Informist, Friday, Dec 8, 2023'

By Nishat Anjum

MUMBAI – Government bond prices ended sharply down after a lower-than-expected price cutoffs at the 390-bln-rupee gilt auction, dealers said. The outcome of the three-day meeting of the Monetary Policy Committee was largely along the expected lines, failing to give fresh cues to the market.

The 10-year benchmark 7.18%, 2033 bond closed at 99.37 rupees, or 7.27% yield, against 99.59 rupees, or 7.24%, on Thursday.

At the auction, the government sold 120 bln rupees of 7.32%, 2030 bond, 100 bln rupees of the 7.18%, 2037 bond, 120 bln rupees of the 7.25%, 2063 bond; and 50 bln rupees of new 2033 green bond.

"Both the 7- and 14-year paper had poor bid cover. The size of the auction was also large, so it's possible that there were some supply pressures," a dealer at a private bank said. "As for green bonds, I fail to understand what's in it for banks. If I can't make any money out of it even after a year, then what's the point of buying it?"

Dealers said that the state-owned banks were asked by the Reserve Bank of India to bid for the 2033 green bond. This in turn affected their appetite for the 2030, which is usually picked up by the state-owned banks.

The 7.32%, 2030 bond was largely picked up by mutual funds, dealers said. The Reserve Bank of India received 122 bids for the 7-year paper, of which, 90 were accepted. The central bank set the cut-off on the paper at 98.16 rupees, below the market's estimate of 100.38 rupees.

Meanwhile, the cutoff on the 2037 paper was set at 98.37 rupees, as against expectations of 98.43 rupees. Investors picked up the paper, however, refrained from bidding aggressively, as they have bought a lot of bonds recently, which has led to heavy portfolios.

For the 2063 bond, insurers picked up the paper, which are the usual participants in this segment, dealers said. 

MPC MEET OUTCOME

The Monetary Policy Committee today kept the policy repo rate unchanged at 6.50% and retained the stance of "withdrawal of accommodation" to ensure inflation progressively aligns with the target, while supporting growth.

The voting pattern of the committee remained unchanged, with five out of six members voting for retaining the withdrawal of accomodation stance, barring external member Jayanth Verma, who expressed reservation. Meanwhile, the committee voted unanimously to keep the repo rate unchanged.

The market did not react much to the policy outcome, as the decisions were largely along the expected lines, dealers said.  

Moreover, the gilt market got the much needed clarity over open market operations sale auctions, dealers said. Governor Shaktikanta Das said that the central bank did not conduct OMO sales as liquidity in the banking system remained in deficit. Moreover, the central bank will remain nimble in liquidity management going forward, the governor said.

In the post-policy conference, the governor said OMO sales were not off the table. Since the October policy, the need to deploy OMO sales auctions hasn't arisen. 

"The talk of OMOs 'not off the table' was just to keep the fire kindled that they (RBI) had lit up in the last policy," a dealer at another private bank said. "Now, we know that it is not going to happen in December. And January is too far to get worried about."

Since the October monetary policy, banking system liquidity has largely remained in deficit, with exceptions in early November and December, where it touched a surplus due to the government's month-end spending.

Dealers also said that one of the major key takeaways from the policy is that the RBI has raised its GDP growth forecast for 2023-24 (Apr-Mar) to 7.0% from 6.5%.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover was 483.60 bln rupees, compared with 351.50 bln rupees on Thursday. There were two trades worth 100 mln rupees today using the wholesale digital rupee pilot.

OUTLOOK

Gilts are not traded on Saturdays.

On Monday, government bond prices are seen opening steady due to a lack of firm domestic cues post a status-quo policy outcome today, dealers said. 

A sharp move in US Treasury yields and crude oil prices may also lend cues at opening. 

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.22-7.30%.

India Gilts: Fall on lower-than-expected cutoff at bond auction

India Gilts: Fall on lower-than-expected cutoff at bond auction

MUMBAI--1627 IST--Prices of government bonds fell more after the Reserve Bank of India set a lower-than-expected price cutoffs at the 390-bln-rupee auction, dealers said. 

"The auction was totally horrible. PSUs (state-owned banks) participation was very low, especially in the 14-yearr paper," a dealer at a state-owned bank said. "They could not participate much in 14-year paper as they were asked to pick green bond."

At the auction, the government sold 120 bln rupees of 7.32%, 2030 bond, 100 bln rupees of the 7.18%, 2037 bond, 120 bln rupees of the 7.25%, 2063 bond; and 50 bln rupees of new 2033 green bond.

The 7.32%, 2030 bond was largely picked up by mutual funds, dealers said. The Reserve Bank of India received 122 bids for the 7-year paper, of which, 90 were accepted, dealers said. The central bank set the cut-off on the paper at 98.16 rupees, below the market's estimate of 100.38 rupees.

"State-owned banks really wanted the 7-year paper as well because you never see such a low cutoff," a dealer at a state-owned bank said. "However, we couldn't because of the 'moral obligation' to the RBI (Reserve Bank of India) and went for the green bond instead. With the liquidity deficit, its not like state-owned banks can bid for both."

At the end of trade on Thursday, liquidity in the banking system was in a deficit of 162.54 bln rupees, as against 25.04 bln rupees on Wednesday, according to RBI data.

The coupon on the 10-year green bond was set at 7.24%, as against market expectations of 7.22%. The green bond was picked by state-owned banks.

The Reserve Bank of India received 168 bids for the 14-year paper, of which 91 were accepted. The central bank set the cut-off on the paper at 98.16 rupees, below the market's estimate of 98.43 rupees.

Meanwhile, the longer-term paper was picked up by the usual buyers, insurance companies, dealers said. The central bank set the longer-term paper cut-off at 96.80 rupees, below the market's estimate of 97.10 rupees.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 430.65 bln rupees at 1505 IST compared with 136.65 bln rupees at 1430 IST on Thursday. 

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

India Gilts: In thin band as MPC meet outcome along expected lines

Mumbai--1145 IST--Prices of government bonds remained in a thin band as the outcome of the Reserve Bank of India's Monetary Policy Committee meeting was largely along the expected lines and failed to give fresh cues to the market, dealers said. Traders remained cautious ahead of the 390-bln-rupee gilt auction today.

The government will sell 120 bln rupees of 7.32%, 2030 bond, 100 bln rupees of the 7.18%, 2037 bond, 120 bln rupees of the 7.25%, 2063 bond; and 50 bln rupees of new 2033 green bond. 

Now that the monetary policy has been a non-event, the market has shifted focus to the auction, scheduled from 1230 IST to 1330 IST, to gauge investors' appetite, dealers said.

Though the market has not moved much, the sentiment has turned positive as the RBI Governor Shaktikanta Das has given clarity on open market operations sales auction and participants will look to build positions, a dealer at a private bank said. 

Das said that the central bank did not conduct OMO sales as liquidity in the banking system remained in deficit. Moreover, the central bank will remain nimble in liquidity management going forward, the governor said.

"The market is happy as MPC has turned out to be a non-event, as expected," the private bank dealer said. The market now awaits the post-policy conference by the central bank for cues, dealers said.

Dealers said that one of the major key takeaways from the policy is that the RBI has raised its GDP growth forecast for 2023-24 (Apr-Mar) to 7.0% from 6.5%.

The Monetary Policy Committee today kept the policy repo rate unchanged at 6.50% and retaineed the stance of "withdrawal of accommodation" to ensure inflation progressively aligns with the target, while supporting growth.

The voting pattern of the monetary policy committee remained unchanged with the majority of the members voting for retaining the withdrawal of accomodation stance, barring external member Jayanth Verma, who expressed reservation. However, the committee voted unanimously to keep the repo rate unchanged, dealers said.

The rate-setting panel's decision was in line with expectations. Further, no upward revision in the inflation forecast also aided gilts, dealers said. 

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 223.40 bln rupees at 1144 IST compared with 84.15 bln rupees at 1130 IST on Thursday. 

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

India Gilts: In thin band ahead of MPC meet outcome; volume low

MUMBAI--0930 IST--Prices of government bonds were largely unchanged in early trade as traders refrained from placing aggressive bets ahead of the outcome of the Monetary Policy Committee meeting, dealers said. The trade volume also remained low. 

Traders eyed Reserve Bank of India Governor Shaktikanta Das' statement, scheduled at 1000 IST, dealers said. Comments regarding economic health may give insights into the rate trajectory going forward. Traders expect the RBI to revise the GDP projection for 2023-24 (Apr-Mar) by up to 30 basis points from the current projection of 6.5%.

On the inflation front, the majority do not see the central bank revising the inflation print for the December quarter, despite expecting a slight uptick in November and December inflation data.

"I do not see any logic to revising the inflation figures. If the data for November and December comes at 6%, even then the projection for the quarter would remain unchanged," a dealer at a private bank said. "Heard there are some participants expecting an upwards revision there. So bonds might gain some if they keep the projection the same." The RBI projection for Oct-Dec CPI inflation stands at 5.6%.

The market widely expects the policy outcome to be a non-event for the gilt market, dealers said. According to a poll by Informist, 25 respondents expect the rate-setting panel to keep the repo rate unchanged at 6.50% and maintain the 'withdrawal of accommodation' stance at the end of its three-day meeting.

Moreover, traders awaited further clarity on the open market operation sale auctions, which were mentioned in the October policy, or any new measures on the liquidity front, dealers said. In the last two policy outcomes, the central bank had caught the market off guard with the announcement of an incremental cash reserve ratio, and the possibility of OMO sale auctions.

According to data on the RBI's Negotiated Dealing System--Order Matching platform--the market-wide turnover was 212.25 bln rupees compared with 84.15 bln rupees at 1130 IST on Thursday. 

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

India Gilts: Seen opening steady on caution ahead of MPC meet outcome

MUMBAI - Prices of government bonds are seen opening steady as traders may stay on the sidelines due to caution ahead of the outcome of the Reserve Bank of India's Monetary Policy Committee meeting, due at 1000 IST, dealers said. 

The yield on the 10-year benchmark 7.18%, 2033 bond is seen at 7.18-7.30% today, against 7.24% on Thursday.

According to a poll by Informist, 25 respondents expect the rate-setting panel to keep the repo rate unchanged at 6.50% and maintain the 'withdrawal of accommodation' stance at the end of its three-day meeting on Friday.

The uncertainty regarding the central bank's MPC meeting outcome may keep gilt prices in a thin band in early trade, dealers said. Traders widely expect the decision to keep the repo rate unchanged to be unanimous, while external member Jayanth Varma may refrain from voting on the policy stance.

Moreover, the market may seek clarity on the liquidity front and open market operations sale auctions. Over the last two policies, the RBI has sprung negative surprises to tighten liquidity, keeping traders on their toes, dealers said. 

In the October meeting, the central bank surprised everyone by saying it may consider open market sales of government bonds to drain liquidity through the auction route.

Traders also look forward to the RBI's commentary on growth and inflation. According to the Informist poll, most respondents expect the RBI to revise its GDP growth forecast for 2023-24 (Apr-Mar) by up to 30 basis points from the current projection of 6.5% after the economy grew at a robust 7.6% in Jul-Sep.

Later in the day, the market may take cues from the 390-bln-rupee gilt auction scheduled from 1230 IST to 1330 IST. The government will sell 120 bln rupees of 7.32%, 2030 bond, 100 bln rupees of the 7.18%, 2037 bond, 120 bln rupees of the 7.25%, 2063 bond; and 50 bln rupees of new 2033 green bond. (Siddhi Chauhan)

End

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

Edited by Maheswaran Parameswaran

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