November to early October on a request from investors, dealers said.

"If investors manage to convince Bloomberg to prepone its review, then I think it is a done deal, because why would they insist so much if India will not be included?," a dealer at a private bank said. "The market has also steadied because of the falling US yields."

Traders also looked ahead of the borrowing calendar for Oct-Mar, which may be released after 1700 IST today, a finance ministry official told Informist. Officials from the Reserve Bank of India and the Finance Ministry are meeting each other to discuss the borrowing calendar today, the official said.

The government is set to borrow 6.55 trln rupees on a gross basis in Oct-Mar, to fulfil its record borrowing programme of 15.43 trln rupees announced for the current financial year. Some dealers speculated the borrowing calendar may cut the government's gross borrowing estimate due to robust collections from small savings.

The robust inflows into small savings schemes may give the government some space to cut market borrowing for the current financial year, a senior government official had told Informist in August. According to the latest government data, the net inflows into government-run savings schemes jumped 46% on year to 1.38 trln rupees in Apr-Jul.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 289.90 bln rupees, compared with 362.95 bln rupees at 1430 IST on Monday.
 

During the day, yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.14-7.18%, while on the 7.26%, 2033 bond is seen at 7.18-7.22%.  (Aaryan Khanna)

India Gilts: Fall as US ylds up; trade volume low in short-term bonds

MUMBAI--0930 IST--Prices of government bonds fell, tracking an overnight rise in US Treasury yields, dealers said. Traders avoided aggressive bets due to lack of significant domestic cues.

Among on-the-run gilts, the benchmark five-year 7.06%, 2028 paper was down the least, amid thin trade. As banking system liquidity continues to be in deficit, trade in short-term papers has turned subdued, dealers said.

At the start of trade today, liquidity in the system was estimated to be in deficit of 1.36 trln rupees, as against 1.08 trln rupees on Monday.

After two days of volatile trade, the market remained lacklustre with traders avoiding aggressive bets, dealers said. "There was some sell-off as US yields rose, and we expect some more during the day," a dealer at a private bank said. "Because of the bond inclusion (announcement) also, people are selling as they already bought heavily two or three times."

The benchmark 7.18%, 2033 paper may not fall below 7.20% yield levels, while the 7.26%, 2033 bond may remain above 7.23% yield, dealers said.

Meanwhile, the yield on the benchmark 10-year US Treasury note rose to 4.56% in early trade from 4.49% at the time of Indian market close on Monday. The US benchmark 10-year Treasury yield hovered around a 16-year high due to expectations that the US Federal Reserve will keep interest rates at higher levels for longer than initially anticipated.

Chicago Fed President Austan Goolsbee said on Monday that inflation staying above the Fed's 2% target remains a greater risk than tight central bank policy slowing the economy more than needed.

According to data on the Reserve Bank of India's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 39.35 bln rupees at 0930 IST, compared with 73.25 bln rupees at 0930 IST on Monday.
 

During the day, the yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.15-7.18%, while on the 7.26%, 2033 bond is seen at 7.18-7.23%. (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 yields, dealers said. Gilts may closely follow global cues during the day amid a lack of significant cues back home.

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.13-7.18% today as against 7.15% on Monday. The yield on the 7.26%, 2033 bond is seen at 7.16-7.22% against 7.19% the previous day.

The yield on the benchmark 10-year US Treasury note rose to 4.57% in Asian trade today, from 4.49% at the time of 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.

The US benchmark 10-year Treasury yield hovered around a sixteen-year high, on expectation that the US Federal Reserve may keep interest rates at higher levels for longer than initially anticipated.

Chicago Fed President Austan Goolsbee said on Monday that inflation staying above the Fed's 2% target remains a greater risk than tight central bank policy slowing the economy more than needed.

At its policy meeting last week, the US Federal Open Market Committee had kept the interest rate unchanged, but projections by Fed officials indicated that interest rates in the world's largest economy would remain higher for longer. 

Moreover, Fed officials projected for one more rate hike by the end of this year. Currently, the Federal funds target range stands at 5.25-5.50%.

According to the CME Fedwatch tool, 19% Fed fund futures traders see the likelihood of a rate hike at the Fed's policy meeting in November.

Back home, traders may look forward to the states loan auction scheduled later in the day, to gauge the investors' appetite, dealers said. The Reserve Bank of India said 12 states would raise 270 bln rupees through bond sales.

This is the highest weekly borrowing quantum by states in the current financial year. The heavy supply may lead to the spread between government securities and state loans widening, dealers said.

At the state government bond auction on Thursday, the cut-off yield on states' 10-year bond was set in the range of 7.45-7.46%, a spread of 29-30 basis points over the 10-year 7.26%, 2033 bond issued by the Centre.  (Nishat Anjum)

End

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

Edited by Tanima Banerjee

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