Informist, Thursday, Jul 13, 2023

By Nishat Anjum

MUMBAI – Prices of government bonds ended sharply up today tracking a slump in US Treasury yields, dealers said. However, yield on the 10-year benchmark 7.26%, 2033 bond failed to stay below 7.07% as some traders sold their holdings to prevent further rise in prices in light of the huge build-up of short bets accumulated in the market, dealers said.

The 10-year benchmark 7.26%, 2033 bond closed at 101.28 rupees, or 7.07% yield, the lowest yield level since Jun 28, against 100.98 rupees, or 7.12% yield, on Wednesday.

"The yield (on 10-year benchmark 2033 paper) fell from the peak of 7.16% to 7.07%, it's not that bad a condition to say that any stop losses were triggered," a dealer at a primary dealership said.

Some traders also covered short bets, fearing further rise in prices, dealers said. For the last two sessions, traders had held on to their short bets for clarity on inflation trajectory of both, US and India.

Foreign banks were speculated to have stepped up bond purchases as they expect prices to rise even further driven by falling US yields, dealers said.

"There were rumours that primary dealerships were selling to prepare for the auction tomorrow (Friday). Nationalised (state-owned) banks too, since they've been in-the-money for a while now," the dealer said. Primary dealerships have been net sellers of bonds for over three weeks.

On Friday, the government will sell 80 bln rupees of the 7.06%, 2028 bond; 140 bln rupees of the 7.26%, 2033 bond; and 110 bln rupees of the 7.30%, 2053 bond at the auction.

The June retail inflation data of US has changed the rate hike expectations in the world's largest economy, dealers said. Better than expected inflation data, particularly the core inflation, has reduced the likelihood of two rate hikes in 2023, with bets of a single hike of 25 basis points in July still intact, dealers said.

According to CME's FedWatch tool, unchanged from Wednesday, close to 92% of Fed fund futures traders expect the US rate-setting panel to hike the federal funds rate by 25 bps at its meeting this month, while the rest expect the Fed to keep rates unchanged at 5.00-5.25%. 

The US CPI for June came in at 3%, lower than the 3.1% expected by economists in a Dow Jones poll. It marked the smallest annual increase since March 2021. The CPI was at 4.0% in May. Core inflation fell below 5% for the first time since November 2021. It stood at 4.8% on-year in June compared to 5.3% in May.

On the domestic front, the market disregarded a higher-than-expected retail inflation print. The impact of uneven monsoon distribution was expected in June and even July CPI data, that is why traders see it as a temporary spike, dealers said. This data print does not change any expectations in the rate trajectory back home.

Even if retail inflation for the next few months is on the higher side, the market widely expects the inflation rate for 2023-24 (Apr-Mar) to not diverge much from the Reserve Bank of India's forecast of 5.1%, dealers said.

India's CPI inflation rose to a three-month high of 4.81% in June, against expectations of 4.6% by an Informist poll. The rise in headline print was primarily due to an uptick in prices of key food items, mainly vegetables.

"Just look at the volumes today. It looks like some big player is buying, there has been sustainable buying momentum," a dealer at another primary dealership said. "People who are buying are probably punting on the view that maybe rate cuts (in India) are possible in March or April."

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the turnover today was 701.80 bln rupees, compared with 324.10 bln rupees on Wednesday. Meanwhile, trades aggregating 200 mln rupees were settled in two deals with the digital rupee, as against 300 mln rupees were settled in four deals on Wednesday.

OUTLOOK

On Friday, government bonds may open steady as traders may avoid aggressive bets on caution ahead of the 330-bln-rupee gilt auction, dealers said. 

Traders may also track any sharp movement in US Treasury yields and crude oil prices.

The yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.08-7.15%.

India Gilts: Rise more as US Treasury yields fall further

NEW DELHI--1417 IST--Prices of government bonds rose more as US yields inched further down during the day, dealers said. However, yield on the 10-year benchmark 7.26%, 2033 bond failed to remain below 7.07% yield.

Some traders sold their bond holdings to prevent further rise in prices in light of the huge build-up of short bets accumulated in the market, dealers said.

"We are expecting that the yield should once touch 7.05% (on the 10-year benchmark 2033 paper). Supply pressures are there, but there is also strong support from US yields," a dealer at a state-owned bank said. According to its borrowing calendar, the government is set to borrow 4.47 trln rupees through dated securities on a net basis during the quarter, compared with 3.05 trln rupees in Apr-Jun.

Some traders covered short bets too, which however were limited as maximum short bets will likely be covered once the US Federal Open Market Committee delivers its rate decision on Jul 26, thereby providing clarity to the market about the future course of rates in the US, dealers said.

Dealers speculated that primary dealerships that have been net sellers of bonds for over three weeks now, likely continued to place short bets.

Further, state-owned banks and foreign banks were speculated to have stepped up purchases of bonds as they expect prices to rise even further driven by falling US yields, dealers said. 

After the US inflation cooled in June, slightly more than what the market consensus was, traders now expect that the likelihood of two rate hikes in 2023 could now be ruled out, with bets of a single hike of 25 basis points in July still intact, dealers said. The US CPI for June was at 3%, against 3.1% expected by economists in a Dow Jones poll.

According to the CME's FedWatch tool, close to 92%, unchanged from Wednesday, of Fed fund futures traders expect the US rate-setting panel to hike the federal funds rate by 25 basis points at its meeting this month, while the rest expect it to keep rates unchanged at 5.00-5.25%.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 519.45 bln rupees at 1412 IST, compared with 201.60 bln rupees at 1430 IST on Wednesday.

For rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.05-7.09%.  (Kasthuri Akhil)

India Gilts: Remain sharply up tracking slump in US yields

MUMBAI--1135 IST--Prices of government bonds remained sharply up as US Treasury yields fell on better-than-expected US retail inflation data for June, dealers said.

"When our market reached 7.16-7.18% levels (yield on the 7.26%, 2033 bond), it was because of a sharp rise in US yields. Now, it is obvious that we will come to 7.09-7.10% centric levels as US yields fall," a dealer at a primary dealership said. "Till yesterday (Wednesday) there was a hesitancy in covering short bets, but now the air has cleared up a bit"

Traders covered their short bets fearing any further fall in US yields, which aided gilt prices, dealers said. For last two trading sessions, traders held on to their short bets for clarity over inflation trajectory, both in the US and India.

The yield on the benchmark 10-year US Treasury note fell to 3.85% during the day, against 3.95% at Indian market close on Wednesday.

Earlier, the market feared that if the US inflation data for June comes higher-than-expected then the US Federal Reserve may hike the federal fund rates in two consecutive policy review meetings. However, June inflation print gave hope that the US rate-setting panel may take wait-and-watch approach after a hike in the upcoming meeting, dealers said.

According to the CME's FedWatch tool, close to 92%, unchanged from Wednesday, of Fed fund futures traders expect the US rate-setting panel to hike the federal funds rate by 25 basis points at its meeting this month, while the rest expect it to keep rates unchanged at 5.00-5.25%.

The US CPI for June was at 3%, against 3.1% expected by economists in a Dow Jones poll. The retail inflation for US was at 4.0% in May. 

On the domestic front, the market disregarded a higher-than-expected retail inflation print. The impact of uneven monsoon distribution was expected in June and even July CPI data, that is why traders see it as temporary spike, dealers said. This data print does not change any expectations in the rate trajectory back home.

India's CPI inflation rose to a three-month high of 4.81% in June, against expectations of 4.6% in an Informist poll. The rise in the headline print was primarily due to an uptick in the prices of key food items, mainly vegetables.

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 260.20 bln rupees at 1135 IST, compared with 114.70 bln rupees at 1130 IST on Wednesday.

For rest of the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.06-7.11%.  (Nishat Anjum)

India Gilts: Surge as US yields slump on softer-than-expected Jun CPI

NEW DELHI--0935 IST--Prices of government bonds were sharply up today as US yields slumped following the release of lower-than-expected CPI inflation print for the month of June on Wednesday, dealers said.

Traders gave more significance to the fall in US Treasury yields than the higher-than-expected domestic CPI print for June, as a softer US inflation reading raised hopes of less aggressive monetary policy tightening by the Federal Reserve going ahead.

The US CPI for June came in at 3%, against 3.1% expected by economists in a Dow Jones poll. It marked the smallest annual increase since March 2021. The CPI was at 4.0% in May. 

"Our inflation was higher but it was driven by supply side issues and not by demand. In the coming months too, it is expected on the higher side," a dealer at a state-owned bank said. "This is just a temporary phase and is therefore, not so significant for our market."

India's CPI inflation rose to a three-month high of 4.81% in June, against expectations of 4.6% in an Informist poll. The rise in the headline print was primarily due to an uptick in the prices of key food items, mainly vegetables. Further, core CPI inflation, which excludes food and fuel, was at 5.1% in June, same as the revised number for May.

Some traders also covered their short bets fearing any further rise in prices, which aided gilt prices, dealers said. However, the rise in prices may be limited through the day as traders are expected to place short bets ahead of the 330-bln-rupee gilt auction on Friday, dealers said.

The government will sell 80 bln rupees of the 7.06%, 2028 bond; 140 bln rupees of the 7.26%, 2033 bond; and 110 bln rupees of the 7.30%, 2053 bond at the auction. 

According to data on the RBI's Negotiated Dealing System-Order Matching platform, the market-wide turnover was 109.15 bln rupees at 0930 IST, compared with 43.20 bln rupees at 0945 IST on Wednesday.

During the day, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.06-7.11%.  (Kasthuri Akhil)

India Gilts:Seen up as US ylds slump post lower-than-expected US CPI

NEW DELHI – Prices of government bonds are seen opening higher today, tracking a slump in US Treasury yields, which fell after the release of lower-than-expected US consumer price index data for June. The sharp fall in US yields may offset the impact of the higher-than-expected domestic inflation data for June, released on Wednesday, dealers said.

Today, the yield on the 10-year benchmark 7.26%, 2033 bond is seen at 7.08-7.15% as against 7.12% on Wednesday.

The yield on the 10-year benchmark US Treasury note slumped 11 basis points to 3.85% in Asian trade today from the end of Indian market hours on Wednesday. US Treasury yields fell after the release of the US CPI data, which raised hopes of less aggressive monetary policy tightening by the US Federal Reserve going ahead. 

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.

The US CPI for June came in at 3% in June, lower than the 3.1% expected by economists in a Dow Jones poll. It marked the smallest annual increase since March 2021. The CPI was at 4.0% in May. 

Meanwhile, India's CPI inflation rose to a three-month high of 4.81% in June, data released on Wednesday by the National Statistical Office showed. The rise in the headline print was primarily due to an uptick in the prices of key food items, mainly vegetables. 

The data was above the consensus estimate. According to a poll by Informist, the headline inflation rate for the month was seen at 4.6%.

Further, core CPI inflation, which excludes food and fuel, was at 5.1% in June, same as the revised number for May.

Today, the upward momentum in the rise in domestic bond prices due to falling US yields may be short-lived as the domestic market lacks any positive triggers which could incentivise traders to step up purchases. During the day, traders are also expected to place short bets ahead of the 330-bln-rupee gilt auction on Friday, dealers said.

The government will sell 80 bln rupees of the 7.06%, 2028 bond; 140 bln rupees of the 7.26%, 2033 bond; and 110 bln rupees of the 7.30%, 2053 bond at the auction. (Kasthuri Akhil)

End

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

Edited by Ashish Shirke

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